Saturday, May 29, 2010

Haynesville Rig Count: +5 to 182

The weekly Haynesville Shale rig count showed a five rig increase to 182.  By my count, that's the record high rig count for the Haynesville Shale.  The five rig increase came from north Louisiana, with both Chesapeake and EnCana adding two rigs, accounting for the bulk of the gain. With this increase, Haynesville Shale rigs now account for 95% of the active rigs in north Louisiana.  The count was unchanged in east Texas.

Friday, May 28, 2010

US Rig Count: +17 to 1,535

The weekly Baker Hughes rig count continues to climb.  This week it increased by 17 rigs to 1,535, a 71% increase over this week last year and 75% off its recent low.  The gas rig count decreased by two to 967, while the oil rig count jumped by 17 to 555. 

In the Haynesville region, inclusive of other formations, the rig count increased by two to 213, adding three rigs in north Louisiana, while dropping one rig in east Texas.

I'm out of town, but I will try to get the detailed rig count published as soon as possible.

Shell to Buy East Resources

Shell Oil  has entered into an agreement to buy East Resources, a big player in the Marcellus Shale, for $4.7 billion.  Last year, private equity investor KKR made a minority investment of $350 million in East that looks to be a big winner.  Along with the company's 1.25 million acres in the Marcellus, East has some leases in the Eagle Ford Shale. 

The deal further emphasizes the importance of shale gas as part of the energy future.  As the supermajors struggle to find profitable projects internationally, they see shale plays as more reliable (maybe more expensive) deals in a safe environment. 

Hopefully Shell will complete their Marcellus wells a little more diligently than they do in the Haynesville with SWEPI, LP.

Thursday, May 27, 2010

Gas in Storage: +104 Bcf to 2.269 Tcf

The weekly EIA working gas in storage report showed a 104 Bcf net increase, bringing the gas in storage figure to 2.269 Tcf for the week.  This weekly injection is approximately on par with last year (+106 Bcf) and the five year average (+94 Bcf), although if traders were expecting, say, a +107 Bcf injection, it could be viewed as a "beat" and cause prices to jump.  You never know.

The current weekly storage level is 3.2% higher than last year and 16.3% higher than last year.  This is a slight improvement upon last week, but likely not enough to make much of a difference.

Wednesday, May 26, 2010

Noble to Drop a Haynesville Rig

The news is a couple of weeks old, but Noble Energy mentioned on its quarterly earnings call that it is going to drop one of its two Haynesville rigs in June.  Following the herd, Noble is going to focus more on "liquid-rich activities." Management stated that it can hold its lease obligations with a single well.

The ONLY Positive Impact from the Gulf Spill

An article in the Financial Times yesterday suggested that onshore natural gas drilling might be the beneficiary of the fallout from the huge oil spill in the Gulf of Mexico.  Politicians realize that fossil fuels are necessary but they have to realize (and probably do) that the choice is the lesser of the evils.  Between exporting our wealth to foreign countries, supporting rogue governments, risking catastrophic oil spills, endangering coal miners' lives and other hazards too many to mention, drilling shale gas is starting to look like a better alternative in Washington.

It is hard for me to say that anything good can come from this disastrous spill.  Living along the Gulf Coast, I wake up every morning and go to bed every evening thinking of this spill and the wide-ranging immediate and long-term impacts. 

This tragic event was 100% avoidable.  Blame can be generously spread from the lax oversight from an MMS that has been broken for a decade to BP's history of playing it to close to the edge with safety to a general lack of preparation and understanding of such an environmental catastrophe.  Billions of dollars are spent on each of these projects.  It completely galls me that the consideration of environmental impacts was short changed.

I could rant on, but I'll spare you.  I'm hoping and praying that either the top kill or the junk shot shuts down the BOP this week.  The flow of oil HAS TO STOP.  If these tricks don't work, they should plug the leak by stuffing a few Englishmen in the hole until they drill the relief well.

Tuesday, May 25, 2010

Petrohawk: Post Script

Lest any Haynesville fans get too full of a head from Petrohawk's very positive analyst day, there was one comment towards the end of the Eagle Ford Shale section of the presentation that doesn't bode well for the Haynesville.  When management was asked by an analyst about its three year plan for rig utilization, the speaker responded:
"The three year plan is going to be dictated by commodity prices, don't you think?...If we're still at $4 gas in early '12, and we really have lease capture in the bag, which we will, do we need to spend $800 million in the Haynesville?  Probably not.  And then we can shift some more money over into Blackhawk (in Eagle Ford Shale), just to accelerate Blackhawk.  Just because we want to and we can."
In other words, if prices continue to suck wind for the next few years, when companies stop drilling to hold leases, drilling activity in the Haynesville Play will decline dramatically.   File that away under "impact of low gas prices."

Petrohawk Analyst Day: Part Three (of Three)

Lastly, I wanted to mention Petrohawk's impression of the Middle Bossier Shale. The company has yet to produce from the formation and has only one well in process at this time (Whitney Corp. 19 #1, expected to be completed in late June), but it did present some interesting analytical data. First, below is the company's isopach map for the formation. Petrohawk is fairly excited about its 122,000 net acres prospective for the Mid-Bossier, but it thinks the play is somewhat spotty and that the best of the Mid-Bossier is nowhere near the best of the Haynesville. That said, however, Petrohawk is using a 5.5 Bcf EUR estimate for its acreage in the play.

What I found interesting was a series of  cross sections of six wells cited on the map below.

The porosity map was intended to show further proof for management's delineation of the play into 4-6-8-10+ Bcf EUR rings.  The cross sections show both the Haynesville and Mid-Bossier formations (red = good).  You can trace the cross sections through Texas to the northeast until you get to the Tri-States well in central Bossier.  The first three samples show good Mid-Bossier results.  It gets predictably less impressive as you move north through Louisiana.  How far north the Mid-Bossier Shale extends has been a big question in NW Louisiana.  This doesn't provide answers, per se, but it does provide another data point.

Petrohawk Analyst Day: Part Two

Petrohawk management spent some time going through the company's "recipe" for drilling and completion.  The goal (obviously) is to increase production and decrease costs. The company provided a sample of an authority for expenditure (AFE) worksheet that lays out the costs to ivrill a Haynesville well.  For us mere mortals on the outside looking in, it is interesting to see where the $8-$10 million well costs come from.  Note, it does not include leasing costs, which might be significant for some wells (as Arthur Berman would remind us). 

Note that $2.8 million of the costs listed above are for the completion process (stimulation/sand control).  Petrohawk signed a forward contract with two of its three suppliers to fix costs around $2.5 million for 2010.  The market price would be about $3-$3.5 million right now, according to management.

Pressure pumping in the Haynesville Shale is a major concern, both in cost and timing.  Given the unique requirements of the play, only four companies that can provide required pressure pumping services for Haynesville completions.  As a result, it is harder to get jobs done and the costs are high because the service provider has pricing power.  Not only are there fewer of the pieces of equipment in the market, the pumps themselves take a beating.

Petrohawk's solution is to redesign the wells to be narrower, as shown below.  The belief is the narrower pipe will require lower horsepower pumps.  Right now, the equipment is required to pump at 15,000 HP, where only 10,000 HP might be required in the Eagle Ford or Marcellus Shales.   If Petrohawk can lower the horsepower requirement significantly, perhaps Cotton Valley-grade pumping equipment can be used.  This would expand the universe of service providers, which would speed completions and reduce costs.

In terms of the recipe for the best completions, Petrohawk has found by comparing data from all of its wells that tighter perf clusters with longer stages and higher levels of proppant make the best wells.  The company believes that longer stages also require fewer stages, which reduces costs.  But using more proppant increases cost.  Management also noted that the completions recipe changes by location within the play because of differing geology, so it's not a one size fits all approach.

Along with redesigned wells, Petrohoawk has been on the leading edge of using restricted choke rates to make decline curves less steep and improve EURs.  Data is still somewhat limited, but as we reported last month, all new wells will be produced on some form of restricted choke.  Management provided more detail in the presentation yesterday.  What they have found out is that the higher the EUR for a well, the less effective the restricted choke approach.  This might be because the sheer size and power of the well might already be restricted by the wider choke.  Below are comparative results (restricted chokes in blue and red lines) for four categories of wells broken down by EUR: 4-6 Bcf, 6-8 Bcf, 8-10 Bcf and 10+ Bcf.  Note that the two charts on each page are 1) daily production vs. cumulative gas produced and 2) flowing wellhead pressure vs. cumulative gas.  Neither chart is time-based, which might be confusing.

