Friday, October 29, 2010

Haynesville Shale Rigs: Unchanged at 168

The Haynesville Shale rig count was unchanged this week, sticking at 168.  The count was up one in Texas and down one in Louisiana.


U.S. Rig Count: +3 to 1,672

The weekly Baker Hughes rig count showed a three rig increase to 1,672. Gas rigs increased by two to 967, and oil rigs increased by one to 696.  Miscellaneous rigs were unchanged at nine.  By type, horizontal rigs increased by 12, while vertical rigs decreased by six and directional rigs decreased by three.  There are currently 919 horizontal rigs working, which represents 55% of the total working rigs.  This week last year, there were 497 active horizontal rigs, which represented 46.5% of all working rigs.

In the Haynesville Shale region, inclusive of other formations, the rig count increased by one to 201.  North Louisiana dropped one rig to 130, while Texas increased by two rigs to 71.

Detailed Haynesville Shale counts should be available late this afternoon.

Ellora Energy - And the Winner is...Exxon

Back in July Ellora Energy announced that it had been sold to an unnamed buyer.  Yesterday we found out that the company that paid $695 million for the company's remaining assets - mostly located in the Haynesville Shale region - was Big Daddy Exxon.

The sale represented only 46,000 acres, but it should be complementary to Exxon's XTO Energy acquisition.

Mid-Bossier Shale Update

In reading through some press releases, I noted that a second Southwestern Energy well, the Crest C 1H, is targeting the Middle Bossier Shale. The well has been drilled and is awaiting completion in the first quarter of 2011.  I have updated the Mid-Bossier spreadsheet and maps.

Devon Farms Out a Small Chunk to Sun River Energy

Sun River Energy, a small Dallas-based E&P, announced Wednesday that Devon Energy had farmed out 5,700 gross acre (5,470 net) parcel in Panola Co., Texas prospective for the Haynesville Shale to the company.  Sun River did not make an upfront payment but is required by the agreement to drill a certain number of vertical test wells targeting the Haynesville.  If successful, Devon will get a carried working interest in those wells.  Sun River's working interest will be between 75% and 77.5%.  If the company drills more wells than called for in the agreement, Devon will chip in its share of the drilling costs.

Expect more arrangements like this in the future as companies with big leaseholds - especially with approaching expiration dates - want to focus their energies on their core properties.  Producers don't want to lose their leases, even those that are viewed as marginal, and a farm-out arrangement allows the company to have a "taste" of the upside without having to invest significantly in the drilling costs.  For Devon, it is a low to no cost way to see upside on a lease it might have otherwise lost.

On the surface it is a win-win because the big company is able to get value out of the lease, a smaller independent gets to participate in the Haynesville Shale and the landowner finally gets some drilling on his or her land.  But the downside of this arrangement, at least from the perspective of the landowner, is that it ties up the leases with vertical wells.  The landowner is committed to the existing lease but doesn't get a lot of royalty income to show for it.  The land might see horizontal wells down the line, but who knows when?

Thursday, October 28, 2010

Recent Louisiana Completions

  • CHK Royalty 35-16-10 H #1, Chesapeake Operating: 12.312 MMcf/day IP on 22/64 in. choke at 6,713 psi; Lake Bisteneau Field, Bienville Parish, S35/T16/R10; res. A, serial #240911
  • Indigo 30-15-16 H #1, Chesapeake Operating: 12.432 MMcf/day IP on 22/64 in. choke at 5,753 psi; Bethany Longstreet Field, Caddo Parish, S30/T15/R16; res. A, serial #240508
  • Arnold 32 H #1, Petrohawk Operating: 4.409 MMcf/day IP on 12/64 in. choke at 7,016 psi; Greenwood-Waskom Field, Caddo Parish, S5/T16/R16; res. A, serial #240994
  • Murphy 5 H #1, Petrohawk Operating: 9.054 MMcf/day IP on 16/64 in. choke at 7,343 psi; Bethany Longstreet Field, DeSoto Parish, S32/T14/R15; res. B, serial #240650
  • Branch Ranch 5 H #1, EXCO Operating: 11.6 MMcf/day IP on 20/64 in. choke at 5,500 psi; Caspiana Field, DeSoto Parish, S5/T13/R12; res. A, serial #239792

EIA: Storage +71 Bcf to 3.754 Tcf

The weekly EIA working gas in storage figure showed yet another big jump, rising by 71 Bcf to 3.754 Tcf.  This figure is just one Bcf below last year's record level and 312 Bcf higher than the five year average.  The weekly injection of 71 Bcf was nearly triple last year's injection of 24 Bcf and 58% higher than the five year average injection of 45 Bcf.

