Sunday, February 28, 2010

A Couple of Recent LA Completions

  • Rex Young 21 H #1 EnCana Oil & Gas: 25.7 MMcf/day IP on 24/64" choke; Red River-Bull Bayou Field, Red River Parish, Sec. 29/Township 14/Range 11; Haynesville reservoir D, serial #239748
  • Brown SW MIN 1-ALT, EnCana Oil & Gas: 8.021 MMcf/day IP on 28/64" choke; Bracky Branch, Red River Parish, S10/T13/R10; Jurassic res. A, serial #239707

Another Rig Worker Dies

As if we needed another reminder of how dangerous a drilling rig can be, another rig worker has died on a Haynesville Shale drilling site.  An employee of Trinidad Drilling died this morning on a Chesapeake Energy drill site in Caddo Parish near Keithville.  The Morrell ETAL 8 #1 (serial #240756, Caspiana Field, S8/T15/R14) well began drilling operations on February 10 and is not yet on the Baker Hughes working rig list.

Recent Texas Completions

  • Carzenava #1 H, Chesapeake Operating: 3.318 MMcf/day initial production on 20/64" choke; Carthage Field (Haynesville Shale), Shelby Co.
  • Horned Frogs DU #1 H, XTO Energy: 9.728 MMcf/day IP on 17/64" choke; Carthage Field, (Haynesville Shale), Shelby Co.
Development Activity:
  • Dunaway Gas #1 H, Chesapeake Operating; Carthage Field (Haynesville Shale), Panola Co.
  • North Jonesville "A" #17, Exco Operating; Carthage Field (Haynesville Shale), Harrison Co.
  • Wallace Unit #1 H, EOG Resources; Carthage Field (Haynesville Shale), Nacogdoches Co.
  • Fairway Farms #1, Eagle Oil & Gas Co.; Carthage Field (Haynesville Shale), San Augustine Co.
  • Golden Gophers DU #1 H, XTO Energy; Carthage Field (Haynesville Shale), Shelby Co.
  • Hinton #1 H, St. Mary Land & Exploration; North Carthage Field (Bossier Shale), Shelby Co.
On a tangent, I also  noted some fat completions by EnCana in the Bossier formation (not the Bossier Shale) in  the Leon County Hilltop Resort field.  The Carr-Navasot #1 came in at 19.5 MMcf/day IP and the Navasot #2 came in at 21.7 MMcf/day.  I guess the Haynesville/Bossier Shale is not the only game in town.

Friday, February 26, 2010

Rig Count Up

The weekly Baker Hughes rig count showed a 28 rig increase nationally, bringing the count to 1,373, which is 57% higher than the rig count trough in June 2009.  The gas rig count increased by 12 to 905, and oil rig count increased by 16 to 456.  The current gas rig count is 36% higher than the recent trough in July 2009.  By rig type, the biggest jump was in horizontal rigs (+21), followed by vertical rigs (+7).

In the Haynesville Shale region, inclusive of other formations, the count increased by six, all in east Texas, to 213.

In the detailed count for Louisiana, I noted one fewer rig and a handful of moves.  The Louisiana Haynesville count stands at 124, which represents 91% of the total north Louisiana rig count, as summarized below:

Texas showed a net gain of two new rigs.  Counting the five Wildcat wells I think are Haynesville (but I could be wrong), there are 39 Haynesville rigs working on the Texas side, 51% of the total east Texas rig count, bringing the total to 163.

Arthur Berman's Presentation Slides

As I noted last week, Arthur Berman, who has (in)famously been a critic of North American shale plays, has published a new articleHere is a link to slides that accompany the article and provide some more graphical analysis.

Thursday, February 25, 2010

Spring Cleaning

With spring fast approaching, I figured it was time to clean up my Louisiana completions list.  Over time, a few wells have slipped through the cracks and I've missed others that have been labeled as other formations.  I compared my list with the Louisiana DNR's and added 24 new wells to my list.  Some are pretty stale and were vertical penetrations into the Haynesville Shale from wells originally permitted for other horizons. Others are normal Haynesville wells that I somehow overlooked.  I've listed the wells below, sorted by initial production rates:
  • JESTMA LLC 22 H #1, Petrohawk Operating Co.: 20.777 MMcf/day IP; Elm Grove Field, Bossier Parish; Sec. 15/Township 16/Range 11; serial # 240030
  • Black Stone Min 35 H #1, EnCana Oil & Gas (USA), Inc.: 20.111 MMcf/day IP; Bracky Branch Field, Red River Parish; S35/T14/R10; serial # 239194
  • CHK Royalty 30-14-12 H #1, Chesapeake Operating, Inc.: 16.450 MMcf/day IP; Caspiana Field, DeSoto Parish; S30/T14/R12; serial # 239209
  • Elm Grove Plantation #65, Petrohawk (KCS Resources, LLC): 15.327 MMcf/day IP; Elm Grove Field, Bossier Parish; S16/T16/R11; serial # 238310
  • Jacobs ETAL 36 #2-ALT, Petrohawk Operating Co.: 15.257 MMcf/day IP; Red River-Bull Bayou Field, Red River Parish; S36/T13/R11; serial # 239052
  • M Crow 2-14-15 H #1, Chesapeake Operating, Inc.: 11.915 MMcf/day IP; Caspiana Field, DeSoto Parish; S2/T14/R15; serial # 238641
  • Johnson 32 H #1, Chesapeake Operating, Inc.: 8.318 MMcf/day IP; Bethany Longstreet Field, Caddo Parish; S32/T15/R15; serial # 239553
  • Messenger 8 #1, EnCana Oil & Gas (USA), Inc.: 5.727 MMcf/day IP; King Hill Field, Natchitoches Parish; S8/T10/R9; serial # 237289
  • David Mason 27 #1, BEUSA Energy, Inc.: 5.405 MMcf/day IP; Bethany Longstreet Field, DeSoto Parish; S27/T13/R15; serial # 237166
  • Joseph Bolan 34 H #1, EnCana Oil & Gas (USA), Inc.: 5.267 MMcf/day IP; Red River-Bull Bayou Field, Red River Parish; S34/T14/R11; serial # 239056
  • Martinez 14-11-15 H #1, Chesapeake Operating, Inc.: 4.251 MMcf/day IP; Logansport Field, DeSoto Parish; S14/T11/R15; serial # 239259
  • Waerstad #3, Questar Exploration & Production Co.: 4.198 MMcf/day IP; Thorn Lake Field, Red River Parish; S1/T14/R12; serial # 237838
  • Cohort Energy ETAL 22 #1, J-W Operating Co.: 1.890 MMcf/day IP; Elm Grove Field, Caddo Parish; S22/T16/R13; serial # 237359
  • Christal Holmes 20 #5, BEUSA Energy, Inc.: 1.099 MMcf/day IP; Bethany Longstreet Field, DeSoto Parish; S20/T13/R15; serial # 238804
  • T L Jones ETUX 19 #1 BEUSA Energy, Inc.: 0.644 MMcf/day IP; Bethany Longstreet Field, DeSoto Parish; S19/T13/R15; serial # 238621
  • Red Oak Timber 5 #1, Fossil Operating, Inc.: 0.502 MMcf/day IP; Bethany Longstreet Field, Caddo Parish; S5/T14/R15; serial # 237717
  • Evans 34 #1, Camterra Resources, Inc.: 0.43 MMcf/day IP; Caspiana Field, DeSoto Parish; S34/T16/R14; serial # 237069
  • Wages 12 #1, EXCO Production Co., LP: 0.426 MMcf/day IP; Longwood Field, Caddo Parish; S12/T18/R16; serial # 237643
  • B S Moore ETAL 12#, 1 Forest Oil Corporation: 0.36 MMcf/day IP; Woodardville Field, Red River Parish; S12/T14/R10; serial # 238041
  • Muslow Oil 30 #1, Chesapeake Operating, Inc.: 0.349 MMcf/day IP; Sligo Field, Bossier Parish; S30/T17/R11; serial # 238892
  • Ronnie Bozman 35 #1, Camterra Resources, Inc.: 0.32 MMcf/day IP; Caspiana Field, DeSoto Parish; S35/T16/R14; serial # 236902
  • Clarence Brown #1-ALT, Goodrich Petroleum: 0.295 MMcf/day IP; Bethany Longstreet Field, Caddo Parish; S11/T14/R16; serial # 237255
  • Daniels 3 #1, Fossil Operating, Inc.: 0.253 MMcf/day IP; Johnson Branch Field, Caddo Parish; S3/T15/R15; serial # 236439
  • Hall Fly Entprs 16 #1, EXCO Production Co., LP: 0.143 MMcf/day IP; Caspiana Field, DeSoto Parish; S16/T15/R14; serial # 238403

Storage Down 172 Bcf

The weekly EIA storage report showed an 8.5% decrease in working gas in storage of 172 Bcf to bring the total storage to 1.853 Tcf.  This figure is 2.9% lower than last year and only 0.7% (13 Bcf) higher than the five year average. 

