Wednesday, June 30, 2010

Recent Louisiana Completions

  • Neil Horn 5 HZ #1, Comstock Oil & Gas: 17.452 MMcf/day IP, on 24/64 in. choke, at 7,576 psi; Belle Bower Field, DeSoto Parish, S8/T12/R16; res. A, serial #240507
  • Gibbs 2-12-14 H #1, Chesapeake Operating: 8.177 MMcf/day IP, on 24/64 in. choke, at 1,860 psi; North Grand Cane Field, DeSoto Parish, S2/T12/R14; res. A, serial #239442
  • Franklin ETAL 3 H #1, El Paso: 19.757 MMcf/day IP, on 21/64 in. choke, at 7,800 psi; Holly Field, DeSoto Parish, S3/T13/R14; res. A, serial #240195
  • Heard 30 H #1, Chesapeake Operating: 17.472 MMcf/day IP, on 22/64 in. choke, at 6,897 psi; Spider Field, DeSoto Parish, S30/T12/R13; res. A, serial #239524
  • Bourdon 23 H #1, Petrohawk Operating: 7.666 MMcf/day IP, on 14/64 in. choke, at 9,193 psi; Red River-Bull Bayou Field, Red River Parish, S26/T13/R11; res. B, serial #240117

Tuesday, June 29, 2010

What Will Be the Impact of the Recent Ferrara/Questar Verdict?

At the end of last week, Judge Charles B. Adams ruled in favor of the plaintiff in a case where a landowner sued Questar E&P to be released from a shallow lease that was holding the deep rights on his land.  In the case, Santo Ferrara, who owns 47 acres in DeSoto Parish, had a 1988 lease with Questar.  Since signing the lease, Questar has drilled a single well to the Hosston formation.  I guess the lease did not have a vertical Pugh clause, so Questar was able to tie up the mineral rights to the Haynesville Shale by operating the single Hosston well.  In his ruling, the judge canceled the lease to all depths below the Hosston formation.

In his ruling, Judge Adams said,
"Clearly, Questar has been attempting to hold plaintiffs' lease for its own benefit until someone else came forward to unitize and drill. This is not developing the property for the mutual benefit of Questar and the Ferraras, it is delaying for the benefit of Questar...It is clear to this court that Questar has never had any intention to develop the plaintiffs' deep rights."
The judge also was perturbed that Questar mounted little defense other than objecting to the plaintiff's evidence and was unresponsive to the plaintiff's demands before he filed suit.  The company clearly dropped the ball, and in the process may have set a very unfavorable precedent for fellow E&P companies in Louisiana.  The Questar guys are going to have to buy a lot of drinks at industry events to smooth things out with their E&P buddies.

The big question is how much of a difference will this ruling make?  Will it set off a new land rush?  Is the ruling too narrow to apply to many others? 

My legal background mostly comes from primetime TV shows, but I do know nothing is going to happen until the case winds its way through the appeals process.  I'm sure Questar has realized the magnitude of its mistake and will mount a vigorous appeal.  If the ruling is upheld, I imagine it will lead to a flood of similar lawsuits on the same grounds.  While similar, each of these cases will have a different set of facts that likely will have to be adjudicated individually, so I think a class action suit is unlikely.   I don't think landowners are will be magically set free from bad leases. They are going to have to fight it out in the legal system. 

On the other hand, if the ruling sets a clear enough precedent, production companies might be willing (albeit reluctantly) to release lessees on the basis of a demand letter. 

It is important to note that this case is a Louisiana civil case and has no bearing in Texas, but I wonder about the implications across the state line.  I note that a number of producers have large leaseholds that are held by production but are not very active Haynesville drillers.  That implies that the leases are held by shallow production.  I'm a Louisianan, so I know little about Texas mineral law but I have to assume that more than a few Texas landowners are watching the Louisiana case with interest.

Monday, June 28, 2010

North Carolina Coal to Gas Conversion Under Way

About six months ago, North Carolina utility Progress Energy announced that it would shutter 11 coal-fired generating plants.  It was a bold move that anticipated increased carbon dioxide emission controls and lower tolerance for pollutants like mercury, sulfur dioxides and nitrogen oxides.  A couple of weeks ago, Siemens announced that it won a contract from Progress for five new high-efficiency gas turbines at two sites that housed six doomed coal turbines, the H.F. Lee Energy Complex near Goldsboro and the Sutton Plant near Wilmington. 

The decision by Progress was based more on economics than environment.  The five new turbines will replace six coal fired plants that were put in service in 1951, 1952, 1954, 1955, 1964 and 1972, respectively. It does not make sense to invest hundreds of millions of dollars in equipment that is at the end of its useful life when the investment will result in still sub-standard equipment.  But the environmental impact is substantial.  From the New York Times article:
"Per kilowatt-hour generated, the new gas-fired generators will reduce carbon dioxide emissions by 60 percent and nitrogen oxides by 95 percent from levels produced by their coal-fired predecessors. Nearly 100 percent of sulfur dioxides will be eliminated, and all of the mercury, Siemens said."
Because the gas turbines are going into existing facilities, the implementation time period will be a couple of years since there will be no need for land acquisition and permitting. 

Siemens also received an order for six gas turbine generators from Florida Power & Light to replace old oil/gas generators in Riviera Beach and Cape Canaveral, FL.  The FP&L move was about upgrading the efficiency of the plants, although the move will result in lower carbon dioxide emissions.

The Times article is an interesting read because Siemens talks about how the nature of the company's business with utilities is changing.  Rather than augmenting capacity, utilities are starting to replace generating capacity and restructure their power generation infrastructure in advance of eventual environmental regulation.  This should lead to greater displacement of coal by gas, which should yield more efficient power generation and lower pollution. 

You can say what you will about energy/environmental regulation, but I think the ultimate benefits will be tangible and positive.

Gas Use to Double in Next Several Decades?

The New York Times reported on a study published by the MIT Energy Initiative that resulted from a "two-year effort by 14 prominent energy experts" to study the consumption trends of natural gas in the United States. The study focused mainly on the power generation industry and suggests that natural gas consumption will increase from a 20% share to 40% in the "next several decades."  The gains will come largely at the expense of coal consumption, which makes sense in world where reducing carbon emissions is a priority. (Link to report)

The report examines the concept of gas as a "bridge fuel" to alternative fuel sources.  The reality for gas fans is the proverbial double edged sword.  The study sees gas taking share from coal over the coming decades, but it also sees that all carbon-based fuels will lose out to nuclear and renewable power after about 50 years.  

The study notes the irony that increasing wind power capacity actually does not decrease net carbon emissions because it reduces the consumption of natural gas for power generation since utilities are quicker to cut low carbon natural gas than high carbon coal because of the price difference. 

The study does address CNG in vehicles, but to a lesser degree than power generation.  The authors see vehicle fuel as an opportunity for natural gas, especially in fleet vehicles, but they don't see CNG vehicles becoming widely used by the general population.

The MIT study was funded in part by the American Clean Skies Foundation, a gas industry group, so some folks might question the results.  But the report is a comprehensive look at the energy industry from the perspective of natural gas.  Definitely not a rah-rah piece.  It's a fairly long read, but it is a comprehensive study.

Recent Louisiana Completions

  • Johnson Trust 31 H #1, Chesapeake Operating: 15.624 MMcf/day IP, on 22/64 in. choke, at 6,104 psi; Spider Field, DeSoto Parish, S31/T12/R13; res. A, serial #239633
  • Weyerhaeuser 17 H #1, Chesapeake Operating: 10.608 MMcf/day IP, on 22/64 in. choke; Belle Bower Field, DeSoto Parish, S17/T13/R16; res. A, serial #240556
  • Leroy Adcock 7 H #1, EnCana Oil & Gas: 18.457 MMcf/day IP, on 24/64 in. choke; Martin Field, Red River Parish, S7/T13/R8; res. A, serial #240484
  • H B Lawson Jr. 20 H #1, Forest Oil: 20.683 MMcf/day IP, on 30/64 in. choke; Woodardville Field, Red River Parish, S20/T14/R9; res. A, serial #240281
  • Hallie Litton 11 H #1, SWEPI, LP: 17.371 MMcf/day IP, on 21/64 in. choke, at 8,495 psi; Pleasant Hill Field, Sabine Parish, S11/T9/R12; res. A, serial #240354
The spreadsheet and maps will be updated on Thursday with this new Louisiana information. 

