Sunday, January 31, 2010

Recent Louisiana Completions

  • Gamble Jr. 35-13-16 H #1, Chesapeake Operating: 13,920 MMcf/day IP on 22/64" choke; Bethany Longstreet Field, DeSoto Parish, Sec. 13/Township 13/Range 16; Haynesville reservoir B, serial #240037
  • John Persley 22 H #1, EnCana Oil & Gas: 13,836 MMcf/day IP on 21/64" choke; Caspiana Field, DeSoto Parish, S22/T15/R14; reservoir A, serial #239853
  • Jimmy Gay 16 H #1, EnCana Oil & Gas: 13.144 MMcf/day IP on 24/64" choke; Woodardville Field, Red River Parish, S16/T14/R10; reservoir A, serial #239853
  • Madden 18 H #1, Forest Oil Corporation: 14.829 MMcf/day IP on 30/64" choke; Woodardville Field, Red River Parish, S18/T14/R9; reservoir A, serial #240050
  • Matthews ETAL 21 H #1, Petrohawk Operating: 19.24 MMcf/day IP on 24/64" choke; Red River-Bull Bayou Field, Red River Parish, S16/T13/R11; reservoir B, serial #239266

New Texas Completions

All completions listed below are classified as Bossier Shale, except the last one, as noted.  Check out the 18 MMcf IP rate well in San Augustine Co. below:
  • Red River 257 #1, Common Resources: 18.095 MMcf/day IP on 28/64" choke; Bossierville Field, San Augustine Co.
  • Verhalen "C" #1H, GMX Resources: 5.476 MMcf/day IP on 16/64" choke; North Carthage Field, Harrison Co.
  • Verhalen "D" #1H, GMX Resources: 7.285 MMcf/day IP on 24/64" choke; North Carthage Field, Harrison Co.
  • Ellington-Ellora #1H, EOG Resources: 7.327 MMcf/day IP on 20/64" choke; North Carthage Field, Shelby Co.
  • T.W. George "A" Gas Unit #9H, BP Americas:  8.295 MMcf/day IP on adjustable choke; Wildcat Field, Rusk Co. (This was not listed as a Bossier Shale well, but I think it is - I might be wrong, though.)

New developmental wells:
  • Blocker Heirs #14H, GMX Resources: North Carthage Field, Harrison Co.
  • James & Robert Tiller Gas Unit #1H, Penn Virginia Corp.; North Carthage Field, Harrison Co.
  • Hendry Gas Unit #1H, Penn Virginia Corp.; North Carthage Field, Harrison Co.
  • T.W. George "A" Gas Unit #10H, BP Americas; North Carthage Field, Harrison Co.
  • Briggs-Moreland #14H, XTO Energy; North Carthage Field, Panola Co.
  • J. Sublett GU #1H, Devon Energy; North Carthage Field, San Augustine Co.
  • Cougars DU, XTO Energy; North Carthage Field, Shelby Co.
  • Rebels DU, XTO Energy; North Carthage Field, Shelby Co.

Saturday, January 30, 2010

The Big Picture

The Financial Times published a great big picture article on the Haynesville Shale this weekend.  It hits on the local issues and addresses the big picture concerns and opportunities.  While it is not new news to people who have been following the Haynesville Shale closely, it does a great job of boiling it down to a single piece.

Also this weekend, I read a good article in the Wall Street Journal about the plight of the proposed pipelines to ship gas from Alaska to the Lower 48 and how those plans are threatened by the newly recognized shale gas reserves.  Both the TransCanada AGIA and the Denali pipeline are going to have open seasons this winter/spring, and it is likely that neither will be successful.  I've been talking about this for a while, but with decreasing oil revenue, it seems as though the folks in Alaska have a much greater stake in seeing more widespread adoption of natural gas in North America.

Friday, January 29, 2010

Rig Count Up Again

he weekly Baker Hughes rig count showed another increase in working rigs, rising 35 to 1,317, the highest level since February 13, 2009.  The biggest increase was in gas rigs (+28), followed by oil rigs (+7).  In terms of trajectory, more horizontal rigs (+20) were added than directional (+8) or vertical (+7) rigs.

In the Haynesville region, inclusive of other formations, the rig count jumped by eight to 200, with three new rigs in north Louisiana (133 total) and five new rigs in east Texas (67 total). 

It took me a while, but I finally started compiling a detailed list of Texas rigs.  There is a little confusion about how some of the wells are classified, because some that seem very Haynesville/Bossier-like are classified as "wildcat" wells.  As a result, I don't count them, but I do list the ones I think are most applicable.  If anybody has any intel on any of the wildcat rigs, I'm all ears.

Here is the link to the new Texas rig count page.

This week, I counted 122 Louisiana Haynesville rigs, up from 121, and 26 Texas Haynesville/Bossier rigs, up from 25. In Texas, there were six wells that look like H/B wells but are classified as "Wildcat."  I included those wells in the summaries below but broke them out on the larger list.  There was one oddity in the LA list: two rigs were listed for the same well.  That means my count might be one rig light, but I didn't have enough information to get to an answer.  The tables below break down the numbers by state for operators and parish/counties.

Thursday, January 28, 2010

The State of the Union

I really hate watching the State of the Union Address each year, no matter who is delivering the remarks. I despise the pandering and the constant applause. Now with the Republican response mimicking the style of the main address, it is doubly painful. I mostly tuned out the address last night and read the transcript this morning. It’s funny – I accidentally fiist pulled up President Bush’s 2008 speech, and the section on energy was very close to President Obama’s.

I was disappointed, but not surprised, to see no mention of natural gas in the speech. There was the predictable emphasis on clean energy and pandering (and misguided) nods to biofuels and “clean coal” but no mention of the energy riches below our feet. Truthfully, the president didn’t need to talk about it because it is neither part of his legislative agenda nor his long-term vision. But development of these resources is happening as we speak.

But for all the discussion of investing in clean energy (which I support), we shouldn’t overlook one of the great technological innovations in the energy industry in our generation:  the combination of horizontal drilling and hydraulic fracturing to retrieve natural gas from source rocks. We often overlook the magnitude of this innovation. Until recently, we could only retrieve oil and gas from reservoir rocks, formations that collect the minerals that slowly seep out of source rocks over millions of years. With this new technology, now we can extract resources directly from the source formations. It’s the difference between someone pouring you a small glass of water when you’re thirsty and being able to take the entire pitcher yourself. It’s not an unlimited source, but now we don’t need to wait millions of years for the gas to seep into the reservoir. This is huge.

This is a technological revolution that was developed in the United States and is one that we can readily export around the world. (Chesapeake Energy is already doing this through partnerships with international E&P companies.) It is also one of the few areas of technology that we can actually manufacture in the U.S. While we can become experts in solar and wind technology, ultimately it will be too expensive to mass manufacture solar cells and wind turbines in the U.S. because of our high standard of living. In our lifetimes, it will always be cheaper to manufacture mass produced goods in other countries. But most of the devices associated with shale gas extraction are made cost-effectively in our backyards and can be exported all over the world.

As a nation, we have long aspired to export our democratic form of government to other countries to make them independent and self-sustaining. Outside of “nation building;” however, this is not a realistic task. One of the things holding back many countries is their dependence on other nations for energy supplies. But it is becoming clear is that gas-bearing shale formations exist all over the world. By providing the tools and expertise to tap these resources can help start other nations on a path towards greater energy independence. You start to remove the shackles and watch what happens. I’m not na├»ve enough to suggest that shale gas is the silver bullet, but it has the chance to lead to significant improvements around the world.

In his address last night, President Obama also talked about doubling U.S. exports over the next five years. The U.S. is already a leader in oil and gas technology, and helping develop unconventional resources around the world would be a huge boon for U.S. businesses.  Our companies will develop and export technology, help build infrastructure across the world and participate in the production of gas in other countries. We’re talking about big business and lots of U.S. jobs.  Plus, it also works like traditional exports: we generate money from other nations through the sale of our expertise.

It is unreasonable to believe that we can flip a switch and have a zero carbon, clean energy world overnight (or within decades). We need to march down parallel paths to make the fossil fuel world, on which we will depend for years to come, more efficient and environmentally sound, while simultaneously developing technologies to unlock the next generations of energy. While the government needs to economically support the development of the next generations of energy supply, Washington needs to understand and support the reality of and opportunities for natural gas in tomorrow’s energy supply.