Of course, the relatively cold weather drove the quantity of the withdrawal:

Both the Producing Region (-9.8%) and the East Region (-9.2%) had the biggest withdrawals, while the West, the smallest storage region, only shed 3.4% of supply.  Compared to the five year average, the Producing Region is 3.2% lower than the average and the East Region is 2.4% lower than the average.  The West Region is still 22% higher than the five year average, but that only amounts to 56 Bcf.

In terms of the remainder of the storage withdrawal season, if you assume that it ends the third week of March (the recent average) and target the five year average (1.478 Tcf), we will have to see a net withdrawal of 375 Bcf over the next four weeks (average withdrawal of 93.75 Bcf) to hit the target.  Doable?

Wednesday, February 24, 2010

Petrohawk: Smaller Chokes, Bigger Results?

Earlier this week, Petrohawk had its quarterly earnings call. The company had an operations call earlier this month, so there wasn’t a ton of new information, but there was some good stuff.

Petrohawk is one of the biggest players in the Haynesville Shale with a $900 million 2010 capital budget and 17 operated rigs, not including its non-operated interests in active acreage in San Augustine and Nacogdoches Counties, TX (mostly operated by EOG and Noble), making it the third most active Haynesville driller by my count. The company expects to drill around 115 to 120 operated Haynesville wells in 2010. Well costs for 2009 averaged $10.5 million but were down to around $9 million by fourth quarter 2009. The company expects to get well costs down to the $8 to $9 million range in 2010.

On its call, the company noted that it has “concluded its on-the-ground leasing effort in the Haynesville Shale,” so don’t look for any new acreage additions (or landmen knocking on the door). The company did some “mop-up” leasing in 2009 to fill in gaps.

Petrohawk offered some detail on its new “restricted production practices,” in which the company reduces the size of the choke on a well to purposely reduce the flow of gas. The belief is that the reduced flow rate will flatten out the decline rate and lead to higher recoveries (EURs) in the long term. Petrohawk believes that a well on a smaller choke will produce the same amount of gas on a wider choke over a 12 month period. The first test well has produced seven to eight months of production data, and the company plans to use the technique on about half of its 2010 wells. Expect initial production rates for these wells to be in the 7-10 MMcf/day range.

This restricted choke technique being used by several other companies and likely will gain widespread acceptance across the play. I’m no geologist, but it seems that the very high pressures encountered in the Haynesville Shale are a new and uncommon working environment and the producers are learning a great deal from trial and error. Probably the two biggest knocks on the Haynesville Shale are its steep decline rates and high well costs. If engineers can figure out how to flatten the decline curve a little bit and simultaneously improve recoveries, the economics will be even more attractive.

Over the past couple of years, Petrohawk, like many other producers, has sold new shares and floated new debt issuances to fund capital costs. Now that the company has a decent amount of debt on its books and the capital markets are still in poor shape, the next phase of sourcing capital is the upscale pawn shop, a.k.a. asset divestiture.

On the risk/reward continuum of the natural gas industry, producers are fairly high up the curve. They can see huge returns, but it requires lots of capital to continually drill wells. The high lease bonuses and drilling costs in the Haynesville Shale only exacerbate this situation.

Selling assets isn’t always a negative, but I always look twice when a company starts selling its stuff to fund growth. In Petrohawk’s case, the company is selling (1) its Haynesville midstream business, (2) its interests in the Terryville Field in Lincoln Parish, LA and (3) its interests in the WEHLU Field in Oklahoma. The company expects these sales to close in the first half of 2010 and generate about $1 billion, which will be used to fund its 2010 and 2011 capital budgets. The company also mentioned on the call that it might sell an interest in its captive Hawk Field Services business with the (implied) intent to spin it off some day and not have to fund its ongoing capex.

I don’t mean to sound too down on selling assets. If you can sell assets (especially those that might now be a distraction for you) for full value, more power to you. The downside is that the company’s “revenue portfolio” is considerably less diversified, which might increase its risk. In this case, Petrohawk is selling assets to partially fund its upcoming drilling budgets for the Haynesville and Eagle Ford Shales. These likely are good bets, but there is a lot less of a safety net if anything goes wrong.

Unit Corp.: Update

Unit Corp. is a combined driller/producer.  Unit isn't a big Haynesville player from a production perspective, but the company does have some leases in east Texas totaling about 36,200 gross acres, with about16,200 in Shelby Co. and 20,000 in Harrison Co. Unit's 2010 capital budget calls for spending $31 million to participate in five horizontal wells and two vertical wells, as shown on the map below.

Since Unit is a driller as well as a producer, it is interesting to look over the company's rig utilization numbers.  In 2008, average rig utilization was around 79.5%.  As one would expect, utilization cratered in 2009 to an average of 29.5%.  Activity bottomed in the second quarter (24%) and had picked up to 28% in the fourth quarter.

Tuesday, February 23, 2010

Exco Update

Exco Resources released its quarterly results today and will have a conference call tomorrow (Wednesday). (presentation; press release) The company, which during 2009 signed a joint venture agreement with BG Group to fund activities in the Haynesville Shale, is putting a great deal of resources and cash behind its Haynesville efforts. Here are some key points:
  • Current operated production for the JV is about 340 MMcf/day. Combined with non-operated production, the figure climbs to 427 MMcf/day.
  • The company currently operates 13 rigs in the Haynesville Shale, but that figure will increase to between 14 and 16 in 2010.
  • The 2010 capital budget for the Exco/BG JV is $741 million, which should fund 95 operated Haynesville wells, seven operated Middle Bossier Shale wells and 23 non-operated wells. The company is looking at between 20 and 30 completions a month in 2010.
  • The JV has 107,800 acres in the play. It leased around 22,800 new acres in 2009 (the press release reported 22,800 while the presentation showed 23,800) and Exco is in negotiation with various parties on 42,000 additional acres.
  • Current well costs are running at around $9.5 million per well. This is higher than many other operators, but given the strong production Exco has seen from its wells, clearly the company is doing something right.
As with other big Haynesville players, Exco will take a hard look at the Mid-Bossier Shale in 2010. As noted above, the company will drill seven test wells. The first completion in DeSoto Parish should take place in the first quarter of 2010.

Exco also talked about a couple of important water projects for source water and treatment of spent water. The project recycles and treats water from an industrial plant and pipes it to Exco sites for use in fracture stimulation. This process reduces dependence on water from already strained aquifers and reduces the amount of truck traffic on the roads. The second project is a waste water removal system where spent water is gathered from the well sites and is piped off site.

Here We Go Again

I've been watching natural gas prices fall over the past week with a sinking feeling.  Cold weather has helped even out gas supplies a great deal (although for some not as much as hoped), but with some expected milder weather on the horizon, the storyline of reduced demand/increased supply is returning and futures prices now are at their 11 week low

The net quantities of gas withdrawn from storage so far this year has been strong.  From the peak in late November (a couple of weeks later than usual) through the second week of February, a total of 11 weeks, 1.812 Tcf of gas has been withdrawn from storage.  Based on the five year average, typical for this time of year is a net 1.8 Tcf withdrawal, so we are pretty much on track even though there have been two fewer weeks of withdrawals. 