The data is young, but it shows some promise if the pattern continues.  Petrohawk is also experimenting with restricting chokes on older Haynesville wells.  A few wells have been tried.  In the example used below, pressure got down to around 900 psi, which is line pressure, so the well was choked back.  Production declined as expected, but the company found that it recovered after a few months.  Based on the new curve resulting from higher pressures, the well will hit a breakeven point ("production neutral point" below) to recapture the lost production and cruise ahead with a more favorable decline curve.  (The revised curve is the red line.)  When asked in the Q&A how wells will behave after pressures drop again, management seemed less certain. 

EUR Data on a Few Petrohawk Wells

Before I get into the rest of the Petrohawk data, I wanted to note some estimated ulimate recovery (EUR) information on a few specific Petrohawk wells for people who might have an interest in them. Right now, Petrohawk carries a 7.5 Bcf type curve for the Haynesville Shale. This effectively is an average of a lot of wells that perform very differently based on geology, pressure, gas in place, etc. In the context of discussing the performance enhancements created by restricting choke sizes, Petrohawk noted the well-specific EURs for the following wells:
  • B&K Expl. 37-1 (serial #238527): 4.7 Bcf EUR
  • Allbritton Cattle 9 #2-ALT (serial #239078): 5.9 Bcf EUR
  • DeSoto PPJ 35 #1 (serial#239711): 6.3 Bcf EUR
  • Griffith 11 #1 (serial#238281): 6.6 Bcf EUR
  • Ninock 6 #1 (serial#239468): 9.4 Bcf EUR
  • Clark 7 #1 (serial#239948): 13.1 Bcf EUR
  • Ninock 34 #1 (serial#239801): 14.9 Bcf EUR
There are some impressive wells out there for sure.

Monday, May 24, 2010

Petrohawk Analyst Day: Part One

Petrohawk held its analyst day this morning, and it yielded lots of good information, especially about the Haynesville Shale.  I'll break it down into smaller bits over the next day or so for easier consumption. First, it is worth noting that Petrohawk considers the Haynesville Shale, at 250 Tcf of gas, to be the eighth largest oil and gas field in the world, and that list includes oil fields like the famous Ghawar in Saudi Arabia. 

Petrohawk worked hard to assure analysts that its lease retention strategy is "taken care of."  That's a confident statement when the company has a significant number of expirations in 2011-12, but management showed the graphic below as a way to explain its strategy, at least in north Louisiana, where the company has 294,000 net acres, or approximately 1,568 sections. 

Of the acreage, Petrohawk has deemed 312 sections north of Township 17N non-economic.  The company drilled one well in central Bossier Parish (Tri-State Realty 28 #2, serial #238771) and found the reservoir to be lower quality than the rest of the play, so it moved on quickly.  That land likely will be released (not re-leased).  Another 108 sections east of Range 9W in Bienville Parish is only slightly more favorable.  It has not been de-risked and seems a lower priority for retention.  It is, however, prospective for other formations, so the company likely will make the effort to hold this land. 

That leaves 1,148 sections, 367 of which are already HBP, leaving 781 sections to be held.  Of that, 422 sections are unitized but are operated by others.  Another 198 sections, 84 of which have 2012 expirations, are Petrohawk operated and make up the heart of Petrohawk's retention strategy.  Petrohawk is drilling 114 sections in the second half of 2010 and in 2011, so management feels like it is on its way to keeping its best acreage. That leaves 161 sections, about which management was a bit fuzzy.  They are not unitized yet and are operated by other companies.  They may or may not be drilled before lease expiration.

The chart illustrated that Petrohawk's acreage where the company is the operator is relatively small - a doable proposition.  It also illustrated that a large part of the company's lease retention is in the hands of other operators, which could be dicey in the long run. 

In Texas, Petrohawk mainly depends on AMI (area of mutual interest) partners like EOG Resources (Nacogdoches Co.), Noble Energy (Shelby Co.) and Newfield (Shelby Co.) to retain its approximately 75,000 acres.  EOG and Noble have been drilling for a while, but Newfield, which operates on a federal lease, only recently started its program.

Management went into great detail about its impression of the core of the Haynesville Play.  Based on the data the company has collected from its own wells and from other sources (trading partners, communal data and third party data), it has narrowed its definition of the economic boundaries of the play to the blue ring on the map below, which represents 4 Bcf wells.  It further narrows the core of the core to 10 Bcf wells in the area of northwest Louisiana where Caddo, Bossier, Bienville, Red River and DeSoto Parishes meet (that area needs a cool name like the Four Corners or Five Points South to describe the location). 

Note on the map above the area labeled "Do not plan to drill" - that is the 312 sections north of Township 17N noted above - and the "Not de-risked" area - that is the 108 sections east of Range 9W that is a low priority.  The general area of the Louisiana core is old news, but what is interesting to note about the map above is how little of the economic 4 Bcf area extends into Harrison and Panola Counties.  This reflects recent trends in drilling rig utilization in Texas as rigs have moved to the south. 

While Petrohawk is bullish on the Shelby Trough area in the southwestern corner of the Haynesville Play with EURs in the 6 to 7 Bcf range, it is totally in love with the NW Louisiana core area.  Management described the Louisiana core to be a "step-change" higher than the best of the Texas side.  This could be a little self-promotion given that Petrohawk is heavily invested in that part of the play, but the results have been consistently strong in the Louisiana core.   In fact, when management started the Haynesville portion of the presentation, it characterized the play in one word, "predictable."

The challenge for Petrohawk is going to be holding its acreage without outspending its cash flow and making sure that its non-operated leases get held.  Petrohawk has already said that it will not look outside for additional funding (not counting the $1.4 billion of assets sold off earlier this year).  The company noted that it is not going to be leasing any more Haynesville acreage, so at least the company's capital spending will be focused on holding existing leases.  I'll address finances, Petrohawk's operational initiatives and the company's update on the Mid-Bossier Shale tomorrow.

More Recent Louisiana Completions

  • SRLT 33-16-15 H #1, Chesapeake Operating: 14.52 MMcf/day IP, 22/64 choke; Johnson Branch Field, Caddo Parish, S33/T16/R15; res. A, serial #240156
  • Martin 26 H #1, Petrohawk Operating: 9.311 MMcf/day IP, 14/64 choke; Swan Lake Field, Bossier Parish, S23/T15/R11; res. A, serial #240029
  • CHK LA Min 9-11-12 H #1, Chesapeake Operating: 16.525 MMcf/day IP, 22/64 choke, 7,100 psi; Ten Mile Bayou Field, DeSoto Parish, S9/T11/R12; res. A, serial #239719
  • CHK LA Min 32-13-13 H #1, Chesapeake Operating: 15.564 MMcf/day IP, 22/64 choke, 6,950 psi; Red River-Bull Bayou Field, DeSoto Parish, S32/T13/R13; res. A, serial #239929
  • Johnson Trust 6-11-13 H #1, Chesapeake Operating: 14.16 MMcf/day IP, 22/64 choke, 5,890 psi; Spider Field, DeSoto Parish, S6/T11/R13; res. A, serial #239714
  • San Patrico Cattle 22-11-13 H #1, Chesapeake Operating: 17.256 MMcf/day IP, 22/64 choke, 6,530 psi; Trenton Field, DeSoto Parish, S22/T11/R13; res. A, serial #239738
  • McMichael 30 H #1, XTO Energy: 15.328 MMcf/day IP, 11/64 choke; Bethany Longstreet Field, DeSoto Parish, S31/T13/R14; res. B, serial #239815

Recent and Updated Texas Completions

New Completion:
  • Brown Gas Unit #6H, Penn Virginia Resources: 10.3 MMcf/day IP on 30/64" choke; North Carthage Field (Bossier Shale), Harrison Co.
Updated Completions (Updating information released by companies):
  • Clark "H" #1H, Comstock Resources: 10.767 MMcf/day IP, 24/64" choke; North CarthageField (Bossier Shale), Harrison Co.
  • Bosh #19H, GMX Resources: 7.735 MMcf/day IP, * 14/64" choke; North CarthageField (Bossier Shale), Harrison Co.
  • Blocker Heirs #20H, GMX Resources: 14.4 MMcf/day IP, * 20/64" choke; North CarthageField (Bossier Shale), Harrison Co.