Storage Levels Down 86 Bcf but Fall Behind Historical Levels

The weekly EIA natural gas in storage report showed a decrease of 86 Bcf to 2.521 Tcf.  The 86 Bcf withdrawal was well below last year's withdrawal for this week of 184 Bcf and the five year average of 179 Bcf.  As a result, current storage levels are 5% higher than last year and 3.6% higher than the five year average. 

While the weather is cold throughout the Midwest this week, it is expected to be seasonal for the following weeks.  This should put downward pressure on gas prices and reinvigorate the conversation about natural gas oversupply.  Oh, joy!

The temperature maps for last week show that warm weather dominated, leading to the lower than normal withdrawal.

Wednesday, January 27, 2010

Exxon and the Big Picture

There is an interesting article on the New York Times website about how the Exxon/XTO transaction will cause Congress to look more carefully at natural gas.  Not to beat the dead horse, but Exxon has suddenly inserted itself into the conversation on hot button issues like climate change and hydraulic fracturing.  The company, though often vilified, brings tremendous political and operational clout and should elevate the cause of natural gas, especially in Washington D.C. 

The article offers a big picture view of Exxon in relation to the above topics and hints that just because Exxon is on board it won't be a smooth ride for natural gas.  Exhibit A:  at the Congressional hearing last week to discuss the Exxon/XTO deal, Exxon CEO Rex Tillerson stated that using natural gas in power generation is a better and more efficient use of gas than converting vehicles to CNG.  Exxon has a high degree of interest in natural gas, but it doesn't want to cannibalize its #1 product, gasoline.  Suddenly, the new best friend of gas fans is at odds with old standby T. Boone Pickens, who is advocating the use of natural gas for transportation.  Nothing comes easily.

Crimson Exploration Refocuses on Haynesville

Crimson Exploration is sharpening its focus on Texas after selling some producing properties in southwest Louisiana. The company has contracted another drilling rig for delivery in March 2010 and expects to drill seven gross (three net) wells this year in the Haynesville/Bossier Shale on a capital budget of $36 million, which represents 64% of the company’s total capital budget. (article)

Crimson’s acreage is located at the southwestern edge of the play, in Sabine and San Augustine counties, TX. It has 30,000 gross acres (12,000 net) and is responsible for perhaps the most famous well in the play, the Kardell #1, which had an initial production rate of 30.7 MMcf/day (Devon was the company’s partner in the well). The map below shows Crimson’s acreage (light yellow shading, red outline) and its 2010 expected drilling sites.

I thought the map below was interesting for more than the mod 70’s look. It shows why the southern part of the Haynesville Play has suddenly become so exciting. The map shows where the highest initial production rates are found in the Haynesville Shale, and the bright red spot at the bottom is the area around the Kardell well. Unfortunately, it cuts off at the southwestern part of the play, just above the Crimson leases, likely because of a lack of completions data. I’m sure Crimson would love to see those bright colors covering its acreage.

In terms of well economics, Crimson estimates well costs at $10 million per well and estimates a 6.5 Bcfe estimated ultimate recovery (EUR) per well. In addition to the Haynesville Shale and the Mid-Bossier Shale, Crimson also intends to drill for the James Lime, which is a shallower formation above the Cotton Valley, Travis Peak and Pettet formations.

Tuesday, January 26, 2010

Business and Carbon Legislation

Many political pundits are saying that the election of Scott Brown of Massachusetts to the U.S. Senate will derail any climate/carbon/energy legislation this year.  I certainly can't prognosticate on that, but I don't think the conversation is dead. Sheila McNulty of the Financial Times pointed out a letter sent by 83 CEOs of U.S. businesses to President Obama urging the president to move quickly in pushing climate change legislation.

It might sound strange for business leaders to encourage the government to enact carbon restrictions, but their point is that it represents an opportunity for business to innovate and invest in new lines of business.  It's already happening in other countries. 

One of the first things I learned about the stock market is that the only thing the market hates more than bad news is uncertainty.  If there is not a clear direction - good, bad or otherwise - investors hold off in making decisions.  That paralysis is far worse than bad news, which the market just "prices in" and moves on about its merry way (a bizarre conceit, but that's another story). 

Many in the business world believe that there will be some legislative action on climate change and carbon regulation eventually, and it's better to know it now than put off the pain (or opportunity) until later.  In a fragile economy like ours today, well-crafted carbon reducing legislation with a reasonable implementation schedule could be a catalyst for job creation.  Carbon mitigation would just be another new industry for business to pursue. 

Given the bludgeoning that Congress took in its efforts to improve the health care delivery system and the fact that 2010 is an election year, I doubt it will be lead much of anything but play defense.  The president lost a fair amount of his mojo over the past year, so he'll also be guarding the goal.  It will be interesting to see if business actually does take the lead in this matter.

Waste Management Buys CNG Trucks

Garbage hauling giant Waste Management announced that it will buy twelve new CNG powered trucks to serve routes in Orange County, CA. The company received a $384 million grant from Mobile Source Air Pollution Reduction Review Committee, an organization whose sole mission is the reduction of air pollution in Southern California.

The vehicles were purchased with the intention of reducing greenhouse gas nitrogen dioxide as well as particulate emissions. As I’ve noted several times recently, gas fans say the fuel is “clean burning,” but the first thing people think about these days is that suddenly controversial element carbon. The story of gas is even better when talking about nitrogen, sulfur and airborne particles.

Delhi, India to Drop Coal, Switch to Natural Gas

In a move to improve its air quality, the city of Delhi, India will convert its coal-fired power plants to natural gas.  The quickly growing 12 million population city has some of the worst air pollution in the world and the switch from coal to gas is expected to greatly reduce smog because gas would release a fraction of the nitrogen dioxide, sulfur dioxide and particulate emissions of coal. 

The timetable is four years, but it is likely to take longer because of the difficulties in building pipeline infrastructure and political friction from coal producing Indian states.  The conversion likely will lead to higher utility costs, but government officials believe the higher economic cost is a price worth paying to improve air quality.

While the conversion is an ambitious goal, it emphasizes that natural gas is a superior fuel for more than just its lower carbon levels.

Monday, January 25, 2010

Some Clear Thinking on Pollution

One of the things that annoys me about The Great Climate Debate is the focus on carbon dioxide. You can debate the concept of global warming all day long, but it is clear that man’s activities have an impact on the quality of the atmosphere and the condition of the atmosphere affects on life on the surface of the planet.

But carbon isn’t the only offender. There are many other pollutants out there causing direct and measurable harm to the environment and human life. Carbon just seems to have the brightest spotlight these days.

Unfortunately, it doesn’t appear that directly taking on carbon is the best strategy to address the problem. Instead, why not address more immediate concerns that might just lower carbon levels as an ancillary benefit? It’s the passive aggressive approach. I read an interesting post on the Financial Times website (“The Death of US Coal”) that is based on a piece written by an analyst at Bernstein Research. The article suggests that the EPA is likely to tighten restrictions on sulfur dioxide and mercury emissions, which are released in great abundance through the burning of coal. While there are scrubbers that can reduce the level of these pollutants, they can be expensive to install and don’t make economic sense for older, inefficient coal-fired plants. This might lead to the retirement of a large percentage of older coal-fired generation fleet. A big beneficiary of this move might be natural gas-fired plants, which would lead to a decline in demand for coal.

While this method might not put an economic cost on carbon, as many want, it does create an indirect economic disincentive to use plants that release large quantities of CO2. Placing reasonable restrictions on a known evil is an indirect way of achieving other more noble ends. After all, wasn’t Al Capone ultimately convicted and locked up on tax evasion charges rather than racketeering?

I for one am concerned that one of the main causes of global warming has become the hot air emitted in the debate on the topic. If the passive aggressive approach outlined above can successfully, albeit indirectly, lower carbon levels, it might have a dual purpose of improving the atmosphere and quieting the row on the subject.

