Friday, April 30, 2010

Rig Count: +1 US, +7 Haynesville Region

The weekly Baker Hughes rig count showed a one rig increase nationally to 1,483.  Last week's nine rig decrease was the first one since Christmas.  Doubtful that this week's increase marks a new upward trend.  Of the one rig net increase, there were two new rigs targeting gas and one less rig targeting gas.  Of the net one increase, there were 12 more horizontal rigs, but eight fewer vertical rigs and one less directional rig.

In the Haynesville Shale region, inclusive of other formations, the rig count jumped by seven to 221.  There were eight new rigs operating in north Louisiana and one less rig in east Texas. 

The detailed rig counts should be completed late today or tomorrow.

Recent Louisiana Completions

  • Mondawerner 8-15-16 H # 1, Chesapeake Operating, Inc.: 10,032 MMcf/day IP, 22/64" choke, 6,157 psi; Perfs: 11,266' to 15,765'; Greenwood-Waskom Field, Caddo Parish, Sec. 8/Township 15/Range 16; Haynesville res. A, serial # 239788
  • BSMC LA 12 HZ # 2, Comstock Oil & Gas: 8,518 MMcf/day IP, 22/64" choke, 5,517 psi; Perfs: 11,570' to 16,001'; Benson Field, DeSoto Parish, S13/T10/R15; non-unitized, serial #240587
  • Pankey 23-14-15 H # 1, Chesapeake Operating, Inc.: 19,224 MMcf/day IP, 22/64" choke, 8,371 psi; Perfs: 11,988' to 16,380'; Bethany Longstreet Field, DeSoto Parish, S 23/T14/R15 ; res. A, serial #240371
  • Little 6-13-13 H # 1, Chesapeake Operating, Inc.: 9,607 MMcf/day IP, 18/64" choke, 5,783 psi; Perfs: 11,977' to 16,454'; Holly Field, DeSoto Parish, S6/T13/R13; res. A, serial # 239967
  • Nabors 8-12-13 H # 1, Chesapeake Operating, Inc.: 15,164 MMcf/day IP, 22/64" choke, 7,140 psi; Perfs: 12,140' to 16,671'; Mansfield Field, DeSoto Parish, S8/T12/R13; res. A, serial # 240103
  • NP LLC 5-12-13 H # 1, Chesapeake Operating, Inc.: 13,080 MMcf/day IP, 22/64" choke, 6,934 psi; Perfs: 12,189' to 16,638'; Mansfield Field, DeSoto Parish, S5/T12/R13; res. A, serial # 240187
  • Nabors 6-12-13 H # 1, Chesapeake Operating, Inc.: 8,808 MMcf/day IP, 20/64" choke, 6,641 psi; Perfs: 12,161' to 16,491'; Mansfield Field, DeSoto Parish, S6/T12/R13; res. A, serial # 240229
  • PH 5-12-12 H # 1, Chesapeake Operating, Inc.: 16,992 MMcf/day IP, 22/64" choke, 7,854 psi; Perfs: 11,991' to 16,431'; Red River-Bull Bayou Field, DeSoto Parish, S5/T12/R12; res. A, serial # 239563
  • Weyerhsr 21-11-13 H # 1, Chesapeake Operating, Inc.: 17,448 MMcf/day IP, 22/64" choke, 6,728 psi; Perfs: 11,921' to 16,578'; Trenton Field, DeSoto Parish, S21/T11/R13; res. A, serial # 239944
  • Carmody ETAL 24 # 1, Petrohawk Operating Co.: 6,926 MMcf/day IP, 14/64" choke, 8,768 psi; Perfs: 12,863' to 17,250'; Red River-Bull Bayou Field, Red River Parish, S24/T13/R11; res. B, serial # 240160
Also, the Louisiana DNR noted that an El Paso well reported in late November 2009, Franklin #4 (#240226) in DeSoto Parish, was erroneously reported as completed.  I have removed that well from the spreadsheet and the map pending DNR revision.  The new information above along with some Questar wells reported late last week will be posted on the revised spreadsheet and the map.

Thursday, April 29, 2010

New EIA Monthly Report Released

The EIA released its February monthly natural gas report today.  The big news is the changed methodology used to calculate production.  This has been applied to the February data and the 2009 data has been revised. 

I have yet to sift through the report to compare it to old ones - I might just wait for a diligent journalist/researcher to take the first crack at it.

Gas in Storage: +83 Bcf

The weekly EIA working gas in storage report showed an increase of 83 Bcf to 1.912 Tcf.  This is somewhat greater than the increase last year (+77 Bcf) and the five year average (+66 Bcf).  With the increase, the current year's storage figure is 5.6% higher than last year's (already high) number and 18.8% higher than the five year average.  Unfortunately, but not unexpectedly, the red line (current year) is starting to poke out of the shaded five year band in the graphic below:

Wednesday, April 28, 2010

New Feature: Completions Map for Louisiana

I've added a new feature, a Google map of all Louisiana completions.  The map is a work in process, an "alpha version" if you will.  I hate to post a first draft, but I've got to start somewhere.  I'll add Texas data soon and I should be able to produce a drilling rig map too.

The map data is drawn from the information in my spreadsheet, which is posted in a button in the upper right hand side.  All coordinate data comes from official sources.  The initial production data is from the spreadsheet and is no more or less current than the list.

First, some notes.  The map only displays 200 data items at a time. While this provides a little visual relief, the 470+ completions unfortunately stretch onto three pages.  You can toggle between the pages at the bottom of the left hand column of the map.  I'll try to fix that, but I'm not holding my breath.  For now just count it as an annoying glitch.  I've sorted the data on the map by location, so the wells are listed in the alphabetical order of the Parishes.  It basically takes you from north to south, but Natchitoches Parish (one completion) is an outlier on the second page.  If you want to see all of them on the same page, click the "View in Google Earth" button.  It shows all the data, but it's visually messy.


View Haynesville Shale Map: Louisiana Completions in a larger map

Let me know your thoughts and comments. The map will be a fixture in the upper right hand portion of the page.  I am planning some new features to make the map more useful, but I'm still in data gathering/organizing phase.

Monday, April 26, 2010

New Questar Completions

As part of its quarterly earnings report, Questar reported on several new wells.  Interestingly, the company is following the lead of companies like Petrohawk in modifying its initial flowback procedures to reduce pressure drawdown at the reservoir.  The result is expected to be higher ultimate recoveries.  The short term impact is lower initial production rates.
  • C.M. Hutchinson 37H #1: 16.3 MMcf/day IP; Elm Grove Field, Caddo Parish, Sec. 37/Township 15/Range 12; Haynesville reservoir A, serial #240388
  • Billy R. Harper 14H #1: 12.4 MMcf/day IP; Woodardville Field, Bienville Parish, S23/T15/R9; res. A, serial #240301
  • Billy R. Harper 23-15-9H #1: 11.7 MMcf/day IP; Woodardville Field, Bienville Parish, S23/T15/R9; res. A, serial #240516
This will be added to the completions spreadsheet, but I will not post a new revision until later this week.

So What Do You Think About Arthur Berman?

I've gotten that question a few times by email but have been reluctant to answer it.  I was cornered yesterday in person, so I'll tell you what I said, especially in regards to the Haynesville Shale.  First a disclaimer: I am unqualified to answer the question on its technical merits, but I will answer as an observer.

First, it is important to understand what Mr. Berman is saying.  I've read posts that damn him as being anti-shale gas.  I don't think that's true.  As I understand, he is saying 1) producers are understating costs (especially lease acquisition costs) as part of their rosy productions, 2) shale formations are not uniform in geology and are not suitable to be "manufacturing plays," and 3) producers might be overly optimistic about estimating recoveries from shale wells to boost their reserves to be more attractive to investors.  These combine to have larger implications.

Mr. Berman has said that he thinks shale formations are part of the future of the industry, but he believes it will take much higher natural gas prices for them to be economically feasible.  Many have suggested that his conclusions are based on partial data.  But because much of the data is proprietary it is kind of hard to know if he is right from the outside.

To me, the short answer is that the truth lies somewhere in-between. 

It is very hard to make generalizations about the Haynesville Shale.  To begin with, every acre of land was leased for a wide range of lease bonuses, from $0 (HBP) or $150 (pre-Haynesville land rush) to $25,000.  That baseline cost will create very different levels of profitability (or loss) that will vary by the acre.  You can assume an average lease cost of $5,000, as many companies report, but that average cost is misleading because a marginal well on low cost acreage might be more profitable than a boomer on expensive acreage.  One thing is for certain:  the "gold rush" mentality of leasing land at any cost really screwed up the play's economics for producers.