As I look at long-term forecasts of warmer than usual  weather for the coming winter I think back wistfully to the blustery days of January when it seemed that everyone in the country was under a three foot blanket of snow, cranking the heat to fight winter's chill.  Ah, those were the days!

Temperatures last week were only slightly warmer than the five year average, but 3.7 degrees warmer than the same week last year, explaining the disparity between the one year and five year injections.

Wednesday, October 27, 2010

Circling in the Sky - Friend or Vulture?

Private equity firm KKR announced yesterday that it had formed a partnership with RPM Energy, LLC, a company formed by a couple of former Jefferies investment bankers (Wall Street Journal article).  The new venture, called RPM Energy Partners, LP., will seek investment opportunities in the "Big Six" shale plays (Barnett, Haynesville, Marcellus, Eagle Ford, Woodford and Fayetteville).  The principals correctly recognize that there is huge opportunity to drill for gas, but capital is constrained.  This is especially true for the smaller and mid-sized companies that don't have the heft of the larger publicly traded entities.

KKR has been one of the few private equity players in the shale "space" in recent years.  It scored a big win in its investment in Marcellus driller East Resources, which was sold to Shell about a year after its investment.  It is also an investor in the Eagle Ford Shale through Hilcorp Energy.

Monday, October 25, 2010

Questar Completions

Questar (I haven't been able to call the company QEP Resources yet) releases its third quarter numbers Tuesday afternoon, but it gave a preview of operations today along with some Haynesville Shale results.  Although Questar didn't provide choke and pressure readings, it did note that the company is using "modified initial flowback procedures to minimize pressure drawdown at the reservoir."  - in other words, a restricted choke technique. 
  • W+W Farms 33-15-9 H #1, Questar: 12 MMcf/day IP; Woodardville Field, Bienville Parish, S33/T15/R9; res. A, serial #240486
  • Mary 14 H #1, Questar: 12 MMcf/day IP; Woodardville Field, Bienville Parish, S14/T15/R10; res. A, serial #240443
  • Burns Forest 1 H #1, Questar: 11.4 MMcf/day IP; Alabama Bend Field, Bienville Parish, S1/T15/R10; res. non-unitized, serial #240841
  • Rex Young 6 H #3, Questar: 13.7 MMcf/day IP; Thorn Lake Field, Red River Parish, S6/T14/R11; res. A, serial #240442

One New Texas Completion

Completions:
  • PDU "Pine" #A1, Newfield Exploration: 5.788 MMcf/day IP, 22/64" choke; Carthage Field (Haynesville Shale), Shelby Co. (formerly known as PDA "A")
Developmental Activity:
  • Bell #6 H, GMX Resources; Carthage Field (Haynesville Shale), Harrison Co.
  • Holt-Bosh (Allocation) #5 H, GMX Resources; Carthage Field (Haynesville Shale), Harrison Co.
  • Hill Gas Unit #4 H, EOG Resources; Carthage Field (Haynesville Shale), Nacogdoches Co.
  • Hill Gas Unit #5 H, EOG Resources; Carthage Field (Haynesville Shale), Nacogdoches Co.
  • Ironosa SU #1 H, Exco Operating; Carthage Field (Haynesville Shale), San Augustine Co.
  • Dillard SU #1 H, Exco Operating; Carthage Field (Haynesville Shale), San Augustine Co.
  • Hilltoppers DU #1 H, XTO Energy; Carthage Field (Haynesville Shale), San Augustine Co.
  • Hilltoppers DU #2 H, XTO Energy; Carthage Field (Haynesville Shale), San Augustine Co.
  • Raymond Gas Unit #2 H, XTO Energy; Carthage Field (Haynesville Shale), Shelby Co.

Updated Feature: Rig Count List

In my ongoing effort to provide lots of information but not be overwhelming to the casual reader, I expanded the summary rig count list (always in the upper left of the page) to include the breakdown by parish and county.  To me this accomplishes two things: 1) it commingles Texas and Louisiana data - too often viewed in separate "silos" - and 2) it gives the reader a three week running rig count.  I think this will be increasingly important as the drilling activity in the Haynesville Shale starts to diminish over the next twelve months.

Friday, October 22, 2010

Haynesville Shale Rig Count: -2 to 168

The weekly Haynesville Shale rig count dropped by two to 168.  The two rig decrease occurred on the Texas side.  Taking a look at the map, you can really see where the action is these days (the dynamic map is available here):


Below are the rig counts by operator.  As always, much more detail is available at the rig count page.