Recent Texas Completions

  • Rudd #1H, Matador Production: 3.966 MMcf/day IP, 8/64" choke; North CarthageField (Bossier Shale), Harrison Co.
  • Verhalen "D" #3H, GMX Resources: 11.788 MMcf/day IP, 22/64" choke; North CarthageField (Bossier Shale), Harrison Co.
  • Verhalen "E" #6H, GMX Resources: 11.256 MMcf/day IP, 20/64" choke; North CarthageField (Bossier Shale), Harrison Co.
  • Petroleum Creek #1H, Petrohawk Operating: 4.654 MMcf/day IP, 14/64" choke; CarthageField (Haynesville Shale), Nacogdoches Co.
  • Barbo #1H, Valence Operating: .297 MMcf/day IP, 20/64" choke; CarthageField (Haynesville Shale), Nacogdoches Co.
  • Adams #1H, Devon Energy: 1.5 MMcf/day IP, Adj./64" choke; CarthageField (Haynesville Shale), Shelby Co.
Developmental Activity:
  • Lauren Alston Unit #1H, EOG Resources; Carthage Field (Haynesville Shale), Nacogdoches Co.
  • Irvine Unit #1H, EOG Resources; Carthage Field (Haynesville Shale), Nacogdoches Co.
  • Young Grace GU #2H, NFR Energy; Carthage Field (Haynesville Shale), Panola Co.
  • New Horizons #RH1, XTO Energy; Carthage Field (Haynesville Shale), Panola Co.
  • Barrett #1, Endeavour; Wildcat Field (vertical to 18,500'), Sabine Co.
  • Huskies DU #1H, XTO Energy; Carthage Field (Haynesville Shale), Shelby Co.
  • C.C. Locke #1H, Devon Energy; Carthage Field (Haynesville Shale), Shelby Co.
  • Hoosiers DU #1H, XTO Energy; Carthage Field (Haynesville Shale), Shelby Co.

Friday, June 25, 2010

Haynesville Rig Count: -2 to 180

The weekly Haynesville Shale rig count showed a bit of a decrease this week, dropping by two rigs to 180.  The count would have been worse had I not gone back and reclassified two rigs first initiated a couple of weeks ago as Haynesville Shale rigs. Technically they are classified as Cotton Valley, but upon further examination, I believe they are Haynesville.  As a result, there are two additional rigs in Louisiana that didn't show up in my count last week but really were there (I'm too lazy to retroactively change previous reports). 

The Haynesville count in Louisiana stands at 132 (up 2, but because of the reclassification noted above actually unchanged) and the count in east Texas is at 47, down four from last week. 

Nationally, the rig count was up 13 to 1,552., its highest level since January 2009.  By target, oil rigs were up by nine, gas rigs were up by five and miscellaneous rigs were down by one.  By type, horizontal rigs were up six, vertical rigs were up four and directional rigs were up three. 

Thursday, June 24, 2010

L.A. School District to Add CNG Buses

The Los Angeles Unified School District announced that it is adding 130 compressed natural gas (CNG) buses to its transportation fleet.  The issue that CNG addresses in smoggy Los Angeles is clean air.  The L.A. school district first purchased CNG buses in 2008 as part of its "Green School Bus Fleet" program to reduce emissions.  Now, all new school buses purchased for the district have to be powered by some form of alternative fuel (although not all are going to be CNG).  See link for photos of CNG buses.

School bus fleets are another natural customer for natural gas. They run local routes, are parked in concentrated areas that can be serviced easily by a few fueling stations and are notoriously polluting and inefficient. The L.A. school district has approximately 1,300 buses.  Extrapolate those numbers across the country and you've got an enormous potential market.

Oh, Gasland

The documentary "Gasland" is already hurting my head and I haven't even seen it yet.  It's been on my DVR for a few days, but I haven't yet had the energy to watch it (the finale of Treme comes first!).  But I did watch a clip of filmmaker Josh Fox on the Daily Show (link here through, and what he said was disturbing. 

He is saying that drinking water is actively being poisoned by hydraulic fracturing wherever there is gas drilling and that fracking is a new process.  I have no doubts that there have been accidents where methane has leaked into water wells.  It happened in Louisiana in April.  The problem is that Mr. Fox is saying that methane in water wells is a result of fracturing.  That is wrong.  It is bad logic, one of those, if A=B and D=E, then A=E errors.  It's the same erroneous logic that caused the U.S. to invade Iraq after 9/11.

Unfortunately, his movie "Gasland" won an award at the Sundance Festival and it's on HBO now.  Mr. Fox is doing the media rounds and the film is getting lots of PR, even from those, like industry group-sponsored Energy in Depth (.com), that are waging a negative campaign against the film.  Unfortunately, misconceptions are being cemented into a form of altered reality.

I can't comment on the film itself before I actually watch it, but I'm sure I'll have something more to say then.

Storage: +81 Bcf to 2.624 Tcf

The weekly EIA working gas in storage report showed an 81 Bcf increase in gas in storage, bringing the total to 2.624 Tcf.  This compared favorably to last year (+97 Bcf) and the five year average (+85 Bcf).  The weekly storage is now 0.5% below last year's number but 13.3% higher than the five year average.  The good news is that the spread between the current storage levels relative to the five year average is narrowing ever so slightly.

Wednesday, June 23, 2010

Haynesville Production Peaking???

Thanks to a couple of readers who have brought an editorial by Bill Powers, editor of the "Powers Energy Investor" newsletter, to my attention.  In the piece, he states his belief that production in the Haynesville Shale has peaked at 1.8 Bcf/day and,
"(t)he peaking of production from the Haynesville shale has significant implications for North American natural gas supplies and will soon be recognized as a contributing factor to the end of shale gas production growth in the U.S." (my emphasis)
Those are strong words.  Mr. Powers is generally bullish on natural gas as an investment because he thinks shale gas is over-hyped and will contribute little more to the overall supply picture.  Although he doesn't state it directly, he seems to believe that natural gas will not end up in an over-supply position and the commodity prices will rise, boosting the value of E&P companies.  He is far from alone in this perspective.  Well-known energy analyst Henry Groppe has made a similar call in his expectation of higher natural gas prices.  Matthew Simmons, late of Simmons & Company, International, has similar views.  Interestingly, Mr. Simmons is also promoted on the same web site that published Mr. Powers' editorial.

I am neither an expert nor Nostradamus, but I tend to think Mr. Powers' argument is a little superficial, and I think it is too early to call a peak in Haynesville production at this point.

I think his analysis fails to fully consider the impact of low commodity prices in the production equation.  Low prices lead to companies constraining the flow of wells in expectation of higher prices later.  It also leads to companies to reduce capital expenditures and drop a few rigs in the short-term.  As he points out, there is a growing number of wells that have been drilled but not completed.  This can been seen as a limitation of the play or a proxy for storage.  As commodity prices and consumption pick up, companies will dip into this backlog of uncompleted wells and start producing them.