I think Mr. Berman is makes good points about the variability of geology. Just looking at the early production, you can tell where the more fertile areas are.  There are some pretty big changes over short distances, suggesting faults or other geologic factors.  Wells in North Caddo Parish might not be that great, but should they be lumped in with the sweet spots in DeSoto and Red River Parishes?  There are lots of geologic factors that go into determining where the best wells will be, and I think the producers in the Haynesville learned that much faster than the Barnett producers did.  Mr. Berman suggests that there are lots of inconsistent physical features in the shale that prevent a "manufacturing" approach to bring economies of scale to drilling wells.  That may be true on a large scale basis, but I think producers will be successful in mass producing on a smaller scale.  Given the crazy patchwork quilt of leased acreage, I don't think any producer can even attempt a large scale manufacturing project anywhere but in a few parts of the play.

His third point about over-estimating reserves also probably has some merit.  Where I fault Mr. Berman for over-generalizing, the same might be said about some producers.  Making generous assumptions about potential reserves allows companies to book fat reserves, which investors covet.  But it also has the impact of making finding and development costs look low because the bigger the reserves the bigger the denominator in the F&D cost calculation and the lower the F&D number, which gets back to his first point about underestimating costs.  My take is that estimating reserves from shale is a lot different from estimating traditional reservoirs, so the methodologies are still a bit raw and the reserve estimates might not hold as much water as they used to.  Because there are huge implications from reserve estimates, it is not a endeavor entered into lightly by producers (or their auditors).  But it is probably too early to say who is right and who is wrong. 

It will be interesting to see if new production methods, such as restricted choke sizes, aimed at flattening decline curves and improving recoveries will impact Mr. Berman's argument.  Obviously it's too early to tell, but over just the past two years, advances in technology and technique have led to much improved wells, and I don't know if that has been factored into his analysis. 

What is clear is that gas producers have their backs against the wall in the current price environment.  A recent article from Business Week (that quotes Mr. Berman) notes that many producers will not be able to maintain the current pace of drilling at low commodity prices because low commodity prices are suppressing cash flow.  That is an indication that Mr. Berman is right about $4 gas, but that's hardly a stretch.  What about $5 or $6?  I think it will be hard to generalize, but the producers will know which wells are profitable and the answer is different for each one. 

Expect "prudent allocation of capital" to be the buzz phrase this year.  Sure, producers need to drill to hold their leases, but as prices stay low many are going to have to make some hard decisions to cut back capital spending and risk losing expensive leases.

Bottom line: I think Mr. Berman makes some valid points, but I believe his conclusions are very pessimistic based on overly generalized data.  I think he relishes the role of Devil's advocate.  He gets lots of attention and has staked out an area where there is not much competition.  He seems to have become defensive about his position, especially since the situation got personal when he lost his position at World Oil.  There are many people saying unkind things about Mr. Berman, but it would be a mistake to dismiss his position entirely.  Opposing viewpoints are valuable because they test assumptions and temper conclusions.  Plus, you always want to have someone around to call the authorities if everyone is drinking the wrong flavor of Kool-Aid.

EIA Publishes New Production Estimation Methodology

Today, the EIA published its revised methodology for calculating natural gas production, the now infamous "EIA-914 Monthly Gas Production Report."  As noted in an earlier post, the new methodology will be used in the February monthly gas report, due out later this week. 

The production report is an estimate because it would be impossible to get accurate reports from every natural gas producer out there.  The EIA takes the best available data from a representative sample and estimates production for those not included in the sample.  Recall that the method used to work pretty well until the rapid expansion of the Haynesville Shale threw a rock through its window.  As it became apparent that the estimates had become less accurate, the EIA has reviewed its methods and revised them.  Because of the nature of the data, there is some lag time, but now it is only six months, as opposed to more than 18 in some cases. 

In case you're wondering, this is formula to get to the monthly estimate of total production:


Seems pretty straightforward to me (which is why I leave the statistics to the statisticians).  If you want to read more, here is the link to the report.

Recent Texas Completions and Activity

Completions:
  • Vaughn #4HR, Samson Lone Star: 8.634 MMcf/day IP on 20/64" choke; Carthage (Haynesville Shale) Field, Harrison Co.
  • Hemby GU #3H, NFR Energy: 3.947 MMcf/day IP on 15/64" choke; North Carthage (Bossier Shale) Field, Panola Co.
  • Verhalen "B" #1H, GMX Resources:  2.762 MMcf/day IP on 8/64" choke; North Carthage (Bossier Shale) Field, Harrison Co. (completion data for this well was also reported 11/22/09; I assume one of these entries names the well incorrectly, but I'll report both)
Developmental:
  • Waldron Mary Deep GU #1H, NFR Energy; Carthage (Haynesville Shale) Fiekd, Harrison Co. status #694285
  • George Foreman Gas Unit #1, Samson Lone Star; Carthage (Haynesville Shale) Field, Harrison Co., status #693093
  • Robert Walton #10H, XTO Energy; Carthage (Haynesville Shale) Field, Panola Co., status #694185
  • Williams-Chumley #1H, Devon Energy; Carthage (Haynesville Shale) Field, San Augustine Co. status #694333
  • Tucker #1H, Chesapeake Operating; Carthage (Haynesville Shale) Field, Shelby Co., status #694549
  • Marshall Anderson #1H, EOG Resources; Carthage (Haynesville Shale) Field, Shelby Co., status #694334
  • R. Dean Hay Gas Unit #1H, Goodrich Petroleum; Carthage (Haynesville Shale) Field, Shelby Co., status #694237
  • Beavers DU #1H, XTO Energy; Carthage (Haynesville Shale) Field, Shelby Co., status #694178

Saturday, April 24, 2010

Haynesville Rig Count Down One

By my count, the Haynesville Shale rig count dropped by one rig last week to 174.  The count dropped by two in Loiusiana to 127 and increased by one in Texas to 47.  The detailed rig lists are posted under the buttons in the upper right hand corner.


Friday, April 23, 2010

Rig Counts Down

The weekly Baker Hughes rig count showed a drop both nationally and in the Haynesville region.  Nationally, the rig count decreased by nine to 1,482.  Of the net nine decrease, gas-targeted rigs decreased by 17, while oil-targeted rigs increased by eight.  That seems more like it.  Last week saw the opposite effect, which was confusing given the price environment.  By rig type, vertical rigs decreased by eight and horizontal rigs decreased by one. 

In the Haynesville region, inclusive of other formations, the rig count dropped by three to 214.  North Louisiana saw a six rig decrease, while east Texas saw a three rig increase, in furtherance of the trend started a month ago.

Thursday, April 22, 2010

Exco Comments on "Well Control Event"

With all the passion of a lawyer writing bicycle assembly instructions, Exco responded to the "well control event" that occurred in south Caddo Parish earlier this week.  In all fairness to Exco, the full extent of the cause (and effect) of what went on is not entirely known at this point.  What is known is that some natural gas seeped into the water aquifer and some nearby residents are still out of their homes. 

About the only interesting information in the press release was that the "unexpected gas flow" occurred at 1,533 feet below the surface.  Exco is working to do right by these folks, but there is still much to learn about what happened to prevent this from occurring again (as much as this kind of thing can be prevented). 

Unfortunately, as the Shreveport Times pointed out this morning, there was little baseline information about the aquifer to know the quality of the water before the incident occurred.  Something tells me that we will lead to pressure from the environmental agencies to better inventory water resources, much like is being suggested in the Northeast.  What am  I saying?  This is entirely a personal opinion, but if Gov. Jindal is going to run for president in 2012, I doubt we will see much "government intervention" in gas drilling in Louisiana.  But as with many matters that merge business and the environment, we must find a middle path that is best for both parties (and likely unacceptable to both).  It is better for the responsible parties to act before they are pressured into action that they don't want to take.

Hey, Did Someone Say, "Curtail Production?"

It was EnCana.  One of the first companies to report earnings for Q1 2010, EnCana noted that it might curtail some of its natural gas production if prices get too low.  The company is still trying to drive large production increases over the next several years, so this doesn't mean the company will slash its drilling plans.  It's just going to hold back on the flow when and if conditions warrant it.

Not every company can afford to curtail production.  Most need the cash flow and are forced to sell gas into a down market to keep the lights on and the banks happy.  I'm glad there are a few companies out there willing and able to "take one for the team."  EnCana did it last year too.  Chesapeake said it did too, but it poutily changed its mind pretty quickly when few others joined in. 

For long-term thinkers, curtailing production in a low price environment is a winning proposition...assuming gas prices eventually increase.