Developmental Activity:
  • Holt #2H, GMX Resources; Carthage Field (Haynesville Shale), Harrison Co.
  • Blocker Heirs #21H, GMX Resources; Carthage Field (Haynesville Shale), Harrison Co.

Friday, May 21, 2010

Haynesville Rig Count: +1 to 177

The Haynesville Shale rig count increased by one to 177 this week, with the one rig increase coming in Texas.

RIg Count: US +12 to 1,518

The Baker Hughes rig count showed a 12 rig increase to 1,518 this week.  The increase was driven by gas rigs, which increased by 18, while oil rigs decreased by six.  By type, there were six more horizontal rigs, four more directional rigs and two more  vertical rigs.

In the Haynesville Shale region, inclusive of other formations, the rig count dropped by two to 211.  East Texas held steady, while north Louisiana dropped two rigs.

Feature Adjustment: Maps Reorganized

As I keep adding maps, I started to get overwhelmed by the busyness of the right side of the page.  As  a result, I decided to consolidate all of the maps onto a separate maps page.  I also broke down the Louisiana completions Google map into six maps by geography so that they will load a little faster.  The maps have all the same information, but it is broken down as follows:

Louisiana Haynesville Completions:
  • All Louisiana Completions (Google EARTH)
  • Bossier, Bienville and Webster Parishes (Google Maps)
  • Caddo Parish (Google Maps)
  • Northern DeSoto Parish, Townships 13 - 16 (Google Maps)
  • Southern DeSoto Parish, Townships 10 - 12 (Google Maps)
  • Red River Parish (Google Maps)
  • Sabine and Natchitoches Parishes (Google Maps)
Haynesville Working Rigs:
  • All LA & TX Working Rigs (Google EARTH)
  • All LA & TX Working Rigs (Google Maps)
Mid-Bossier Shale:
  • Google EARTH
  • Google Maps
I hope this will make the information more user-friendly.  Remember that the Google Maps are limited by size, so if you want to see all of the information in one place you have to use the Google EARTH maps.

Chesapeake Keeps Looking East for Dough

The Financial Times reported yesterday that Chesapeake Energy has expanded its follow-on offering of preferred stock to Asian investors from $500 million to $900 million.  As part of this new round, the sovereign wealth funds of China (China Investment Corp. - CIC), South Korea (Korea Investment Corp. - KIC) and Singapore (Temasek) will join Chinese investor Hopu Investment Management and a Japanese industrial company in taking down the $900 million round of equity.  CIC and KIC will each invest $300 million with the remaining $300 million going to Temasek, Hopu and the Japanese company. Earlier in the month Temasek and Hopu took down $600 million of preferred stock.  The PIPE security to be issued in this round is similar to the equity issued earlier this month:  convertible preferred stock paying 5.75%.

By my count, this will bring to $2.6 billion the new preferred equity going into Chesapeake.  I count $1.5 billion from Asian investors and $1.1 billion from North American institutional investors.  I'm too lazy to do the dilution analysis, but based on media reports, it looks like the $2.6 billion would convert to around 15% to 20% of the company when converted.

As the FT article points out, the Asian investment represents a bullish bet on natural gas.  The investors see gas at the bottom of the cycle, and they see increased demand for the fuel as its environmental benefits relative to coal and oil continue to be recognized.  These funds increasingly are looking towards commodities as investments, having been stung in other sectors.  I have the feeling they will be eager buyers of other securities from the U.S. gas industry.

Thursday, May 20, 2010

Kitimat: LNG Going the Right Direction (Export)

I found it interesting that EOG Resources bought a 49% stake in Kitimat, the proposed Canadian LNG port that would be located on the Pacific coast about 400 miles north of Vancouver, B.C.  The 700 MMcf/day project, which is 51% owned by Apache Corp., still must go through the regulatory approval process, but it already has lined up contracts with Korea Gas Corp. and Spain's Gas Natural SDG SA.  EOG also acquired a 24.5% interest in Pacific Trail Pipelines, which will supply gas to Kitimat.

If approved, Kitimat would be the only LNG export facility in North America other than the Kenai terminal in Cook Inlet Alaska, owned by ConocoPhillips and Marathon Oil.  With the huge potential for natural gas from prospects like the Horn River Shale and the Montney Shale, British Columbia will be awash in natural gas in a few years (sound familiar?).  But with the abundance of shale gas in the Lower 48 and the prospects for a large natural gas pipeline from Alaska to the Lower 48 (either the state's plan or the Denali pipeline - both still a big uncertainty), it makes a lot of sense to export the gas to the west because the market to the south will be saturated. 

If Kitimat stays on schedule, it could begin construction in 2012 and be open in 2014.

Storage: +76 Bcf to 2.165 Tcf

The gas market may have caught a little break this week, as the EIA weekly working gas in storage report showed a 76 Bcf increase, bringing the gas in storage to 2.165 Tcf.  This injection figure favorably compares to this week last year (+100 Bcf) and the five year average (+93 Bcf).  The current storage levels are still 3.5% higher than last year and 16.6% higher than the five year average.

Exco-BG-Common Resources Deal Closed

Exco Resources announced last week that it had closed the acquisition (with BG Group) of Common Resources for somewhere between $441 million and $446 million (closing adjustments probably moved the final number). 

The missing piece of the puzzle was the sale of Common's Eagle Ford Shale assets, upon which the closing of the Exco deal was predicated.  News comes today that Canadian E&P company Talisman Energy purchased these assets for $359 million.  Talisman is better known as an international player, but the company has existing positions in the Marcellus and Eagle Ford plays. 

Wednesday, May 19, 2010

Recent Louisiana Completions

  • C M Hutchinson 37 H #1, Questar: 16.328 MMcf/day IP, 22/64 choke, 8,000 psi; Elm Grove Field, Caddo Parish, S37/T15/R12; res. A, serial #240388
  • L&S Dev 7-16-15 H #1, Chesapeake Operating: 11.582 MMcf/day IP, 22/64 choke, 6,850 psi; Johnson Branch Field, Caddo Parish, S7/T16/R15; res. A, serial #239733
  • Williams 18-16-15 H #1, Chesapeake Operating: 12.432 MMcf/day IP, 22/64 choke, 6,324 psi; Johnson Branch Field, Caddo Parish, S18/T16/R15; res. A, serial #240451
  • Ramsey 26-13-16 H #1, Chesapeake Operating: 14.643 MMcf/day IP, 22/64 choke, 6,971 psi; Bethany Longstreet Field, DeSoto Parish, S26/T13/R16; res. B, serial #240323
  • Davis ETAL 36 H #1, Chesapeake Operating: 14.064 MMcf/day IP, 20/64 choke, 7,027 psi; Caspiana Field, DeSoto Parish, S36/T15/R14; res. A, serial #240235
  • Jackson Davis 25 H #1, EnCana Oil & Gas: 13.702 MMcf/day IP, 21/64 choke, 5,864 psi; Caspiana Field, DeSoto Parish, S26/T15/R14; res. A, serial #239782
  • Hunter Mannies ETAL 23 H #1, Chesapeake Operating: 16.317 MMcf/day IP, 22/64 choke, 7,132 psi; Grand Cane Field, DeSoto Parish, S23/T12/R14; res. A, serial #240058
  • Richardson ETUX 27 #1, BEUSA Energy: 6.429 MMcf/day IP, 12/64 choke, 8,600 psi; North Grand Cane Field, DeSoto Parish, S27/T13/R14; res. A, serial #239152
  • Reddy 9-12-12 H #1, Chesapeake Operating: 17.664 MMcf/day IP, 22/64 choke, 8,165 psi; Red River-Bull Bayou Field, DeSoto Parish, S9/T12/R12; res. A, serial #239445
  • Gamble 24 H #1, Chesapeake Operating: 11.832 MMcf/day IP, 22/64 choke, 4,560 psi; Red River-Bull Bayou Field, DeSoto Parish, S24/T14/R12; res. D, serial #239826
  • Black Stone ETAL 7 H #1, Chesapeake Operating: 15.243 MMcf/day IP, 22/64 choke, 6,127 psi; Trenton Field, DeSoto Parish, S7/T11/R12; res. A, serial #239231
  • Mary McCoy 14 #1, SWEPI, LP: 23.236 MMcf/day IP, 26/64 choke, 7,980 psi; Bracky Branch Field, Red River Parish, S14/T13/R10; res. A, serial #240330
  • McLemore ETUX #1, SWEPI, LP: 24.152 MMcf/day IP, 26/64 choke, 7,900 psi; Woodardville Field, Red River Parish, S7/T14/R9; res. A, serial #240249
  • CHK LA Min. 28-10-13 H #1, Chesapeake Operating: 15.62 MMcf/day IP, 22/64 choke, 7,523 psi; Converse Field, Sabine Parish, S28/T10/R13; res. A, serial #240216

CNG Baby Steps

I read this morning that GM is going to introduce CNG and LPG versions for two of its full sized vans, the Chevrolet Express and GMC Savana, but they will be available to fleet customers at this time.