I also think he is unnecessarily dismissive of the Texas side of the play.  The northwest part of the play has been disappointing relative to the Louisiana side, but recent wells in the southwest portion of the play are very encouraging.  I'm not sure how he accounts for the Middle Bossier Shale, but I group it together with the Haynesville Shale (if for no other reason than they are covered by the same lease).  The Mid-Bossier might not be as strong as the Haynesville, but when producers start to tap that play, production will continue to increase.  Also, he seems to believe that shale extraction techniques have hit a brick wall and are not improving.  I am pretty certain that there is more to maximizing well production than increasing frac stages.  There is a great deal of fine tuning possible, and if the restricted choke technique promoted by companies like Petrohawk measurably increases well performance, that only serves to increase long-term production (although it might lower daily production).  Plus, we have not seen a true "manufacturing" operation in the Haynesville, the likes of which EnCana promotes.  Also, there are producers that have large quantities of held by production land that they are sitting on, waiting for economic conditions to improve.  Who knows what will happen when they start drilling.

All of these factors make me think that Haynesville production has a ways to go before peaking.  I don't think we're talking a 6 Bcf/day figure that Mr. Powers is refutes, but I think it will be more than 1.8 Bcf.

But there are constraints.  I do think we are approaching the upper limit of working rigs in the +/-180-185 range.  The rig count is high right now because many companies have to drill their leases to hold them.  That activity will subside in 2012.  There also is limited completion capacity, both in terms of physical infrastructure and crews, that will continue to limit new wells from coming online. Well economics and commodity prices will continue to be issues.  These factors will keep a lid on production at a certain level, but I think it is north of where we are now.

I appreciate the points Mr. Powers makes in his article, but I don't think I am sticking my neck out to say that Haynesville production will increase above current levels over time and as market conditions normalize.

Recent Louisiana Completions

  • Heard 19-12-13 H #1, Chesapeake Operating: 12.72 MMcf/day IP, on 22/64 in. choke, at 6,840 psi; Spider Field, DeSoto Parish, S19/T12/R13; res. A, serial #240283
  • Houston 13 H #1, El Paso: 15.7 MMcf/day IP, on 12/64 in. choke, at 6,575 psi; Bethany Longstreet Field, DeSoto Parish, S13/T13/R15; res. B, serial #240150
  • M+M Long Prop 9 H #1, EnCana Oil & Gas: 18.87 MMcf/day IP, on 24/64 in. choke, at 7,291 psi; Holly Field, DeSoto Parish, S9/T14/R14; res. A, serial #239980
  • Pirkle 29 #1, SWEPI, LP: 10.084 MMcf/day IP, on 12/64 in. choke, at 8,903 psi; Red River-Bull Bayou Field, DeSoto Parish, S29/T13/R12; res. Jur-B, serial #239665
  • Don Jones #1, SWEPI, LP: 10.187 MMcf/day IP, on 16/64 in. choke, at 8,876 psi; Red River-Bull Bayou Field, DeSoto Parish, S6/T12/R12; res. C, serial #239958
  • Labokay 27-10-13 H #1, Chesapeake Operating: 15.574 MMcf/day IP, on 22/64 in. choke, at 7,188 psi; Pleasant Hill Field, Sabine Parish, S27/T10/R13; res. A, serial #240157

Tuesday, June 22, 2010

Interesting Endeavour Press Release

Endeavour International, a small participant in the Haynesville Shale with 13,500 acres under lease, issued a press release yesterday touting completion of one of its non-operated Haynesville wells, the Batchelor 3 #1 (operated by J-W Operating: 21.5 MMcf/day IP on 24/64” choke at 7,732 psi; Woodardville Field, Bienville Parish, S34/T15/R9; serial #240795). The well is listed by LA DNR as a Cotton Valley well, but Endeavour seems sure that it’s a Haynesville well. I haven’t seen the final depth data yet, but I’ll add it to the list pending final verdict.

The release also noted another CV well, Indigo Minerals LLC 3 #1, also operated by J-W (serial #239108, Woodardville Field, Red River Parish; perfs: 12,422’-16,752'). That well is not yet listed as completed by DNR, but Endeavour reports that it has flowed 3 Bcf since last year. According to DNR, that well turned to sales in early June 2009 (although the initial flow results have not yet been reported), so 3 Bcf in a year isn’t too shabby.

Reliance Deal for Pioneer's Eagle Ford Assets Set?

The Financial Times reported that India's Reliance Industries will enter a into a joint venture with Dallas-based Pioneer Natural Resources, buying 45% of Pioneer's 310,000 acre Eagle Ford interest for $1.35 billion (also: Reuters).  Pioneer will receive $300 million upfront and the balance in drilling costs over the next four years.  The deal follows another 40% purchase by Reliance of Atlas Energy's Marcellus Shale interests. 

Over the weekend I read an article about Reliance in the Wall Street Journal (may require subscription) and noted comments made by Reliance's CEO Mukesh Ambani.  In reference to investing in U.S. shale gas assets, he said:
"We will commit capital alongside proven low-cost operators to accelerate the development of this resource ...We will continue to pursue such joint development opportunities with the best operators as well as on our own to build a substantial upstream business in North America."
Not a particularly intriguing quote, but it made me think about all of the investor presentations I read where company A declares itself the low cost E&P company in the industry, comparing itself in a variety of bar charts against a slew of unnamed competitors labeled B, C, D, etc.  It's a familiar strategy, but my first thoughts upon reading Mr. Ambani's quote were of BP.  In its efforts to achieve "cost efficiencies" (a term strewn across the company's investment materials), BP took short cuts that ended up endangering lives and causing an environmental catastrophe. 

At a time when EVERYONE has their eyes on the energy industry, I sure hope some of the low cost leaders in shale gas are not cutting costs BP style.  It's bad enough that there was a blowout in Pennsylvania at this sensitive time, but further accidents will just blacken the eye of an industry already playing defense on its environmental record.

Sunday, June 20, 2010

New Texas Completions

  • Verhalen "D" #1H, GMX Resources: 7.004 MMcf/day IP, 25/64" choke; CarthageField (Haynesville Shale), Harrison Co.
  • Werner #1H, Chesapeake Operating: 11.151 MMcf/day IP, 20/64" choke; CarthageField (Haynesville Shale), Panola Co.
  • R. Kidd #1, Unit Petroleum: .122 MMcf/day IP, 64/64" choke; CarthageField (Haynesville Shale), Shelby Co.
Developmental Activity:
  • Blalock "A" #16H, NFR Energy; Carthage Field (Haynesville Shale), Harrison Co.
  • Jenkins East GU #2H, Berry Oil; Carthage Field (Haynesville Shale), Harrison Co.
  • Rollie Simms Deep GU #2H, NFR Energy; Carthage Field (Haynesville Shale), Harrison Co.
  • Hill Gas Unit #3H, EOG Resources; Carthage Field (Haynesville Shale), Nacogdoches Co.
  • Bess Smith Broderick Gas Unit 2 #6H, Exxon Mobil; Carthage Field (Haynesville Shale), Panola Co.
  • Warriors DU #1H, XTO Energy; Carthage Field (Haynesville Shale), San Augustine Co.
  • Ogelsbeee Gas Unit #1H, EOG Resources; Carthage Field (Haynesville Shale), San Augustine Co.
  • ADJ Mineral 153 Shale Unit #1H, Exco Operating; Carthage Field (Haynesville Shale), San Augustine Co.

First Polish Shale Wells Spud

Last week, English company 3Legs Resources Group announced that it has spud its first well targeting shale gas in Poland.  The Łebień LE1 well, which is operated by its Polish subsidiary Lane Energy in partnership with ConocoPhillips, is the second shale well in Poland.  The first well was drilled a couple of months ago by Polskie Gornictwo Naftowe i Gazownictwo SA (say that ten times fast).  Exxon Mobil, Marathon and Chevron are also poking around.  Specific results for the first well were not published. 

There is some skepticism about the potential for European shale gas because of the geology, the high population density of the target areas and the energy services infrastructure.  But the biggest question is the quality of the resource.  The only way to find out for sure is to start poking some expensive holes in the ground to see if the fuss is worth it.  One article I read suggests that Poland's potential shale gas resource is 47 Tcf.  If that is true and the gas is relatively accessible, the European Shale Gas Boom might be real.