Recent Louisiana Completions

  • Batchelor 2 H # 1, Questar Exploration & Production Co.: 11.618 MMcf/day IP on 22/64"choke at 7,150 psi; Alabama Bend Field, Bienville Parish, Sec. 2/Township 15/Range 10; Haynesville reservoir A, serial #240115
  • Bolton 35 H # 1, Petrohawk Operating Co.: 21.183 MMcf/day IP on 24/64"choke at 8,225 psi; Elm Grove Field, Bossier Parish, S26/T16/R11; res. A, serial #239976
  • Henderson 33 H # 1, Petrohawk Operating Co.: 8,101 MMcf/day IP on 14/64"choke at 7,782 psi; Elm Grove Field, Bossier Parish, S28/T17/R12; res. A, serial #240332
  • Edgar 31 # 1, Encore Operating: 5.600 MMcf/day IP on 24/64"choke at 1,800 psi; Greenwood-Waskom Field, Caddo Parish, S 31 /T 16 /R 16 ; res. A , serial # 240120
  • Whitehead 9 HZ # 1, Comstock Oil & Gas: 17.557 MMcf/day IP on 24/64"choke at 6,596 psi; Belle Bower Field, DeSoto Parish, S16/T12/R16; res. A, serial  #240246
  • Keatchie 9-14-15 H # 1, Chesapeake Operating, Inc.: 14.496 MMcf/day IP on 22/64"choke at 7,616 psi; Bethany Longstreet Field, DeSoto Parish, S9/T14/R15; res. A, serial #240279
  • Evans 26 H # 1, XTO Energy, Inc.: 10.8 MMcf/day IP on 16 /64"choke at 7,400 psi; Bethany Longstreet Field, DeSoto Parish, S 26/T13/R15; res. B, serial # 239816
  • EDWL 11-14-15 H # 1, Chesapeake Operating, Inc.: 17.424 MMcf/day IP on 22/64"choke at 7,918 psi; Caspiana Field, DeSoto Parish, S11/T14/R15; res. A, serial #240405
  • M E Turner 3 # 1, Indigo Minerals, LLC: 1.463 MMcf/day IP on 29/64"choke at 1.325 psi; Logansport Field, DeSoto Parish, S3/T12/R16; res. A, serial #240017 (this well had perferations from the 6,000 foot range to the 11,000 foot range, perhaps a vertical testing multiple horizons)
  • J Gamble Jr 2 # 2, Indigo Minerals, LLC: 2.365 MMcf/day IP on 48/64"choke at 1.075 psi; Logansport Field, DeSoto Parish, S2/T12/R16; res. A, serial #240035 (ditto note above)
  • James Marston 17 H # 1, EnCana Oil & Gas (USA), Inc.: 6.590 MMcf/day IP on 19/64"choke at 8,683 psi; Woodardville Field, Red River Parish, S17/T14/R10; res. A, serial #240264

Gas in Storage: +73 Bcf

This week's working gas in storage showed an increase of 73 Bcf, bringing the total to 1.829 Tcf.  This compares unfavorably to last year and the five year average, whose withdrawals for the same week were 42 Bcf and 33 Bcf, respectively.  The current week's storage level is now 18.5% higher than the five year average. The red line on the chart below is starting to pierce the five year band, and it looks like we should get ready for another year of it riding above the band.

Wednesday, April 21, 2010

Leak Causes Evacuation in Caddo Parish

Yesterday, an Exco Resources well in Caddo Parish encountered an unexpected shallow pocket of natural gas that caused gas to spew in the air and infiltrate ground water, although authorities need to fully investigate to figure out how the aquifer became tainted.  This led to a voluntary evacuation of 125-135 homes (Shreveport Times says 125, Wall Street Journal says 135) that continues today.  Exco reported the incident and is paying for hotel rooms.  It is unknown when the evacuation order will be lifted.  The well will be permanently shut-in once it is controlled.  News reports indicate that there are two other wells on the same pad, one of which has been completed and another awaiting completion.  No word on what happens to them.

Unfortunately, this incident likely will be seized upon by environmental activists opposed to hydraulic fracturing (and/or natural gas drilling in general) who will confuse the dangers of gas drilling with fracking.  I don't mean to downplay the situation, as it is very bad that gas has seeped into the already fragile Carrizo-Wilcox aquifer.  My point is that the causes, once determined, should be stated clearly.  Where there is a problem, it should be addressed quickly.  It sounds like this well was still in the drilling phase so fracking likely played no role in the incident.

A reader sent me a youtube video of Chesapeake Energy CEO Aubrey McClendon being accosted by questioners at a speech he gave at Harvard last month. Many of the questioners/protesters, while well intentioned, were spewing forth false information.  One woman said, "people are dying" in her county because of drilling.  Clearly that is not true.  The facts and the hysteria need to be separated.  I've long said that the fracking process needs to be more transparent, but now I wonder if it is too late for facts to pierce the veil of perception. 

[4/22/10 UPDATE: Editorial from Shreveport Times]

Arthur Berman's Latest Presentation

I noted earlier this week that shale critic Arthur Berman made another presentation critical of shale gas plays.  The occasion was a conference for Packers Plus.  Here is a link to the slides (let me know if the link doesn't work).  The presentation is similar to one made several months ago but has additional detail.

Exco to Buy Common Resources

Exco Resources announced today that it has agreed to purchase Common Resources, LLC, which has a small but strong position in the Haynesville Shale.  Exco joined with its joint venture partner BG Group in the acquisition, which will be governed by the JV agreement between the two companies.  Exco and BG will each own 50% of Common Resources.  The all cash purchase price is approximately $446 million and covers around 29,200 acres in Shelby, San Augustine and Nacogdoches Counties along with seven operating wells. The price looks to be roughly $15,300/acre. 

The purchase doesn't include Common's Eagle Ford Shale assets, which will be sold or distributed to another party before closing. 

Common Resources was created about three years ago and remains a private company with private equity backing from EnCap Investments and Pine Brook Road Partners.  The company was founded with $500 million equity funding original funding, but because it is still private there is not much public information available and I'm not sure if the entire commitment was drawn.  Although the Exco deal doesn't sound like a home run, it likely is a good enough deal for the founders and investors.  Of course, that depends on how much equity was actually invested and the value of the remaining Eagle Ford acreage. 

Common has been a part of some good wells, and its acreage is in the now stylish southwestern portion of the Haynesville Play, which includes the Shelby Trough.  The land also has lots of overlap with the Mid-Bossier Shale.  Given the good quality land and strong results, I imagine management sat down with the investors and said, "either we raise more money or sell the company/assets."  I guess they chose the latter. 

Although it might be early to draw conclusions about this particular deal, a sale like this indicates to me that the Haynesville Shale will be a play for big, well capitalized companies.  With the potential for sinking gas prices and the high cost of drilling and producing the wells, a successful Haynesville E&P company is going to need a rock solid balance sheet to weather the vagaries of the market.  I would expect more transactions - joint ventures, asset sales, acquisitions, etc. - in the next year or two as companies need to drill their acreage to hold leases.

No Gas OPEC Now

The members of the Gas Exporting Countries Forum met earlier this week in Algeria and concluded that it is not yet possible to set up a worldwide natural gas cartel.  While this is not really a surprise since transportation difficulties don't allow for the same kind of global market that oil enjoys, it is an idea that might be off the table for a while.

short piece in the Wall Street Journal, summarizes the situation well.  The two most important issues are the lack of a global marketplace (LNG only represents 10% of global supply at this time) and the fact that there is no gas exporting nation like Saudi Arabia that is willing to suffer the opportunity cost of cutting production to drive higher prices.  Additionally, higher commodity prices, the ultimate goal of a cartel, would encourage the development of competing supply sources (like shale), which would have the effect of lowering commodity prices.

Each country has a different cost structure and export scheme.  Most notably, Qatar produces huge amounts of cheap natural gas because it basically is a byproduct of its highly profitable liquids production.  For Qatar to reduce natural gas supply it would have to cut production of liquids, which is largely unrelated.  Qatar isn't going to let that happen.

This cartel thing - it sounds good but it's hard to put together.

A Coal to Gas Transformation

On these pages, we've been saying for a long time that the easiest and cheapest way for the U.S. to drastically reduce carbon dioxide output and reduce airborne pollutants is to better utilize its natural gas power generation infrastructure, which currently operates at about 25% capacity.  Now a report by respected energy consultancy PFC Energy is saying the same thing

The Financial Times reports that operating our existing natural gas generation plants at 72% utilization would displace most coal generation and reduce carbon dioxide outputs from the power sector by 50%.  This is a change that can be done quickly and cheaply because the plants are already built.  Along the way, the country might utilize an additional 30 Bcf of natural gas per day.

The state of Colorado has taken the lead in this effort by mandating the retirement of the state's oldest coal plants and replacing the power generation with natural gas.  This can occur by retiring the plants entirely or retrofitting them to be fueled by natural gas.  The state worked with major utility Xcel Energy to accomplish this goal (still no word as to what Xcel gets out of this).  It is a win-win proposition for Colorado because the state gets cleaner air and is able to use the natural gas produced in the state. 

With the terrible divisions in Congress right now, hoping for a substantial and progressive change in energy policy might be a waste of calories.  It is therefore heartening to see a state like Colorado show leadership.  Let's hope Congress is able to follow the lead.