GM is putting its toe back in the natural gas waters after offering NG vehicles in the 1990's.  With the possibility of government entities offering subsidies to purchasers of natural gas vehicles, it is a good move for GM.  Between the subsidies and the lower operating cost and improved environmental impact (not to mention not having to buy an oil-based fuel), the opportunity could be very large for GM.

It will be interesting to see how customers react.  Fleets are obviously a good place to start, as they generally need vehicles for short haul trips and can afford to install a fueling station.  I wonder how long it will take Ford to come out with a similar model.  In any case, it is good to see a domestic vehicle maker getting into CNG vehicles.  I like the idea of plug-in electric or hydrogen vehicles, but natural gas is a fuel that is plentiful in the U.S. and the technology is well developed.

Tuesday, May 18, 2010

A Good Map of Haynesville Geology

I'm always looking for new maps.  I saw the map below in some materials from Plains Exploration and thought it was a good, simple explanation of the geology of the Haynesville Shale its boundaries.  Each company has a different interpretation of the play's boundaries, but this map shows why they all have fairly consistent features.

...if You Believe the Market

I've been watching natural gas spot prices closely the past couple of weeks (actually, the past couple of years, but who's counting?) and although there has been a lot of up and down, the volatility of the movements seems to be declining lately.  For the past couple of weeks, it's almost as if the price picks a direction, up or down, for the week and gradually moves in that direction for the rest of the week.  After the wild swings last year, it's kind of a relief, temporary I'm sure, to see fewer violent swings. 

The first quarter of this year started off promising, with prices rising above $6.50 (even to $7.51 one particularly cold day), but it's been a downhill slide since then.  Lately, it's flattened out, but has it hit bottom?  I'm not one to say, if only because I'm terribly superstitious.  So, I peeked at the futures prices to see where the market thinks today prices will be over the next year.  The chart below shows actual spot prices in blue from January 1, 2010 through last May 14, 2010 (averaged for the week) and a year's worth of futures prices for June 2010 through May 2011 in dark red.

Based on the futures prices, it all looks deceptively calm and slightly favorable for gas prices ahead. The reality, of course, will be much messier.  But if you believe the market, the price of gas will only barely break $5.50/MMBtu, but for a couple of months in the winter.  If this pattern is realized, it will continue to put pressure on gas producers.  Other prognosticators see prices from $4.50 to $7.50 over the next year.  Nobody has a crystal ball, but the futures market is the one place where the predictions are specific for a long period of time, though ever changing.

I'm no believer that the market knows all, but it is interesting to see where the people who are are paid to guess are putting their money.  It might be a fun experiment to track this graph over the course of the next year to see how reality (spot prices) match the projections (futures prices as of this arbitrary date).  Like I've got nothing better to do.

Monday, May 17, 2010

Recent Texas Completions

  • Hassell Gas Unit #3H, EOG Resources: 12.405 MMcf/day IP, 22/64" choke; Carthage Field (Haynesville Shale), Nacogdoches Co.
  • Tatum #1, Riverstone Energy: 0.852 MMcf/day IP, 18/64" choke; Carthage Field (Haynesville Shale), Rusk Co.
  • Walker Unit #1H, EOG Resources: 2.311 MMcf/day IP, 20/64" choke; Carthage Field (Haynesville Shale), Shelby Co.

Developmental Activity:
  • Jenkins GU1 #1H, Berry Oil; Carthage Field (Haynesville Shale), Harrison Co.
  • Verhalen "A" #7H, GMX Resources; Carthage Field (Haynesville Shale), Harrison Co.
  • Murray Gas Unit #1H, EOG Resources; Carthage Field (Haynesville Shale), Nacogdoches Co.
  • Henderson Trust Unit #1H, EOG Resources; Carthage Field (Haynesville Shale), Nacogdoches Co.
  • Breedlove Unit #1H, EOG Resources; Carthage Field (Haynesville Shale), Nacogdoches Co.
  • Wiener "C" #1, Classic Operating; Carthage Field (Haynesville Shale), Panola Co.
  • R. Griffin GU #1H, Devon Energy; Carthage Field (Haynesville Shale), San Augustine Co.
  • PDU "D" #1, Newfield Exploration; Carthage Field (Haynesville Shale), Shelby Co.
  • Pirates DU #1H, XTO Energy; Carthage Field (Haynesville Shale), Shelby Co.
  • Herone #1H, Chesapeake Operating; Carthage Field (Haynesville Shale), Shelby Co.
  • Patricia Samford #1H, Devon Energy; Carthage Field (Haynesville Shale), Shelby Co.

Friday, May 14, 2010

Comstock Revises Shale Boundary Maps

In looking through Comstock Resources earnings report, I noted that the company adjusted its perceived boundaries of both the Haynesville and Mid-Bossier Shales in its presentation.  Of course, maps from PowerPoint presentations are hardly the gospel, but it is interesting to see how they change over time as the data (or the message) change.

I've lined up the two maps, the top one from the May 2010 first quarter 2010 earnings report and the bottom one from February 2010 fourth quarter 2009 earnings report.  Both show the outlines of the Haynesville (red) and Middle Bossier (green) Shales. 

New Map (May 2010):

Old Map (February 2010):
What is interesting about the Haynesville boundary (in red) is that the dimple in northern Bossier Parish has disappeared. Interestingly, Comstock has acreage that was in the dimple. Either they have obtained some new data from this land or they are engaging in wishful thinking.  But the boundary has moved inward (towards the west) significantly in Webster Parish, completely eliminating Claiborne Parish.  At the same time, it also extends slightly farther east into Natchitoches Parish. 

In Texas, the Haynesville boundary extends farther west into Gregg and Rusk Counties and farther south into San Augustine and Sabine Counties.  Also, the dimple in Panola and Shelby Counties has become more defined.

The Mid-Bossier boundary (in green) extends farther to the northeast into Webster Parish and slightly farther to the southwest into Angelina County.

While there is no definitive map - at least not available to the public - it is interesting to see how new data changes the boundaries.

Haynesville Rig Count: -1 to 176

The weekly Haynesville Shale rig count showed a one rig drop to bring the current number of working rigs in the play (according to Baker Hughes) to 176.  The Louisiana figure held steady, while the Texas number dropped by one.

US Rig Count: +14 Total; -2 Natural Gas

The weekly Baker Hughes rig count showed an increase of 14 rigs nationally, bringing the total to 1,506, the highest level since January 23, 2009.  The gas rig count decreased by two to 951, still 43% higher than the recent low from July 2009.  The big increase was in oil rigs, which jumped by 16 to 544.  By type, horizontal rigs increased by 12, directional rigs increased by four and vertical rigs decreased by two. 

In the Haynesville Shale region, inclusive of other formations, the rig count increased by one to 213.  The count was steady in east Texas and up one in north Louisiana.

Thursday, May 13, 2010

May Louisiana Lease Sale: Little Haynesville Action

The monthly Louisiana minerals lease sale mostly featured sales from the southern part of the state this month.  A few Haynesville properties in Bossier and Bienville Parishes either received no bids or were withdrawn.  The leases for the two bids that were accepted totalled only 94.4 acres in Bienville, Bossier and Caddo Parishes.  As shown below, the winning lease bonuses were $2,017 and $5,157.  I think this is more a reflection on the properties themselves than a statement about leasing in general in the Haynesville Shale.  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.