Looking ahead to this Thursday's numbers, if the current storage figure is going to catch up to the five year average for this time of year (1.84 Tcf) we will need to see a 185 Bcf withdrawal this week. 

Looking further ahead, the five year average for exiting the withdrawal season is 1.478 Tcf, and this typically has occurred in the third week of March.  If you assume that same timing, current storage levels have five weeks to shed 547 Bcf, or about 109 Bcf per week.

Of course, none of these figures can counteract the belief that supply will overrun demand, and that's what runs the market right now.  Increased pessimism about the likelihood for an energy/climate bill that will reduce the amount of coal consumed probably hasn't helped either.  Cold winter weather has been helping support and stabilize gas prices, but until economic fundamentals improve and non-heating demand picks up, the storyline will be over-supply/low demand.

Monday, February 22, 2010

Keeping Up With the Bakers

I was interested to see that international energy services giant Schlumberger made a deal to buy Smith International for $11 billion this weekend.  A deal like this seemed inevitable after the Baker Hughes deal to buy BJ Services last year, as both BJ Services and Smith are big players in the domestic shale business. 

As activity in the U.S. shale patch continues to increase, both in terms of greater drilling activity and increased involvement of major production companies, the big boys on the services side are being drawn in like moths to a flame. 

Has it Really Been Two Years?

The Shreveport Times published a long article in the Sunday paper reflecting on the past two years of Haynesville Shale development.  At the same time the ST noted increased sales tax collections in certain parishes, especially DeSoto and Red River.  DeSoto numbers are summarized below on a table from another ST article earlier this month.

Over the course of writing this web site, I've gotten a number of caustic comments from north Louisiana residents criticizing the abilities of local officials to judiciously administer these newfound gains.  (I'm trying to be diplomatic here.)  I have high hopes with the newfound prosperity, but I've got a sinking feeling that we one day might be sporting bumper stickers like those we saw in the 1980's: "Please God, Just Give Us One More (Gas) Boom. We Promise Not to Blow It Next Time."

As the Haynesville Play continues to grow, how the newfound gains are invested should be a major concern for all of us, especially in Louisiana.  I grew up in Louisiana in the 70's and 80's and remember how the state squandered its gains from the energy industry during the boom periods.  This should never be repeated.

Energy by its nature is a cyclical business, and there are always ups and downs in the cycle.  But probably the best place in the business food chain to be is land owner (or sales/property/income tax recipient).  You may not make the biggest bucks, but you are insulated from the significant business risks that the other participants must take.

But for everyone who receives a check, either royalty or tax, you have to keep in mind that it will not last forever.  You must take the money you receive and invest it prudently.  That goes from the guy who buys a new car but neglects to put money aside to pay income taxes to the local government that funds a bunch of boondoggle projects that don't leave the community better off, or worse line the pockets of political cronies.

The windfall from the Haynesville Shale has the opportunity to be transformative to places like DeSoto and Red River Parishes that were not exactly hubs of prosperity two years ago.  In addition to increased sales and property tax collections, the parishes (and especially the school boards) own significant chunks of resource-rich land that will pay off in spades in the coming years. 

Unfortunately, perhaps the worst thing for fiscal discipline is an ample supply of cash, and that goes for both politicians and you and me.  But before local elected officials go and buy the equivalent of the shiny new Cadillac, we as citizens must require accountability from them on how they spend newfound gains.  If, for example, a casino comes to town generating lots of tax money and the best public works project the community can point to is a freshly paved highway leading to the casino, the public was screwed.

Here is my suggestion (as if anyone asked me) for how to deploy a windfall:
  1. Fix existing problems.  There likely are long lists of deferred maintenance items on buildings or underpaid teachers, for example.  (Also in that category is fixing the damage caused by the boom - such as roads - something for which E&P companies should bear responsibility.) 
  2. Invest, don't spend.  Money should be invested intelligently on projects that make the community a better place for everyone and diversify the economic base to create a stable platform for future economic growth.  
  3. Plan for the future.  Officials need to dedicate a portion of future earnings to reserve funds, both for ongoing operations and support as well as a stash for a rainy day.
Citizens need to hold officials accountable and not just bitch and moan about the "same old, same old."  The Haynesville Shale is a golden goose, and the biggest crime imaginable would be for this golden opportunity to be squandered.

Arthur Berman's New Article

Here is the link to Arthur Berman's new article on shale gas that I mentioned would be coming up in a post last week.  The article is published on The Oil Drum, a peak oil web site.  Berman uses the Exxon Mobil acquisition of XTO Energy as a jumping off point to describe why he doesn't think the current development scheme for extracting shale gas is economical.  The article is strongly opinionated and likely will elicit a hearty debate in energy geology circles.

Saturday, February 20, 2010

New Texas Completions

  • Letourneau Gas Unit 3 #23 HH, Anadarko E&P: 7.068 MMcf/day initial production on an adjustable choke; Carthage Field (Haynesville), Harrison Co.
  • Letourneau Gas Unit 2 #19 HH, Anadarko E&P: 2.563 MMcf/day IP on an adjustable choke; Carthage Field (Haynesville), Harrison Co.
  • Frost Unit 5 #11, Anadarko E&P: 0.289 MMcf/day IP on an adjustable choke; North Carthage Field (Bossier Shale), Panola Co.
  • L.T. Poss Unit #15 HH, Anadarko E&P: 3.682 MMcf/day IP on an adjustable choke; North Carthage Field (Bossier Shale), Panola Co.
  • Red River 257 No. 2 #1, Common Resources: 11.304 MMcf/day IP on 24/64: choke; Bossierville Field (Bossier Shale), San Augustine Co.

Developmental Activity:
  • Jenk-Hazb Gas Unit 1 #2 H, Berry Oil; Carthage Field (Haynesville) Harrison Co.
  • Lacy Gas Unit #1 H, Penn Virginia Corp.; Carthage Field (Haynesville), Harrison Co.
  • Shaw #1 H, GMX Resources; Carthage Field (Haynesville), Harrison Co.
  • Bennett Gas Unit #1 H, EOG Resources; Carthage Field (Haynesville), San Augustine Co.
  • Blankenship Creek Fed GU #1 H, Chesapeake Operating; Carthage Field (Haynesville), Shelby Co.
  • USA Fed GU #1 H, Chesapeake Operating; Carthage Field (Haynesville) Shelby Co.

Friday, February 19, 2010

Rig Count Mixed

The Baker Hughes weekly rig count showed a decrease of one working rig to bring the U.S. total to 1,345.  In terms of mix, there were three fewer oil rigs and two additional gas rigs working.  Interestingly, there were eight more vertical rigs working this week than last and a decrease of five horizontals and four verticals.

In the Haynesville Shale region of E. Texas and N. Louisiana, inclusive of other formations, the rig count was down one, with two fewer rigs in E. Texas and one additional rig in N. Louisiana.

By my detailed rig count (based on Baker Hughes data), the Haynesville Shale rig count increased by two to 162.  The count in Louisiana went up by two to 125, while the count in Texas stayed put at 37 with relatively little rig movement.  Details are posted at the link in the upper right hand corner of the page.  The summaries below show the past four weeks by operator and parish/county for each state.

The table below summarizes all of the rigs in the Haynesville Shale by operator.

Congress Starts to Look at Fracking

With an information request sent by key members of the U.S. House Energy and Commerce Committee to companies involved in the process of hydraulic fracturing, Congress began a closer look at fracking.  Specifically, the information requests asked for more information on the chemicals used in the fracking process.  Hopefully the research will expand beyond the narrow look at the chemicals and focus on the fracking technique and its long history of safe use.  It is incumbent on the natural gas industry to make this happen.

While many view this as an unnecessary action, it was inevitable with all of the noise surrounding the use of fracking in the East Coast Marcellus Shale formation.  While many in the energy industry are running around crying foul and calling it a witch hunt, it is the opportunity for proponents to state their case in a compelling fashion. 

