Friday, March 5, 2010

Southwestern Energy: Update

Southwestern Energy held its quarterly conference call recently and updated its progress in the Haynesville Shale.  The company has 42,300 net acres (about 69,000 gross) prospective for the Haynesville and Middle Bossier Shales in southern Shelby and northern San Augustine Counties, Texas.  To date it has completed five Haynesville wells and one Mid-Bossier well (11.3 MMcf/day).  It is in the process of completing another (Red River 620 #1H - operated by Common Resources) and drilling two more (Red River 619 #2 and Owens #1H - both are operated by Common Resources).

In terms of recoveries, Southwestern is booking a EUR of "just over 5 Bcf."  Well costs are about $10 million per well and don't vary between Haynesville and Mid-Bossier targets.  Wells right now are being completed with 14 frac stages.  When asked about the possibility of limiting choke sizes to improve ultimate recoveries, Southwestern's management replied that because it has only completed seven wells to date, the company has little data to understand how choke sizes impact recoveries. It is open to the concept but will wait to see if other operators are successful with the technique.

Capital expenditures in the East Texas region will be about $231 million, which represents 11% of the company's 2.1 billion budget.  But that capex includes wells to be drilled in other formations, most notably the James Lime.  Southwestern is targeting 21 to 26 Haynesville/Mid-Bossier wells in 2010, but some will be non-operated. The company stated that if commodity prices plummet as they did last year, capital spending will be trimmed. 

Southwestern is a big operator in the Fayetteville Shale and has land in the Marcellus Shale.  On its conference call, management indicated that breakeven natural gas prices for those two plays are in the $4 range, while wells in the Haynesville Play have a breakeven in the $5 range.  Seeing that the Henry Hub spot price of natural gas crossed below $5 on February 21 and hasn't looked back, it looks like it will be yet another interesting and stressful year in the Haynesville Play.

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