Friday, June 18, 2010

Haynesville Rig Count: +1 to 182 [UPDATED]

This week saw north Louisiana drop two Haynesville rigs while north Texas picked up three.  The net result is a one rig increase to 182.  Note the new activity in Angelina Co. TX.

US Rig Count: +12 to 1,539

The weekly Baker Hughes rig count showed a 12 rig increase nationally, bringing the count to 1,539. This is the highest rig count since January 2009.  The rig count is now 76% higher than the trough reached in June 2009.

Interestingly, within the course of two weeks, the plunge in rig count caused by the Gulf of Mexico moratorium has been cancelled out (not to say that the same rigs have been redeployed in U.S. waters, though).

The big increase this week was in oil-targeted rigs, which were up 13, while there was one less gas-targeted rig.  By type, horizontal rigs increased by eight, while verticals increased by three and directionals increased by one. 

In the Haynesville Shale region, inclusive of other formations, the rig count increased by one to 215 after a three rig increase in east Texas and a two rig decrease in north Louisiana.

Ethanol Tries to Sieze the Moment

I was getting ready for dinner last night when I spied a commercial on CNN from Growth Energy, a lobbying group behind ethanol.  The 15 second spot simply stated, "No beaches have been closed due to ethanol spills." 

Very clever.  It failed to mention, however, how much virgin rain forest has been cleared in South America for agricultural uses or how much diesel fuel and fresh water goes into the production of corn for ethanol.  Trifling issues, I'm sure.

The other day I suggested that by force of coincidence that the natural gas industry missed the opportunity to promote its product in the wake of the BP Deepwater Horizon oil spill.  You can't exactly talk about safety with well blowouts and pipeline cuts making the news. 

Ethanol doesn't have the same problem.  A couple of years have passed since the Great Food Price Shock that made the nation leery of committing too much of our agricultural resources to the production of biofuels. Memories are short, and the ethanol industry is ready to make a new push.  It will be back at the trough looking for more subsidies (it is an election year, after all) and it will be pushing its E15 standard to bump the ethanol mandate percentage up five points. 

Hold on to your wallets - the corn train is coming!

Thursday, June 17, 2010

Matt Simmons to Retire from Simmons & Co.

Yesterday, Simmons & Co. International announced the retirement of Matt Simmons as Chairman Emeritus (an already retired sounding title).  Mr. Simmons, who founded the energy-focused investment bank 36 years ago, has become widely known lately for his thoughts on peak oil and his book Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy.  More recently, he joined the camp of shale gas skeptics, downplaying the potential and productivity of North American shale gas.

In a recent post, the Financial Times pointed out the discrepancy between investment bank’s bullish stance on shale gas and that of Mr. Simmons (see bottom of article). In my professional life, I have done some work with Simmons & Co. both before the advent of shale gas and afterwards.  Back in 2006, the bankers I worked with balanced Mr. Simmons' peak oil beliefs with the take of the company's analysts.  In a transaction in 2009, the bankers only cited the company's analysts and downplayed Mr. Simmons' shale gas opinions.
It sounds like Mr. Simmons has not been active in the investment bank for a while, choosing to focus on his new baby, the Ocean Energy Institute.  The company's web site used to have a section dedicated to Mr. Simmons' speeches and presentations.  I haven't checked the site for the past six months, but I note this morning that Mr. Simmons' personal section is gone.  I don't know the circumstances from his departure, but I wonder if his retirement will alter the credibility of his shale gas criticisms.

Storage: +87 Bcf to 2.543 Tcf

The weekly EIA working gas in storage report showed an 87 Bcf net injection, or a 3.5% increase, bringing the gas in storage to 2.543 Tcf.  This injection is on par with the five year average (+84 Bcf) and lower than last year's injection (+113 Bcf).  The storage figure now stands at 14.0% above the five year average and only 0.1% higher than the storage amount this time last year.  Since last year's storage levels caused such crisis, I'd hold off on uncorking your good champagne to celebrate the news.

Wednesday, June 16, 2010

A Couple of Completions Including a Big One

A new Louisiana completion reported by DNR:
  • Sustainable 31 #1, SWEPI LP: 10.17 MMcf/day on 12/64" choke at 7,804 psi; Bethany Longstreet Field, DeSoto Parish, Sec. 31/Township 13/Range 12; Jurassic reservoir B (penetrations 12,468' to 16,010', so I'm assuming Haynesville), serial #239715
A new Texas completion reported by EnCana:
  • Blackstone Unit A-43H, EnCana: 32 MMcf/day IP at 9,500 psi; Wildcat Field (Haynesville), San Augustine Co., status #687761
That Blackstone completion is going to turn a lot of heads.  The well was reported at an investor conference on Monday.  EnCana's CEO noted that the well was drilled to a depth of 14,500' with a 4,000' lateral.  The well originally flowed at 25 MMcf/day but when the company added a second wing valve, production increased to 32 MMcf/day with 9,500 pounds of "back pressure."  The well cost $12 million to drill and was drilled in an area EnCana calls the Brent Miller Field, which extends from Natchitoches to Sabine Counties, where the company has 45,000 net acres. 

I will update and post the LA completions spreadsheet/maps, but I will wait until Sunday/Monday to update the TX completions spreadsheet.

EXCO to Buy Majority of Southwestern Energy's Haynesville Acreage

EXCO Resources announced today that it has acquired 20,063 acres in Texas prospective for the Haynesville/Middle Bossier Shales from Southwestern Energy in a transaction valued at approximately $355 million (view Southwestern's press release).  The acquisition also includes a few producing wells and gathering assets.  BG Group, with whom EXCO has partnered in the Haynesville Shale, has the opportunity to participate as a 50% owner in the deal.

Southwestern is selling EXCO 20,063 net acres in San Augustine, Shelby and Nacogdoches Counties. Southwestern retained the shallower rights for formations such as the Pettet and James Lime, and it will retain another 10,500 acres prospective for the Haynesville/Mid-Bossier Shales.  The acreage sold to EXCO is located in the Shelby Trough, which runs from the southeast corner of DeSoto Parish, LA through southern Shelby, northern San Augustine and eastern Nacogdoches Counties.  The Shelby Trough has become the hot spot on the Texas side.

The price implies a value of $17,694 per acre, but it is hard to disaggregate the value of the gathering assets from the total consideration.  Still, that's a pretty strong valuation.  EXCO has been very busy of late. Along with the BG deal, the company has acquired Common Resources, LLC, another successful big player on the Texas side of the play. 

The transaction should be good for the landowners.  Southwestern never seemed that interested in drilling its Haynesville acreage, as the company focused most of its attention on the Fayetteville Shale, where it has a dominant position.

I find it interesting that most M&A transactions have involved companies selling from a position of relative strength.  More than a year ago when natural gas prices plummeted, there was speculation that there would be a bottom feeding acquisition frenzy.  That never materialized.  Companies generally held on and waited until the market improved to sell.  Good for them.  Good for everyone, I suppose.

Denbury Resources Completions

In reviewing the presentation from last month's analyst day for Denbury Resources, I came across a few new Haynesville Shale completions.  Denbury is better known for oil production and its efforts to create CO2 pipelines to capture CO2 from various sources, transport it to aging oil fields and use it to stimulate oil production.  This year, however, Denbury took over Encore Operating, which had a small position in the Haynesville Shale. 

As a result of the Encore deal, Denbury now has 16,402 net acres in southern Caddo, northern DeSoto and southern Bossier Parishes (see map below).  The company operates one rig, but I think it is going away.  The company slashed its 2010 Haynesville capital budget from $99 million to $65 million, roughly split between drilling five wells ($35 million) and participating in 26 to 28 wells ($30 million).  Its non-operated partners are running about five rigs.