U.S. Rig Count: -1 to 1,669

The weekly Baker Hughes rig count showed a one rig drop to 1,669.  Gas rigs dropped one to 965, while oil rigs stayed at 695.  By type, directional rigs jumped 17, while horizontal rigs decreased by 19.  Vertical rigs increased by one.

In the Haynesville Shale region, inclusive of other formations, the rig count dropped by two to 200.  Both north Louisiana and east Texas decreased by one rig, leaving Louisiana at 131 rigs and Texas at 69.

I hope to have detailed Haynesville rig counts done by late afternoon today.

Pennsylvania Gas Severance Tax "Dead" (???)

Gov. Ed Rendell pronounced "dead" the efforts to enact a natural gas severance tax in Pennsylvania this year.  It's a missed opportunity in my mind.  It seems that intransigence and election year politics killed it, but it is a situation that will harm rather than help Pennsylvania long-term as drilling in the Marcellus Shale continues to heat up and the state's budget continues to crater.

A reasonable state severance tax on mineral extraction is an accepted way of doing business in other gas producing states.  There are related costs to supporting mining and extraction industries that are not covered by gains from job creation.  (The honest truth is that not all E&P jobs are locally generated - many jobs are filled by experienced outside contractors.)  While mineral production is an opportunity, it is also a burden for which states must be fairly compensated.  

LNG U-Turn

I noted yesterday that the Golden Pass LNG port received its first delivery of liquefied natural gas (LNG) from Qatar.  It is worth noting that earlier in the week, two shipments of LNG were re-exported from terminals at Sabine Pass, LA (Cheniere) and Freeport, TX (Freeport LNG).

The two cargoes in question represented gas that was imported and then re-exported and therefore were not true LNG exports.  The good news is that the imported gas didn't further exacerbate the current oversupply of gas in the U.S.  Exporting LNG is a ways down the line, but both facilities are pursuing the option.

Politics and Progress?

One thing is certain about the upcoming elections on November 2:  Republicans will make gains across the nation, including in the House, Senate and various governors' mansions.  Everything else, most notably to me energy policy, is uncertain.

With the failure of a comprehensive energy policy or any restrictions on carbon dioxide output, the state of the energy industry is in flux.  It won't stop producers from producing or users from using, but there is no clear direction about the future.  Natural gas is suddenly abundant, but any gains it makes will have to be through a market that is already dominated by coal.  It's not just a case of the best fuel winning. There is tremendous infrastructure (physical and political) supporting the coal industry.  But the gas industry risks drowning in its own supply before then.  Basic supply and demand will keep the price of gas supported so that it is not go to zero, but that kind of subsistence lifestyle won't support development of our resources and it might lead to the demise of many producers.

Thursday, October 21, 2010

Speaking of Bad News...

So...natural gas prices are in the proverbial tank, storage levels are suddenly soaring and economic growth in nowhere to be seen.  Now I see news trumpeting today's arrival of approximately 4.56 Bcf of LNG through the Golden Pass LNG terminal near Sabine Pass, TX.  The cargo is the first cargo for the facility, a.k.a. the "commissioning cargo."  The facility is 70% owned by Qatar Petroleum International, with the remaining 30% owned by Exxon Mobil and Conoco Phillips.

I'm sure Golden Pass's owners are happy to see their expensive LNG port is getting used, but it's crappy news for the natural gas market.  It sure seems kooky to transport gas across the Atlantic to sell it into a market where the commodity price doesn't even support local production.  The Golden Pass facility has the capacity to handle 2 Bcf of LNG per day, but given the current oversupply in the North American natural gas market, I'm sure it won't see that kind of action.  But I doubt it will be a candidate for conversion to an export facility like some of its neighbors.  Qatar is swimming in natural gas, so they are only looking for places to sell the stuff.  Since Qatar owns the majority share of the facility, the best we can hope for is a lot of quiet days at Golden Pass.

EnCana: Feeling the Pressure

EnCana released its third quarter earnings yesterday and was the second consecutive E&P company to note that  it is having trouble securing enough hydraulic fracturing equipment to complete a growing inventory of drilled wells.  In a cryptically worded press release, EnCana said that it is pursuing multiple strategies to try to keep completion costs low, including building its own fleet of "fit-for-purpose" completion equipment.  While that will be awesome in a couple of  years, it is not a short-term solution.  The unfortunate near-term reality is you have to pay up to get fracked.