Monday, April 19, 2010

Coal v. Natural Gas - Showdown on The Hill

Ready to tackle another divisive topic, Congress started working on energy policy last week, which led to a preliminary scuffle in the ultimate showdown between coal and natural gas in our nation's energy future.  Most indications are that a new version of the energy legislation should be out as early as tomorrow (April 20).

Gas fan T. Boone Pickens received lots of attention during his testimony.  He made the striking point that 74% of the January 2010 U.S. trade deficit was because of imported oil ($27.5 billion of $37.3 billion), a subject that gets little attention.  It's mind-boggling to think about how much wealth we export.  Pickens was also able to bend the ear of some key lawmakers following his testimony. 

At the same time, executives from top coal companies were attacking the natural gas industry.  Perhaps over-sensitive to the good press natural gas has been getting of late, the coal execs (who are not getting good press lately, especially after the recent tragic mining accident in Montcoal, WV) attacked everything from rosy projections of natural gas supplies to historical gas prices to potential job losses in coal mining.  They also boo-hoo'd the perceived lack of support for the development of carbon capture and storage (CSS) technology.  Apparently, the $60 billion in the original House bill is not enough support.  Yikes!  If that's true, I've got yet another reason to think that "clean coal" is a wasteful boondoggle. 

Also taking shots at Pickens were representatives of the refining industry (also not getting lots of good press lately).  The industry stands to lose business if a bunch of cars and trucks switch away from oil-based fuels.  They joined the coal guys in using scare tactics to attack natural gas.

It is interesting to see how the tables have turned over the years.  The natural gas industry is taking fire from all sides.  Clearly its lobbying effort is making progress!  The difference is 1) natural gas now has something of substance to say and 2) lawmakers seem to be listening.

Dark Thoughts: Polish Shale, Arthur Berman

The Financial Times posted an interesting story summarizing a Wall Street analyst's negative take on the prospects for developing shale gas in Poland.  Poland is one of a handful of European countries that has seen speculative development activity in pursuit of gas.  If gas can be produced economically in the region, the market would certainly support it.

The analyst from Bernstein Research (whose analysts seem to have a negative take on domestic shale gas too) points out deficiencies ranging from geological irregularities to difficult surface geography to poor E&P infrastructure that he thinks will make it difficult to economically exploit Poland's shale resources. 

This opinion notwithstanding, there are still many shale gas fans in Europe who do believe the opportunities can be exploited.  Here is a link to a very good and detailed summary of shale gas opportunities in Europe from E&P Magazine.

Even if Europe is not the next shale gas frontier, it can at least count on a seemingly endless number of QMAX tankers filled with LNG arriving from Qatar to ease the pressure to buy overpriced Russian gas. 

Speaking of negative takes on shale, shale skeptic Arthur Berman surfaced again last week in Calgary.  He continues to espouse the belief that shale gas is not the panacea that many believe (or say) it is.  He also believes that many producers have inflated their reserve calculations, presumably to impress Wall Street.  Specifically on the Haynesville Shale, Berman thinks the average EUR will be closer to 3 BCF rather than the 6+ Bcf most producers claim.  He thinks there will be some super wells, but they will be the exception rather than the rule.  He thinks most wells will not be economical unless prices stay above $7/MMBtu.

GMX’s New Completion

GMX Resources announced the completion of its Blacker Heirs #20H well (North Carthage Field (Bossier Shale, Harrison Co., status #688709). The company reported a 24 hour rate of 14.4 MMcf/day on a 20/64” choke at 5,890 psi flowing casing pressure. GMX touted its use of 5 1/2” casing design, which the company believes will lead to better long-term well performance, while reducing the number of frac stages.

The next GMX completions will be the Verhalen D #3H and Verhalen E #6H, both of which should occur in late April. Results for Blocker Ware #8H, Mercer #11H and Verhalen F #1H should be available sometime in June.

Sunday, April 18, 2010

One New Louisiana Completion

One completion slipped through the cracks earlier this week:
  • Petro-Hunt 8-12-12 #1, Chesapeake Operating: 19.176 MMcf/day IP on 22/64" choke at 8,397 psi; DeSoto Parish, Red River-Bull Bayou Field, S8/T12/R12; Haynesville res. A, serial #239568
I also mistakenly identified the Madden 6 #1 as Madden 16.  I fixed the earlier post and updated the spreadsheets.

Recent Texas Completions

Completions:
  • Hassell Gas Unit #2H, EOG Resources: 19.532 MMcf/day IP on 17/64" choke; Carthage Field, Shelby Co.; Mid-Bossier Shale (but reported as Haynesville) (this well was reported earlier by EOG at 21 MMcf/day 24 hour rate)
  • Boren Unit 1 #9HH, Anadarko E&P: 4,839 on 22/64" choke; Carthage Field (Haynesville), Nacogdoches Co.
  • King Gas Unit #1H, Cabot Oil & Gas: 16.3 MMcf/day IP on 22/64" choke; Carthage Field (Haynesville), San Augustine Co. (updating an earlier company-reported entry)
  • Warr #1H, Devon Energy: 4.302 MMcf/day IP on an adjustable choke; Carthage Field (Haynesville), Shelby Co.
  • Whitton Gas Unit #1H, Devon Energy: 6.650 MMcf/day on an adjustable choke; Carthage Field (Haynesville), Shelby Co.
Developmental:
  • Atkinson Unit #1H, EOG Resources; Carthage Field (Haynesville), Nacogdoches Co.
  • Leinart Unit #1H, EOG Resources; Carthage Field (Haynesville), Nacogdoches Co.
  • Gators DU, XTO Energy; Carthage Field (Haynesville), Shelby Co.
  • Davis #1H, Chesapeake Energy; Carthage Field (Haynesville), Shelby Co.
  • Nobles #1H, Chesapeake Energy; Carthage Field (Haynesville), Shelby Co.

Friday, April 16, 2010

More Thoughts on Rig Counts

I was scratching my head earlier today at the fact that 14 of the net 15 increase in U.S. rig count came in gas rigs and none of that came from the much talked about Haynesville Shale or Marcellus/Appalachian region.  The main cause of head scratching is that the rise in gas-targeted rigs comes at a time when gas commodity prices have sunk to an uncomfortably low level.  So I looked a little deeper.

Over the past three months, the U.S. gas rig count has increased by 140 rigs, or 17%, while the spot price of natural gas has dropped 27%.  I found that the regions that had the highest levels of growth in gas-targeted rigs in both number and percentage were the Anadarko Basin (TX and OK), Permian Basin (TX, NM) and the sprawling Western Gulf, which stretches from the Eagle Ford Shale in SW Texas to southern Louisiana.  Those three basins represented 63% of the rig count growth since mid-January, as shown on the table below. 

Those of us who follow the Haynesville Play closely have watched cautiously over the past year as the Haynesville rig counts continued to rise ahead of national trends.  Growth over the past three months has also been strong, led by east Texas additions, but over the past couple of weeks growth has stalled.  A few operators have added rigs, but two of the largest drillers, Chesapeake and Petrohawk, have declared that they are cutting gas rigs.  That impact is starting to be seen, and it is more pronounced on the Louisiana side of the play.  The table below shows growth in Haynesville rig count over the same period as the table above.  Good, but it wouldn't rank in the top three.

I've been pleased to see stories in the national media this week suggesting that the economic recovery might be stronger than expected.  That is very good news.  But will it be enough to put some support under natural gas prices through the end of the year?  The question I'm eager to see answered over the next month or two is, has the Haynesville Shale rig count topped out for 2010?

US Rigs +15, Almost All Gas Rigs; Haynesville Rigs -1

The Baker Hughes weekly rig count showed yet another increase in national rig count, up 15 to 1,491.  Of the net 15 increase, 14 are targeting gas and only one is targeting oil.  Given the different trajectory of gas and oil commodity prices, that surprises me a bit.  The biggest increases in gas rigs came in the Barnett Shale, the Anadarko Basin, the Arkoma Basin and SE Texas, all areas I consider more mature, not areas where producers are drilling to hold leases.

By type, horizontal rigs were only up by five, while directional rigs increased by seven and vertical rigs increased by three. 

In the Haynesville region, inclusive of other formations, the rig count held at 217 for the third straight week, with a net one increase in east Texas and a net one decrease in north Louisiana.

Looking at the individual rigs, I calculated that the Haynesville rig count dropped by one to 175, up one in Texas and down two in Louisiana.  Of note, Petrohawk's rig count dropped by three (there was one that was debatable, but I excluded it, so the real decline might be two), which is about what company management indicated would happen earlier this week.  Chesapeake's rig count is also down by two from its recent high two weeks ago.


Thursday, April 15, 2010

Ouch, Storage up 87 Bcf

This week's EIA natural gas in storage report showed an increase of 87 Bcf to 1.756 Tcf.  Compared to the past, both last year and the five year average showed increases of 21 Bcf.  The current year's storage figure is 3.6% higher than last year and 16.3% higher than the five year average.  This is not good.