Chespeake Sells Even More Preferred Stock

Chesapeake Energy announced this morning that the company has sold yet another $500 million chunk of 5.75% preferred stock to some North American institutional investors.  This security is the same stuff that was sold yesterday to another group of North American investors but slightly different from the stock sold earlier this week to a pair of Asian investors.

By my count, this brings to $1.7 billion the preferred stock sold this week.  The company also noted that the 30 day option for the Asian investors to purchase more stock was increased from $500 million to $900 million.  If the Asians exercise the option, Chesapeake will have placed $2.6 billion of preferred stock.  That implies an annual preferred dividend of $149.5 million. 

New Feature: Middle Bossier Shale Maps

I've added another new feature, a map of the wells in the Middle Bossier Shale.  The maps, available in Google Maps and Google Earth on right hand side of the page, show both completions and permitted/drilling wells.  The maps reflect the data already presented on the Mid-Bossier spreadsheet.

Google Maps:

View Mid-Bossier Shale in a larger map

Google Earth:

Because neither Texas nor Louisiana have an official designation for the Mid-Bossier play, I've gathered information from press releases and presentations. Because the criteria for inclusion on this list is mostly anecdotal, I make no representation that this is the ultimate list.  Rather it is a work in process, and I welcome any input about wells I've missed or data that is incorrect.

Have fun, if you're so inclined.

A Bumper Crop of LA Completions

  • Levee Board 22 #2, J-W Operating Co.: 19.272 MMcf/day IP, 24/64" choke, 4,700 psi; Caspiana Field, Caddo Parish, S22/T15/R12; res. A, serial #239803
  • Legrand 35-15-12 H #1, Chesapeake Operating, Inc.: 15.552 MMcf/day IP, 22/64" choke, 7,979 psi; Caspiana Field, Caddo Parish, S35/T15/R12; res. B, serial #239769
  • Franklin ETAL 28 H #1, Petrohawk Operating Co.: 20.269 MMcf/day IP, 24/64" choke, 8,505 psi; Caspiana Field, Caddo Parish, S33/T15/R11; res. B, serial #240148
  • Lackey 21 HZ #1, Comstock Oil & Gas: 12.513 MMcf/day IP, 24/64" choke, 5,623 psi; Belle Bower Field, DeSoto Parish, S16/T13/R16; res. A, serial #240170
  • BSMC LA 5 HZ #2, Comstock Oil & Gas: 8.474 MMcf/day IP, 26/64" choke, 4,303 psi; Benson Field, DeSoto Parish, S8/T10/R14; res. non-unitized, serial #240293
  • Stevenson Douglas 16 #1, Petrohawk Operating Co.: 8.582 MMcf/day IP, 14/64" choke, 8,730 psi; Bethany Longstreet Field, DeSoto Parish, S16/T13/R14; res. B, serial #239085
  • Florsheim 26 #2, J-W Operating Co.: 16.848 MMcf/day IP, 24/64" choke, 5,931 psi; Caspiana Field, DeSoto Parish, S26/T15/R13; res. A, serial #239952
  • Joffrion 31 #1, EXCO Production Co., LP: 3.438 MMcf/day IP, 18/64" choke, 2,179 psi; Caspiana Field, DeSoto Parish, S31/T15/R13; res. non-unitized, serial #240066
  • Fuller 8-13-13 H #1, Chesapeake Operating, Inc.: 22.738 MMcf/day IP, 26/64" choke, 7,780 psi; Holly Field, DeSoto Parish, S8/T13/R13; res. A, serial #240219
  • Brazzel 8 #8, EXCO Production Co., LP: 16.892 MMcf/day IP, 22/64" choke, 7,187 psi; Kingston Field, DeSoto Parish, S8/T14/R13; res. A, serial #239932
  • Donnie Savell 32 H #1, EnCana Oil & Gas (USA), Inc.: 23.637 MMcf/day IP, 27/64" choke, 7,165 psi; Red River-Bull Bayou Field, DeSoto Parish, S32/T14/R11; res. D, serial #239829
  • Black Stone 4 #2-ALT, EOG Resources, Inc.: 12.018 MMcf/day IP, 24/64" choke, 7,200 psi; Ten Mile Bayou Field, DeSoto Parish, S4/T11/R12; res. A, serial #240494
  • James Marston 19 H #1, EnCana Oil & Gas (USA), Inc.: 16.32 MMcf/day IP, 21/64" choke, 8,514 psi; Red River-Bull Bayou Field, Red River Parish, S19/T14/R10; res. D, serial #239845
  • Matthews 16 #2, Petrohawk Operating Co.: 7.488 MMcf/day IP, 15/64" choke, 8,276 psi; Red River-Bull Bayou Field, Red River Parish, S16/T13/R11; res. non-unitized, serial #239021
  • Whitney Corp 33 H #1, EOG Resources, Inc.: 7.732 MMcf/day IP, 22/64" choke, 5,900 psi; Converse Field, Sabine Parish, S28/T10/R14; res. A, serial #240466
The following two were already reported by companies.  This update has their "offical" initial production rates:
  • Sustainable Forest 3 HZ #1, Comstock Oil & Gas: 19.714 MMcf/day IP, 26/64" choke, 7,246 psi; Converse Field, Sabine Parish, S10/T8/R13; res. non-unit/Middle Bossier serial #240372
  • Sample 2 H #2, Questar Exploration & Production Co.: 14.444 MMcf/day IP, 20/64" choke, 7,925 psi; Thorn Lake Field, Red River Parish, S2/T14/R11; res. non-unitized, serial #240031

Storage: +94 Bcf to 2.089 Tcf

The EIA weekly storage report showed a 94 Bcf increase (+4.7%) to 2.089 Tcf.  The 94 Bcf increase was exactly the same as last year's weekly increase (not saying that much given what happened last year) and 10 Bcf higher than the five year average.

With this week's change, the current storage levels are 4.7% higher than last year's and 18.4% higher than the five year average.

Unfortunately, the 94 Bcf net injection tied last year's mark as the record high injection for the first week of May.  Also, this is the earliest inventories have reached the 2 Tcf level since the EIA began keeping natural gas storage records.  Dubious records indeed.

First Reactions to New Senate Climate Bill

After much rumination and the loss of a co-sponsor, the Kerry-Lieberman (not Graham) comprehensive energy bill finally was released yesterday.  Reactions seem to cover the spectrum.  Initial reactions from the natural gas industry are negative, while the utility industry seems supportive.  Uh-oh. 

Not a good start to what many hoped would be a re-boot of the process started by the much criticized Waxman-Markey bill in the House.

Given the politics of the mid-term elections and the sudden elevation of immigration as a top priority, I am not sure how far the energy bill will progress.  It should be a top priority for our nation, but the Arizona legislature's actions have changed things.  We'll certainly keep a close eye on it, but my hopes have dimmed for real progress.

Wednesday, May 12, 2010

Chesapeake Sells More Preferred Stock

Chesapeake Energy sold another $600 million of convertible preferred stock to North American institutional investors today. Called a PIPE, or a private investment in public equity, the security pays a 5.75% dividend and is convertible into common stock at $27.94, approximately a 20% premium to where CHK closed yesterday.  The proceeds will be used to pay down debt.

The security is similar to the one sold to the Asian investors earlier this week.  This transaction means that Chesapeake has raised $1.2 billion with the potential for another $500 million if the Asian investors exercise their rights to buy more.

HBP Lawsuit in DeSoto

A civil trial is underway in DeSoto Parish, LA to compel Questar E&P to drill the deep portion of a landowner's lease, which is currently held by production from shallower production activity, or forfeit its rights to the minerals.  Questar is in no hurry to drill the land, which is prospective for the Haynesville Shale, because the company is focused on drilling only its newer leases that will expire between 2011 and 2013. 

The linked article above provides more details, but it also leaves some out.  I'm not sure if the 22 year old lease lacked a vertical "Pugh clause" or other modern lease features or if there are other extenuating circumstances, but if the plaintiff is successful in his efforts, it might lead to another mini-land rush as landowners find ways out of old leases. 

One big unknown is how long the case will be stuck in the appeals process because whomever loses surely will appeal.  If it takes years to go through the appeals courts to the Louisiana Supreme Court, it might be after the time when many of the more recent leases expire.  At that point, operators might be more focused on drilling their HBP acreage, making the case moot, at least for this landowner. 

The bigger issue, however, is the precedent the case will set in the application of Louisiana mineral law.  Questar is going to fight it nearly to the death, and every other operator in the state is rooting them on. 