As a result of the supplier cost hikes (charitably called "opportunistic pricing" on a conference call), the company will defer $200 million of its capital spending from 2010 into 2011.  EnCana will also reduce its production for the year.  EnCana has long-stated lofty expectations of production growth, but those ambitions likely have been tamped down with the increasing supplier costs and, worse, the current "unsustainably low" prices for natural gas.

Each day seems to bring worse news for gas prices. The Calgary Herald reported that Barclay's Capital lowered its 2011 price forecast to $3.94 and doesn't expect prices to come back over $5 until 2015.

Uneventful October Lease Sale

The monthly state of Louisiana lease sale yielded some pretty unimpressive results.  Generally the parcels were small and not all were in existing Haynesville Shale units, so the action was pretty mild.  The average lease bonus in the Haynesville region was $3,714 per acre.  Weighting the average by lease size, the average was $4,115 per acre.

New Louisiana Completions

  • W H Holt 16 H #1, XTO Energy: 6.1 MMcf/day IP on 16/64 in. choke at 5,100 psi; Lake Bisteneau Field, Bienville Parish, S16/T16/R9; res. A, serial #240128
  • Wicket ETAL 27 H #1, Endeavor Energy: 1.155 MMcf/day IP on 20/64 in. choke at 900 psi; Bellevue Field, Bossier Parish, S22/T19/R11; res. A, serial #240419
  • Tietz 12 #1, J-W Operating: 10.821 MMcf/day IP on 24/64 in. choke at 3,000 psi; Elm Grove Field, Bossier Parish, S1/T16/R11; res. A, serial #240916
  • Ninock 36 H #1, Petrohawk Operating: 19.23 MMcf/day IP on 22/64 in. choke at 8,426 psi; Swan Lake Field, Bossier Parish, S35/T15/R11; res. A, serial #240479
  • Cranfield 28-16-14 H #1, Chesapeake Operating: 14.002 MMcf/day IP on 22/64 in. choke at 6,270 psi; Caspiana Field, Caddo Parish, S28/T16/R14; res. A, serial #240871

Deja Vu All Over Again

It's not the first time I've quoted Yogi Berra, but since history has a tendency to repeat itself, therefore so do I. Natural gas storage levels are becoming a problem again.  Last year, the story was that gas in storage started hitting record levels several months before the end of the end of the gas injection season (i.e. the beginning of cold weather).   The story dominated the news.  This year, an abnormally hot summer kept storage injections down, but the end of the heat led to a sudden spike in storage levels, as shown on the chart below:


The smooth lines on the chart above belie the fact that 2010 has been an up and down year relative to the five year average:

EIA: Storage +93 Bcf to 3.683 Tcf

The storage levels keep chugging on!  The EIA reported this morning that the weekly net injection of gas into storage was 93 Bcf, bringing the total working gas in storage to 3.683 Tcf.  This is three times more than last year's injection of 23 Bcf and 72% higher than the five year average for this week of 54 Bcf.  Current storage levels stand at 1.3% below last year's record level and 8.4% above the five year average.

Yikes!  Can someone say Arctic cold front?


Temperatures were the big driver.  Average temperatures last week were 3.6 degrees warmer than normal and 8.6% warmer than last year.  Heating degree days were 41% lower than normal and 63% lower than last year.

Wednesday, October 20, 2010

Comstock Experiences Fracking Delays

Comstock Resources has found itself on the wrong side of the shortage of high pressure pumping services required for completing Haynesville Shale wells.  The company reported yesterday that it has an inventory of 26 drilled but uncompleted Haynesville wells.  Comstock needs to tune into Petrohawk Energy's experiments to modify its well design to allow for lower pressure pumps in the completion process.

Comstock has struck an agreement to get 14 of the drilled wells in inventory completed before year end, but with six rigs drilling the play, inventory will build again.  The company will drill another ten uncompleted wells before year end and carry 22 uncompleted wells into 2011.  But Comstock also announced an agreement with a service provider to have a crew dedicated to Comstock in the first part of 2011 to help complete the inventory of drilled wells and keep the company's 2011 drilling/completions plan on pace.

Not only do gas prices suck, some guys can't even get their wells completed.  What's a company to do?  Get the drilling rigs out of Dodge, of course.  Comstock will drop one of its six Haynesville rigs in November 2010 and is considering moving another one to the popular Eagle Ford Shale in 2011.  We almost certainly will see a lower Haynesville capex estimate from Comstock for 2011 compared to previous years.

Tuesday, October 19, 2010

Gap on the Map to be Filled

Below is a map of the latest compressed natural gas (CNG) prices in the TX/LA/OK/AR area.  What's wrong with this picture?