Looking at the weekly temperature maps, it was a warm week.  I don't know if one can expect much of an impact from heaters in early April, but from the looks of it, everyone in the eastern half of the country had their windows open last week.

Looking forward, EIA made a prediction for the summer injection season.  Based on its crystal ball, the EIA estimates that 2.111 Tcf will be injected into storage this summer, bringing the injection season in at 3.771 Tcf, just 36 Bcf lower than last year's record high storage level.  Predictions, educated guesses, guesstimations, monkeys throwing darts at newspapers all have the same approximate value in my book, but it gives us a target to hit or miss.

April Louisiana Lease Sale Average Bid: $8,108

The Minerals Management Board held its monthly lease sale of state and governmental agency owned land yesterday.  There were 15 parcels representing 277 acres in Bossier and Caddo Parish that seemed to have Haynesville implications.  Those leases went to Classic Petroleum, Questar and Merlin Oil & Gas for an average bid of $8,108.  The weighted average was $9,458.  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.

Wednesday, April 14, 2010

Mystery Solved?

Last month, EnCana showed a graphic that noted an unnamed 37 MMcf/day well (image below) and I played the parlor game of trying to figure out which well it is.  The results were based on a 24 hour test, but it's still a gusher.  I based my guesses on trying to triangulate the location from the map, but I think I put too much faith in a big fat dot covering a wide area on a map and whiffed.

This week, there were a number of new EnCana completions published, and a couple might be the mystery well.  In particular I noted George Lormand 4H #1 (#239966; S5/T13/R11), which was completed January 22 with an IP rate of 28.8 MMcf/day.  Another possibility is the Thelma Lawson 11 H #1 (#240237; S11/T13/R9), which was completed February 18 with an IP rate of 28.0 MMcf/day, but that might be too far to the east.  I'm going with the Lormand well for now, but it's still just a guess on my part.

Lots of New Louisiana Completions

  • Madden 6 H #1, Petrohawk Operating Co.: 8.239 MMcf/day IP on 14/64" choke at 8,524 psi; Lake Bistineau Field, Bienville Parish, S7/T16/R9; res. A, serial # 240214
  • Red Oak 33-15-16 H #1, Chesapeake Operating, Inc.: 12.312 MMcf/day IP on 22/64" choke at 6,536 psi; Bethany Longstreet Field, Caddo Parish, S33/T15/R16; res. A, serial # 240181
  • Jones 26-15-16 H #1, Chesapeake Operating, Inc.: 14.101 MMcf/day IP on 22/64" choke at 7,140 psi; Bethany Longstreet Field, Caddo Parish, S26/T15/R16; res. A, serial # 240346
  • Querbes 18-16-16 H #1, Chesapeake Operating, Inc.: 10.489 MMcf/day IP on 22/64" choke at 5,985 psi; Greenwood-Waskom Field, Caddo Parish, S18/T16/R16; res. A, serial # 240340
  • Muslow 5-15-15 H #1, Chesapeake Operating, Inc.: 16.757 MMcf/day IP on 22/64" choke at 7,776 psi; Johnson Branch Field, Caddo Parish, S5/T15/R15; res. A, serial # 240265
  • Woolley 16-16-15 H #1, Chesapeake Operating, Inc.: 11.544 MMcf/day IP on 22 /64" choke at 6,839 psi; Johnson Branch Field, Caddo Parish, S 16 /T 16 /R 15 ; res. A , serial # 240404
  • Jackson Davis 27 H #1, EnCana Oil & Gas (USA), Inc.: 8.681 MMcf/day IP on 21/64" choke at 7,859 psi; Caspiana Field, DeSoto Parish, S27/T15/R14; res. A, serial # 240227
  • Sloan 4 H #1, Chesapeake Operating, Inc.: 20.321 MMcf/day IP on 22/64" choke at 8,905 psi; Holly Field, DeSoto Parish, S4/T13/R13; res. A, serial # 239791
  • Murphrey 10-11-15 H #1, Chesapeake Operating, Inc.: 8.405 MMcf/day IP on 22/64" choke at 4,662 psi; Logansport Field, DeSoto Parish, S10/T11/R15; res. A, serial # 239691
  • Rives 28 H #1, Chesapeake Operating, Inc.: 15.696 MMcf/day IP on 22/64" choke at 6,930 psi; Trenton Field, DeSoto Parish, S28/T12/R13; res. A, serial # 239691
  • Dupree Land 21 H #1, Petrohawk Operating Co.: 8.550 MMcf/day IP on 14/64" choke at 8,368 psi; Bracky Branch Field, Red River Parish, S28/T13/R10; res. A, serial # 240315
  • Thelma Lawson 11 H #1, EnCana Oil & Gas (USA), Inc.: 28.029 MMcf/day IP on 32/64" choke at 7,130 psi; Martin Field, Red River Parish, S11/T13/R9; res. A, serial # 240237
  • Rex Young 29 H #1, EnCana Oil & Gas (USA), Inc.: 4.961 MMcf/day IP on 14/64" choke at 5,966 psi; Red River-Bull Bayou Field, Red River Parish, S20/T14/R11; res. D, serial # 239574
  • Bundrick Land 36 H #1, EnCana Oil & Gas (USA), Inc.: 8.402 MMcf/day IP on 16/64" choke at 8,372 psi; Red River-Bull Bayou Field, Red River Parish, S36/T14/R11; res. D, serial # 239818
  • George Lormand 4 H #1, EnCana Oil & Gas (USA), Inc.: 28.751 MMcf/day IP on 29/64" choke at 8,519 psi; Red River-Bull Bayou Field, Red River Parish, S4/T13/R11; res. D, serial # 239966
  • George Lormand 5 H #1, EnCana Oil & Gas (USA), Inc.: 14.367 MMcf/day IP on 19/64" choke at 8,624 psi; Red River-Bull Bayou Field, Red River Parish, S5/T13/R11; res. D, serial # 239991
  • Edgar Cason 31 H #1, EnCana Oil & Gas (USA), Inc.: 13.000 MMcf/day IP on 18/64" choke at 8,737 psi; Red River-Bull Bayou Field, Red River Parish, S31/T14/R10; res. D, serial # 240093
  • Matthews ETAL 19 H #1, Petrohawk Operating Co.: 6.590 MMcf/day IP on 14/64" choke at 8,691 psi; Red River-Bull Bayou Field, Red River Parish, S18/T13/R11; res. B, serial # 239835
  • R O Wilson Trust 9 #1, EnCana Oil & Gas (USA), Inc.: 20.110 MMcf/day IP on 19/64" choke at 8,250 psi; Woodardville Field, Red River Parish, S9/T14/R10; res. A, serial # 239959
  • Ronald Guin 21 H #1, EnCana Oil & Gas (USA), Inc.: 7.897 MMcf/day IP at 9,081 psi; Woodardville Field, Red River Parish, S21/T14/R10; res. A, serial # 240247

Why Would Nucor Build a Coal-Fired Power Plant in Louisiana???

Nucor Steel, which is considering building a pig iron plant in St. James Parish, LA, wants to power the plant with coal. 

Uhhh, what? 

Nucor is applying to build a 500 MW coal-fired plant to fuel its proposed St. James Parish site, which is located between Baton Rouge and New Orleans.  The company is deciding between the Louisiana site and another in Brazil.  The Sierra Club is leading the charge against the plant, urging Nucor to choose a more environmentally friendly fuel source.  There is a LA DEQ public hearing tomorrow (April 15) at the St. James Parish Courthouse to discuss the issue.

I find this baffling.  For years now I've read Nucor's glossy magazine ads touting the company's environmental credibility.  Here's the company's web page as it appeared today:


This is the company that would install a coal generating plant in the state that has some of the largest natural gas reserves in the country?  I realize that coal and steel go way back, but for a company that openly talks about beating deadlines for the Kyoto Protocol on its web site to be building a coal-fired power plant just doesn't compute. 

This is forward thinking?  When your motto is "It's Our Nature," you have to do better than coal.  All of this just makes me think that Nucor's advertising campaigns are nothing more that feel-good fluff with no substance behind them.  I hope Nucor goes forward with its plans for a pig iron plant in Louisiana, but I hope the company can do it using natural gas as its power source.

More on GMX

In a press release touting a new well yesterday, GMX mentioned a couple of moves that I read as aimed at cost savings or creating efficiencies in a low commodity price environment.

First, the company announced that it has subleased one of its four Helmerich & Payne rigs, currently on a three year lease, to another producer for six months. 

Second, GMX noted that it has entered into a Joint Operating Agreement with Exco Resources to develop a 3,850 acre contiguous block in the Scottsville area of Harrison County.  GMX is contributing the Verhalen prospect (exclusive of the seven producing Verhalen wells) for an 84.3% interest, and Exco is contributing its rights in the Hamilton Unit for a 15.7% interest.  The JOA represents 49 possible drilling locations assuming 80 acre spacing.  The first well in the JOA, the Verhalen "F" #1H was spud on March 29, 2010.  The move slightly reduces GMX's capital expenditures as well as some of its future production.