Unfortunately, several environmental incidents have occurred in the early stages of the development of the Marcellus Shale that have stoked real fear among both environmentalists and land owners.  It is up to the gas industry to demonstrate that these issues were not related to hydraulic fracturing.  If the industry buries its head in the sand and doesn't participate in the process, we can't expect the truth to come out.  If there is nothing to hide, prove it.  This is the chance for the industry to separate the truth from the noise.  Believe me, the environmental fear, even if not based on truth, is not going to go away on its own.

There was a good column in the Houston Chronicle a couple of weeks ago about how the chemical industry undertook a voluntary initiative of self-regulation called Responsible Care aimed at protecting all of the stakeholders of the industry, from employees to neighbors to the environment.  If the natural gas industry is going to be a big time player in this country it has to be proactive about self-policing.  Transparency and accountability are key. Game on!

Thursday, February 18, 2010

Coal in the Tank?

This evening, I opened my Wall Street Journal to a full page ad for the Journal asking, "Will my next car burn more coal than gas?"  The  ad touts the Journal's "live in the know" marketing campaign, but the question is one that I've been wondering for a while.  How can we promote plug-in electric cars as an environmentally friendly solution when more than half the electricity generated in this country comes from coal?

Trading oil for coal doesn't seem like that great of a deal to me, but the conversation about green-this and green-that is full of these hidden traps.  What still baffles me is why natural gas still gets a bad rap when we are so concerned about the environment.  It's the same point I was making yesterday in talking about the Boulder, CO coal plant, so I'll spare you the soapbox.  But we as a nation have to overcome the stigma about natural gas being a fossil fuel to better balance our thirst for energy and our need to preserve the environment.

Shale Skeptic Arthur Berman to Resurface Soon

Is skepticism the new optimism?  I don't know, but with the recent negative report from Bernstein Research and a new upcoming analysis from shale skeptic Arthur Berman, the questions about the viability of the Haynesville Shale are back.  I haven't seen Mr. Berman's analysis, but in reading Allen Brooks' "Musings from the Oil Patch" newsletter, he provided something of a preview of it (it is the first article at the link).

The basic conclusion of both negative reports is that the core of the Haynesville Shale is smaller than previously reported.  Berman has been claiming for a while that most Haynesville Shale wells are not economic at low to moderate commodity prices.  There is also the suggestion that the Haynesville Play will not be conducive to "manufacturing" operations. 

What's interesting about this new analysis is that there is a little more physical explanation for these conclusions, specifically fault lines in the shale that help determine the core areas.  The map below is from Mr. Berman's soon to be published article. 

Ultimately, we won't know the right answer to the question of the Haynesville Shale's productivity for years to come.  The measures of well economics are much more complex than well capex cost and IP rates.  As Mr. Brooks points out in his newsletter, the finding and development (F&D) costs are a large part of the equation.  Those costs can be determined at a gross level, but what is not known is how they are broken down on a well level basis because that is dependent on production volumes, and it is too early to tell what those will be with certainty. 

One key issue:  Mr. Berman suggests that the recoveries (EUR) for Haynesville wells will be 2.0 Bcfe, while most producers use figures ranging from 5.0 to 7.5 Bcfe (in its conference call, Questar mentioned that it has some wells booked at 10 Bcfe EUR).  When you slash the denominator in the equation by well more than half, the numbers change drastically and things start to look pretty ugly. 

At the end of this round of debate, the question will remain the same and the answers will still be many.

Devon: Update

Devon Energy also reported earnings this week.  Although the company has a large Haynesville Shale leasehold, it has not been a big driller to date since a good portion is held by production.  For 2010, Devon has a $250 million capital budget for the Haynesville Shale and plans to run five rigs.

Devon has become famous for its S. Kardell G.U. #1 well in San Augustine County, which produced a monster 30.7 MMcf/day initial production rate for 24 hours.  Now, the news on this well is rather mixed.  The well produced just under one Bcf for the first 90 days but it is only flowing at 3 MMcf/day right now.  Kardell is Devon's first well in the southern part of the play (the company drilled eight wells in the Carthage area in 2009), so management is trying to figure out the geology of the area.  On the quarterly conference call, Devon officials noted that the Haynesville Shale is thinner in the southern part of the play, which might yield lower estimated ultimate recoveries (EUR) in this area compared to the Carthage area, where Devon expects EURs in the 6 Bcfe range.  The Kardell well might be a cautionary tale against high IP rates.

Devon is currently drilling two Middle Bossier Shale wells, one around Carthage, TX and the other in the southern part of its Texas acreage.  The company has high expectations for these wells, especially in the south, where the Bossier Shale is fairly thick.

Quick Chesapeake Update

Now that Chesapeake has so many Haynesville wells flowing and rigs operating, its operational updates have become rather vague.  The company is maintaining 38 rigs in the play and still has around 535,000 net acres.  In its press release, the company noted several wells, only one of which I have not previously reported:
  • Sloan 4 H #1: 23.4 MMcf/day initial production rate (24 hour peak); Holly Field, DeSoto Parish, Sec. 4/Township 13/Range 13; non-unitized, serial #239791 (Chesapeake referred to this well as "Sloan 4-12-13" but this is the closest I could find.  I'm assuming it's a typo in the press release.)
With several companies changing their completion techniques to moderate initial flows to improve reservoir recoveries (i.e. Questar from earlier today), super sexy high IP rates might become a thing of the past.  I'm not sure what the new statistic to wave in front of investors and stock analysts will be, but I'm sure the E&P guys will think of something.

Questar: Completions and Update

Questar held its quarterly operations call earlier this week and announced the following completions that have yet to be made public (all are Questar operated, and the initial production figures are 24 hour peak IP rates):
  • Jimmy Woodward 34 H #2: 23.7 MMcf/day initial production; Woodardville Field, Bienville Parish, Sec. 34/Township 15/Range 9; Haynesville reservoir A, serial #239653
  • Weyerhaeuser 10 H #1: 13.3 MMcf/day IP*; Alabama Bend Field, Bienville Parish, S10/T15/R10; res. A, serial #239920
  • Cupples H #2: 15.7 MMcf/day IP*; Elm Grove Field, Caddo Parish, S12/T15/R12; non-unitized stray, serial #240063
  • Darrel W. Sharp 12 H #1: 16.1 MMcf/day IP*; Alabama Bend Field, Bienville Parish, S12/T15/R10; res. A, serial #239520 (Questar reported this as "Sharp 2-1" but I think they got it wrong in the press release and that they are referring to the Darrel Sharp well - at least that's my guess)
  • Sample 2 H #1: 14.3 MMcf/day IP*; Thorn Lake Field, Red River Parish, S2/T14/R11; non-unitized stray, serial #239722
  • Sample 2 H #2: 14.4 MMcf/day IP*; Thorn Lake Field, Red River Parish, S2/T14/R11; non-unitized stringer, serial #240031
Note that the wells marked with (*) were completed with a new technique to minimize pressure drawdown at the reservoir to improve the productivity if the reservoir.  The IP rates are therefore not as sexy as the earlier rates.

With a recent acquisition, Questar has 46,000 net acres and is running seven rigs.  The company is concentrated in area where Caddo, Bossier, Bienville, Red River and DeSoto Parishes meet and has been one of those producers that has kept its head down and produced some consistent, attractive wells.

Gas in Storage Down 190 Bcf

The weekly EIA natural gas in storage report showed a net withdrawal of 190 Bcf last week to bring the total gas in storage figure down to 2.025 Tcf.  The weekly withdrawal narrowed the spread between the current year compared to last year and the five year average.  The withdrawal last year at this time was 44 Bcf and the five year average was 129 Bcf. 

The weekly withdrawal represented a decrease of 8.6% of the storage amount, with the largest percentage decrease in the East Region (-9.3%) and the smallest in the West Region (-6.4%).  With the large withdrawal, the gas in storage in the East Region, the largest consuming region, is now slightly below the five year average (-1.7%).  The biggest surplus is in the West Region (+19.3%), which has the smallest amount of storage.