A: There is a big gap on the map in the Haynesville Shale region.

While there are some private CNG refueling stations, nothing seems to pop up to the folks at cngprices.com.  That should change soon when the city of Bossier City  opens a new CNG station on East Texas Street.  (The station will also sell E85 ethanol - with the good sometimes comes the bad).

Monday, October 18, 2010

Big New Completion in Texas

See the first completion below - the new leader in the unofficial biggest initial production rate contest.  It has a big IP rate but a wide choke, so there might have to be a Roger Maris style asterisk in the record book.  I hope the what-not-to-do lessons of the Kardell well in San Augustine Co. are not repeated here and the well will continue to flow like a champ.

 
Completions:
  • Aclco Unit #1 H, EOG Resources: 33.092 MMcf/day IP, 32/64" choke; Carthage Field (Haynesville Shale), Nacogdoches Co. (location on map)
  • Midyett-Gulley #13 H, XTO Energy: 7.219 MMcf/day IP, 24/64" choke; Carthage Field (Haynesville Shale), Panola Co.
Developmental Activity:
  • Nancy Brewster Gas Unit #8, Valence Operating; Carthage Field (Haynesville Shale), Harrison Co.
  • Bartley GU #5 H, NFR Energy; Carthage Field (Haynesville Shale), Harrison Co.
  • Revolution 9 GU #1 H, Samson Lone Star; Carthage Field (Haynesville Shale), Nacogdoches Co.
  • Sunshine GU 1 #1 H, Samson Lone Star; Carthage Field (Haynesville Shale), Nacogdoches Co.
  • New Horizons #O 1 H, XTO Energy; Carthage Field (Haynesville Shale), Panola Co.
  • J C McSwain Gas Unit "A" #1 H, BP Ameica; Carthage Field (Haynesville Shale), Shelby Co.

Denbury to Sell Haynesville Acreage

Denbury Resources announced last week that the company has entered into an agreement to sell its Haynesville Shale and East Texas acreage to an unnamed private E&P company for $217.5 million .  Denbury acquired land through its merger with Encore a year ago, but it has been on the block for a while since it is viewed as non-core to Denbury, which is more focused on transportation and storage of carbon dioxide, especially for use in stimulating aging oil fields.

Denbury has 19,543 acres in the Haynesville region, 16,402 net acres in Caddo, DeSoto and Bossier Parishes, Louisiana and 3,141 in Shelby Co., Texas, as shown below.

Friday, October 15, 2010

Haynesville Shale Rig Count: -3 to 170

The weekly Haynesville rig count dropped by three to 170.  The Louisiana rig count dropped by three to 124, while Texas held steady at 46.


U.S. Rig Count: -1 to 1,670

The weekly Baker Hughes rig count for the U.S. showed a one rig decrease to 1,670 total rigs. Gas rigs dropped by five to 966, while oil rigs increased by five to 695.  Miscellaneous rigs dropped by one to nine.  By type, vertical rigs increased by nine, while horizontal rigs decreased by three and directional rigs decreased by seven.  With the drop, horizontal rigs still represent 55.4% of the total rigs, up from  44.7% this time last year.

In the Haynesville region, inclusive of other formations, the rig count held at 202, dropping by one in north Louisiana to 132 and increasing by one in east Texas to 70.

Thursday, October 14, 2010

38 New Louisiana Completions

  • CHK 19-16-9 H #1, Chesapeake Operating: 12.984 MMcf/day IP on 22/64 in. choke at 5,814 psi; Lake Bisteneau Field, Bienville Parish, S19/T16/R9; res. A, serial #240444
  • Jestma LLC 15 H #1, Petrohawk (KCS): 9.778 MMcf/day IP on 16/64 in. choke at ? psi; Elm Grove Field, Bossier Parish, S2/T16/R11; res. A, serial #241330
  • Mercer 17 #6, J-W Operating: 10.5 MMcf/day IP on 18/64 in. choke at 6,400 psi; Elm Grove Field, Bossier Parish, S17/T16/R12; res. A, serial #241175
  • Dyson 34-17-12 H #1, Chesapeake Operating: 13.584 MMcf/day IP on 22/64 in. choke at 5,823 psi; Elm Grove Field, Bossier Parish, S34/T17/R12; res. A, serial #240767
  • Cook 15-16-16 H #1, Chesapeake Operating: 10.8 MMcf/day IP on 22/64 in. choke at 4,455 psi; Greenwood-Waskom Field, Caddo Parish, S15/T16/R6; res. A, serial #240879

EIA: Storage +91 Bcf (!!!) to 3.59 Tcf

Ouch!  The EIA reported that the weekly working gas in storage figure jumped 91 Bcf last week to 3.59 Tcf.   After a warm summer of subdued injection levels, gas storage levels have taken off.  The current week injection is about 50% greater than this week last year (+60 Bcf) and the five year average (+64 Bcf).  The current storage level stands 118 Bcf lower than last year's level and 247 Bcf higher than the five year average.