Recent Louisiana Completions

  • Brown HZ #1, Comstock Oil & Gas: 12.633 MMcf/day IP on 23/63” choke at 6,338 psi; Bethany Longstreet Field, DeSoto Parish, Sec. 33/Township 14/Range 16; Haynesville reservoir A, serial #239954
  • Caraway Estate 29 HZ #1, Comstock Oil & Gas: 16.156 MMcf/day IP on 24/64” choke at 5,204 psi; Logansport Field, DeSoto Parish, S20/T12/R16; non-unitized, serial #240132
  • Laffitte 32 #1, SWEPI, LP (Shell): 6,700 MMcf/day IP on 15/64” choke at 897 psi; Red River-Bull Bayou Field, DeSoto Parish, S32/T13/R12; Jurassic res. B, serial #238826 (this well was completed late spring/early summer and only recently connected to a pipeline)
  • EFGBCI 17H #1, EnCana Oil & Gas: 19.413 MMcf/day IP on 26/64”choke; Bracky Branch Field, Red River Parish, S17/T13/R9; Jurassic res. B, serial 239902 (this was originally classified as non-unitized upper Smackover)

Saturday, January 23, 2010

Texas Completions

I noted the following recent completions in Texas:
  • Mobley Gas Unit #13, Valence Operating: 1.997 MMcf/day initial production on 24/64" choke; North Carthage Field, Harrison Co. (Bossier Shale)
  • Patzakis #1, Valence Operating: 1.788 MMcf/day IP on 48/64" choke, North Carthage Field, Nacogdoches Co. (Bossier Shale)
  • Wallace #3, Valence Operating: 1.022 MMcf/day IP on 18/64" choke, North Carthage Field, Rusk Co. (Bossier Shale)
  • Griffith #1, Unit Petroleum Co.: 0.411 MMcf/day IP on 16/64" choke, Center Field, Shelby Co. (Haynesville Formation - I'm not entirely sure this well is applicable)
I also noted the following developmental activity:
  • Carolyn Bell Deep GU #2H, NFR Energy North Carthage Field, Harrison Co.
  • Blocker Weir #8H, GMX Resources North Carthage Field, Harrison Co.
  • Verhalen "B" #4H, GMX Resources North Carthage Field, Harrison Co.
  • Letourneau Gas Unit 7 #52HH, Anadarko E&P Co. North Carthage Field, Harrison Co.
  • New Horizons #E 2H, XTO Energy North Carthage Field, Panola Co.
  • Womack #9H, XTO Energy North Carthage Field, Panola Co.
  • Ducks #1H, XTO Energy North Carthage Field, Shelby Co.
  • Michael Baldwin #1H, Noble Energy; North Carthage Field, Shelby Co.
  • Silver Hammer #1H, Samson Lone Star; North Carthage Field, Nacogdoches Co.
  • Jillian Key GU #3, Samson Lone Star: North Carthage Field, Nacogdoches Co.
  • Hassell Gas Unit #5H, EOG Resources; North Carthage Field, Nacogdoches Co.

Friday, January 22, 2010

Rig Count Generally Up

The national Baker Hughes rig count showed a weekly increase of 34 rigs to 1,282.  Of the past 32 weeks, 28 have shown an increase in U.S. rig count.  Of this week's increase, 22 of the rigs are drilling for gas and 12 for oil.  Sixteen of the new rigs are horizontal, 14 are directional and four are vertical.

In the Haynesville Shale area of N. Louisiana and E. TX (inclusive of other formations), the rig count stayed steady at 192, with one new rig in LA and one less in TX.

I have posted a detailed list of Louisiana rigs (link in blue box at upper right of page).  My count is 121 Haynesville rigs drilling in north LA this week, up from 119 last week (last week's count was mistakenly reported as 118 because I mistakenly deleted a working rig). The table below summarizes the Louisiana rigs by operators and parish for the past three weeks.

Oh the Weather Outside is Frightful...

...At least it will be in the upper Midwest next week.  Meteorologists expect an Arctic blast across the Midwest by about Wednesday.  That should increase gas consumption since 72% of homes in the Midwest use gas for heating.

It's pretty remarkable when you think about the amount of gas used over the past six weeks.  At the end of November, gas in storage stood at 3.837 Tcf.  Last week, the storage figure was 2.607 Tcf, a drop of 1.23 Tcf.  Average weekly withdrawals for the past six weeks have averaged 194 Bcf.  Six weeks ago, the gas in storage figure was 14.5% higher than the five year average.  Today, the storage figure is a shade lower than the five year average and is only 140 Bcf higher than the five year minimum.

Given this huge swing, one would expect the price of gas to rise more than it has.  I'm certainly no expert, but I think the long-term questions of oversupply/overproduction continue to weigh down prices.  There is the feeling that producers can just turn a knob somewhere and ratchet up production to meet any demand increase.  In any case, it's nice not to see weekly headlines about record gas in storage.

Thursday, January 21, 2010

More on International Shale

I wanted to note two interesting articles about shale in other countries.  The first comes by way of an anonymous commenter from an article last month on the Economist website.  (Why does everyone comment anonymously? What happened to cute screen names at least?)  The second is a very short piece from earlier this week noting a couple of joint ventures between major integrated oil companies and Chinese companies seeking out gas in China

The deals for BP/Sinopec and Shell/PetroChina to explore for unconventional gas in China are very interesting.  China gets lots of grief in the international community for the speed at which it churns out new coal-fired electric plants.  Finding and securing long-term supplies of natural gas might make China a model for lower carbon and polluting emissions through the use of gas rather than coal.

UPS Adds to CNG Fleet

UPS, which has one of the largest fleets of alternative fuel vehicles, has added 245 new CNG delivery vehicles to its fleet.  The new trucks increase the company's CNG fleet to 1,145 vehicles and will be deployed in Colorado and California. 

UPS has a long history of experimenting with new transportation fuel technologies, which makes sense given the vehicle-intensity of the business.  More information on the company's use of alternative fuels is available on its website, but UPS tests a variety of fuel sources, from CNG and LNG to hybrids, fuel cells and plug-in electric vehicles. 

The company has been testing CNG since 1989 and has seen positive results.  From its website: "particulate emissions are 95 percent lower than with diesel engines; carbon monoxide emissions are 75 percent lower; and emissions of nitrogen oxides are 49 percent lower." 

Gas in Storage Down 245 Bcf

The gas in storage numbers took another big dive last week, dropping 8.6%, or 245 Bcf, to 2.607 Tcf.  Over the past two weeks, the storage number has dropped 511 Bcf (half a Tcf).  This most recent withdrawal brings the current storage levels in line with last year and the five year average.  After spending the past six months with the current storage levels riding "above the band" of the five year range, the current storage level is nestled tightly within band and almost looks poised to pierce the bottom of the range. 

Of course looks can be deceiving, and with the relatively seasonal weather in the U.S. I doubt you will see storage drop another quarter Tcf next week. 

Among the storage regions, the biggest percentage drop was in the Producing Region, which decreased 10.6%.  Stocks there are at the five year average.  The 8.6% drop in the East Region left stocks 4% below the five year average.  The West Region saw the smallest decrease, 4.3%, and still has a gas storage surplus of 16% over the five year average.

Those regional withdrawal figures make sense when looking at the temperature map from last week:

Front Page Fracking News

I awoke this morning to a front page article in the Wall Street Journal about the debate over hydraulic fracturing. The article results from the ExxonMobil/XTO hearing on Capitol Hill yesterday, but it gives a pretty balanced description of the fracking process and the pros and cons. It also gets into some of the outrage from environmentalists.

One quote in the article struck me wrong:
"Whether it is the act of fracturing itself or the risk of contamination from related activities is somewhat beside the point, says Amy Mall, a senior policy analyst for the Natural Resources Defense Council, an environmental group that has raised concerns about fracturing. 'Ultimately it's semantics. Somebody's water got contaminated,' she says."
Wrong.  It is not semantics.  Ms. Mall is referring to a leak from a poorly sealed well that allowed gas to seep into a water well in Dimock, PA, ultimately causing it to explode.  Yes, somebody's water got contaminated, but hydraulic fracturing did not cause that incident.  In this case, blaming it on "semantics" is a weak rhetorical tool when your argument is not supported by facts.

For some, the battle against fracking is a fight against the ghost of the Dark Lord, Dick Cheney.  It was in the infamously secretive creation of energy policy in 2005 when hydraulic fracturing's exemption from coverage by the Safe Water Drinking Act was renewed.  Having Exxon as a target has brought even more attention to the cause. 

The gas producers protecting fracking need to separate the concepts of the surface processes from the underground processes and submit to some more oversight of the surface activities.  Few argue that the act of fracturing deep underground causes groundwater problems.  The risk points are the handling of surface chemicals, the management of the water that returns to the surface and the treatment/recycling of that water.  Regulations already exist (mostly at the state level) to manage these processes.  I'm surprised the individual states are not more involved in the conversation.  I would have expected this to be a state/federal government turf war.  I guess the states are too busy licking their budgetary wounds to pick the fight. 

It is interesting to see how the battle is playing out in the environmental community.  I've noted in the past that the Sierra Club national organization is taking a bigger picture view of natural gas as a friendlier alternative to other fuels, especially coal.  But the local Sierra Club groups in the Northeast are fighting gas drilling.  The difference is seeing the forest for the trees.