The company announced the following completions, the first two from Denbury/Encore wells and the next three from non-operated wells:
  • R Dunn ETAL 2 #1, Encore/Denbury: 8.9 MMcf/day IP; Greenwood-Waskom Field, Caddo Parish, S2/T16/R16; res. A, serial #240207
  • Renrew Lands LLC 5 #1, Encore/Denbury: 9.7 MMcf/day IP; Greenwood-Waskom Field, Caddo Parish, S5/T15/R16; res. A, serial #240231
  • Evans 13 #2, EXCO Production: 27.024 MMcf/day IP; Kingston Field, DeSoto Parish, S13/T14/R13; res. A, serial #240430
  • Knighton ETAL 11 #5, J-W Operating: 16.183 MMcf/day IP; Elm Grove Field, Bossier Parish, S11/T16/R12; res. A, serial #240669
  • Womack 2 #1, J-W Operating: 12.954 MMcf/day IP; Elm Grove Field, Bossier Parish, S11/T16/R11; res. A, serial #240094
Keep in mind that this is company reported data.  I will update the data once it is officially reported to the LA DNR.  I will post the revised the spreadsheet and map reflecting these new completions later this week once I get the weekly update from the LA DNR.

Opportunity Missed?

I have seen some recent chatter (more, another)  that the BP Deepwater Horizon explosion and leak are an opportunity for the natural gas industry to advance its own cause.  While I hate to use such a devastating event where eleven men died and untold environmental damage is unfolding for gain, I would suggest that through a series of coincidences, the industry has already missed the opportunity. 

Earlier this week I lamented the series of natural gas accidents, including two pipeline explosions and a blowout in Pennsylvania.  The gas industry had a perfect opportunity to shine, but instead it handed its environmentalist and NIMBY foes a load of ammunition to use against it. 

While these incidents were a series of ill-timed accidents and were not caused by gross negligence (like BP Deepwater Horizon), it shows that the case for natural gas can't be made on safety.  Mining is a dangerous industry, no matter what the target.  You don't hear airlines advertising their safety records in commercials.  The differentiation needs to be made on the product.  Domestically produced natural gas is a superior fuel for environmental reasons, for economic reasons and for national security reasons.  That's the message.

Reliance Still Interested in Shale

India's Reliance Industries, which recently struck a joint venture agreement with Atlas Energy in the Marcellus Shale, is interested in making a similar deal in the Eagle Ford Shale by partnering with Dallas-based Pioneer Natural Resources Co., which has 310,000 acres under lease in the play (view Financial Times; Business Week articles).  No deal has been announced yet, but discussions are underway.

This potential deal verifies a few trends that have been evident for the past couple of years: 1) international players are very interested in learning shale extraction techniques and are willing to pay up for the tutorial; 2) big producers are better at buying into shale plays once they have been proven rather than being the "first mover;" and 3) it takes lots of upfront capital to develop a shale play.

Tuesday, June 15, 2010

With Gas Price Up, Coal More Attractive

While I am pleased to see the recent increase in natural gas - today's close of the Henry Hub spot price is 32% higher than the price six weeks ago on the first trading day of May - any price increase at this still sensitive time in our economic recovery plants the seeds for another retreat. 

What I'm talking about is coal.  Over the past couple of years, increased use of natural gas in power generation has provided some downside support for gas prices as utilities switched some of their generation from coal to gas.  With gas prices now above the $5/MMBtu threshold, coal is looking more attractive.  A Business Week article quotes a Wall Street analysts saying that the equivalent coal price per MMBtu is $4.63 and that approximately 10% of U.S. power plants, mostly in the southeast, can switch between coal and gas. 

The implication is that gas prices might be capped in this range until the fundamentals of the economy strengthen considerably.  While this one input will not drive gas prices on its own, it is something to keep in mind when watching the trajectory of gas prices. 

Monday, June 14, 2010

Verizon to buy CNG Vans

Verizon recently announced that the company has purchased 501 Ford E-250 cargo vans upfitted with compressed natural gas (CNG) engines.  The conversion of the ubiquitous Econoline vans will be done by BAF, a subsidiary of Clean Energy Fuels Corp. 

The CNG vans are part of a larger Verizon program to promote energy efficiency and cost savings by replacing 1,100 vehicles and changing some of its operational practices (i.e. less sitting around with the engine running - duh!).  In the spirit of spreading the wealth, the other vehicles in the program will run on biodiesel and ethanol (ick!).

Verizon is one of several major companies embarking on an campaigns to publicly "green" themselves through the use of petroleum alternatives.  It's press and it saves real money, not to mention that making a positive impact on the environment (or at least a significantly lower negative impact).  It is also part of the slow realization of Boone Pickens' plan to encourage fleet vehicle use of natural gas.  Once the infrastructure for CNG expands, starting with fleet operators, natural gas will become a more widely used fuel. 

KKR Again Invests in Shale Gas

Private equity firm Kohlberg Kravis & Robers (KKR) has agreed to invest up to $400 million for a 40% ownership of a venture with Hilcorp Energy Co. to develop acreage in the Eagle Ford Shale in southern Texas.  KKR pretty much recycled their returned principal from an earlier investment in East Resources.  Less than a month ago, KKR-backed East Resources agreed to be acquired by Shell Oil for $4.7 billion.  Not bad for a one year investment.

This deal is good news for the shale gas industry.  The East Resources investment showed that investors can make big money backing producers.  Pipelines have been a popular investment because of their high capital costs and relative stability, which allows private equity firms to put lots of money to work and at the same time safely borrow lots of dough to fund the investment.  Investments in energy services companies have been receiving less press.  The service companies are either the Weatherfords, Smiths and Baker Hughes of the world or they are smaller regional companies that most of us have never heard of.  Some of the smaller companies are investment targets, but you don't hear much about that. 

In general, backing the independent gas E&P has been a very successful model in shale plays.  The big international players don't have the patience or expertise to develop these plays at the appropriate pace.  But they ultimately want in and can afford to buy in after the play has been proved.  When you have deep pockets, you don't have to be the "first mover"

If nothing else, the KKR investment brings positive energy, attention and investment cash to shale gas exploration.

June Louisiana State Mineral Board Lease Results

The Louisiana State Mineral Board held its monthly lease sale last week.  A number of Haynesville area properties were on the block.  There were eight leases awarded for Haynesville area properties (that may or may not include land prospective for the Haynesville Shale), while five leases received no bids.  The average bid lease bonus was $6,848, but that was dragged down by a low bid for some property in Sabine Parish that is marginally prospective for the the Haynesville, if at all.  The weighted average lease bonus was $7,710.

View from the Shore

Unfortunately, the boats the boys are looking at in the distance in the above picture are not trawling for shrimp in the Gulf waters.  My family spent last week at the beach near one of the front lines for fighting the oil spill.  Fortunately we saw little evidence of the oil, but the coast will not be as fortunate going forward. 

Spending the week watching the fleets of boats on the horizon and helicopters flying overhead, I reflected on all of the bad news coming from the energy industry these days.  Of course, the big news is the BP Horizon explosion and unstoppable leak.  But in the past couple of weeks there has been a blowout at an EOG Marcellus Shale gas well in Pennsylvania, an explosion of a gas pipeline in Cleburne, TX caused by a crew installing utility poles, another explosion of a gas pipeline in the Texas panhandle caused by bulldozer striking a pipeline and news that an abandoned Taylor Energy well damaged in 2004 by Hurricane Ivan is leaking oil that is headed for the mouth of the Mississippi River.  I even saw reports that a Chevron oil pipeline in Salt Lake City, UT broke and spilled oil in the watershed of Great Salt Lake

That's a lot of bad news in a very short period of time.  Each incident was caused by independent circumstances, but none of it bodes well for the energy industry.  This is a moment in history when domestic production of oil and gas is poised to grow.  President Obama has taken steps to open up more offshore acreage for leasing, the public has a greater understanding of the economic and geopolitical ills of buying foreign energy and the natural gas industry has been making inroads in telling its story.  These are all big positives for the domestic energy production.  But suddenly the energy industry is forced to play defense at a crucial time. 