With a mild winter predicted, buckle your seat belts for a bumpy ride.  Because of the recent higher net injections, the EIA has revised its outlook for the end of October upward to 3.726 Tcf, just 81 Bcf below last year's record level.  My big hope is that the injection season ends with October, unlike last year when it dragged into November.

Wednesday, October 13, 2010

Off the Shelf?

I was intrigued to read comments by Chesapeake Energy CEO Aubrey McClendon about Chinese energy company CNOOC's recent investment in Chesapeake's Eagle Ford Shale assets.  Disputing the assertion that the investment was at least partially driven by the desire of CNOOC to learn how to drill for shale gas effectively, McClendon said that horizontal drilling and hydraulic fracturing techniques are now "off the shelf technology" available to anyone.  He said the CNOOC investment was a strictly financial deal.

Really?  McClendon might be in the minority with that opinion.  While any number of contractors can drill and frac a well, there is a lot more art and science that goes into a successful shale well, and that is the part that is sold from behind the counter.  You need a special (expensive) prescription to have access to that intelligence.

I'm guessing that McClendon is playing down the notion that Chesapeake is engaging in technology transfer to a Chinese company and playing up the value of the company's Eagle Ford assets.  That's a nice sentiment, but I don't think many people will buy it.

Tuesday, October 12, 2010

Recent Texas Completions

Completions:
  • Youngblood #1H, Chesapeake Operating: 8.112 MMcf/day IP, 22/64" choke; Carthage Field (Haynesville Shale), Harrison Co.
  • Bennett Gas Unit #1H, EOG Resources: 12.968 MMcf/day IP, 28/64" choke; Carthage Field (Haynesville Shale), San Augustine Co.
  • Freeman Farms Gas Unit #1H, EOG Resources: 25.619 MMcf/day IP, 32/64" choke; Carthage Field (Haynesville Shale), San Augustine Co.
  • William Holt #1H, Noble Energy: 8.188 MMcf/day IP, 19/64" choke; Carthage Field (Haynesville Shale), Shelby Co.
Development Activity:
  • Foote GU #4 H, NFR Energy; Carthage Field (Haynesville Shale), Harrison Co.
  • Duke Rudman Gas Unit #N1H, XTO Energy; Carthage Field (Haynesville Shale), Harrison Co.
  • Fightin' Irish (SL) DU #2 H, XTO Energy; Carthage Field (Haynesville Shale), San Augustine Co.
  • Lamkin #B2H, Noble Energy; Carthage Field (Haynesville Shale), Shelby Co.
  • Wolfpack (SL) DU #2 H, XTO Energy; Carthage Field (Haynesville Shale), Shelby Co.

Monday, October 11, 2010

Chesapeake and CNOOC Sign Eagle Ford Deal

Chesapeake Energy announced yesterday that the Chinese National Offshore Oil Company (CNOOC) has agreed to purchase a 33% stake in the company's Eagle Ford Shale assets for $1.08 billion cash (article).  CNOOC will also fund 75% of Chesapeake's drilling costs on the 600,000 acres up to another $1.08 billion.

Chesapeake currently runs ten rigs in the play but expects to expand that figure to 31 by year end 2011 and 40 by year end 2012.  Presumably most of those rigs will be moved  from the Haynesville Shale.

Friday, October 8, 2010

Haynesville Documentary Showing in New Orleans

If you happen to find yourself in south Louisiana in the next couple of weeks, stop by the 21st annual New Orleans Film Festival. There will be two showings of the documentary "Haynesville" by Gregory Kallenberg.  It is showing at Canal Place Theaters at 12:15 p.m on Sunday October 17 and again at 5:30 p.m. on Thursday October 21.

While you're there, check out "On Coal River" a documentary that makes you realize that the environmental dangers of coal mining far surpass the worst case scenario of hydraulic fracturing for natural gas (Oct. 17 at 2:45 p.m and Oct. 21 at 7:45 p.m.).

Haynesville Rig Count: +5 to 173

It may be too early to write the obituary for the Haynesville Shale.  The past week breathed some life into the Haynesville Shale rig count, increasing five to 173.  The big jump was in Texas, which increased four to 46, while Louisiana increased one to 127.  Updated spreadsheets and maps will be posted.