Ultimately, this will be a battle won by economics.  Fracking will not be the "spotted owl" that prevents development of shale gas.  I think there will be some tighter regulation of the surface processes (hopefully at the state level) but the opportunity that natural gas presents for a better environment, more jobs and greater energy independence will rule the day.

Wednesday, January 20, 2010

Having Rex on Your Side

ExxonMobil CEO Rex Tillerson testified in front of the House Committee on Energy and Commerce Subcommittee on Energy and the Environment today alongside XTO Energy CEO Bob Simpson. (Link to testimony and transcript.) The two executives went to Washington to defend the acquisition of XTO by Exxon and the practice of hydraulic fracturing. 

Much has been made of the environmental fears from fracking, but Bob Simpson noted that the practice has been used for sixty years.  Tillerson also said that he supports greater disclosure of the contents of the fracking fluid (makes sense because it's not his trade secret). 

The premise behind the hearing was the impact of such a large merger on the regulatory and competitive landscape of domestic natural gas...I guess.  Not that I feel sorry for Exxon, but the company has been vilified as a symbol of Big Business at a time when the general public is either scared or jealous of big companies.  Now that Exxon is getting involved in shale gas - which is being portrayed in Washington as an energy savior - many heads are turning suspiciously. 

I can't say that I blame elected officials for wanting to show their concern, but it generally is the reaction of people who don't truly understand the domestic gas business (not that I'm an expert).  While it's nice to have the political power of Exxon on your side in Washington, it's not going to do too much to sway folks in, say, Mansfield, LA.  The landscape of the gas business is going to change over the next decade as the shale finds are produced with vigor and the Big Boys get involved, but the day-to-day mechanics likely won't change much, except in scale. 

The big test is to see if Congress meddles with the fracking process and changes the economics of drilling.  I don't think they will kill a potential jobs creation engine, especially now that the momentum in Washington quickly is swinging away from the majority.  I think the voices of the strident environmentalists are going to be drowned out by the need to rehabilitate the economy through job creation and by the natural gas lobby in Washington, which has growing influence among many politicians.

Chesapeake's Hedging Activity

I saw an interesting piece on about Chesapeake Energy's hedging activities.  I tend not to follow the hedging of gas producers too closely because it is largely irrelevant to the commodity value on which mineral owners are paid, but these activities do signal a company's belief about the trajectory of gas prices.  The article notes that Chesapeake has hedged 43% of its 2010 production at $7.49/Mcf (summary shown on slide below).  Several months ago, the company only had hedged 14% of its production, but at a price of $9.53 (likely based on trades made in 2008). 

Chesapeake's hedging activity is in stark contrast to a recent announcement from Devon Energy that it has hedged 42% of its 2010 production at $6.10.

While Chesapeake has been very vocal in its belief that gas prices will rise, it seems to have made a good business decision to lock down pricing on half of its production.  The company hedged 43% of 2010 production through swaps, which represent a specific price for the commodity, and 8% through collars, which gives you downside protection for a certain quantity of gas in exchange for some potential upside, thereby creating a pricing band, or collar.

While Chesapeake may be a believer in higher prices, the company is smart enough to lock in some pretty good projected prices.  Hedging commodity prices for producers is all about risk management, but figuring out when and how to formulate the trades is a difficult game with significant financial implications.

Tuesday, January 19, 2010

Petrohawk Adjusts its Mid-Bossier Shale Estimated Boundary

I was interested to see a recent Petrohawk investor presentation that showed yet another estimate of the boundaries of the Mid-Bossier Shale, the shale formation above the Haynesville Shale.  The top picture below comes from the January 2010 presentation, while the lower image comes from a November 2009 presentation.  You can gauge the changes yourself, but it seems as though the Texas side seems most different.

New estimate:

Old estimate:

The presentation had a couple of other interesting nuggets:
  • Total production from its 64 operating wells is greater than 500 Mcf/day.
  • The company estimates its Haynesville Shale wells will have an estimated ultimate recovery (EUR) of 7.5 Bcf.
  • 2010 well costs for both Haynesville and Mid-Bossier wells will be $8-$9 million per well.
  • The company will drill its first Mid-Bossier well in Q1 2010.
  • Estimated EUR for Bossier Shale is 5.5 Bcf, but this estimate has little actual data behind it.
  • The company is actively involved in acquiring 3D seismic data, both through its own efforts and by purchasing data from third parties.  The areas on the map below shaded in green are the company's 2010 targets:

Monday, January 18, 2010

Shale Exploration in Poland

I'm still going through old articles, and I was particularly interested in an article in the Houston Chronicle about two companies, Marathon Oil and ConocoPhillips, and their pursuit of shale gas in Poland

I get pretty excited about shale gas in the U.S. for lots of reasons, both personal and as an American, but can you imagine how excited people in Poland must be about the prospect of becoming not only natural gas self-sufficient but a net gas exporter?  Poland imports 72% of its gas, the majority of which comes from Russia.  After a price dispute between Russian gas company Gazprom and Ukrainian gas company Naftohaz last January cut off gas supplies to a large part of Europe for more than a week, the idea of energy independence (at least natural gas independence) is even more acute in Eastern Europe.

Unfortunately, Poland's monopoly gas distributor is finalizing a contract with Gazprom of Russia to supply almost three-fourths of its gas until 2037.  If shale exploration is successful, there could at least be a legitimate spot market for gas in the country and a pretty good backup plan if there is another row between Russia and Ukraine, not to mention a boost to the economy through gas exports.

One big difference between drilling in the U.S. and other nations is land ownership.  In the U.S., while there are large swaths of publicly owned land, much of the land prospective for the new shale plays like the Haynesville and Marcellus are privately owned.  It is an expensive headache for producers to piece the land together for exploration, but it is a significant wealth creator for individual land owners.  The pain-in-the-ass factor is a benefit to independent producers who are scrappy and agile.  In Europe and Asia, there is significantly less private land ownership.  This allows big companies like Marathon or Exxon to work with the government or other large land owning concerns to get big leases.  This might enable production to start up faster, but it can be expensive to get these concessions and little economic benefit trickles down to the general population.

There are no guarantees of success.  The shale in Poland is far different in quality than that with which we are familiar, but the prospect for success is there.

LaCrosse Pipeline Info Sessions Set

It seems as though Enbridge is unfazed by the unsuccessful open season for its LaCrosse Pipeline and will hold public information sessions for the proposed pipeline in Logansport on Tuesday and Natchitoches on Wednesday.  The LaCrosse Pipeline is expected to run from Carthage, TX through the Haynesville Shale, southward to Washington Parish in southeast Louisiana, where it will interconnect with the Southern natural gas pipeline. 

Last month, Enbridge acknowledged that the LaCrosse project did not garner enough upfront support from producers in the open season process, but it did not abandon the project.  The open season process is part of a delicate dance between the pipeline developer and potential E&P customers that is an important part of financing the project.  But an unsuccessful open season is not the death of a project.  The financiers need to see adequate commitments to make the pipeline viable, but those commitments can be secured outside of the open season process.  Unfortunately for Enbridge, the company had its open season during the autumn of natural gas's discontent, which may have negatively impacted the process. 

I will be interested to see future announcements from Enbridge on this project.  Pipelines are vital for the future of the Haynesville Shale, but the Haynesville Play is one of many potentially huge North American shale plays out there.  Each of these shale plays will be "winners" in their own right, but the takeaway capacity will be an important determinant of future success, especially near term success.

Sunday, January 17, 2010

Texas Developmental Activity

I didn't see any specific Haynesville/Bossier Shale completions in Texas this weekend (although BP hit a pretty big well in Rusk County (T.W. George "A" Gas Unit #9H, Wildcat Field), but I did note the following developmental activity:
  • Jobe Shale Unit #1, Exco Operating, North Carthage Field, Harrison Co.
  • Barbo #1, Valence Operating, North Carthage Field, Nacogdoches Co.
  • Crimson Tide DU #1H, XTO Energy, North Carthage Field, Shelby Co.
I'm wondering what's up with several new XTO wells sporting college mascot names, Crimson Tide, Mountaineers and Jayhawks.  I can't wait to find out what's next.

Friday, January 15, 2010

Rig Count Up

The Baker Hughes weekly rig count showed another increase in working rigs in the U.S., up 28 from last week to 1,248.  This is the highest rig count since mid-February 2009 when rig counts were plummeting.  Gas rigs showed a strong performance, up 30, while oil rigs were down two.  Horizontal wells were up 28, directional wells up five and vertical wells down five.  Seems to be a clear trend this week.