That there have been major failures is not a surprise given aging infrastructure, the proximity of population to energy resources and the systematic dismantling of the Minerals Management Service from the inside over the past decade.  That they have happened so close together is an unfortunate surprise that likely will tilt the regulatory landscape.  Expect more state-level regulation and scrutiny, a stronger and more intrusive MMS and possibly greater support for higher mineral extraction taxes.  The current ill-advised moratorium on deepwater drilling is an overreaction caused by people demanding action from a government that is by necessity dependent on the perpetrator of the spill to clean it up.  This is not a good environment for clear thinking.

Being a Louisianan, I have long been very concerned about the loss of the state's wetlands.  The causes are many, and the potentially devastating impacts caused by the BP spill will only accelerate a process that  has been going on for generations.  There was a very good op-ed piece by James Carville in the Sunday New Orleans Times Picayune that summarizes much of my thinking.  (It is a good read - no matter what you think of James, he is a tireless advocate for the state.)  Louisiana has long been a provider to the country (energy, transportation, seafood, etc.) but it has more often than not been treated poorly.  Now much of this is our own fault, as we historically depended on crooked politicians (Leander Perez, Huey Long, Edwin Edwards, etc.) who put their own interests above those of the state.  But in many cases, Louisiana has been treated as a colony rather than a full member of society.  That is unlikely to change in the short-term, but the damage caused by this thinking is deep.

[UPDATE:  Good article in the Houston Chronicle citing some of the same issues.  It also notes an accident at a Marcellus well in West Virginia where a fire burned for five days after hitting an unexpected pocket of methane - sounds like the same cause of the incident in Caddo Parish in April.  What is it with accidents in the Marcellus Shale?  It's like a self-fulfilling prophecy of doom.  Every incident in that region makes drilling the largest shale reserve in the country that much more difficult.]

Haynesville Rig Count: -2 to 181

The Haynesville Shale rig count decreased by two to 181 last week, with a single rig loss in both east Texas and north Louisiana. 

Sunday, June 13, 2010

Recent Texas Completions

  • PEC Minerals Unit No. 1 #1H, XTO Energy: 8.908 MMcf/day IP, 19/64" choke; Carthage Field (Haynesville Shale), Panola Co.
  • Motley #1H, Devon Energy: 4.0 MMcf/day IP, Adj./64" choke; Carthage Field (Haynesville Shale), Shelby Co.

 Development Activity:
  • Crane ETAL #2H, EOG Resources; Carthage Field (Haynesville Shale), Nacogdoches Co.
  • Rambin Gas Unit #1H, Devon Energy; Carthage Field (Haynesville Shale), Nacogdoches Co.
  • Bridges #1H, Chesapeake Operating; Carthage Field (Haynesville Shale), Sabine Co.
  • Haley Shale Unit #1H, Exco Operating; Carthage Field (Haynesville Shale), San Augustine Co.
  • Bearcat DU #1H, XTO Energy; Carthage Field (Haynesville Shale), Shelby Co.
  • Nancy Lou McLendon #1H, Noble Energy; Carthage Field (Haynesville Shale), Shelby Co.

Friday, June 11, 2010

Rig Count Up

The U.S.Baker Hughes rig count increased by 21 this week to 1,527 with a 16 rig increase in oil rigs, a seven rig increase in gas rigs and a two rig decrease in miscellaneous rigs.  By type, horizontal rigs were up big, +21, while directional rigs increased four and vertical rigs decreased by four.

In the Haynesville region, inclusive of other formations, the rig count increased by three to 214, with a one rig increase in north Louisiana and a two rig increase in east Texas. 

The detailed Haynesville rig count likely won't be done by end of business today as I am at the beach chasing a sand-crusted three year old around.  But I'll get it done as soon as possible.

Thursday, June 10, 2010

LNG About Face at Sabine Pass?

Last week, Cheniere Energy announced plans to add liquefaction capabilities at its Sabine Pass import facility.  Cheniere had the misfortune to develop a large LNG import facility a couple hundred miles south of the Haynesville Shale.  While it sounded like a good idea a few years ago, the facility collects more cobwebs than tanker traffic because the abundance of shale gas in the U.S. and a monumental recession have turned the North American supply/demand relationship on its head.

Creating a bi-directional facility is natural business reaction to the situation in which Cheniere finds itself.  For a lot of reasons, I hope it works.  It sure would be nice to see the gas flowing away from our shores instead of towards it.  South TX/LA doesn't have great proximity to consuming regions in Europe and it likely won't be able to compete on a price basis with Qatari gas, but that market sure can use extra natural gas to support a viable spot market to offset the long-term expensive gas contracts that are in place. 

Keep an eye on this project.  It could have interesting long-term implications both here and abroad (here is a nice piece in the Financial Times about the situation).

Gas in Storage: +99 Bcf to 2.456 Tcf

The weekly EIA working gas in storage report showed a 99 Bcf net injection in storage this past week.  The figure is in line with last year's number (+109 Bcf) and the five year average (+95 Bcf), but it still leaves the storage level at a record high level for this time of year.  The good news is that the storage level is creeping back towards more normal levels, being only 1.2% higher than last year, but the bad news is that it still has a long way to go, still being 14.4% higher than the five year average, to make the market happy.

Wednesday, June 9, 2010

New Louisiana Completions

  • Tucker 16-16-16 H #1, Chesapeake Operating: 8.304 MMcf/day IP, on 22/64 in. choke, at 5,987 psi; Greenwood-Waskom Field, Caddo Parish, S16/T16/R16; res. A, serial #240585
  • Pace 33 HZ #1, Comstock Oil & Gas: 13.579 MMcf/day IP, on 24/64 in. choke, at 7,105 psi; Belle Bower Field, DeSoto Parish, S28/T13/R16; res. non-unitized, serial #240369
  • Roberts 28-13-13 H #1, Chesapeake Operating: 10.728 MMcf/day IP, on 20/64 in. choke, at 7,520 psi; Red River-Bull Bayou Field, DeSoto Parish, S28/T13/R13; res. A, serial #240488
  • Sample 16 H #1, Petrohawk Operating: 12.662 MMcf/day IP, on 18/64 in. choke, at 8,110 psi; Thorn Lake Field, Red River Parish, S9/T14/R11; res. A, serial #240610
  • Douciere 13 #1, SWEPI, LP: 6.5 MMcf/day IP, on 14/64 in. choke, at 6,890 psi; Trenton Field, DeSoto Parish, S13/T11/R13; res. Jur-A/Mid-Bos, serial #239225 (this is a Middle Bossier well that was previously noted with an unverified flow rate)

Sunday, June 6, 2010

Recent Texas Completions

  • Hemby #4H, NFR Energy : 10.444 MMcf/day IP, 26/64" choke; North CarthageField (Bossier Shale), Panola Co.
  • Elve Tompkins #15HH, XTO Energy: 4.178 MMcf/day IP, 18/64" choke; Carthage Field (Haynesville Shale), Panola Co.
Development Activity:
  • Sutton Unit #1H, EOG Resources; Carthage Field (Haynesville Shale), Nacogdoches Co.
  • Stoker Heirs #3, Valence Operating; Carthage Field (Haynesville Shale), Rusk Co.
  • Hezekiah #1H, Chesapeake Operating; Carthage Field (Haynesville Shale), Sabine Co.
  • Fightin' Irish DU #1H, XTO Energy; Carthage Field (Haynesville Shale), San Augustine Co.
  • Gamecocks DU #1H, XTO Energy; Carthage Field (Haynesville Shale), Shelby Co.
  • Bell Gas Unit #1H, Devon Energy; Carthage Field (Haynesville Shale), Shelby Co.
  • Bath Unit #2, Valence Operating; Carthage Field (Haynesville Shale), Rusk Co.

Saturday, June 5, 2010

Haynesville Rig Count: +1 to 183

The overall Haynesville Shale rig count increased by one to 183 this past week.  Texas saw an increase of two rigs and Louisiana saw a decrease of one rig.