Various New Completions

Texas:
  • King Gas Unit #1H, Cabot Oil & Gas: 19.0 MMcf/day IP (unofficial); North Carthage Field (Bossier Shale), San Augustine Co.
  • Rudy Mitchell #1H, XTO Energy: 5.602 MMcf/day IP on 48/64" choke; North Carthage Field, (Bossier Shale), San Augustine Co. (this was reported earlier in 2010, but I accidentally skipped it)
  • Bosh 19H, GMX Resources: 10.1 MMcf/day IP (24 hour rate, unofficial) on a 14/64" choke at 4,526 psi; North Carthage Field (Bossier Shale), Harrison Co. (from GMX press release 4/13/10; company noted some problems with drilling out plugs during completion process)
Louisiana:
  • Walker LTD PRT ETAL 2-ALT, EnCana Oil & Gas: 22.0 MMcf/day IP (unofficial); Bracky Branch Field, Red River Parish, Sec. 28/Township 13/Range 9; Jurassic B/Mid-Bossier, serial #240119

Tuesday, April 13, 2010

Petrohawk: Cap Budget Down; Chokes Tighter

Petrohawk presented at the IPAA conference today. I've already discussed the midstream asset sale, but I wanted to note a couple of other update-worthy infonuggets. 

First, the company has reduced its 2010 Haynesville capital budget by $50 million to $850 million.  Petrohawk says the reductions are based on "efficiencies" but I'm sure the low commodity prices might have something to do with it.  It's only a 6% reduction, but coming from one of the big Haynesville operators, it is a little ominous.  In truth, it is mostly a budget shift, as the capex budget for Eagle Ford Shale in Texas increased by $40 million. The Eagle Ford shale produces more oil and natural gas liquids, which provides more attractive pricing in the current commodities environment. 

Petrohawk now plans a 15 rig average in the Haynesville and expects to participate in 275 wells (110 operated, 165 non-operated) in 2010.   In a presentation three months ago, management expected a 17 rig average in 2010 and participation in 319 wells (112 operated, 207 non-operated).  As of last week, the company is still running 17 rigs in the Haynesville Play. Expect that number to drop a little in coming months.

Second, Petrohawk provided a positive review of its restricted choke program.  Recall that Petrohawk is one of the companies advocating a smaller choke size for its producing wells. The belief is that the narrower opening makes the conditions at the bottom of the well more stable and leads to improved gas recoveries.  As the slide below indicates, by producing on a 14/64" rather than a 24/64" choke, Petrohawk achieves a flatter decline rate and higher pressures, both of which contribute to higher EURs.  Going forward, the company will use the restricted choke scheme on most of its new wells.  Petrohawk is already using a fairly high 7.5 Bcf EUR for its Haynesville wells and even with this new approach to choking back wells, its type curve remains unchanged.

Petrohawk’s Yard Sale: 50% of Midstream Sold to Kinder Morgan

Petrohawk has sold yet another asset to fund its Haynesville and Eagle Ford drilling budgets. This time, the company sold half of its gathering and treating business to Kinder Morgan Energy Partners, LP for $850 million. With this sale, the 2010 divestiture tally stands at $1.4 billion.

The gathering system has about 173 miles of pipeline currently in service with another 224 on the drawing board for 2010. There are 17 amine treatment plants in service with 1,050 GPM new amine treating capacity in the works for 2010.


This is the last of the company’s major divestments for the year. Let’s hope that natural gas prices will provide Petrohawk (and other producers) with enough cash flow to prevent another yard sale of “non-core” assets.

New Feature: Mid-Bossier Wells

Since the Mid-Bossier Shale has become a more defined entity and more producers are targeting it, I’ve decided to add a tally of Mid-Bossier wells to the site. The list is a work in process because neither Texas nor Louisiana have a strict definition of the formation, and no wells carry a “Mid-Bossier” designation. Most wells that I’ve included come from producer presentations and hearsay. The data is backed up to the extent possible with information from official sources and newspaper reports.


What is known is that the Mid-Bossier Shale is a dark organic shale with some similar geologic features to the Haynesville Shale. It is located between 200 and 400 feet above the Haynesville Shale and is most prevalent in the southern part of the play. That’s not to say the Mid-Bossier doesn’t extend to the north somewhat. Each producer that is looking at the Mid-Bossier formation has a different definition of the play’s boundaries. Until more drilling is done, the northern boundary line will stay in flux. Personally, I think the formation might run farther north than most maps indicate, but the northern part of the formation might have unfavorable geologic characteristics (i.e. too high clay content) to make it a desirable target.

I will update the spreadsheet with new information as it becomes available. As with all of the other data I publish, I put this out there as a public resource that remains a work in process. I do not hold out this list as The Definitive List. I’m sure there are omissions. If you see any, please let me know by email (haynesvilleplay (at) gmail.com).

Monday, April 12, 2010

Crimson Exploration Update

Today, Crimson Exploration updated its Haynesville Shale drilling plans for 2010. The company has about 12,000 net acres prospective for both the Haynesville and Bossier Shales in the far southern part of the play in San Augustine and Sabine Counties, Texas. Crimson estimates drilling costs of between $10 and 12 million per well and estimates a 6.5 Bcfe ultimate recovery per well.


Crimson currently has one rig under contract and recently started drilling at the Grizzly #1 well in the Bruin prospect area of San Augustine Co. The well will have a 4,500’ lateral with 14 frac stages. The company, which is partial to the names of large animals and exotic locales, is preparing three more Haynesville drilling sites in the vicinity of Grizzly, Kodiak (Bruin), Gobi (Bruin) and Bengal (Tiger Prospect). Once drilling is complete at Grizzly #1, the rig will move to one of these locations. These wells will be operated by Crimson.

Crimson will also participate in two Haynesville wells in the Fairway Farms prospect area in San Augustine Co. on a non-operating basis. The first well will be spud in May 2010.

In addition to the prospects noted above, Crimson also has leases in the Tebo prospect and likely will lease another rig in 2010 or 2011 to drill additional wells.

Goodrich Adds Acreage in Texas

Goodrich Petroleum agreed to a deal for a 58% interest in 7,300 gross acres (4,200 net) in Shelby and northern Sabine Counties, Texas through a drilling agreement with the current lease holder.  The agreement specifies that Goodrich will pay approximately $9.6 million of drilling costs (about $2,285 per net acre) for its 58% interest.  No money was exchanged up front and the $9.6 million is already included in the company's 2010 capital budget.

Goodrich believes the land to be prospective for both the Haynesville and Bossier Shales.  The transaction brings Goodrich's Haynesville acreage to 89,500 net acres. 

Devon's Yard Sale: Gulf Properties Sold

Devon's planned sale of assets continues with news that the company has agreed to sell its Gulf of Mexico properties to Apache Corporation for $1.05 billion.  Closing is expected in June 2010. 

The Gulf properties represented the last of the major Devon assets for sale.  A few more international assets are available, but with the sale to Apache, Devon has generated $8.3 billion from the asset sales, eclipsing its expected proceeds range of $4.5 to $7.5 million.  Devon plans to use the liquidity to invest in its onshore North American assets and make its shareholders happy by deleveraging and buying back company stock.

Tiger Pipeline Gets FERC Approval

Energy Transfer Partners announced today that the company has received approval from the Federal Energy Regulatory Commission (FERC) to go ahead with its proposed Tiger Pipeline project.  Tiger Pipeline is fully committed with 10-15 year contracts, and the company has already applied with FERC to expand the pipeline for additional committed capacity. 

The Tiger Pipeline will run from Carthage, TX to Perryville, LA and will interconnect with seven other interstate pipelines.  It was one of the first big takeaway projects on the drawing board following the "discovery" of the Haynesville Shale.  The interstate pipeline will be about 175-miles long and have 42" diameter pipe.  Initial capacity will be 2.0 Bcf/day, but if the expansion is approved by FERC, the capacity will increase to 2.4 Bcf/day.  Construction is expected to begin June 2010 with completion sometime in the first half of 2011.  If FERC approves the expansion, it should be completed in the second half of 2011.

