Monday, February 1, 2010

Petrohawk Operational Update

Petrohawk released its annual operations update this morning (presentation).  There wasn't a whole lot of new information, but the company did give some greater explanation of its type curve and production techniques.

By way of background, Petrohawk operates 17 rigs over 360,000 net acres in the Haynesville Play and has expanded its property holdings by 60,000 acres, some of it in Shelby and Nacogdoches Counties, TX and Webster Parish, LA.  (I'm guessing we will see a few more drilling rigs in Webster Parish in 2010).  Of the company's acreage, approximately 122,000 acres are prospective for the Middle Bossier Shale (HK calls it "Lower Bossier" but for consistency sake I call it "Middle Bossier").  The company should be reporting results from a couple of Mid-Bossier wells in the first half of 2010.

As with other companies, Petrohawk has worked diligently to reduce the drilling time and costs while simultaneously improving completion techniques to maximize production.  An interesting metric used by Petrohawk is cost per foot drilled, which decreased from $357 in Q1 2009 to $271 in Q4 2009.  I assume the above metric includes the length of the laterals and not just the vertical feet drilled.

Petrohawk also offered some more detail behind its 7.5 Bcfe expected ultimate recovery (EUR) figure.  The company's curve (shown below) is based on 16 MMcfe/day production for the first month, an 82% decline rate for the first year and a hyperbolic factor ("B factor") of 1.1.  Based on this curve, 33% of production (2.0 Bcfe) should occur in the first year and 80% (6.0 Bcfe) in the first ten years.

The type curve above is for wells drilled at a 24/64" choke, which has been typical for the company, but Petrohawk is experimenting with a new technique where it chokes back the well to create higher flowing pressures and reduced production rates in the early phase of production. The company hopes "additional reserves can be produced from each well by greatly reducing the rate of drawdown in bottom hole flowing pressure, thereby reducing the possibility of permeability loss as a result of the rapid drawdown of pressure."  Most importantly, Petrohawk expects to see higher EURs for wells.  The company's Chairman said he would have some curve data from this new reservoir optimization technique posted on the web site, so I'm excited to see some preliminary results. 

Production companies are not known for showing restraint, but the ultimate goal is to show higher reserves, which makes the company more valuable.  The good news:  it's a win-win for producer and land owner.

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