Wednesday, July 28, 2010

Encana Update: Mid-Bossier; SW Extension

Last week, EnCana released its second quarter earnings and operations update.  EnCana has consistently maintained the second largest number of rigs in the play, averaging 22 for the past six months but currently at 26.  This high count is a necessity for a company with a big chunk of its 459,000 net Haynesville acres that it needs to hold by production.  In a previous post I provided greater detail on the company's land retention strategy, so I'll gloss over it here, only to say that this strategy is driving the big rig count. Is it sustainable after 2012?  There are a lot of variables involved.

EnCana has elevated the Haynesville Shale to be a "key resource play" for the company.  Not sure what that means other than an indication that the company will shine a brighter light on the play internally. That's a good thing because EnCana also announced that it has increased its 2010 capital budget by $500 million.

Overall, the company drilled 41 net operated wells in the first half of the year.  It is producing just under 270 MMcf/day from the Haynesville and believes it is on track to be doing a 500 MMcf/day run rate by the end of the year.  Average production for 2010 is estimated to be 325 MMcf/day.  By 2014, EnCana thinks it will be doing 1.2 Bcf/day. 

Management also discussed the company's "gas factory" approach to efficiently drill multiple wells from a single pad.  I look forward to hearing more about EnCana's gas factory pilot project in DeSoto Parish, LA.  Some doubters, notably Arthur Berman, are skeptical of how successful a factory approach will be given the sub-surface geology.  I'm no geologist, but I imagine the approach will be successful if a large amount of  customization is done for each well.  I doubt you can drop manufacturing operations on the landscape like Monopoly houses, but I think there is great value to consolidating surface operations, if only in improved aesthetics. Ultimately, we likely won't see a true manufacturing operation for a few years until the company is finished with its land retention strategy.

EnCana continues to be encouraged by the company's progress in the Mid-Bossier Shale.  EnCana has 100,000 to 200,000 acres prospective for the Mid-Bossier and has drilled as many or more test wells than any other operator to date (although that may change in the next few months with some expected announcements).  The most recent set of decline curves for its Mid-Bossier wells is below.  Interestingly, for all of its glowing talk, EnCana is using a 2.5 Bcf estimated ultimate recovery for its Mid-Bossier wells, compared to a 7.8 Bcf EUR for its Haynesville wells.

Perhaps the greatest excitement at EnCana is its recent success in the southwest portion of the play in Texas, often called the San Augustine Extension.  EnCana has a couple of joint ventures in the area, one called Brent Miller (in green on map below), the other called Shelbyville (orange on map).  In the Brent Miller JV, the company's Blackstone A43H well IP'd at 25 MMcf/day, but when a second wing valve was added, production increased to 32 MMcf/day.  The well is pretty deep, with a 14,500 vertical depth and a 9,500 psi pressure.  The company considers this completion a technical milestone because of the high temperatures and pressures at that depth.  Because Texas has a different legal conservation structure, companies can drill longer laterals than a 640 acre Louisiana unit provides, thus potentially generating better performing wells in good geologic zones.  EnCana has 45,000 net acres in the Brent Miller area.

What catches my eye on the slide above is the statement, "Rock quality equivalent to or better than LA Haynesville."  I look forward to seeing more results from this area.

1 comment:

Anonymous said...

EnCana actually said the following concerning land retention:

"I think we'd probably have just as high in activity level, but we'd probably be getting better results because we'd be able to concentrate our activity in places like the Haynesville into the gas factories."

This implies rig activity could remain high beyond 2012 given EnCana's aggressive growth plans. Also they said rig count is 26 in the Haynesville Shale.

Les B