Recent Texas Completions

Completions:
  • Verhalen "E" #1H, GMX Resources: 6,429 MMcf/day IP on 16/64” choke; North Carthage Field (Bossier Shale), Harrison Co.
  • Bell #5H, GMX Resources: 6,459 MMcf/day IP; North Carthage Field (Bossier Shale), Harrison Co.
  • Fults Gas Unit #2H, Penn Virginia Corp.: no test data reported, Carthage Field (Haynesville Shale), Harrison Co.
  • Roquemore #1H, Chesapeake Operating: 11,088 MMcf/day IP on 20/64” choke; North Carthage Field, (Bossier Shale), Panola Co.
  • USA-BL #1, St. Mary Land & Exploration: 2,127 MMcf/day IP on 9/64” choke Carthage Field (Haynesville Shale), San Augustine
  • McSwain ETAL #1H, Noble Energy: 7,620 MMcf/day IP on 22/64” choke; North Carthage Field (Bossier Shale), Shelby Co.
Developmental:
  • Letourneau Gas Unit 4 #1H, Anadarko E&P; Carthage Field, (Haynesville Shale), Harrison Co.
  • Jenk-Hazb GU 1 #1H, Berry Oil; Carthage Field (Haynesville Shale), Harrison Co.
  • Aclco Unit #1H, EOG Resources; Carthage Field (Haynesville Shale), Nacogdoches Co.

Friday, April 9, 2010

US Rig Count: +11

The weekly Baker Hughes rig count showed yet another increase in U.S. rig count, up 11 to 1,476.  I'm a bit surprised that of that net 11 increase, ten rigs are drilling for gas, with three additional rigs drilling for oil and two fewer rigs chasing the ever elusive "miscellaneous."  Of the new rigs, 14 are horizontal and three are directional, while the directional rig tally decreased by six. 

In the Haynesville region of east Texas and north Louisiana, inclusive of other formations, the rig count remained at 217, up one in Texas, down one in Louisiana.

In the Haynesville Shale, I counted a one rig decrease to 176 working rigs.  The count in Texas went up one, bringing the total to 45.  Of note, there was a new entrant (Sojitz Energy Venture) and a return (Crimson Exploroation).  In Louisiana, there were two fewer operating rigs, bringing the total to 131.


Thursday, April 8, 2010

Gas in Storage: +31 Bcf

The weekly EIA working gas in storage report showed a 31 Bcf increase from last week to 1.669 Tcf.  This figure is slightly below last year's figure for this week, but is 12% higher than the five year average of 1.489 Tcf.  This is the third straight week of net injections into storage, but it is the first week of net increases for the five year average.

By location, storage in the East and West Regions netted out at zero with the East region consuming net 3 Bcf and the West Region injecting 3 Bcf. The Producing Region saw a net 31 Bcf injection.

Temperatures last week across the nation were mild, with above average highs in the Upper Midwest, so the net change in storage makes sense.

Wednesday, April 7, 2010

EIA 2010 Gas Price Estimate: $4.44/MMBtu

Yesterday, the Energy Information Agency published its short term energy outlook.  From my perspective, the most interesting infonugget was that the EIA significantly decreased its estimate of the 2010 average gas price from $5.17 to $4.44/MMBtu.  The price estimate for 2011 is $5.33/MMBtu. 

As I've stated in the past, I don't put a lot of stock in the EIA's prediction for future commodity prices (if someone had that gift, I'll bet they wouldn't be working for the federal government; but people who do claim to have the gift and make the big bucks on Wall Street fare little better in the prediction game), but the magnitude of the adjustment is fairly alarming.  I'm not sure how the revised production data expected at the end of this month impact this price adjustment, but it doesn't bode well for gas fans.

Interestingly, the people who ARE paid the big bucks to prognosticate on the topic of price, like analysts at investment bank Tudor Pickering & Holt, also dropped their estimate of 2010 natural gas price about a month ago.  TPH lowered its estimate of 2010 natural gas prices from $7.50 to $6.20, with a long-term estimate of $6.50.  That's quite a big difference from $4.44.  I wonder who will be right.  Other estimates are all over the board.

EOG Update

EOG Resources held and investor conference today and discussed its operations in great detail. EOG has made an effort in the past year to become more “oily” by pursuing wetter gas (with more NG liquids) and oil. As a result, its interest in the Haynesville Shale, with its mostly dry gas, is not as rabid as some other E&P companies.

That said, however, the company says it will run an average of 11 rigs in the play in 2010 and plans to drill 72 gross wells. At the end of 2009, EOG was producing about 60 MMcf/day, and the company expects that number to grow to 175 MMcf/day by the end of 2010. The company has a total net leasehold of 160,134 acres, with 45,789 of that total held by production. EOG estimates that it has potential reserves of 10 Tcf, evenly split between the Haynesville and Mid-Bossier Shales.

EOG is concentrating its drilling efforts on what it deems to be the sweet spots in both Louisiana and Texas. EOG will drill most of its 2010 wells in the Trenton Field in Louisiana and what it calls the South Jeterville Field in San Augustine and Nacogdoches Fields in Texas. On the map below, the darker colors signify the amount of gas in place. As you can see, the sweet spots do not necessarily correspond with the highest levels of gas in place because there are other geologic conditions like pressure and permeability that determine sweet spots.


As the above map indicates, early activity on the Texas side concentrated on the north, but operators were somewhat disappointed by the results, especially compared to the Louisiana side of the play. Where the estimated ultimate recoveries (EUR) on the Louisiana side were in the 6 to 12 Bcf range and bottom hole pressures were around 10,000 psi, EURs on the northeast side of the play averaged 4 to 6 Bcf and pressures were in the range of 8,100 psi. EOG figures that one important determinant of the difference between the two areas is total organic carbon (TOC) of the source rocks, which is around 3.3% in the Louisiana sweet spot and only around 2.3% in the Harrison County area. With more exploration in the southwestern part of the play in Shelby, San Augustine and Nacogdoches Counties, geologists found higher organic carbon (3.6%), higher pressures (11,900 psi) and higher recoveries (6-12 Bcf) that make the southwestern part of the play as good as the Louisiana sweet spot. This is why drilling activity on the Texas side of the play is shifting southward.

On the Louisiana side of the play, EOG will drill 32 2010 wells in the Trenton Field where it is seeing initial production rates in the 15 MMcf/day range. EOG noted that its IP rates could be higher, but the company was an early adapter of the concept of restricting flows to optimize recoveries. On the Texas side of the play, EOG has added acreage in the southwestern part of the play and now has 84,590 total acres in its definition of the Texas sweet spot.


EOG is particularly excited about the Middle Bossier Shale, which the company believes will make up half of its reserves in the combined play. EOG is seeing similar characteristics to the Haynesville Shale and is estimating a 6-12 Bcf EUR for the Mid-Bossier properties. The company announced a new Mid-Bossier completion, its first in Texas. The Hassell Gas Unit in Nacogdoches Co. is generating 21 MMcf/day after one month of production. EOG actually estimates higher reserves from the Mid-Bossier (3.05 Tcf) than the Haynesville (2.55 Tcf) in the south Texas part of the combined play.


EOG is somewhat unique in its approach to drilling in that it is using 128 acre spacing (5 wells per 640 acre section), where most producers are using 80 acre spacing. EOG feels that because of high system permeability it can use fewer wells to drain the same area. Based on this spacing, EOG estimates that it has 1,662 potential wells. By drilling fewer wells, the company saves money, but its well costs are still in the $9.8 million range. EOG has been using 12 to 15 frac stages with laterals averaging 4,400 feet. The company is using higher proppant levels, but it is still able to average around 28 days of drilling time.

Management brought up pressure sinks, an interesting concept that has not been discussed widely in the Haynesville Play. EOG has observed in the Barnett Shale that pressure decreases around horizontal wells after a while. This decreased pressure might reduce the effectiveness of fracturing and decrease ultimate recoveries of adjacent wells. EOG said that the impact of these pressure sinks, which might arise in around six months, can be avoided if the producer drills adjacent wells in a timely manner and suggested that companies that are drilling one well in a section to hold a lease by production with the intent of drilling remaining wells later might have lower recoveries.

EOG management also suggested that it completion and operating techniques have led to flatter (or less steep) decline rates. Reducing decline rates is the holy grail of shale drilling these days, but the proof of this success is a ways off.

Tuesday, April 6, 2010

Getting Tough on Strip Mining

Last week, the EPA tightened water quality standards on streams and other bodies of water in an effort to limit the negative impacts of strip mining for coal in Appalachia.  For the first time, the EPA will limit the electrical conductivity (salinity) of these water bodies.  This action results from years of pollution caused by the coal mining industry's practice of blowing off the tops of mountains to access shallow seams of coal and allowing the scrap material to flow into valleys.  As water passes through the deposited dirt and debris, it picks up metals and minerals that it transports to streams and other water bodies.  These metals and minerals negatively impact the quality of the water. 

Mountaintop removal for strip mining is a long-standing practice that allows coal miners to inexpensively mine coal near the surface.  The coal industry howls that tens of thousands of jobs could be lost if they can't strip mine coal cheaply.  I would dispute these claims.  What will happen is that the mining costs will increase if they have to work harder to mine the product.  But environmental damage is just one of many hidden costs in "cheap coal."