In the Haynesville Shale region, which includes other formations, the rig count was up six to 192, with both north Louisiana and east Texas adding three rigs.

I have posted the list of rigs (as I interpret it) for Louisiana.  One of these days I'll do it for Texas, but it takes me too long to wrap my mind around it.  I counted 118 Haynesville rigs, one more than last week.  A couple of the new rigs were focused on the Cotton Valley.

Here is the summary of the 118 Louisiana rigs by operator:

Three New Louisiana Completions

  • JESTMA, LLC 22 #1, Petrohawk (KCS Resources): 20.777 MMcf/day IP on 24/64" choke at 7,441 psi; Elm Grove Field, Bossier Parish, Sec. 22/Township 16/Range 11; Haynesville reservoir A, serial #240445
  • DeSoto Police Jury 35 #1, Petrohawk Operating: 15.918 MMcf/day IP on 22/64" choke at 7,619 psi; North Grand Cane Field, DeSoto Parish, S26/T13/R14; non-unitized, serial #239711
  • Barlow 13H #1, Questar E&P: 8.97 MMcf/day IP on 40/64" choke at 1,700 psi; Thorn Lake Field, Red River Parish, S13/T14/R12; non-unitized, serial #239469 (this well shows up as a Cotton Valley well in one place and a non-unitized lower Haynesville stringer in another. TVD was 9,752'-9,763', so it is either an awesome, deep Cotton Valley well or a very shallow Haynesville well.)

Good Article on Chesapeake (But What About the Tech Transfer?)

RigZone had a good recent article on Chesapeake Energy, the "company that people love to hate."  The occasion for the article is CHK's big deal with Total in the Barnett Shale, but the author takes the opportunity to review the past several years for the company. 

The past couple of years have been a wild ride for Chesapeake and CEO Aubrey McClendon himself.  The article focuses on the company's business plan of locking up lots of acreage in shale plays and then signing joint venture agreements with big international players to fund CHK's upfront costs and much of its future development costs.  It's a really smart strategy that requires huge amounts of upfront risk and very aggressive behavior.  It is also one that is difficult to replicate by others because there is only so much good land. 

While the article looked at the deals and their economics, I would have liked to know more about the technology transfer angle.  While it's not openly discussed, each deal has a "teaching component" - explicit or implicit - whereby Chesapeake shows its partner how to best identify, drill and produce these shale wells.  StatoilHydro, Total, BP and the like aren't making sweetheart deals for Chesapeake for only 20-25% of the gas output.  They are getting something else out of the deal: a game plan to replicate shale success elsewhere.

WSJ Closes Energy Capital Site

I was very disappointed to read that the Wall Street Journal shuttered its Energy Capital web site, one of the few balanced news sources that synthesized energy and environmental news.  In a time where our energy future and the impact of energy use on the climate are being so hotly debated, it seems odd to shut down the conversation.  Business and the market ultimately will drive the future of energy, why stop talking about it?

The paper will still have an environment page and an energy oil and gas page, but it likely won't be the same.  Also, I think they are behind the paid subscription wall, which limits their availability.

This is a disappointment to me, not only because of the loss of quality articles and insight, but because it seems like a dismissal by the Journal of the relationship between energy (natural resources) and the environment.  Just because you stop talking about it doesn't mean it isn't happening.

Thursday, January 14, 2010

LA Lease Sale Nets $9,251/Acre

The Louisiana Mineral Board held its monthly oil and gas lease auction yesterday.  Of the 31 leases auctioned, five were in the Haynesville Shale region, and those leases netted $9,251/acre.  All of the bids had 25% royalties.  Please keep in mind that the bids listed below were the highest bids and therefore the winning bids. Other bids may have come in lower.  Here is the bid list (scroll down to 1/13/10 and hit "submit") and a summary below:
  • Caddo Parish, 88.37 acres: $9,000/acre, Questar
  • DeSoto Parish, 7.5 acres: $12,614/acre, Matador
  • Desoto Parish, 5.0 acres: $12,614/acre, Matador
  • Sabine Parish, 160 acres: $5,000/acre, Audubon Oil & Gas
  • Bienville Parish, 24 acres: $7,029/acre, Classic Petroleum
Back in December, the DeSoto Parish School Board sold leases through the Mineral Board for up to $18,500/acre.  The article cited implies that all of the DeSoto parcels went for $18,500, but looking at the DNR tract sheet, it looks like the range was $8,513 to $18,537.  All of the DeSoto acreage went to Classic Petroleum.

Penn Virginia: Quick Update

Penn Virginia leases approximately 55,000 acres in east Texas, about half of which is prospective for the Haynesville Shale.  Most of this land is in Harrison Co.  In East Texas, the company is running three wells in 2010 (the third to be added this month) and the company plans to drill approximately 16 Haynesville wells, two Middle Bossier wells and six Cotton Valley wells.

The company expects its wells to see estimated ultimate recoveries (EUR) of 5-6 Bcf, with decline rates of 75% in the first year, as shown on the curve below.

Penn Virginia is running ten frac stages for its wells with total costs of approximately $8 million per well.  The average daily 30 day flow rate for the company's past two wells has been 7.2 MMcf/day.

Regency Haynesville Expansion Almost Done

Regency Energy Partners announced that it has completed construction of its Haynesville Expansion Project to its Regency Intrastate Gas System (RIGS).  Testing and commissioning are underway and gas should be flowing within two weeks.

The Haynesville Expansion Project is a 121 mile extension of 36"and 42" pipe with a 1.1 Bcf/day capacity. 

Elephant in the Room

Environmental issues elbowed their way to the front of the line in the shale gas world in 2009 and it doesn't look like they are going away.  Nor should they.  I have followed the shale gas industry closely since early 2008 and I am a big supporter.  I see a bright future for natural gas, but I am also a realist.  Natural gas has always played second fiddle to other fuels in this country, but if it is going to be a big time player in the 21st century, it has to adopt a 21st century mindset.  And that means RESPONSIBILITY at all levels.

An article in the Fort Worth Weekly, Greening the Gas Field?, got me thinking about how natural gas fits in with the energy future of this nation.  I think it's a better fuel than oil or coal, but that's just the start.  One has to think holistically about gas, from cradle to grave.  I want to see it grow to be a big domestic industry that generates jobs and investment throughout the "value chain."  With shale formations in many parts of the country, it is an industry that can have a widespread positive economic impact to the country.  But before this can happen, the industry needs to address its impacts at every level. 

One of the biggest impacts is environmental.  The banner issue for environmentalists has been the battle over the use of hydraulic fracturing in gas drilling.  Unfortunately, that argument has been beset with much hyperbole and hysteria that tends to muddy the base set of facts.  But it is true is that there is much room for improvement in the handling of water and chemicals in the drilling process.

The gas industry has made some environmental strides.  Horizontal drilling allows for multiple wells from a single pad, for instance, causing less land disruption.  The article notes other advances, such as the use of closed loop water systems for fracking, the use of natural gas rather than diesel to power drilling rigs and the gradual substitution of less harmful chemicals in frac fluid.  Many of the advances, such as piping out drilling fluids rather than trucking them, have economic as well as environmental benefits.  The article, however, is full of other issues that show the gas industry still has a long way to go.

Unfortunately, Industry isn't going to adopt "green" procedures without a strong economic incentive or a forceful hand from government urging it in the right direction.  But the gas industry has used technology and innovation to create the shale gas boom from nothing in just a few years.  Applying just a portion of that same innovation and effort will allow the industry to make strides to truly lessen the environmental impact of natural gas drilling, production and transportation.  Gas production companies have to recognize the tangible and intangible benefits of these advances.

Now that big time gas drilling has moved from the swamps of Louisiana, the scrub land of Texas and remote western mountains to pristine regions in view of major east coast metropolitan areas, the gas industry needs to clean up its image.  As the gas industry tries to take center stage in Washington D.C., it needs to demonstrate responsibility and be able to tout truly "green" credentials.

PS - Ironically, as I hit the "publish" button an email pops up announcing a new magazine called the Greening of Oil.

T. Boone: Take Two

Oilman turned wind promoter and gas fan T. Boone Pickens is back on the media trail with a revised version of his Pickens Plan.  As you will remember, the Pickens Plan advocated the creation of incentives to advance the development wind power (along with the associated transmission infrastructure) and the use of natural gas as a transportation fuel.  Now that the rabble associated with the health care debate has quieted down a bit, Pickens is launching a new media campaign that refocuses both the goal of his plan and his media message. 