Gulf Oil Spill: Natural Gas to the Rescue!

After three weeks of oil spewing into the Gulf of Mexico after the Deepwater Horizon drill ship explosion, there finally are some reports of good news.  The good news?  Less oil and more natural gas is escaping the well.  That's good for two reasons: 1) when the gas reaches the surface it will evaporate into the atmosphere rather than wash ashore and 2) the physical properties of gas will make containment efforts considerably easier.

Last year I read Robert Hefner's book/memoir on his years in the natural gas business, The Grand Energy Transition, and one of his arguments that natural gas is a superior fuel is that natural gas spills are far easier to clean up than oil spills.  I never doubted that idea, but the superstitious person in me compared it to an airline boasting that it has never had a plane crash. In retrospect, it is a very good point to make. 

Will natural gas save the day?

Tuesday, May 11, 2010

Chesapeake, Liquids and Buzzwords

Chesapeake Energy's public relations department was a flurry of press releases and buzzwords yesterday.  First, the company announced that it has struck a deal to sell $600 million preferred stock to two Asian investors. That press release was written by lawyers to the letter of the SEC regulations.  A second press release trumpeted Chesapeake's "Strategic and Financial Plan to Increase Shareholder Value and Reduce Debt."  That one was written by the folks in the Investor Relations department to please Wall Street.

The "strategic" plan calls for Chesapeake plans to raise up to $5 billion to pay off $3.5 billion of debt and invest $1.5 billion in "liquids-rich plays."  Everyone is talking about the liquids these days, especially when talking to Wall Street analysts.  Unfortunately for Chesapeake it has to further extend itself financially to pursue these projects.

To raise $5 billion, Chesapeake first will sell preferred stock to two big Asian investors, Temasek, the Singapore sovereign wealth fund, and Hopu Investment Management, a Beijing-based firm.  Chesapeake has the potential to sell another $500 million of a similar security to other Asian investors within 30 days.  Chesapeake is also looking at domestic investors for a private placement of equity.  Second, Chesapeake will sell 20% of its Marcellus Shale ownership entity, Chesapeake Appalachia LLC, in the next 3-12 months.  Presumably this is 20% of the 67.5% left after the JV deal it struck with StatoilHydro in 2008.  CEO Aubrey McClendon suggested this might bring in up to $2 billion.  Third, the company will create more E&P joint ventures and "monetize" (a.k.a. sell) certain unnamed but assuredly "non-strategic" assets.  (Actually, the release suggests the "monetization" of Haynesville midstream and gathering infrastructure as an option.)

The main goal for Chesapeake is to reduce $3.5 billion debt.  I'm a conservative guy, so debt reduction is always a good thing in my book.  One of the first things one learns in finance courses in business school is that a company is constantly striving to find the optimum balance of debt and equity.  The answer is different for every company. Even with all of the billions the company has earned selling bits and pieces of its gas plays, Chesapeake still has a lot of debt, so the balance is still out of whack on the debt side.  As a result, the company has decided to sell more equity (potentially diluting shareholders) and sell assets to re-balance the equation.  The ultimate goal is to gain investment grade debt rating and therefore increase shareholder value. 

Whether selling stock and assets to pay down debt "increases shareholder value" is yet to be seen.  I also wonder if a company that nearly outspends its annual operating cash flow every year is ever eligible for an investment grade rating. 

The secondary goal is to raise $1.5 billion to spend on liquids projects that are all the rage these days.  With natural gas prices stuck in the doldrums, gas-centric E&P companies have seized on targeting "liquids-rich" plays for oil and NG liquids, both of which have stronger commodity prices than natural gas.  As one might expect, Chesapeake's commitment to liquids is decidedly not half-assed.  The company hopes to be operating 50 rigs in liquids-rich plays in 12 months (up from 21).

The emphasis on liquids is a good move given the current economics, but companies run the risk of a wild goose chase of spending lots of capital on the next "it play."  I think many companies learned hard lessons in the Haynesville Shale, but I still get the feeling that E&P companies are working too hard to please Wall Street analysts. 

I read EOG Reources' recent first quarter earnings announcement last week and there was not a single mention of a natural gas play.  The three minor references to natural gas were in conjunction with oil production.  True, EOG was an early promoter of adding liquids to the mix, but in 2009 the company's production volume was 78% natural gas!  There was no mention of the Haynesville Shale, where the company currently runs 13 rigs.  You had to dig deep in the company's PowerPoint presentation to find the one Haynesville slide.

With the heightened focus on liquids, these producers are capitalizing on the fact that the ratio of gas to oil prices has broken the historical band in oil's favor.  They also are counting on the "new new" ratio continuing well into the future.  Are they chasing the latest fashion trend or making shrewd long-term decisions?

I'm a gas fan, so maybe I'm a little bitter to see the spotlight shift away from natural gas when it has finally entered the national stage.  These companies need to do what they can to survive and thrive and maybe the liquids push is the right way to go. Only time will tell.

Monday, May 10, 2010

For Those Who Prefer Google Earth...

I've tweaked the new map features to allow users to access the data in Google Earth.  I got some feedback that a few people would prefer to use Google Earth over Google maps.  Google Earth is a really cool program (how many map programs have a built in flight simulator?), but it is not browser-based and will require a separate software download.  The upside is that you can see all +/-500 completions on the same map instead of having to toggle between maps showing 200 at a time.  I put both the Louisiana Completions and the Working Rig maps in Google Earth.

Louisiana Completions:

Working Rigs:

We'll see how it goes.  If people like it, I'll keep it.

New Texas Activity

  • Hazel Byrne Gas Unit 3 #2H, Berry Oil: 10.303 MMcf/day IP on 19/64" choke; Carthage Field (Haynesville Shale), Harrison Co.
Development Activity (all in Carthage Field - Haynesville Shale):
  • S.W. Henderson Hay GU #1H, Goodrich Petroleum, Angelina Co. (As far as I can tell, this is the first Haynesville Shale well in Angelina Co.  The well head is in Angelina, but it runs horizontally to the San Augustine Co. border.)
  • Bath Gas Unit B #10, Valence Operating, Harrison Co. (vertical)
  • Mack V. Runnels #9, Valence Operating, Harrison Co. (vertical)
  • Malcolm GU #1H, Samson Lone Star, Nacogdoches Co.
  • Trainer Trust #1H, EOG Resources, Nacogdoches Co.
  • Weiner Estate "A" #1, Classic Operating; Gas, Panola Co. (vertical)
  • Halbert Unit #1, Eagle Oil & Gas, San Augustine Co.
  • Harris B #1H, Southwestern Energy, Shelby Co.
  • Cornhuskers DU #1H, XTO Energy, Shelby Co.

Gas Leases Saving Farms in PA

There was an interesting article in the Scranton (PA) Times-Tribune today about the positive impacts of natural gas lease bonuses on family farms. The debate over the environmental impacts of shale gas drilling in the Northeast has been extremely contentious (just look at the comments following the article for evidence), but one point that has been lost in the noise is the fact that many of the landowners receiving lease bonuses are farmers who are struggling economically.

The article does a nice job of pointing out that lease bonuses and future royalties are subsidizing the tradition of family farms.  More than a quaint way of life, these farms preserve the rural quality and history of the region.  The preservation of these farms as rural land prevents suburban sprawl because land owners are not forced to sell when times get tough. Now they have a positive incentive to keep their land. 

There are legitimate environmental fears where it comes to drilling, but preserving rural land and promoting the family farm should not be forgotten as very positive environmental impacts.

Exco/BG Marcellus JV Deal: Déjà Vu All Over Again

Today, Exco Resources announced a joint venture deal to develop Exco's Marcellus Shale acreage with BG Group (British Gas). The deal is remarkably similar to the joint venture between the two companies to develop Exco's Haynesville acreage.  Exco will receive $800 million in cash and BG will front $150 million of development costs for Exco. Exco leases approximately 186,000 net acres prospective for the Marcellus Shale.

This is an interesting move because Exco is only running one rig in the Marcellus play right now and didn't have aggressive plans for developing its Marcellus acreage in the near future.  With the JV deal, Exco will more than double its long-term rig count in the play.  Next year it was planning three rigs; now it's looking at four to seven.  In 2015, it was planning seven rigs; now it's planning 16 to 20. 