U.S. Rig Count: +12 to 1,671

The Baker Hughes weekly rig count showed a 12 rig increase to 1,671.  Rig counts haven't been this high since the last week of 2008.  The weekly increase can be attributed more to gas rigs (+ 9 to 971) than oil rigs (+3 to 690).  By type, horizontal rigs were up 13, vertical rigs up six and directional rigs down seven.

In the Haynesville Shale region, inclusive of other formations, the rig count increased by six to 202, up by three in both north Louisiana and east Texas.

More on LNG Export

The Financial Times had a nice piece about the potential for the U.S. to become a natural gas exporter (registration may be required).  I won't regurgitate the article, but there were a couple of interesting points.

The article notes that if the U.S. exported 10% of its 2009 production it would have been the largest LNG exporter in the world.  Very interesting, but I don't think that statistic takes into account the huge LNG export infrastructure that recently opened in Qatar.  The article also notes that the U.S. has a low natural gas extraction costs.  True, but again, I don't think it compares favorably to Qatar.  Nor does it take into account the distance North American gas would have to travel to get to customers.

Thursday, October 7, 2010

EIA: Storage +85 Bcf to 3.499 Tcf

The weekly EIA storage report showed another sizable weekly increase in storage, jumping 85 Bcf to 3.499 Tcf.  This net injection is 17 Bcf higher than last year's this week (+68 Bcf) and 18 Bcf higher than the five year average (67 Bcf).  The current storage level is 4.1% lower, or 149 Bcf, than last year's figure, which isn't saying much since it was far and away a record.  It is 6.7% higher, or 220 Bcf, than the five year average.

Last year, the soap opera followed the storyline of whether or not we would run out of storage capacity.  That won't happen again this year, but the rather sizable injections over the past several weeks have demonstrated that it was unseasonably warm weather that helped hold down storage injections this summer rather than fundamental growth in gas consumption.  While I am enjoying the temperate autumn weather, I eagerly await the beginning of the heating season and the top of the curve in the graphic above.

Wednesday, October 6, 2010

Crimson Gives Brief Update on Mid-Bossier Wells

Crimson Exploration today provided a quick operational update on the company's Middle Bossier Shale wells.  The company has three underway:

  • Gobi #1 - completion operations will begin in mid-October with first production in November
  • Halbert Unit #1 - completion operations will begin in mid-October with first production in November (operated by Eagle Oil & Gas)
  • Bengal #1 - drilling underway, completion expected in the fourth quarter 2010
Nothing earth-shattering, but I did update the Mid-Bossier spreadsheet and map with these updates and I added the Bengal well.

The company also noted its success with a restricted choke program.  The Grizzly #1 well has been operating for approximately 60 days at a 15/64" choke and is still flowing at 8.0 MMcf/day at 8,100 psi.  To date, the well has produced 600 MMcf.  Crimson believes that the restricted choke technique will improve ultimate recoveries.

GMX Lowers 2011 Capex Again

For the second time in a month, GMX Resources has announced that the company has reduced expected capital expenditures for 2011.  A month ago, the company reduced 2011 capex to $175 million.  Yesterday, the company reduced 2011 capex to $152 million.  The company will continue to run one rig in the Haynesville Shale.  Three of its four leased rigs are subleased, two for the life of the leases, one through June 2011.

GMX is making a prudent call on capital spending.  Given the small size of the company's operations, it is having some trouble efficiently completing wells on a timely basis.  Completion services are a bottleneck, and it doesn't make sense to spend a lot of money to build an inventory of uncompleted (non-revenue producing) wells in a low price environment.  GMX is putting a happy face on things suggesting that it will resume a two rig program next June, but if commodity prices continue to run low I would not be surprised to see more spending cuts.

Tuesday, October 5, 2010

Alaska Stays in the Picture...But for How Long?

The open season for the Denali Pipeline closed yesterday.  Denali is a joint project of BP and Conoco that would bring natural gas from Alaska's North Slope south to Alberta, Canada and then to the Lower 48.  Denali's operators announced that the project had received "significant" bids from prospective customers, but those bids had unspecified conditions, some of which would have to be negotiated, while others are outside of the parties' control.  TransCanada, the operator of the proposed AGIA (Alaska Gasline Inducement Act) Pipeline reported similar squishy news earlier this summer. For more information on the status of the project, read this article.