Pickens made news this week when he put his massive proposed west Texas wind farm on the shelf, declaring that the utility transportation was insufficient and that large scale wind projects are not able to be financed in a market where natural gas is lower than $6/MMBtu.  As a result, Pickens has refocused on the use of natural gas as a transportation fuel, urging the federal government to convert its auto fleet to natgas, among other goals. 

The refocus on natural gas is an economic reality.

Pickens will release three new television commercials today.  The ads will focus on national security and the economy, two concepts that are intertwined around our use of foreign oil.  The message that often gets overlooked in the energy debate is that tens of millions of dollars leave this country forever every hour of every day in payment for fuel.  Even if those funds went to nations who were our BFF, it still represents a huge wealth transfer.  By purchasing domestic fuel, the loop is closed and that money stays in this country and is recirculated through jobs, investment, equipment purchases, taxes, etc. 

The big buzz phrase lately is that we are going through a "jobless recovery" from last year's recession.  Diverting fuel purchases from foreign oil to domestic natural gas offers a huge economic stimulus that would lead to much job creation.

Gas in Storage: Back in the Band!

OK, so I've used an exclamation point in headlines twice today - probably won't happen again.  But I was excited to see a huge withdrawal in the weekly EIA gas in storage report.  The report showed a 266 Bcf decrease in gas in storage because of the cold weather across much of the country (I certainly used my fair share).  That withdrawal represents 8.5% of the total amount of gas in storage and was greater than some of the estimates I have read this week. 

The resulting working gas in storage at the end of last week was 2.852 Tcf, the lowest it has been since July 3, 2009.  Interestingly, the EIA revised last week's number down by 5 Bcf (resulting in a 158 Bcf, rather than 153 Bcf, withdrawal last week) because of resubmissions of data from respondents in two of the reporting regions.

The weekly withdrawal was significantly larger than last year's change (-88 Bcf) and the five year average (-76 Bcf).  As a result, the EIA weekly graphic showing the weekly storage comparison finally shows the current year red line back inside the five year average gray band. 

The current storage level is only 3.7% greater than last year's storage level and 4.4% greater than the five year average.  Last week, the figures were 10.1% and 11.3%, respectively.

I fooled around with the numbers a bit to see how the past year fits in with the past five years (chart below).  Looking back at last year, we really had mild weather, which resulted in lower than average withdrawals in the winter and no midseason downward spikes in the summer (like 2006 and 2007).  Also, the injection season was longer (old news).  It will be interesting to see how the rest of the winter season plays out.

The cold temperatures on the temperature map for last week show why the gas withdrawal for the week was so high.

[UPDATE: I guess I wasted my exclamation point:  Natural Gas Dips After Supply Report.  The supply report soundly beat analyst estimates - what were traders expecting?]

We're #1!

The year 2009 was marked by increased U.S. gas production and decreased Russian output, which resulted in the U.S. overtaking Russia as the world's leading gas producer.  Russia is still the world's largest gas exporter, although given the fact that many of its customers are chafing under long-term contractual agreements that are pegged to the price of oil, that status might not last forever either. 

The reasons for this change in status have much to do with shale.  As shale discoveries in the U.S. increased gas output, they drive down gas commodity prices.  Domestic gas consumption has remained relatively steady through the recession (down about 1.2%) because of increased use in power generation because of the lower gas prices.  Europe remains Russia's largest gas export market, but because prices are higher and often contractually fixed, the recession-driven decrease in consumption was not offset by increased use in power generation.

With the creeping globalization of the gas market because of LNG and newly discoved gas resources in other nations creating new sellers of natural gas and a legitimate spot market for the commodity, Russia's gas supremacy likely will slip further.

Wednesday, January 13, 2010

Southern Star Will Not Merge

I saw that Southern Star Energy opted out of its previously announced three-way merger with Lion Energy and Gold Star Resources.  I had thought it was an odd sounding merger back in November.  Southern Star said that the problem was "the existing exploration commitments of Lion are not compatible with the strategic objectives and envisioned business model for the combined entities."  Perhaps the increased price of natural gas has changed the company's perspective.  

Tuesday, January 12, 2010

Good Article on Common Resources

I read an interesting article in E&P Magazine on Common Resources, the private equity-backed E&P startup that has drilled some very good wells on the Texas side of the Haynesville Shale.  Because Common is still a private company, it is not obligated to make much information about itself known, so the best sources of data are often articles. 

The management team, led by Roger Jarvis, built Spinnaker Exploration Co. into a significant Gulf of Mexico E&P player and ultimately sold the company to Norsk Hydro for $2.5 billion.  Common Resources opened its doors in 2007 and is backed by private equity investors Pinebrook Road and EnCap to the tune of $500 million.  Common is focusing its efforts in the Haynesville region and the Eagle Ford Shale.

Common concentrates its efforts in an area in East Texas called the Shelby Trough, where the company leases land in the Bossierville Field in northern  San Augustine Co. and southern Shelby Co. Based on the company's web site, Common leases 68,338 gross acres (32,428 net), and its 2010 capital budget is $88 million, which should fund between 14 and 17 wells.  Recent wells in the area have produced initial production rates of 15-21 MMcf/day with estimated ultimate recoveries (EUR) of 8.5 to 10 Bcf.  A recent well, Red River 619 #1 produced 1 Bcf in the first 75 days, bringing lots of attention to the Shelby Trough area. 

Another source of excitement for Common is the Middle Bossier Shale, which lies above the Haynesville Shale.  The company believes that the geologic qualities of the Mid-Bossier in the area in which it leases are as good or better than those of the Haynesville Play. 

Over the next few years, I think Common will go public or be sold, both to raise additional equity funds for continued drilling and to provide liquidity for its financial sponsors.  Keep an eye on Common Resources to appear in the "deals" column in the next couple of years.

EIA 2010 Natural Gas Spot Price Estimate: $5.21/MMBtu

The EIA released its monthly Short-Term Energy Outlook today.  In it, the EIA predicted the 2010 Henry Hub spot price will average $5.36/Mcf (= $5.21/MMBtu).  This is not very exciting, but it is higher than the average 2009 price of $4.06/Mcf (= $3.95/MMBtu).  For 2011, the EIA predicts the spot price will average $6.12/Mcf (= $5.95/MMBtu).  This is really a statistical analysis of futures prices and not magical data, but it is interesting to take a crack at the future.  It also makes no attempt to try to gauge price volatility over that period.  But one thing that seems certain is, given the ample supply and recovering demand, prices are not likely to move and stay terribly higher for a while.

Other interesting tid bits from the report:
  • Natural gas consumption fell by 1.5% in 2009.  Increased use in electric power generation (switching from coal) nearly offset declines in industrial, commercial and residential use.
  • 2010 consumption is projected to be flat.  The pattern that played out in 2009 is expected to reverse as electric generators use more coal, but the recovering economy charges up the other sectors.

  • Storage is expected to continue to be an issue.  Even though storage withdrawals have been very high of late, the EIA expects that gas in storage will still be 16% greater than the five year average come the end of the storage withdrawal season.
  • Electricity consumption will grow 1.9% in 2010, but most of the supply to soak up that demand will be from sources other than natural gas.

Monday, January 11, 2010

One New Texas Completion

This weekend I noted only one new Texas completion:
  • Hollis Walton #1, Valence Operating: 0.144 MMcf/day initial production on 10/64" choke; North Carthage Field, Nacogdoches Co. (Bossier Shale)
...and four new developmental wells:
  • Hazel Bryne Gas Unit 3 #1H, Berry Oil; North Carthage Field, Harrison Co.
  • Bosh #19H, GMX Resources; North Carthage Field, Harrison Co.
  • Verhalen "C" #7H, GMX Resources; North Carthage Field, Harrison Co.
  • Jayhawks DU #1H, XTO Energy; North Carthage Field, San Augustine Co.

Friday, January 8, 2010

Devon Hedging at $6.18

I was a little disappointed to see an article noting that Devon Energy has hedged 42% of its estimated 2010 natural gas production at $6.18/MMBtu.  While that's a heck of a lot better than prices in the $3 range that we saw in 2009, it indicates that the company doesn't see terribly much upside above the $6.18 level for the next year. 

Devon isn't the only company that has made this move - don't get me wrong, it's a good business decision - but I like to believe that there's more upside in the price of natural gas.