There was a bit of shuffling around in east Texas portion of the Haynesville Shale this past week (at least on the Baker Hughes rig report, which is not 100% timely), as two net rigs were added, bringing the count to 50.  The Texas Haynesville count is now as high as it has ever been, and it represents 69% of the rigs drilling in District 6 (East Texas), also a high.

Friday, June 4, 2010

Energy Transfer Announces E. Texas Haynesville Gathering Pipeline

Energy Transfer Partners, the company that brings us the Tiger Pipeline, announced earlier this week that it plans to build another pipeline to serve the east Texas side of the Haynesville Shale.  The project will be a 63 mile gathering and treating system originating in southeast Shelby County, crossing San Augustine County and ending in Nacogdoches County.  It will interconnect with two interstate pipelines and Energy Transfer's Houston Pipeline System.  The system will consist of 20" and 24" pipe and will have an initial capacity of 645 MMcf/day. 

The company has already signed some ten year transport agreements (although it did not mention for what percentage of capacity) to support the project, and it hopes complete the project in Q4 2010.

Rig Count Down with Gulf Moratorium

The impact of the temporary moratorium on deepwater drilling punched a hole in the weekly Baker Hughes rig count, which dropped 29 to 1,506.  The biggest component of the drop was a 23 rig decrease in the Gulf of Mexico, or half the working rigs in the area.  As expected, vertical rigs decreased by 32, while horizontal rigs increased by three.   Oil rigs decreased by 10, gas rigs decreased by 20 and miscellaneous rigs increased by one.

In the Haynesville Shale region, inclusive of other formations, the rig count decreased by two to 211.  The count was stable in east Texas but dropped by two in north Louisiana. 

Thursday, June 3, 2010

Which Movie are the Locals Watching?

I was struck this evening at the difference between the independent documentaries making the rounds in the Haynesville Shale versus the Marcellus Shale.  It says a great deal about each area's approach to natural gas extraction, and it influences the economic success of each region, at least in the short term.

I had the chance to watch the pre-world premiere of Greg Kallenberg's "Haynesville" last October before it officially premiered in Europe.  It is a qualified endorsement of natural gas, recognizing its place in a cleaner energy future as well as an economic driver.  It is a fairly even-handed approach to the pros and cons of natural gas development, although it didn't take a hard look at the impact of hydraulic fracturing, which has become a cause célèbre for environmental advocates and the anti-fossil fuel folks.  It has been well received in the Louisiana-Texas region, which, as noted in the recently released economic impact study, is enjoying relative economic stability in these trying times thanks to the natural gas industry.

Currently making the rounds in Pennsylvania and New York is the film "Gasland," a harsh look at the environmental impacts of drilling.  It received a special jury prize at the 2010 Sundance Film Festival and is being shown in theaters throughout the region (including a special showing at the Pennsylvania state house).  It premieres on HBO on June 21, so it likely will receive a great deal more exposure than "Haynesville."  I have not seen the movie, but the press materials portray an alarmist view of the gas drilling industry.  The film seems to take a fairly one-sided view of the risks of drilling by focusing on a few well documented incidents.

It is interesting to compare and contrast the approaches the locals are taking to the drilling boom in each region by looking at the popular documentaries.  It is ironic that gas drilling began in the U.S. in Pennsylvania 150 years ago but has become something of an environmental pariah of late.  In Louisiana and Texas, the focus largely has been on the economic impact.  People are cognizant of and concerned about the various impacts, but most people understand the balance between the risks and the economic opportunities.

Interestingly, Pennsylvania is one of the only states that doesn't have a natural gas severance tax.  One has been proposed, but in this anti-tax Tea Party world, new taxes might not be easy to pass.  I hope for the benefit of Pennsylvanians that the state's legislature has the intestinal fortitude to institute a severance tax.  Producers will cry a river, but royalty rates in the region generally are in the mid-teens (compared to 20-25% in the TX/LA region), so a few percentage points going to the state won't make that big of a difference in the long run.  The Marcellus is a good bit shallower than the Haynesville, so it is cheaper to drill. 

Pennsylvania is in a budget jam and the Marcellus Shale is a once in a lifetime opportunity for economic development.  Would a realization of the economic benefits help change the attitude of the citizenry?

Haynesville Economic Impact Still Strong

Last week, economist Loren Scott released an updated version of his report, "The Economic Impact of the Haynesville Shale on the Louisiana Economy in 2009."  The report was prepared for the Louisiana Oil and Gas Association and examined the impact of spending by the seven biggest producers in the Haynesville Play on the Louisiana side in 2009. 

The report showed direct spending of $10.64 billion, which generated $5.61 billion in household earnings.  The report also claims that the spending led to 57,693 direct jobs.  Along with a high level of direct spending comes increased tax revenue for local and state governments, including higher levels of property taxes, sales taxes and income taxes. 

The authors also project spending from 2010 to 2014.  This is a dicey proposition given the lack of a crystal ball, but what is interesting is that the LA DNR, which provided drilling activity projections, expects drilling activity to peak this year at 720 wells, declining to 510 wells in 2011, 480 wells in 2012 and 450 wells in both 2013 and 2014.  This is logical given the lease expiration schedule of most leases executed in the 2008-2009 range, but it shows that 2010 might be the "high water mark" for activity in the region.

This report is a testimony to the importance of natural gas to the regional and state economy.  It also shows the importance of the Haynesville economy to the state during the worst recession (hopefully) of our collective lifetimes. 

In a previous career, I worked on economic impact reports.  Before we froth at the mouth excessively about the gaudy numbers, it must be said that there is as much art as science in these reports, especially when the client (in this case an industry association) has a specific agenda.  There are a whole bunch of decisions economists make when classifying data and applying multipliers.  Not to malign Dr. Scott or his team, but I am of the steadfast belief that all economic impact reports are by nature fluffy.

But the bottom line is that in 2009 A LOT of money was spent to develop wells, which led to a lot of employment.  Also, a lot of gas was produced, which led to a lot of royalty payments.  All of this spending had a multiplier effect in terms of other spending, employment, taxes and the like as it coursed through the economy.  My point is that the money is real, just don't get too hung up on the actual numbers.

Gas in Storage: +88 Bcf to 2.357 Tcf

The weekly EIA working gas in storage report showed an 88 Bcf weekly increase last week, bringing the total to 2.357 Tcf.  That figure is as high as it's ever been this time of year, but the weekly increase was lower than last year's (+121 Bcf - not saying much since last year was out of sight) and the five year average (+100 Bcf).

The market seems to have liked the news, as the front month futures price jumped just over 6% today.

This Week's Louisiana Completions

Check out the two Edgar Cason wells at the end.  They are producing 21+ MMcf/day IP rates and 8,700+ psi on an 8/64" choke.
  • Henderson 28 H #1, Petrohawk Operating: 7.138 MMcf/day IP, on 14/64 in. choke, at 7,661 psi; Sligo Field, Bossier Parish, S33/T17/R12; res. A, serial #240579
  • McFerren 36 H #1, Petrohawk Operating: 8.553 MMcf/day IP, on 12/64 in. choke, at 7,845 psi; Bethany Longstreet Field, DeSoto Parish, S25/T14/R16; res. A, serial #240528
  • Florsheim 18 #3-ALT , EXCO Production: 8.575 MMcf/day IP, on 18/64 in. choke, at 5,273 psi; Caspiana Field, DeSoto Parish, S18/T14/R12; res. A, serial #240284
  • Ford Family TR LLC 29 H #1, BEUSA Energy: 6.163 MMcf/day IP, on 12/64 in. choke, at 8,200 psi; North Grand Cane Field, DeSoto Parish, S32/T13/R14; res. A, serial #239590
  • McLelland Trust 32 H #1, Petrohawk Operating: 7.673 MMcf/day IP, on 14/64 in. choke, at 9,000 psi; Red River-Bull Bayou Field, Red River Parish, S29/T14/R10; res. D, serial #240474
  • Edgar Cason 12 H #1, EnCana Oil & Gas: 21.538 MMcf/day IP, on 8/64 in. choke, at 8,756 psi; Thorn Lake Field, Red River Parish, S12/T14/R11; res. A, serial #239984
  • Edgar Cason 13 H #1, EnCana Oil & Gas: 21.241 MMcf/day IP, on 8/64 in. choke, at 9,136 psi; Thorn Lake Field, Red River Parish, S12/T14/R11; res. A, serial #240015