The weather map for last week pretty much shows the colder weather, which lead to the strong withdrawal of gas (although it may have been lower than the expectations set by those stuck at home by the snow).

Wednesday, February 17, 2010

Ford's CNG-Ready Taxi

At the 2010 Chicago Auto Show, Ford unveiled its Transit Connect Taxi, which is designed to be easily retrofitted for CNG or LPG fuels.  While the vehicles are designed for natural gas conversion, Ford will not do the conversions itself or sell the vehicles as natural gas cars.

Natural gas as a vehicle fuel has been in the news lots lately thanks to T. Boone Pickens's fat bankroll.  His PR campaign is making strides with politicians, automakers and consumers alike.  The strategy of getting fleet users to adopt CNG and to start building fueling infrastructure across the country is starting to make some progress and the announcement by Ford is exactly what CNG proponents need. 

The best selling points for CNG have been lower fuel costs and decreased emissions.  Expect to hear more of the latter arguement as cities work hard to reduce air pollution in coming years. 

Mitsui and Anadarko Partner in Marcellus Shale

Japanese giant Mitsui & Co., through its Mitsui E&P company, invested $1.4 billion for 32.5% of Anadarko's Marcellus Shale assets (press release).  Anadarko has 715,000 gross acres in the Marcellus Play (~300,000 net).  Mitsui will pay 100% of Anadarko's drilling costs in 2010 and 90% of the drilling costs in 2011 through 2013.  Mitsui also has the option to purchase 32.5% of Anadarko's share of its existing Marcellus wells for $100 million.

This is an interesting story because it is yet another independent gas company following the joint venture strategy with a bigger partner that is less experienced in the ways of shale.  It is also interesting to see Asian companies enter the shale fray. 

The word on the street recently has been to look for a new round of acquisitions by major oil and gas companies.  The Exxon/XTO deal back in December certainly validated this line of reasoning.  The big companies need to grow their reserves through exploration or acquisition but seem to have fewer and fewer options to do so through exploration these days, especially on the oil side.  But will the deals that folks see coming be acquisitions or joint ventures?

Anadarko hasn't been in a hurry to drill its 80,000 acres in the Haynesville Shale, but it is definitely on the clock in the Marcellus Shale.

A Modest Proposal for Boulder's Carbon Woes

Over the weekend I read an article in the Wall Street Journal about Boulder, CO and the city's difficulty in reducing its carbon dioxide output.  The city has invested heavily in subsidizing efficiency measures but these efforts have not been well received and Boulder's carbon output has only decreased by 1% over the past couple of years.

While I'm sure the Journal is tickled stupid about the irony, the article completely missed the big picture.  Only in the captions for the photos and exhibits is it noted that the city receives nearly all of its electrical power from a coal-fired power plant and that electricity for residential, commercial and industrial uses represents 57% of the city's greenhouse emissions. 

Uhh, what am I missing here?  I'm all for high efficiency light bulbs, greater insulation and tankless water heaters, but instead of investing hundreds of millions of dollars in efficiency projects, the city and its residents should chip in and buy the utility a brand new natural gas-fired turbine.  It could cut greenhouse gasses from power generation in half and reduce other forms of sulfur, mercury and particulate pollution. 

Unfortunately there is a stigma about investing in natural gas to achieve environmental goals because it is a fossil fuel, even though it is far superior than the other fossil fuels from an environmental perspective.  We need to overcome this stigma to make real progress in balancing our thirst for energy and the quality of our environment.  I was in Denver and Boulder a couple of years ago (before I started this web site) and my lingering memory from that trip was seeing these mile-long coal trains passing through the Denver from the Powder River Basin in the north to power stations across the west.  While it is economically cheaper to burn all that coal, we as a nation do not take into account the non-economic costs.  At least not yet.

Tuesday, February 16, 2010

New GMX Completion

GMX announced the completion of the Mia Austin #1H horizontal well with an initial production rate of 14.1 MMcf/day on a 20/64" choke at 5,492 psi. The well has a 4,600 foot lateral, with 12 frac stages.  The well is located in the North Carthage Field (Bossier Shale) in Harrison Co.


Monday, February 15, 2010

Peak Shale?

Another article in the Houston Chronicle based on stock analyst research suggested that production rates in the Haynesville Shale have peaked and that the core of the play is smaller than originally assumed.  More troubling is the suggestion that the breakeven natural gas price for Haynesville profitability is in the $7/Mcf range. 

I haven't seen the full report, but there are definitely lots of opinions out there.  I always take stock analyst reports with a grain of salt for a number of reasons, but it will be interesting to see how the "core area" changes over the course of the year.  Just today, a reader commented to me on the changes to the EnCana core map between August 2009 and February 2010.  I'm going to keep my eyes open for new core area maps.

Roundtrip LNG

Another tanker dropping off LNG at the Cheniere Energy import facility was reloaded with gas bound for another destination.  An export?  A turnaround?  A re-export?  Whatever you call it, most of the gas that was delivered was sent packing. 

This is not earth-shattering news, but at a time where the U.S. was supposed to be overrun with LNG, it is interesting that companies are finding new destinations for the stuff.  It won't stop coming, but LNG exporters have gotten the message that the U.S. is not the best end market.

More on International Shale and Implications published an article last week based on a research report by JP Morgan about the potential for European shale and the impact of North American shale gas on the world market.  The unknowns about the potential for European shale gas abound, but it's not keeping the major oil companies from striking deals for large quantities of acreage across Europe.  It's becoming a minor drama with the question of whether or not Europe can become more energy self-sustaining and the impacts to Russia's Gazprom (which recently suspended its Arctic Shtokman field by three years because of demand-related unknowns). 

One thing that I keep thinking is that with the potential for shale gas worldwide and the development of monster projects in Australia, Qatar, Papua New Guinea, the world likely will be well/over-supplied with natural gas.  What that means to us in the U.S. is that we will have to eat our own cooking.  In other words, there likely won't be a good export market for U.S. shale gas, especially over the Atlantic, the closest point of departure for most shale gas.  We will not be able to over-produce and have the export market absorb the excess.  Demand in the U.S. will have to increase to support the potential level of production from shale fields.

Sunday, February 14, 2010

Texas Rig Counts Up

In compiling the Haynesville Shale rig counts on the Texas side, I noted an increase in activity this week.  If you include some Wildcat wells that look suspiciously like Haynesville wells, the rig count increased from 33 to 37.  A couple of the new wells are in the new Carthage (Haynesville Shale) Field.  The table below breaks it down by company and by county.

Saturday, February 13, 2010

Recent Texas Completions

  • PEC Minerals Gas Unit 2 #3H, XTO Energy: 4.761 MMcf/day IP on 15/64" choke; North Carthage Field, Panola Co. (Bossier Shale)
  • Billy Harris Hay #1H, Goodrich Petroleum: 11.698 MMcf/day IP on 24/64" choke; North Carthage Field, Panola Co. (Bossier Shale).  There was an earlier completion for Billy Harris Hay #1 in Rusk Co. in the Beckville Field with a 12.2 MMcf/day IP rate.  In TRRC records, they appear to be the same well and the correct location seems to be Panola Co., but I'm not sure which initial production data is correct.
Development Activity:
  • Verhalen "B" #7H, GMX Resources; North Carthage Field, Harrison Co.

Friday, February 12, 2010

Rig Counts Up Again

The Baker Hughes weekly rig count showed another increase in national rig count to 1,346, up 11 from last week.  The net eleven is the result of 13 new gas wells and two fewer oil wells.  The breakdown of the new rigs is five vertical, four horizontal and two directional rigs.

In the Haynesville region, inclusive of other formations, the rig count increased by four, three in north Louisiana and one in north Texas. 

By my count, the Louisiana Haynesville rig count increased from 121 to 123 this past week, as summarized on the table below and on the list linked on the top of this page. 

I'll work on the Texas count some time this weekend.