LOTS of Recent Louisiana Completions

  • Jimmy Woodward 34H #1, Questar E&P: 23.772 MMcf/day IP on 25/64” choke at 8,250 psi; Woodardville Field, Bienville Parish, Sec. 34/Township 15/Range 9; Haynesville reservoir A, serial #239627
  • Western Dev. ETAL 20H #1, Chesapeake Operating: 15.54 MMcf/day IP on 22/64” choke at 7,653 psi; Bethany Longstreet Field, Caddo Parish, S20/T15/R15; res. A, serial #239897
  • Zimmerman 30-15-11H #1, Chesapeake Operating: (unknown flow rate) on 22/64” choke at 7,993 psi; Caspiana Field, Caddo Parish, S30/T15/R11; res. B, serial #239477
  • Indigo Minerals 14H #1, Chesapeake Operating: 10.352 MMcf/day on 22/64” choke at 3,449 psi; Greenwood-Waskom Field, Caddo Parish, S14/T16/R16; res. A, serial #239593
  • Hall 9 #1, Camterra Resources: 6.786 MMcf/day on 15/64” choke at 5,100 psi; Caspiana Field, DeSoto Parish, S9/T15/R14; non-unitized, serial #237524 (completed 4/23/09)
  • Jenkins 3 #1, Camterra Resources: 7.874 MMcf/day on 14/64” choke at 7,275 psi; Caspiana Field, DeSoto Parish, S3/T15/R14; res. A, serial #239603
  • Jackson Davis 24H #1, EnCana: 11.965 MMcf/day on 19/64” choke at 7,030 psi; Caspiana Field, DeSoto Parish, S26/T15/R14; res. A, serial #239786
  • Lucille Yearling ETAL 22, EXCO Production: 17.434 MMcf/day on 22/64” choke at 7,228 psi; Caspiana Field, DeSoto Parish, S22/T14/R12; non-unitized, serial #239732
  • Branch Ranch 6 #1, EXCO Production: 11.333 MMcf/day on 20/64” choke at 6,806 psi; Caspiana Field, DeSoto Parish, S6/T13/R12; non-unitized, serial #239749
  • Black Stone 6 #3, KCS Resources (Petrohawk): 22.541 on 22/64” choke at 8,506 psi; Caspiana Field, DeSoto Parish, S7/T14/R12; res. A, serial #240010
  • Scott 17 #5, EXCO Production: 14.157 MMCf/day on 22/64” choke at 7,156 psi; Kingston Field, DeSoto Parish, S17/T14/R13; res. A, serial #239876
  • Harts Bluff LLC 34H #1, Chesapeake Operating: 11.294 MMcf/day on 22/64” choke at 5,560 psi; Logansport Field, DeSoto Parish, S34/T11/R15; res. A, serial #239298
  • Lobokay 24H #1, Chesapeake Operating: 6.979 MMcf/day on 20/64” choke at 5,250 psi; Logansport Field, DeSoto Parish, S24/T11/R15; res. A, serial #239737
  • Carraway Estate HZ #3, Comstock Oil & Gas: 15.61 MMcf/day on 21/64” choke at 7,467 psi; Logansport Field, DeSoto Parish, S20/T12/R16; res. A, serial #239508
  • Collins LA 10 HZ #1, Comstock Oil & Gas: 15.382 MMcf/day at 6,740 psi; Logansport Field, DeSoto Parish, S15/T12/R16; res. A, serial #240051
  • Gamble 21H #1, Coronado Energy E&P Co.: 18.435 MMcf/day at 6,050 psi; Logansport Field, DeSoto Parish, S21/T12/R16; res. A, serial #239942
  • Johnson 21-13-13H #1, Chesapeake Operating: 15.056 MMcf/day at 20/64” choke at 9,114 psi; Red River-Bull Bayou Field, DeSoto Parish, S21/T13/R13; res. A, serial #239543
  • OW Driggers 21H #1, EnCana Oil & Gas: 10.899 MMcf/day on 18/64” choke at 7,291 psi; Bracky Branch Field, Red River Parish, S21/T13/R9; Jurassic Res. B, serial #239750 (I included this well because it is in the Haynesville area and many of the early Haynesville wells were classified as Jurassic. It is located in a section that has not been unitized. The well was drilled to 12,501’-12,565’ total vertical depth, which is the same depth horizon as many Haynesville wells.)
  • Wood 30H #1, Samson Contour Energy: 19.128 MMcf/day on 22/64” choke at 8,200 psi; Brakcy Branch Field, Red River Parish, S30/T14/R9; res. A, serial #239551
  • Rex Young 28H #1, EnCana: 20.447 MMcf/day on 22/64” choke at 8,558 psi; Red River-Bull Bayou Field, Red River Parish, S20/T14/R11; res. D, serial #239479
  • Ninock 1H #1, Petrohawk Operating: 20.418 MMcf/day on 24/64” choke at 8,453 psi; Red River-Bull Bayou Field, Red River Parish, S12/T13/R11; res. B, serial #239489
  • BSTMA LLC 17H #1, EnCana: 9.202 MMcf/day on 22/64” choke at 7,041 psi; Thorn Lake Field, Red River Parish, S17/T14/R11; res. A, serial #239790

Rig Counts Up Nationally

The Baker Hughes weekly rig count showed an increase of 31 rigs in the U.S. to bring the working total to 1,220.  Of the increase, 22 are gas rigs and nine are drilling for oil.  Interestingly, the biggest jump in rig type was in vertical rigs (+20), followed by horizontal rigs (+12).  Directional rigs were down by one. 

In the Haynesville region of north Louisiana and east Texas, which includes other formations, the rig count was even, up two in E. TX and down two in N. LA.

I posted my detailed rig-by-rig listing of Louisiana rigs, noting new and moved rigs, this evening.  In my analysis, I counted 117 Louisiana Haynesville rigs, up from 116 last week.

Thursday, January 7, 2010

Yipes! Gas Spot Price Jumps 17%

The Henry Hub natural gas spot price jumped $1.08, or 16.8%, today to close at $7.51/MMBtu.  Obviously the frigid weather has something to do with it, so don't count on this price holding for too long.  The storage withdrawal last week was pretty big, but I think analysts would still argue that the fundamentals of natural gas still need improvement.

It's hard to believe that 125 days ago on September 4, 2009, the Henry Hub spot price closed at $1.88/MMBtu.  Since then it has gone up 300%.  If you are a nerd like me, that translates into a 5,606% internal rate of return.

Forest Oil Sets 2010 Capital Budget

Forest Oil announced its 2010 capital budget of $600 to $700 million, approximately 25% of which ($162 million) will be spent in east Texas/north Louisiana. 

Forest, which now operates one rig, will add three in the first quarter of this year to total four rigs, which should lead to 18 to 24 new operated wells in 2010.  Of the new wells, 12 to 16 should target the Haynesville Shale in north Louisiana, while six to eight should target the Haynesville Shale and the Cotton Valley Sands in east Texas. 

Cold Weather = Lots of Gas Use

The EIA weekly storage report showed another big decrease in storage, but the levels are still 10+% higher than the figures we saw last year and over the past five years.  Last week, storage decreased 153 Bcf, or 4.7%, to 3.123 Tcf.  The weekly decrease was far greater than the 60 Bcf decrease last year and the 78 Bcf average withdrawal for the past five years.

The chart below showing the current line and the five year average has been recast to include 2009's figures in the five year average, thus widening the band for the second half of the year.

Wednesday, January 6, 2010

Shale and Jobs

Fox News, as part of its "On The Job Hunt" series, did a special on shale gas yesterday entitled, "Shale, The New American Gold Rush."  The segment talked about shale in general and about the local economic impact of shale production on businesses, global and local.  The piece was based in Lycoming Co., PA in the Marcellus Shale, but the impacts discussed can be extended to all active shale plays.

Note: disregard the erroneous "factoids" that the talking head mentions in the beginning.

Endeavour Buys Into the Haynesville Shale

Through a transaction with Cohort Energy Company, a subsidiary of J-W Operating, Endeavour International Corporation has purchased a 50% interest in Cohort's properties in the Haynesville Shale, as well as in the Marcellus Shale.  Endeavour also purchased interests in other U.S. producing areas from other private companies. 

In the Haynesville Play, Endeavour purchased a 50% interest in 17,700 gross acres (7,250 net) that should be able to host 200 drilling sites. The leases are in the Woodardville (Red River Parish), Metcalf (Caddo Parish), Bull Bayou (Red River) and Grand Cane (DeSoto Parish) fields, as the map below shows.  The land is also prospective for the Hosston and Cotton Valley formations and some of it is prospective for the Mid-Bossier Shale.  Interestingly, in its press release, Endeavour cites estimated ultimate recoveries for these prospects in the 7-8 Bcf range.  That is a higher EUR than most competitors are publishing.