Last Week's Louisiana Completions

  • Saddler 9 H #1, Chesapeake Operating: 10.75 MMcf/day IP, on 22/64 choke, at 6,470 psi; Greenwood-Waskom Field, Caddo Parish, S9/T15/R16; res. A, serial #240582
  • Feist 6-16-15 H #1, Chesapeake Operating: 13.241 MMcf/day IP, on 22/64 choke, at 6,892 psi; Johnson Branch Field, Caddo Parish, S6/T16/R15; res. A, serial #240467
  • Dixie Farm LLC 11 H #1, Chesapeake Operating: 11.793 MMcf/day IP, on 22/64 choke, at 5,490 psi; Metcalf Field, Caddo Parish, S11/T16/R15; res. non-unitized, serial #239703
  • Waldon ETAL 4 H #1, Chesapeake Operating: 16.557 MMcf/day IP, on 22/64 choke, at 6,722 psi; Benson Field, DeSoto Parish, S4/T10/R13; res. A, serial #239937
  • BSMC LA 11 HZ #1, Comstock Oil & Gas: 7.33 MMcf/day IP, on 26/64 choke, at 4,509 psi; Benson Field, DeSoto Parish, S2/T10/R15; res. non-unitized, serial #240200
  • Nabors Properties 1 H #1, Chesapeake Operating: 10.441 MMcf/day IP, on 22/64 choke, at 5,470 psi; North Grand Cane Field, DeSoto Parish, S1/T12/R14; res. A, serial #239938
  • Fuller 5 H #1, Chesapeake Operating: 18.264 MMcf/day IP, on 22/64 choke, at 7,687 psi; Holly Field, DeSoto Parish, S5/T13/R13; res. A, serial #239745
  • Ray P Oden 36 H #1, El Paso: 23.472 MMcf/day IP, on 22/64 choke, at 7,375 psi; Holly Field, DeSoto Parish, S36/T14/R14; res. A, serial #240348
  • Int'l Paper 12 H #1, Petrohawk Operating: 8.169 MMcf/day IP, on 14/64 choke, at 8,740 psi; Holly Field, DeSoto Parish, S1/T13/R14; res. A, serial #240693
  • Thigpen 14 #5, EXCO Production: 13.144 MMcf/day IP, on 26/64 choke, at 6,539 psi; Kingston Field, DeSoto Parish, S14/T14/R13; res. A, serial #240238
  • AT+N Martinez 30 H #1, Chesapeake Operating: 17.443 MMcf/day IP, on 22/64 choke, at 8,225 psi; Red River-Bull Bayou Field, DeSoto Parish, S30/T13/R13; res. non-unitized, serial #239297
  • Hunter Mannies ETAL 25 H #1, Chesapeake Operating: 13.128 MMcf/day IP, on 22/64 choke, at 7,012 psi; Spider Field, DeSoto Parish, S25/T12/R14; res. A, serial #240149
  • Labokay Corp 27 H #1, Chesapeake Operating: 18.168 MMcf/day IP, on 22/64 choke, at 6,874 psi; Trenton Field, DeSoto Parish, S27/T11/R13; res. A, serial #239772
  • Rollert ETAL 23 H #1, Chesapeake Operating: 18.552 MMcf/day IP, on 22/64 choke, at 7,646 psi; Trenton Field, DeSoto Parish, S23/T12/R13; res. A, serial #240215

Qatari LNG Deliveries Slowing Down

Thanks to a reader who forwarded a great article on Bloomberg about how Qatari LNG deliveries are slowing down in reaction to the low price/high supply environment

The article is a good read because it gives a great overview of the logistics and economics of Qatari LNG.  According to the article, The Qatar Liquefied Gas Co. has idled eight of its enormous tankers off the coast of the U.A.E. with full or partial cargoes.  The Qataris aren't talking, but observational evidence confirms that the tankers aren't empty and they aren't going anywhere.  The approximate daily cost of idling a tanker with a payload on board is $21,625 per day, but a single cargo can fetch $10 million to $35 million more later in the year. 

The decision to hold supply back makes business sense.  If you have deep pockets, why sell your product for less than it's worth?  The article also notes that Qatari deliveries earlier this year intentionally have been slowed.  But if Qatar slows its LNG exports, does that mean it is cutting production?  Since the gas is more or less a byproduct of its more profitable NG liquids business, is the liquids production slowing?  Does Qatar have the storage capacity to hold several months worth of gas while maintaining its liquids production?  All questions I'm not qualified to answer, but it shows the impacts of the current natural gas oversupply are far-reaching.

Wednesday, June 2, 2010

Recent Texas Completions

I noted the following activity in Texas this weekend.

  • Lawrence GU #1H, Unit Petroleum: 1.766 MMcf/day IP, 16/64" choke; North CarthageField (Bossier Shale), Harrison Co.
  • Allie Marie Hogg #11H, XTO Energy: 4.952 MMcf/day IP, 24/64" choke; CarthageField (Haynesville Shale), Panola Co.
  • Beckham #8, Sojitz Energy: 0.35 MMcf/day IP, 14/64" choke; BeckvilleField (Haynesville Shale), Panola Co.
  • Edward Westmoreland Gas Unit 1 #2H, Samson Lone Star: 7.824 MMcf/day IP, 48/64" choke; CarthageField (Haynesville Shale), Panola Co.
  • J. Kidd #1, Unit Petroleum: 0.054 MMcf/day IP, 48/64" choke; CenterField (Haynesville Shale), Shelby Co.
  • Michael Baldwin #1H, Noble Energy: 8.279 MMcf/day IP, 24/64" choke; CarthageField (Haynesville Shale), Shelby Co.
Developmental Activity:
  • E.H. Lowery Deep Unit #1H, NFR Energy; Carthage Field (Haynesville Shale), Harrison Co.
  • Fowler #2, Valence Operating; Carthage Field (Haynesville Shale), Harrison Co.
  • Red River 365-2 #2H, Exco Operating; Carthage Field (Haynesville Shale), San Augustine Co.
  • Lewis #1H, St. Mary Land + Expl.; Carthage Field (Haynesville Shale), San Augustine Co.
  • Gobi #1, Crimson Exploration; Carthage Field (Haynesville Shale), San Augustine Co.
  • Catherine #1H, Chesapeake Operating; Carthage Field (Haynesville Shale), Shelby Co.
  • Boilermakers DU #1H, XTO Energy; Carthage Field (Haynesville Shale), Shelby Co.
  • Patsy Johnson Gas Unit #2H, Exco Operating; Carthage Field (Haynesville Shale), Gregg Co.

Tuesday, June 1, 2010


I've been away both literally and figuratively for a few days.  I've been out of town.  I've also been without my computer, which suffered a terminal hard drive failure last week.  I'm slowly rebuilding and I think I've avoided the worst of the problems thanks to backups (I thought I lost my various completions and rig count spreadsheets). 

I've been feeling sorry for myself and crawling out of my skin to get my machine back, but it made me realize how addicted some of us are to these silly machines.  While I was away, I had a bad but thankfully brief cold.  As I was simultaneously worrying about my computer and tossing back Sudafed and Tylenol I had the thought that I would rather be sick and have my computer in good health than the other way around.  It wasn't until this afternoon that I realized how pathetic of a thought that was.

...That reality notwithstanding, I've got some catching up to do. In no particular order, I'll update LA completions from last week [DONE], TX completions from this weekend [DONE], the maps of completions [DONE].