The Marcellus is a very attractive play because of its proximity to the gas consuming region in the Northeast and its relatively low drilling costs for shale. The company claims that about 80% of its acreage in the area is held by shallow production, so it's not under the gun to drill these leases. Accelerating the company's drilling plan it what is now an uncertain price environment sounds like a pretty bullish move on natural gas.

It is also further proof that you need deep pockets to drill the shale.

Great Article on Shale in WSJ

This morning's Wall Street Journal featured a special section on energy with a lead article by Amy Myers Jaffe, a Fellow for Energy Studies at Rice University, on shale gas, aptly titled "Shale Gas Will Rock the World."  It is a long piece but it articulately states the argument that shale gas is a game changer in everything from the energy industry to the environment to geopolitics.  You should read it.

Ms. Jaffe, who also writes a blog for the Houston Chronicle, succinctly lays out the argument that I've been trying to make in this forum in bits and pieces over the past two years:  the rise of shale gas will change everything. 

Ms. Jaffe pays particularly close attention to the ramifications of shale in geopolitics.  I thought her take on Iran was particularly interesting.  She concludes that western sanctions have hurt Iran's ability to produce its gas reserves, one of the largest in the world.  The timely development shale gas resources in Europe, China and other nations might prevent Iran from being able to sell into these markets.  (I would argue that the huge new liquefaction projects in Qatar and other nations play a large part in this conclusion as well.)  Being left out in the cold might make Iran's nuclear ambitions seem like more of a liability and cause its leadership to take a more moderate stance in the future.  Russia also faces pressures as a legitimate spot market for natural gas evolves in Europe.

I've been saying that shale extraction makes natural gas a "democratic fuel" (small "d" democratic) because it is relatively widespread around the globe, which prevents the creation of a cartel like OPEC for gas.  Ms. Jaffe does a better job articulating the points. 

Ms. Jaffe also focuses on the impacts to renewable resources, noting that cheap, abundant gas will retard the development of the renewable energy market, which is still highly dependent on government subsidies (and mandates).  She urges the continued investment in renewable R&D research, especially from government sources, to make renewable energy sources that can compete independently in the open market.  This is still years away, and using more natural gas now can be a reliable, relatively clean way to get there - assuming we still invest in renewable research.

But coal is a sticking point that she doesn't spend much time addressing.  She makes the fairly controversial statement that we should "avoid the urge to protect coal states and let cheaper natural gas displace coal."  That won't win her any friends in West Virginia, and some might make the argument that coal is usually cheaper on a per Btu basis than gas.  I would argue (as would she) that you need to include some of the costs of externalities (pollution, health impacts, etc.) in the price of coal to discover the true cost of coal.  That's part of the goal of climate legislation, be it a carbon tax or a cap and trade system.  Where that goes in an election year is anybody's guess.

More Louisiana Completions

  • Cook 1-15-16 H #1, Chesapeake Operating, Inc.: 14.232 MMcf/day IP, 22/64 choke, 6,889 psi; Johnson Branch Field, Caddo Parish, S1/T15/R16; res. A, serial #240255
  • BSMC LA 13 HZ #1, Comstock Oil & Gas: 10.203 MMcf/day IP, 26/64 choke, 5,090 psi; Benson Field, DeSoto Parish, S7/T10/R14; res. A, serial #240131
  • Garland 24 H #1, Goodrich Petroleum: 15.938 MMcf/day IP, 22/64 choke, 6,800 psi; Bethany Longstreet Field, DeSoto Parish, S25/T14/R16; res. A, serial #240546
  • McMichael #2, XTO Energy, Inc.: 15.287 MMcf/day IP, 18/64 choke, 6,100 psi; Bethany Longstreet Field, DeSoto Parish, S31/T13/R14; res. B, serial #239579
  • Brown SW Min 15 H #1, EnCana Oil & Gas (USA), Inc.: 23.94 MMcf/day IP, 25/64 choke, 8,147 psi; Bracky Branch Field, Red River Parish, S15/T13/R10; res. A, serial #240026
  • Brown SW Min 16 H #1, EnCana Oil & Gas (USA), Inc.: 22.665 MMcf/day IP, 26/64 choke, 7,750 psi; Bracky Branch Field, Red River Parish, S15/T13/R10; res. A, serial #240027
  • Briarwood 35 H #1, Petrohawk Operating Co.: 7.734 MMcf/day IP, 14/64 choke, 8,416 psi; Red River-Bull Bayou Field, Red River Parish, S26/T13/R11; res. B, serial #240034
  • Sample 9 #2-ALT, Petrohawk Operating Co.: 21.538 MMcf/day IP, 24/64 choke, 7,849 psi; Thorn Lake Field, Red River Parish, S4/T14/R11; res. A, serial #240052
I also and augmented a few older entries on the list with new information:
  • Darrel W. Sharp 12 H #1, Questar, serial #239520: updated completion info: 16.096 MMcf/day IP on 24/64" choke at 6,950 psi
  • Jimmy Woodward 24H #1, Questar, serial #239627: updated completion info: 22.317 MMcf/day IP on 20/64" choke at 8,300 psi
  • Sample 2H #1, Questar, serial #239722:  updated completion info: 14.257 MMcf/day IP on 20/64" choke at 7,650 psi
  • Weyerhaeuser 10 H #1, Questar:  corrected typo and updated serial #239920

Friday, May 7, 2010

Haynesville Rig Count: -2 to 177

This week's rig count showed a two rig decline in the Haynesville Shale, bringing the number of working rigs in the play to 177.  Louisiana saw a three rig decrease, while Texas saw a one rig increase.  The Louisiana Haynesville rig count of 129 still represents 93% of all working rigs in north Louisiana, but the 48 rigs in east Texas now represents 66% of all working rigs in the area, up from 59% last week.

Rig Count Mixed

The Baker Hughes weekly rig count showed a nine rig net increase in the U.S. to reach 1,492, its high for the calendar year.  Of the rig increase, the only gain was in oil, which saw 15 new rigs.  Gas saw a five rig drop as did the miscellaneous category.  By type, there are nine more vertical rigs, one more directional rig and one fewer horizontal rig.

In the Haynesville Shale region, inclusive of other formations, the rig count dipped by nine, with a three rig decrease in north Louisiana and a six rig decline in east Texas. 

Thursday, May 6, 2010

Oregon LNG Developer Calls it Quits

NorthernStar Natural Gas, the prospective developer of an LNG port in southwestern Oregon called Bradwood Landing, has withdrawn its various permit applications and has filed for Chapter 7 bankruptcy liquidation.  The company blamed difficulties in the permitting process, but I think throwing in the towel mostly was based on economics.  Because of the advent of shale gas, the natural gas supply market has shifted significantly from when the port was proposed six years ago.  It is yet another example of the significant impact of shale gas on the national and international gas markets.

The Bradwood LNG port, if developed, would have been the first on the West Coast.  Looking back with 20/20 clarity, it seems a curious proposal.  The West Coast is not a large consumer of gas and it has proximity to natural gas production from the Rocky Mountains.  The port would compete against Asia for cargoes that would have to cross the Pacific to get to Bradwood.  The developer was also trying to locate the facility in an area that is environmentally sensitive.  Frankly, I'm surprised it survived this long.  There are two more prospective LNG plants on the drawing boards for Oregon.  I doubt they will fare much better than Bradwood Landing.

A 220 mile pipeline associated with the project might survive.  The line would have served Bradwood and transported gas to a larger system.  Apparently the proposed pipeline might still be viable as power plants consume more natural gas.  The only difference is that the owners might have to look east rather than west for its gas supply.

[5/10/10 UPDATE: A good article reflecting on the demise of the project.  Another article on the prospects for the other two proposed terminals and the Ruby Pipeline.]

Will Utica Shale be Next Gold Rush?

The Detroit Free Press reported that a natural gas lease sale earlier this week netted the state of Michigan an unexpected $1,500 per acre in lease bonuses (minimum lease bonus bids were $13/acre - but that was negotiable).  The live auction yielded proceeds of $178 million, by far a record, shocking all participants. 

The gold rush mentality was caused by a single well drilled into the Utica Shale in the northwest portion of the lower peninsula of the state.  (There may be some nomenclature issues here, as the EIA calls the shale under Michigan the Antrim, while the Utica is generally understood to run to the east in Canada.)  No matter what it is called, we may be looking at yet another shale basin vying for the attention of domestic producers. 