Endeavour is based in the U.K. and has offshore interests in the North Sea.  Because these are big high risk/high return investments with long-term time horizons, the company adjusted its business strategy a couple of years ago to pursue shorter term production opportunities in the U.S. to offset its long cycle North Sea investments. 

Welcome to the party, Endeavour.

Trinidad Restarts Construction on Six New Haynesville Rigs

Trinidad Drilling LTD announced Monday that it has restarted work on six drilling rigs destined for the Haynesville Shale.  The construction of the rigs was delayed in early 2009 as part of the massive demobilization of drilling rigs the natural gas industry experienced.  The six rigs are all for one customer and will all be used in the Haynesville Shale.  The rigs will be utilized under five year take-or-pay contracts.  The new rigs will increase the number of Trinidad rigs in the play to 31. 

This is more evidence that the drilling and spending level will continue to increase in the Haynesville Shale.

Tuesday, January 5, 2010

2010: A Big Year for Natural Gas?

CONSOL Energy, which is one of the largest coal producers in the U.S., announced yesterday that its board had approved the company's 2010 capital budget and had allocated 40% of the budget to its majority owned subsidiary CNX Gas.  CNX will devote $152 million and add a second rig to drill the Marcellus Shale in 2010.  But I found the comments made by CONSOL's CEO Brett Harvey particularly interesting:
"In looking beyond 2010, I believe that spending on coal will migrate to maintenance of production levels, while gas will likely be the growth vehicle."

"While a lot can happen between now and 2011, I currently envision that coal capital will be lower in 2011, while gas spending will be higher."
CONSOL has its feet in both the coal and gas ponds, so its bets are hedged on the question of coal vs. gas, but the company is better known for coal.  It's interesting to see such bullish comments on natural gas, especially at the expense of coal.

It reminds me of a quote I saw earlier today in a Wall Street Journal article about the Total/CHK deal by natural gas stock analyst David Heikkinen of Tudor, Pickering and Holt: "'There's this vibe that 2010 could be a transformational year' for the energy business." 

Along those same lines, I saw an analyst note that suggested some provisions of the NAT GAS bill in Congress to promote CNG use could end up in a second "jobs bill" to increase U.S. employment that might get passed in early 2010 (paid for with returned TARP money).  As far as I know, this has not been publicly debated, but some of the incentives and tax credits in the NAT GAS bill could accelerate adoption of natural gas as a transportation fuel. 

Malcolm Gladwell popularized the term "tipping point" in his book of the same name.  I'm starting to think 2010 will be the tipping point year for wider acceptance of natural gas as part of the U.S. energy mix.

Recent TX/LA Completions

I only noted one Louisiana completion that I have not previously reported:
  • BSMC LA 12 HZ #1, Comstock Oil & Gas: 11.242 MMcf/day initial production on 28/64" choke; Benson Field, DeSoto Parish, Sec. 12Ttownship 10/Range 15; non-unitized, serial #238212
I noted the following completions in the Texas portion of the Haynesville Shale:
  • Billy Harris #1H, Goodrich Petroleum: 12.2 MMcf/day IP on 24/64" choke; Beckville Field, Rusk Co. (Reported by Goodrich in press release on 1/5/10)
  • Stacy Gas Unit 1 #5H, Samson Lone Star: 8.453 MMcf/day IP on 22/64" choke; Waskom Field, Harrison Co.
  • Black Stone PB #1H, St. Mary Land & Exploration: 0.711 MMcf/day IP on 9/64" choke; North Carthage Field, Shelby Co. (Bossier Shale)
I also noted the following developmental activity:
  • Verhalen "C" #2H, GMX Resources; North Carthage Field, Harrison Co.
  • Blalock "A" #15H, NFR Energy; North Carthage Field, Harrison Co.
  • Motley #1H, Devon Energy; North Carthage Field, San Augustine Co.
  • Mountaineers DU #1H, XTO Energy; North Carthage Field, Shelby Co.

Chesapeake Might Sell Excess Haynesville Acreage

Chesapeake Energy confirmed that it, along with partner Plains Exploration, is looking to sell approximately 100,000 acres in the Haynesville Shale.  A proposed sale has been whispered about for the past week and likely would include non-core acreage in Harrison and Panola Counties, Texas and the northern parts of Bossier and Caddo Parishes, Louisiana.

Chesapeake was very aggressive in picking up acreage in the Great Haynesville Land Rush, seemingly with a "shoot first, ask question later" approach.  Now that the company has done exploratory drilling, it has identified the core areas where it wants to concentrate.  By selling these extra properties, it will release land that it probably couldn't drill before the leases expire.  It's likely a win-win because Chesapeake can monetize unused leases (albeit at a likely lower price) and the property owners can have a new operator that will place greater attention on drilling their leases.  While these areas may not be "core," at the right price somebody will be interested in them.

Monday, January 4, 2010

New Year, New Chesapeake Deal

Chesapeake Energy announced another big joint venture agreement with a European partner for some of its shale assets.  France's Total will invest $2.25 billion for a 25% stake in Chesapeake's Barnett Shale assets.  Total will pay $800 million upfront and pay the remainder over the next five to six years by funding 60% of Chesapeake's development costs. 

This is not a surprising deal given the fact that Chesapeake has made JV deals with major European companies for its other big shale plays, but it seems like a steep price for the Barnett Shale, which has become somewhat mature and often generates lower returns than other shale plays. On the other hand, it gives Total an entry into the U.S. gas market and allows it to join the club of big European companies that are learning the shale business at Chesapeake's feet.

Saturday, January 2, 2010

Mercedes Delivers CNG Truck

Mercedes Benz announced the release of a version of its Econic tractor trailer line fueled by natural gas.  The truck is designed for local deliveries and is only available in Europe, but it is nice to see a readily available CNG vehicle.  It's a pretty cool looking truck - I'd like to see it on U.S. roads for more than the fact that it's natural gas powered.

Friday, January 1, 2010

Long-Term Gas Delivery Contracts?

Another interesting article in the Wall Street Journal this week noted that some natural gas companies are approaching customers for long-term contracts.  This is a very interesting step for lots of reasons.  Most importantly, it is a concession from the gas producers that they don't expect the price of natural gas to go up significantly any time soon.  Signing up customers to long-term contracts takes a page out of the coal industry's book, which makes sense if you think you have a large, consistently reliable source of product.

The article notes that the gas producers have had little luck selling long-term contracts, which makes some sense.  After seeing prices dip to $2/MMBtu last year, I doubt many consumers will want to lock in prices north of $6.  Customers can hedge prices on their own.  It is unlikely that they would want to lock themselves into supply contracts that might have take-or-pay clauses.  Many utility customers with long-term coal contracts have built large stockpiles of unused product that just keeps coming even though they temporarily switched to natural gas for power generation.

Ultimately, many customers probably see that the supply and demand forces in the market will "bracket" the price of gas at reasonable levels for the foreseeable future.  But it's still an interesting sign from the natural gas industry.

Chemical Romance

There was a great article in the Wall Street Journal last week on the relationship between the U.S. chemical industry and natural gas.  Seventy percent of U.S. production capacity for ethylene, a vital feedstock in chemical manufacturing, employs natural gas in its production. With price increases in natural gas over the past five years, the domestic chemical industry became less competitive internationally. 

Outside the U.S., especially in Europe and Asia, oil-derived feedstock is more common.  Over the past year as gas prices dipped and oil prices held steady, the traditional price relationship between oil and gas diverged significantly.  As a result, chemicals from oil feedstocks became less competitive, returning the advantage to U.S. chemical producers.  As the article notes, if natural gas prices finds a home between $6 and $7/MMBtu, oil would have to be $40/barrel for U.S. chemical producers to lose their newfound edge. 

The bottom line is that the increase in U.S. supply from shale gas has created an environment (good supply, stable pricing - at least low pricing) that favors the domestic chemical industry.


Happy New Year to everyone out there.  I'm glad to hear that there are at least a few people out there reading this site.  But even if nobody cared, I'd still be sitting in front of my computer writing all this stuff because I think the Haynesville Shale is part of a larger trend that will transform energy in our country.

2009 was a very interesting year for the Haynesville Shale as I indicated through my Top 10 stories.  I expect 2010 to be a very good year with lots of progress for natural gas in general and the Haynesville Play in particular.

I wish you all great happiness and prosperity in the new year.