EnCana: Update

EnCana released its quarterly numbers this week and had lots to say about the Haynesville and Mid-Bossier Shales.  With the company splitting into two and the E&P side staying "EnCana," the company is going to be dependent on the Haynesville and its Canadian shale plays for continued growth, especially now that the steadier, cash flow producing side of the business is no longer attached. 

The company's Haynesville strategy these days is to retain its leases and optimize its production techniques.  EnCana has 435,000 net acres and has plans to drill between 140 and 160 gross wells (~100 net) in 2010.  But combined with another 100 or so net wells in 2011, that will only secure about 165,000 of the 435,000 total acres.  That will leave lots of work on the back end to secure the rest of the acreage or they might end up farming it out to another producer.

As part of its strategy, the company is working towards a "gas factory" concept (a phrase that will be bandied around a lot over the next year or two), where EnCana optimizes production to reduce costs and time. The concept is summarized on the slide below:

EnCana maintains an expectation of an estimated ultimate recovery (EUR) from Haynesville wells of 7.5 Bcfe, as summarized on the type curve, compared with actual results, below:

EnCana was one of the first companies to tout the Middle Bossier Shale last summer.  Since then, the company has drilled two Mid-Bossier wells, including one in Red River Parish flowed at more than 19 MMcf/day in the initial production test with 8,500 psi flowing casing pressure.  The company expects to drill about ten (net) wells in the Mid-Bossier in 2010.

While these results are very good, they in some part distract EnCana from its land retention strategy because the company needs to drill Haynesville wells so it can hold the deepest rights on its acreage.  I think the company's drilling activity in the Mid-Bossier has more to do with generating some hard numbers on its Mid-Bossier acreage so it can book the reserves, thereby expanding its reserves base to be more attractive to investors.

LA Mineral Board Lease Sale Results

I took a look at the most recent sales of Haynesville area properties through the Louisiana State Mineral Board auctions for the past two months and found some interesting results.  I've summarized the winners below.  They are all in areas with Haynesville units or near Haynesville activity.  All winning bids are three year leases with 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.

There is a fairly wide price discrepancy for the Caddo Parish land in the February sale.  That property is in the Shreveport metropolitan area and is around and in Cross Lake.  There are provisos in the leases that the auction winner cannot use that land to actually drill wells, which likely reduces their value.

The auction results from the "fatter" parts of the Haynesville Play show more promising results, with lease bonuses ranging from $10,613 to $15,618.

Storage Down 191 Bcf

The EIA weekly natural gas in storage report, delayed one day because of terrible weather that shut the government down for a few days, showed a 191 Bcf decrease to 2.215 Tcf.  This compares favorably (but not exceedingly so) to the change last year (-164 Bcf) and the five year average (-155 Bcf), but it was not enough to narrow the spread between the current year and the historical measures too much. 

Overall, the weekly withdrawal represented a 7.9% decrease in storage, with the East Region (-9.3%) withdrawing the most on a percentage basis and the West Region (-4.2%) withdrawing the least.

With the big storms and cold weather this week, I'm sure traders are looking for an even bigger withdrawal next week.

Chesapeake: The Copernicus Strategy

There was a post at the Financial Times web site yesterday suggesting that one of the reasons behind Chesapeake Energy's strategy of engaging in joint ventures with larger, often international partners is to remain an independent company and avoid a corporate takeover.  The theory is that with so many codified partnerships it would be too messy and contentious of a deal for an acquirer to undertake. 

I think that this line of thinking is true, but I submit that it is selling Chesapeake short.  I think the company is following more ambitious strategy, what I call the Copernicus Strategy.  Chesapeake wants to be the center of the natural gas universe and have all the other companies in the industry revolve around it, much as the planets in our solar system revolve around and depend upon the sun.  It wants to be the first company that comes to mind when you hear "natural gas." 

Chesapeake is quick to point out its ranking in terms of production or acreage by geographic area.  It is the most aggressive entrant to a new play and usually is the first and loudest to shout about it.  The deals with big integrated oil companies are ones where these companies effectively submit to Chesapeake, paying a premium for access to the company's acreage and knowledge.  It allows Chesapeake to become a partner in future deals and the all around go-to guy for natural gas.

It is important for all of the company's stakeholders (shareholders, partners, lessees, etc.) not to underestimate Chesapeake's outsized ambitions. 

But that's just my opinion.

Thursday, February 11, 2010

NFR to Raise $250 Million

I saw a snippet that NFR Energy, the production company formed by Nabors Industries and energy private equity company First Reserve, raised $200 million in debt financing earlier this week.  The issue was actually reduced from the planned amount of $250 million.  The seven year senior notes have a 9.75% coupon, which seems kind of pricey when LIBOR is +/- 1%, but it's not a big surprise given the state of the industry.  It's still cheaper than equity funding.

Because the company is not publicly traded, it is not obligated to release current news, but I assume the money was raised to fund drilling operations.  NFR has had some very successful wells on the Texas side of the play, so hopefully that trend will continue.

Comstock: All-In on Haynesville in 2010

Comstock Resources reported its quarterly earnings last week and provided a pretty good update of the company's activities in the Haynesville Shale.  What stands out is how important the Haynesville production will be for the company.  Comstock has 86,000 gross Haynesville acres and 73,000 net acres, divided 51K in Louisiana and 22K in Texas.  Most of the company's drilling activities have been on the Louisiana side in DeSoto Parish, as shown on the second slide.

Comstock also touted its Middle Bossier (Comstock calls it "Upper Haynesville") acreage in the call, although it doesn't have any reportable results.  The company believes 52,000 gross acres (46,000 net) are prospective for Mid-Bossier Shale, as shown on the map below.  Comstock is using a 5 Bcfe EUR for its Mid-Bossier acreage, same as it does for its Haynesville property.  The company plans to drill up to 15 Mid-Bossier wells in 2010, mostly in the South Toledo Bend (DNR designation: Converse) and North Toledo Bend Fields (DNR: Benson and Logansport).  The first Mid-Bossier well to surface in 2010, which is expected to be completed in March, is in the South Toledo Bend Field.  (It wasn't specifically stated in the call, but I think Comstock is referring to the Converse Field in Sabine Parish for this first well.  The only Comstock well that is being completed in that area is the Sustainable Forests 3 #1, serial #240372, S10/T8/R13. I'll keep an eye on this.) 

Comstock is going all-in on the Haynesville in 2010 with a $386 million, or 96% of the company's capital budget for the year dedicated to the play.  The company plans to drill 56 total (gross) Haynesville/Mid-Bossier wells in 2010 and all but three of them will be in Louisiana, with a concentration in the Logansport and North Toledo Bend Fields.  The budget summary and drilling map are below (the Waskom and Blocker wells are in TX).

Energy Transfer to Buy Haynesville Gathering

Energy Transfer Partners, owner of the planned Tiger Pipeline, has acquired additional gathering and treatment assets in the Haynesville Shale from Tristate Midstream, LP.  Tristate is owned by a private equity company called Energy Spectrum.  The sale is for 120 miles of gathering lines representing 275 MMcf/day of capacity (map below) and treating facilities with a 480 MMcf/day capacity.  The gathering/treatment infrastructure will interconnect with the Tiger Pipeline, which is expected to be in service in 2011.

Tristate was founded in 2007 to acquire and build pipeline and treatment capacity.  Although financial terms weren't disclosed, it looks like a  pretty good deal for the company's financial sponsor Energy Spectrum.  Right place, right time.