The EPA will catch lots of flack for this move, but in my mind it is fulfilling its mission of protecting the environment.  Mountaintop removal is a dangerous practice that has been allowed to persist for far too long.  The current administration is doing the right thing by tacking this issue.  It is not banning coal mining, but it is requiring the coal industry to be more responsible when extracting coal. 

The U.S. is addicted to cheap coal.  Now that the real costs (environmental, health, etc.) are beginning to be calculated, hopefully we should start to see the real cost of the fuel over the next decade. 

Coal is catching it from both ends these days as citizens come to realize the damage caused by mining coal and the damage to human health and the environment caused by burning it.  As additional anti-pollution measures are undertaken at the state level to minimize the impact of sulfur and mercury emitted by coal burning power plants, I expect natural gas to gain favor among utilities faced with the cost of retrofitting older coal plants with anti-pollution measures.

After the recent terrible mining accidents in West Virginia and China, we are reminded that underground mining is a very dangerous undertaking.  But blowing off the tops of mountains and polluting otherwise clean water is not a suitable alternative.  Ironically, Massey Energy, which owns the mine that exploded yesterday killing at least 25 miners, has the most surface mining operations in Appalachia.

Monday, April 5, 2010

Enterprise to Buy Two Haynesville Area Gathering and Treating Pipeline Systems

Enterprise Products Partners announced last week that it has entered into an agreement to purchase two gathering and treatment systems in north Louisiana and east Texas from M2 Midstream, a private equity-backed company.  The deal, which is valued around $1.2 billion, will involve the purchase of the State Line System in Louisiana and the Fairplay System in Texas.

The State Line system in DeSoto and Caddo Parishes seems to be the main motivation for the transaction.  The pipeline currently is 138 miles with a capacity of 400 MMcf/day and has two treatment facilities.  It is undergoing an expansion, due to be completed in a few months, that will expand the pipeline by 50 miles and increase its capacity to 700 MMcf/day.  Once Enterprise takes over, however, it will be connected to Enterprise's Haynesville Extension to its Acadian system and its capacity can easily be expanded to 1.2 Bcf/day.



The Fairplay system serves Rusk, Panola, Nacogdoches and Gregg counties.  It is 249 miles long and has a capacity of 285 MMcf/day.  After Enterprise takes over, it will be connected to Enterprise's Texas system.


The deal seems to make sense for Enterprise.  It is probably a "fully priced" deal, but it provides the Haynesville Extension with instant business.  Enterprise has been pushing its Acadian Haynesville Extension as a way for Haynesville producers to access the Southeast United States and bypass Perryville, which is a conduit to the Northeast.  It might not validate the concept, but it certainly populates the pipeline.

EIA to Revise Production Data Collection Methods

The Wall Street Journal reported today that the Energy Information Agency (EIA) will revise the way it collects production data for natural gas beginning April 30, when it releases the February 2010 monthly natural gas report.  (Here is a link to the changes in methodology.)

In the past couple of years, the discrepancy between supply (gas produced and imported) and demand (gas consumed, exported and stored) has grown wider.  When you know the inputs and the outputs, the data should net out to zero.  Data collection from E&P companies is a tricky endeavor, so there always will be some error, but lately the supply figure has grown to be as much as 10-12% higher than demand in a given month.  This higher range of error seems to have corresponded with the ramp-up in shale gas production in 2009, especially from the Haynesville Shale.

The problem seems to be the EIA's method of collection, which surveys larger companies and extrapolates results to smaller companies.  While this might have worked in a more stable conventional drilling world, it no longer seems to be applicable. 

Many believe that the revised data collection methods will boost the price of natural gas.  I hope so, but I'm not holding my breath.  The biggest issues in my mind are fundamental demand improvements, such as the recovery of the economy and establishing new uses for natural gas, especially in electric power generation. 

While the EIA will catch lots of grief for the discrepancy and having to make the change, I applaud the fact that they are doing it rather than burying their heads in the sand and defending their flawed methodology.  The advances that have come with shale gas have changed everything in the gas industry.  It's a new world for all of us and the EIA is doing its best to adapt and overcome.

Sunday, April 4, 2010

Louisiana Rig Counts

The Louisiana Haynesville rig counts also showed a strong increase over the past two weeks.  There was lots of movement and a few new rigs.  The Louisiana count now stands at 133, up six from last week (and seven from two weeks ago when I last reported).  Combining Louisiana and Texas, the Haynesville rig count now stands at 177, up 12 rigs from two weeks ago. Over that same period, the spot price of natural gas has dropped 7.5%. 

The companies showing the strongest growth were Questar, Petrohawk and El Paso.  Over the course of the past four weeks, ten new Haynesville rigs have been added in Louisiana.  I'll be interested to watch the Chesapeake Energy rig count over the next couple of months.  Last week the company announced that it would drop 20 of its 118 rigs operating in the U.S.  So far, Chesapeake is holding steady, but let's see what the next couple of months bring.

In terms of geography, Sabine Parish is showing strong growth with a total of ten working rigs.  Over the course of the month, Sabine has vaulted over Bossier and Bienville Parishes to fourth place on the Louisiana list.

Recent Texas Developmental Activity

I didn't note any new Texas completions, but I did see the following developmental activity:
  • Letourneau Gas Unit 6 #30 HH, Anadarko E&P; Carthage Field (Haynesville Shale), Harrison Co.
  • W.R. Tutt #6, Valence Operating; Carthage Field (Haynesville Shale), Harrison Co.
  • Hicks-Lanier #1, Devon Energy; Carthage Field (Haynesville Shale), San Augustine Co.
  • Red River 365-2 #1, Common Resources; Carthage Field (Haynesville Shale), San Augustine Co.
  • Duke #1H, Chesapeake Operating;  Carthage Field (Haynesville Shale), Shelby Co.
  • Sun Devils DU #1H, XTO Energy; Carthage Field (Haynesville Shale), Shelby Co.
  • Crockett #1H, St. Mary Land & Exploration; Carthage Field (Haynesville Shale), Shelby Co.

Recent Louisiana Completions

  • Grayson 24 H #1, Petrohawk Operating Co.: 7.231 MMcf/day IP on 14/64" choke at 8,004 psi; Cedar Grove Field, Bossier Parish, Sec. 25/Township 17/Range 13; Haynesville reservoir A, serial #239789
  • Grayson 25 H #1, Petrohawk Operating Co.: 7345 MMcf/day IP on 14/64" choke at 7,811 psi; Cedar Grove Field, Bossier Parish, S24/T17/R13; res. A, serial #239822
  • Loe 15 H #1, Petrohawk Operating Co.: 9.797 MMcf/day IP on 18/64" choke at 6,736 psi; Lake Bistineau Field, Bienville Parish, S10/T16/R9; res. A, serial #239595
  • Johnson 29 H #1, Chesapeake Operating, Inc.: 16.296 on 22/64" choke at 7,575 psi; Bethany Longstreet Field, Caddo Parish, S29/T15/R15; res. A, serial #240114
  • DHD 26-16-15 H #1, Chesapeake Operating, Inc.: 15.624 MMcf/day IP on 22/64" choke at 7,630 psi; Johnson Branch Field, Caddo Parish, S26/T16/R15; res. A, serial #239755
  • Tigre Plantation #1, Petrohawk Operating Co.: 13.923 MMcf/day IP on 18/64" choke at 8,430 psi; Thorn Lake Field, Caddo Parish, S31/T15/R11; res. A, serial #239646
  • Franklin 4 H #1, El Paso E&P Company, LP: 19.757 MMcf/day IP on 21/64" choke at 7,800 psi; Holly Field, DeSoto Parish, S4/T13/R14; res. A, serial #240226
  • Calhoun HZ #1 Comstock Oil & Gas: 15.975 MMcf/day IP on 26/64" choke at 6,251 psi; Red River-Bull Bayou Field, DeSoto Parish, S36/T13/R13; res. C,  serial #240053
  • James 10 #1, EXCO Production Co., LP: 0.327 MMcf/day IP on 8/64" choke at 1,600 psi; Wildcat Field, DeSoto Parish, S10/T14/R14; non-unitized, serial #239347
  • Brown SW Min 26 H #1, EnCana Oil & Gas: 13.023 MMcf/day IP on 24/64" choke at 9,119 psi; Bracky Branch Field, Red River Parish, S26/T14/R10; res. A, serial #239962
  • Allbritton Cattle ETAL 10 #1, Petrohawk Operating Co.: 6.929 on 14/64" choke at 8,350 psi, Red River-Bull Bayou Field, Red River Parish, S10/T13/R11; res. B, serial #239086
  • Dupree Land 20 H #1, Petrohawk Operating Co.: 8.324 MMcf/day IP on 14/64" choke at 9,178 psi; Red River-Bull Bayou Field, Red River Parish, S20/T13/R10; res. B, serial #240176
True to its word about limiting choke sizes, Petrohawk brought all of its recent completions on this list at smaller choke sizes, with four at 14/64" and two at 18/64".