The northwest portion of the LP has seen gas exploration in the past, but the Utica/Antrim formation has not been tapped before, so there are many unknowns.  But clearly not enough unknowns to prevent some bidders from spending like drunk sailors.  For the sake of Michigan, I hope the state will be the beneficiary of a natural gas-induced economic boom. 

Final Exco Evacuees Back Home

After two weeks, the last of the evacuated residents of a south Caddo neighborhood returned home after an Exco Resources drilling rig hit an unexpected gas pocket that caused gas to escape and allegedly taint the aquifer in the area.

Lest we gas fans feel so superior about the safety record of the gas industry after watching terrible accidents in a coal mine in West Virginia and on a oil drilling rig offshore, the Exco incident should be a reminder that we all benefit from constant vigilance in making sure drillers and producers take every precaution to ensure the health and safety of humans and the environment.  It is a balancing act that is of great importance given the proximity of shale gas drilling to inhabited areas.

2009 Carbon Output -7%: Coal Use Down, NG Use Up - Anybody Surprised?

The EIA released its annual "U.S. Carbon Dioxide Emissions" report for 2009 yesterday.  The report showed that annual carbon dioxide emissions decreased 7% in the U.S. last year, the biggest decrease since 1949.  The Financial Times has a nice summary of the report

This decline in CO2 is obviously good news.  The bad news, of course, is that the recession played a part in reducing emissions, but it only accounted for one third of the decrease.  The remainder resulted equally from a decrease in energy intensity (pegged to a unit of GDP) and carbon intensity of the energy supply.  The carbon intensity largely decreased because utilities increased their use of natural gas and decreased their use of coal.  The chart below tells the story.

Gas fans will remember the dark days of mid-2009 when natural gas prices dropped below coal prices on a per-Btu basis.  This led utilities to operate gas-fired generators more than usual.  The fun ended for most utilities with take-or-pay coal contracts as coal began piling up.  But the switching led to a market share gain for natural gas over coal in the power generation industry.

We've been saying all along that substituting natural gas for coal in power generation will immediately and significantly reduce carbon dioxide output in the power generation sector.  It will not require a big transition since the country has a large inventory of under-utilized gas-fired plants.  Not only will carbon dioxide output decrease but so will sulfur dioxide, mercury and particulate emissions.  It's nice to see that the data backs up this assertion.

No matter where you come out on the global warming debate, reducing greenhouse gasses is an important and beneficial goal.  Bottom line:  the less impact humans have on the atmosphere, the better.  I've long bristled at the argument that developing nations like China and India are increasing their coal and carbon use, so why should the U.S. "take one for the team" by sticking to international accords to reduce atmospheric carbon?  Leadership, that's why.  It is 3rd grade logic to say "they're not doing it so why should I?"  If we are the best country in the world (and I think we are), we need to take a leadership position and do the right thing.

The Financial Times quipped: "(t)he death of US coal, it seems, is marching on."  These are strong words.  You could point to health statistics and say the same thing about cigarettes, but you likely would be wrong on both counts.

Storage: +83 Bcf to 1.995 Tcf

The weekly EIA natural gas in storage report showed an 83 Bcf net injection, bringing the total amount of working gas in storage to 1.995 Tcf.  The weekly injection is 4 Bcf lower than the corresponding week last year and 12 Bcf higher than the five year average.  The current storage level is now 18.8% higher than the five year average.

Given the mild weather across the country last week, the 83 Bcf injection isn't as bad as it could have been.

Wednesday, May 5, 2010

Recent Louisiana Completions

  • Weyerhaeuser 10 H #1, Questar Exploration & Production Co.: 13.316 MMcf/day IP, 20/64 choke, 6,400 psi; Alabama Bend Field, Bienville Parish, S10/T15/R10; res. A, serial #239520
  • Lanier 16 H #1, Matador Production Co.: 0.4 MMcf/day IP, 20/64 choke, 582 psi; Caddo Pine Island Field, Caddo Parish, S16/T19/R15; res. A, serial #238210
  • Bryan 3-15-16 H #1, Chesapeake Operating, Inc.: 11.952 MMcf/day IP, 22/64 choke, 6,487 psi; Johnson Branch Field, Caddo Parish, S3/T15/R16; res. A, serial #240204
  • Bowlin 2-15-16 #1, Chesapeake Operating, Inc.: 10.968 MMcf/day IP, 22/64 choke, 6,800 psi; Johnson Branch Field, Caddo Parish, S2/T15/R16; res. A, serial #240226
  • Dixie Farm LLC 18 H #1, Chesapeake Operating, Inc.: 15.094 MMcf/day IP, 22/64 choke, 7,300 psi; Metcalf Field, Caddo Parish, S18/T14/R15; res. A, serial #239759
  • Pankey 35-14-15 H #1, Chesapeake Operating, Inc.: 17.736 MMcf/day IP, 22/64 choke, 7,434 psi; Bethany Longstreet Field, DeSoto Parish, S35/T14/R15; res. A, serial #240154
  • Newport Dev LLC 1 #2, Camterra Resources, Inc.: 8.475 MMcf/day IP, 17/64 choke, 6,850 psi; Caspiana Field, DeSoto Parish, S1/T15/R14; res. A, serial #240282
  • Donna Dunn 19 H #1, EnCana Oil & Gas (USA), Inc.: 15.855 MMcf/day IP, 24/64 choke, 6,079 psi; Holly Field, DeSoto Parish, S19/T14/R14; res. A, serial #240455
  • Lowrey 34 H #1, El Paso E&P Company, LP: 17.585 MMcf/day IP, 22/64 choke, 6,250 psi; Holly Field, DeSoto Parish, S34/T14/R14; res. A, serial #240196
  • Wadzek 12 #2, EXCO Production Co., LP: 25.336 MMcf/day IP, 26/64 choke, 7,380 psi; Kingston Field, DeSoto Parish, S12/T14/R13; res. A, serial #240194
  • Black Stone 4 #1, EOG Resources, Inc.: 13.145 MMcf/day IP, 24/64 choke, 6,933 psi; Ten Mile Bayou Field, DeSoto Parish, S4/T11/R12; res. A, serial #240361

Penn Virginia Slowing Down...For Now

In its first quarter earnings report, Penn Virginia Corp (PVA) noted that it has drilled three wells in the quarter of the year but has been unable to complete them.  This brings to five the company's inventory of still-waiting-to-be-completed wells.  It seems PVA is last in line for high working pressure pumping equipment used in Haynesville well completions after taking some time off from drilling the Haynesville Shale last year.  PVA plans to drill one more Haynesville well before moving its Haynesville rig to Cotton Valley work while its completion inventory is thinned out.  PVA expects to re-start Haynesville drilling operations in the third quarter of 2010. 

The company's 2010 capital budget for the Haynesville Shale is $70 million to drill eight wells.  In the Cotton Valley formation, PVA intends to spend $30 million to drill five wells.  This combined $100 million budget is a $40 million decrease from the $140 million combined budget the company announced in January 2010.  Overall, the company's capex budget has dropped from $350 million to $300 million, so most of that got chipped away from east Texas.

New Comstock Completions

In its first quarter earnings release, Comstock Resources noted the following completions that haven't "hit the wire" yet.  I have already mentioned a couple of other completions from the press release in these pages, so I did not include them here.  Please note that the initial production rates are self-reported, so they probably are 24 hour peak rates.

  • Neal Horn 5 HZ #1: 20.0 MMcf/day IP; Belle Bower Field, DeSoto Parish, S8/T12/R16; Haynesville reservoir A, serial #240507 (this well had an 18 stage frac job on a 4,669' lateral)
  • Ramsey 4 HZ #1:  15.0 MMcf/day IP; Belle Bower Field, DeSoto Parish, S33/T13/R16; res. A,
  • serial #240506 (18 frac stages on 4,616' lateral)
  • BSMC LA 1 HZ #1: 9.0 MMcf/day IP; Benson Field, DeSoto Parish, S12/T10/R15; res. A, serial #239896 (12 frac stages on 4,471' lateral)
  • Clark "H" #1H: 12.0 MMcf/day IP; North Carthage Field (Bossier Shale), Harrison Co. (18 frac stages on 4,261 lateral)
These completions will be added to the spreadsheet and map later this week.