Wednesday, February 10, 2010

New Louisiana Completions

  • Rosalie Dunn ETAL 11 #1, Encore Operating: 4.5 MMcf/day initial production on 29/64" choke at 1,850 psi; Greenwood-Waskom Field, Caddo Parish, Sec. 11/Township16/Range 16; Haynesville reservoir A, serial #239376
  • Peacock Family 20 #1, Petrohawk Operating: 13.247 MMcf/day IP on 24/64" choke at 7,030 psi; Caspiana Field, DeSoto Parish, S17/T15/R13; res. A, serial #239535
  • Marr 22-11-15 H #2, Chesapeake Operating: 5.886 MMcf/day IP on 18/64" choke at 5,100 psi; Logansport Field, DeSoto Parish, S22/T11/R15; res. A, serial #24178
  • Brown SW Min 9 H #1, EnCana Oil & Gas: 15.009 MMcf/day IP on 19/64" choke at 8,477 psi; Bracky Branch Field, Red River Parish, S10/T13/R10; res. A, serial #239770
  • Bundrick LD Corp 25 H #1, EnCana Oil & Gas; 18.605 MMcf/day IP on 22/64" choke at 8,385 psi; Red River-Bull Bayou Field, Red River Parish, S26/T14/R11; res. A, serial #239877

Feeling Exxon's Pain

Yesterday I noted with interest an article in the Wall Street Journal about the nation of Ghana blocking the $4 billion sale of an ownership interest in the country's successful offshore Jubilee field from Kosmos Energy to Exxon Mobil Corp. because it wants its own state-run energy company to buy the stake for a song.  And that's Ghana, a relatively stable country.  Think of what it must be like to do business in Nigeria or Iraq.

I can't say I can empathize with having $4 billion that someone won't let me spend, but I certainly feel for a company that wants to make a major investment but is essentially locked out by a foreign government.  It gives yet another indication as to why Exxon is buying XTO Energy and getting into the domestic gas shale business.  We in the U.S. don't often fully appreciate our combination of political transparency and free market economy.  We bitch and moan about the daily complaint, but we don't truly understand how blessed we are until we read about shenanigans like this.

Exxon and the other supermajors, for all their wealth and power, are in something of a jam.  While they used to be the biggest players worldwide in the energy business, they are now overshadowed by foreign governments and their national oil companies that control about 95% of the remaining reserves of oil and gas.  Supermajors are still needed because of their expertise and experience, but they serve at the pleasure of the government and are always at risk of being jammed down in a deal or nationalized (see: Venezuela).  These massive companies will have lots of trouble increasing reserves and growing annual production even by small amounts.  Access to resources will be a challenge for the foreseeable future.  All of this suddenly makes shale gas in the U.S. more attractive.

EOG: Good Bossier Test

EOG Resources released its quarterly update yesterday and trumpeted both its new Middle Bossier Shale test and an update of what it considers to be the sweet spots of the Haynesville Shale.

First, the Mid-Bossier test.  The company revealed that its Sustainable Forests 5 #2-ALT well, which targeted the Mid-Bossier Shale, had an inital production rate of 13.1 MMcf/day and reached a vertical depth of 11,400 feet.  EOG estimates that the well has an EUR of 8 Bcfe, which is as high or higher than the figures publicly cited for Haynesville wells.  The well is located in the Trenton prospect in DeSoto Parish, where EOG says it has five rigs working. (NOTE: I can't find a Sustainable Forests 5 #2-ALT well.  I think it actually might just be #2 (w/o "ALT), located in the Ten Mile Bayou Field of DeSoto, Sec. 5/Township 11/Range 12, serial #240171, and is classified as a "non-unitized Haynesville stray.")

Second, the company touted its definition of the "sweet spots" on both the Texas and Louisiana sides.  I don't doubt EOG's interpretation of the Texas sweet spot, but the blue circle is curiously drawn around a high concentration of EOG leases.  Hmmmm. 

The Mid-Bossier news is very good.  I know a lot of people who are anxiously awaiting more test results to better define the boundaries of the shallower play.

Tuesday, February 9, 2010

"One if by Air, Two if by Water..."

The natural gas industry has yet another environmental concern to face.  Buffeted by concerns over water, from the impact of hydraulic fracturing, to the amount of water consumed to the treatment of wastewater, the industry now has to address air quality.

The small town of DISH, TX (the town formerly known as Clark, but which sold its name to DISH TV several years ago) last night passed a moratorium on new natural gas activities for 90 days in response to air quality tests that showed high levels of benzene from two of 94 test sites around the town (more detail on ordinance). 

DISH is in the heart of the Barnett Shale and is home to a fair amount of natural gas infrastructure, including a number of compressor stations and pipeline intersections.  The mayor of DISH has been outspoken on this issue for a while and will attract lots of attention with this ordinance. 

Given the speed at which information turned into misinformation about the supposed impacts to groundwater in the Marcellus Shale, the industry needs to be very careful and responsive.  Environmentalists would love nothing more than another juicy issue to devour. 

Air quality issues from drilling and processing equipment can be addressed much more easily than water issues, but it is yet another distraction requiring action for the industry.  Again, how the industry responds will be important to the future development of natural gas in the U.S.  If the industry buries its head in the sand and puts more money into PR than real solutions, it is going to get its a** kicked.  That won't be good for anybody.

Monday, February 8, 2010

International Shale Prospects

I read some interesting comments about prospects for international shale gas made by Chesapeake Energy CEO Aubrey McClendon at an investor conference last week. When speaking about the prospects for major oil companies successfully exploiting shale gas assets in other countries, he said, "they will have a hard time over there at the end of the day."  Chesapeake has been involved in international scouting with its Marcellus Shale partner Statoil ASA, and he said that most international prospects lack the basic fundamentals for production and the quality of the shale formations is below what he has seen in the  U.S. 

Though the article noted above doesn't get into many specifics, success depends on having exploration and production infrastructure, from tools and equipment to skilled personnel to gathering and processing infrastructure.  Also important is a strong demand for the use of natural gas in a target country as well as a supportive business and political climate. 

Many of these are chicken-and-egg problems, but they are reflective of why the U.S. is a worldwide leader in natural gas production and the development of new technology.  Success here came not from major oil companies sinking billions of dollars into huge projects but from small businesses patiently developing resources, infrastructure and demand. 

Outside of the political and business climates, most of the concerns McClendon cites can be solved with patient investment and a long-term time horizon, but that's not how multinational oil companies operate.  Of course, nothing can overcome poor geologic circumstances, but I doubt much of that raw data will become public any time soon, so we'll just have to depend on hearsay for now.

One thing is clear:  major oil companies mostly missed the boat on U.S. shale gas.  McClendon has the right for a little "nanny-nanny-boo-boo" action.  If the majors want to be part of the shale gas boom, and I think they do, it will either come from international development or by buying a large domestic independent (like Exxon's purchase of XTO).  It was interesting to see that during the past year when gas prices cratered there were no "distressed" sales of major consequence.  It will be interesting to see if there are any big acquisitions on the upswing (if the market indeed swings upward).

Texas Developmental Activity

I noted the following developmental activity in Texas this weekend:
  • B. Furrh GU #2H, Samson Contour; North Carthage Field (Bossier Shale), Harrison Co.
  • Markey Gas Unit #1H, Devon Energy; North Carthage Field (Bossier Shale), Panola Co.
  • Lawless Unit #25H, XTO Energy; North Carthage Field (Bossier Shale), Panola Co.
  • McRae Hay #5H, Goodrich Petroleum; Beckville Field, Rusk Co.
  • Morrison #1H Common Resources; Bossierville Field, Shelby Co.

Saturday, February 6, 2010

Texas Rig Counts

I have posted my estimate of the Texas working rigs based on information from Baker Hughes and the Texas RR Commission.  Some wells are classified as Wildcat, but I suspect that some are Haynesville/Bossier Shale wells.  I've broken them out on the spreadsheet but consolidated them on the summary below.  In total, I see 33 Texas Haynesville rigs working (six Wildcat), up two from lasat week.  Last week I erred by double counting a rig.  I've updated the summary below but have not changed it for past weeks.

