Sunday, December 27, 2009

[Top 10] #5: Resilience in Recession

One of the biggest stories anywhere this year has been the worldwide recession. From my perspective, one of the most interesting stories in the Haynesville Play has been how we have survived the recession and even thrived a bit given the chaos around us. Sure, decreasing demand for gas nearly caused an overflow of storage facilities and crushed gas prices along the way, but in the Haynesville Shale the rigs kept digging and the gas kept pumping.

Since September last year, national rig count plunged more than 50% as production companies slashed capital spending budgets. But budgets in the Haynesville Play have been fairly resilient as production companies need to prove their leases so they can hold them by production. What that means is that hundreds of millions of dollars have been poured into Haynesville leases this year, while rigs all over the country are collecting dust.

Things tightened up in the Haynesville Shale, but the activity continued to grow. Looking at north Louisiana rig counts as a barometer, they are up 37% over the end of last year, and the year-end figure last year was 84% higher than the rig count from mid-March 2008 when news about the Haynesville Shale broke. While that is not a pure measure of Haynesville activity, it gives an indication that activity has remained pretty steady in the teeth of the worst economic climate this country has seen in 80 years.

This data is particularly interesting when viewed in the larger context. Over the past year, the north Louisiana rig count has jumped from being 6.7% of the U.S. gas rig count to 16.4%, as shown below.

I can’t say that the production companies aren’t losing their shirts ramping up drilling and production in this environment – I’ll leave that for others to decide – but they are pouring tons of money into the region and creating an avenue of wealth for land owners.

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