Friday, February 5, 2010

New Louisiana Completions

  • Willis 25 H #1, Petrohawk Operating: 21,361 MMcf/day initial production on 20/64" choke at 8,441 psi; Elm Grove Field, Bossier Parish, Sec 36/Township 16/Range 11; Haynesville reservoir A, serial #240009
  • Wright ETAL 17 H #1, Exco Production: 8,840 MMcf/day IP on 20/64" choke at 4,202 psi; Bethany Longstreet Field, Caddo Parish, S17/T15/R16; res. A, serial # 239840
  • Graves 24 H #1, Chesapeake Operating: 13,704 MMcf/day IP on 22/64" choke at 5,848 psi; Greenwood-Waskom Field, Caddo Parish, S24/T16/R16; res. A, serial #239581
  • Phillips Foundation 3H #1, Chesapeake Operating: 13,507 MMcf/day IP on 22/64" choke at 5700 psi; Greenwood-Waskom Field, Caddo Parish, S3T/16R/6; res. A, serial #239793
  • Woolley 17-16-15 H #1, Chesapeake Operating: 14,728 MMcf/day IP on 22/64" choke at 6,571 psi; Johnson Branch Field, Caddo Parish, S17/T16/R15; res. A, serial # 240105
  • BSMC LA 9 HZ #1, Comstock Oil & Gas : 9,587 MMcf/day IP on 26/64" choke at 5,154 psi; Benson Field, DeSoto Parish, S16/T10/R14; res. A, serial #239384
  • Matthews Trust 7 #1, Petrohawk Operating: 20,111 MMcf/day IP on 22/64" choke at 8,988 psi; Red River-Bull Bayou Field, DeSoto Parish, S7/T13/R11; non-unitized, serial #239425
  • Black Stone Minerals LP 26H #1, Forest Oil Corp.: 5,432 MMcf/day IP on 10/64" choke at 7,635 psi; Converse Field, Sabine Parish, S26/T8/R14; res. A, serial #239521 (this completion occurred in March, 2009 but had been shut-in wating for pipeline)

Rig Counts Up Again

The weekly Baker Hughes rig count showed an 18 rig increase across the U.S.  Seventeen of the 18 net rig additions were gas rigs.  Of the new rigs, 12 were horizontal, four directional and two vertical.

In the Haynesville region, inclusive of other formations, the total rig count increased by three to 203, with a three rig increase in east Texas.  The north Louisiana count stayed at 133.

I've looked at the Louisiana Haynesville rigs.  It appears that the count has dropped by one to 121.  The only real difference is that one Chesapeake rig is missing, likely on the road between wells.  Below is the update by producer and parish.  The detailed rig list is published under the button on the upper right of the page.

Texas should be ready this weekend, so check back if you're interested.

Thursday, February 4, 2010

NEW FEATURE: Texas Completions

I have finally gotten around to compiling a list of Texas Haynesville/Bossier Shale completions.  It can be found by clicking the box in the upper right hand corner like this one:

Texas and Louisiana have vastly different information resources and different ways of classifying the Haynesville Shale wells.  The list I have compiled is based on Texas production data from the various fields that host Haynesville/Bossier Shale wells.  Unfortunately, when digging deeper I find that many of the older wells on the list are classified as Cotton Valley and others are classified as Wildcat.  The problem exists to a lesser degree In Louisiana, as some early Haynesville wells were also classified as Cotton Valley and others are still called Jurassic.  Basically, I've had to go through well by well and make a judgment call.  I've got a short list of other wells that didn't make the cut in Texas that I will review again shortly, and there are some wells that did make the cut that I probably need to purge.

Because Texas doesn't use the Section/Township/Range geographical organization method, it is harder to sort the wells by geography, so I've just sorted them by total production.  Out of curiosity, the table below looks at the Texas wells by sustained flow rates (MMcf/day).  This is obviously biased towards the more recent completions, but it was interesting to see that many of the top ten daily producers are actually high on the list of total producers.  Many of the recent completions have very high initial production rates, so it will be interesting to see how the list changes over the next quarter.

The most recent wells that have been announced but are too new to have production data are at the end of the list (page 5).  I'm actively updating this part of the list (the production data won't be updated that often).  As always, this is a work in process, so let me know if you see something that is out of line.

Gas in Storage: Losing Traction

The weekly EIA working gas in storage figure showed a 115 Bcf drop to 2.406 Tcf.  This withdrawal is lower than the weekly withdrawal last year (-194 Bcf) and the five year average for this week (-178 Bcf).  As a result, the gas in storage figure is 9% higher than last year's level and 6.6% higher than the five year average.  A couple of weeks ago, these numbers had evened out, but warm and seasonal weather over much of the U.S. for the previous two weeks created slack in the use of gas for heating.  Now the red line has changed trajectory and is in danger of poking back out of the top of the five year band.

The weekly drawdown in the East and Western Regions averaged around 6% of the gas supply, but the Producing Region only withdrew 1.4% of supply.  The bulk of the excess supply compared to the five year average is in the West Region (19.3% over five year average) and Producing Region (+10.6%), while supplies in the East Region are only 1.2% above the five year average.  The temperature map below tells the story.

With the bitterly cold weather across much of the country this week, the storage figure should show a decrease next week, but until then we will have to endure more stories about the oversupply of natural gas.

Wednesday, February 3, 2010

Regency Haynesville Extension Pipeline Officially in Service

The Haynesville Expansion and the Red River Lateral extensions to the Regency Intrastate Gas System (RIGS) are now officially in service.  The projects add 2.1 Bcf/day capacity to RIGS and provide service to the area around the Terryville and Woodardville fields in north Louisiana.  Regency Energy Partners completed the project in partnership with funders Alinda Capital Partners and GE Energy Financial Services.

Callon Petroleum Joins Haynesville Party

Callon Petroleum, a Natchez, MS-based producer, announced this week that the company has acquired acreage in the Haynesville Shale as part of its efforts to diversify its holdings from 100% offshore Gulf of Mexico production.  The company acquired a 70% working interest in 577 acres in Bossier Parish, LA for $3 million, or about $7,400/acre (when WI grossed up).  The company expects to spud its first well in mid-2010 and has dedicated $14.5 million of its 2010 capital budget to Haynesville drilling costs.

Callon is yet another company investing in the Haynesville Shale to diversify away from higher risk offshore drilling. Offshore plays are longer lived, but they require significant amounts of upfront capital and bear greater risk, as witnessed with the damage and shut-ins caused by hurricanes of the second half of the last decade. Shale plays, by contrast, require a fair bit of upfront capital but have a faster payback and lower risk. It makes sense to have both in your portfolio.

Tuesday, February 2, 2010

Wastewater Treatment in the Marcellus Shale

There have been lots of headlines lately about the fears of fracking in the Appalachian Basin as drilling in the Marcellus Shale heats up.  Today's Washington Post featured an article about concerns over how frac wastewater is treated.  This is a real issue, compared to the overblown perception that gas drilling ruins groundwater, and it is being actively addressed.

The issue revolves around frac water that comes back out of the well during the completion process.  In Louisiana, Texas and Oklahoma, that waste water is usually trucked to an injection well and deposited deep in the earth (likely a problem for another day, but...).  In Appalachia, the geography and geology does not allow for these wells, so the water is usually trucked to a municipal treatment plant, where it is treated and discharged into a river.  Unfortunately, because frac wastewater is very salty, the treated wastewater still has some salt and impurities after treatment, and the release into waterways has in some places impacted salinity levels and led to other concerns. 

The gas producers are working on this issue very actively.  There are solutions from frac tanks to recycling being used, while at the same time municipalities are reducing the amounts of frac water they will take.  This is not a new issue for the region, as coal mines often have to pump out millions of gallons of tainted water that seeps into mines. 

Water, both going in and going out, will continue to be one of the biggest issues related to shale gas and an appropriate response by the gas producers will go a long way in keeping the golden goose alive and well.

Ellora Sells Kansas Interests

Ellora Energy has officially closed the $247 million sale of its Kansas interests and is now setting its sights southward to, as the CEO said, "maximize the value of our remaining assets in the Haynesville and Bossier Shale gas plays in East Texas as we continue to explore our strategic options."  That means they are looking to sell.

As reported back in December, Ellora is looking to exit its positions in the Hugoton Field in Kansas and the Haynesville Shale. Given the promising acreage in the Haynesville Play, I'm sure the company is looking for a big number.  The Kansas sale allowed the company to pay off its debt and put $100 million in the bank, so it has the luxury of being able to wait for the right offer for its Haynesville interests.