Both projects are still alive and vying to be the sole gas pipeline to the south.  The state of Alaska under former Gov. Palin put up $500 million to subsidize the AGIA pipeline, while Denali positions itself as the "market-based project" (kind of ironic).  With the advent of shale gas, the market may not be there for Alaskan gas.  If there is a market for the gas, only one pipeline can be supported.  The wrangling will continue.

Monday, October 4, 2010

Haynesville Rigs: -3 to 168; How Low Will It Go?

The Haynesville Shale rig count continued to slide last week, dropping three to 168.  Texas decreased by one rig while Louisiana dropped two rigs.  The big change is the sudden shift of drilling away from Red River Parish and the smaller surge of drilling in Sabine Parish.  Three weeks ago, there were 32 rigs operating in Red River.  Last week there were 19.  Sabine now also sees 19 working rigs.  A couple of months ago, that figure was hovering around 10.



The Louisiana rig count is off 11 from its peak at the end of July, while Texas is off nine from its peak in early July.  Rig counts are definitely dropping, as shown below.  We can definitely call a peak back in July, but the big question is how low will it go?

Chesapeake Pre-Sells More Production

Chesapeake Energy announced today that it has entered into yet another volumetric production payment (VPP) for natural gas production.  The new agreement, the company's eighth in three years, is with British investment bank Barclay's PLC, which is paying $1.15 billion for five years of production from a portion of Chesapeake's wells in the Barnett Shale.  The deal covers assets containing 390 Bcf of proved reserves that  currently produce 280 MMcf/day.  Unlike a joint venture, a VPP covers specific producing assets for a particular period of time.  The buyer provides an upfront fee for the commodity but doesn't own the land or specifically fund future drilling costs.

The valuation implies a price of $4.11/MMcf based on the current production but $2.95/MMcf based on the proved reserves.  Analysts are not entirely happy to see Chesapeake lock in a price below $3.  It is a testament to the unhappy outlook for natural gas commodity prices.  It can also be viewed as a negative comment on Chesapeake's business plan of getting out front in all of the new plays and outspending the competition.  How sustainable is the strategy if gas prices remain low for a long time?

While I have concerns about the deal's implications, I think it more reflects the necessary "risk premium" to get the deal done in the current environment rather than desperation by Chesapeake to generate cash.  That said, however, I do have concerns about the viability of Chesapeake's business strategy if the company can't generate more value from pre-selling production going forward.

Recent Texas Completions

Completions:
  • Mary Waldron Deep GU #1H, NFR Energy : 10.615 MMcf/day IP, 24/64" choke; Carthage Field (Haynesville Shale), Harrison Co.
  • Anderson Gas Unit #1H, Penn Virgina Corp.: 7.132 MMcf/day IP, 19/64" choke; Carthage Field (Haynesville Shale), Harrison Co.
  • Hassell Gas Unit #5H, EOG Resources: 10.578 MMcf/day IP, 14/64" choke; Carthage Field (Haynesville Shale), Nacogdoches Co.
  • McRae Hay GU #5H, Goodrich Petroleum: 5.208 MMcf/day IP, 18/64" choke; Carthage Field (Haynesville Shale), Rusk Co.
  • Red River 35 #1, Exco Operating: 10.19 MMcf/day IP, 22/64" choke; Carthage Field (Haynesville Shale), San Augustine Co.

Lots of New Louisiana Completions

  • B'ville SG 35-15-9 H #1, Questar: 10.483 MMcf/day IP on 16/64 in. choke at 7,450 psi; Woodardville Field, Bienville Parish, S35/T15/R9; res. A, serial #240593
  • B'ville SG 26-15-9 H #1, Questar: 10.044 MMcf/day IP on 16/64 in. choke at 7,300 psi; Woodardville Field, Bienville Parish, S35/T15/R9; res. A, serial #240595
  • J Caplis 5-15-12 H #1, Questar: 11.082 MMcf/day IP on 16/64 in. choke at 7,600 psi; Elm Grove Field, Caddo Parish, S30/T16/R12; res. A, serial #240350
  • Audubon Properties 27 #2-ALT, Chesapeake Operating: 7.343 MMcf/day IP on 12/64 in. choke at 7,000 psi; Caspiana Field, Caddo Parish, S27/T16/R14; res. A, serial #240662

Friday, October 1, 2010

U.S. Rig Count: +9 to 1,659

The weekly Baker Hughes rig count showed a nine rig increase nationwide.  The big jump was in oil rigs, which increased by 14 to 687.  Gas rigs decreased by five to 962 and miscellaneous rigs held firm at 10.  By trajectory, directional rigs were up seven, horizontal rigs were up four and vertical rigs were down two.

In the Haynesville Shale region, inclusive of other formations, the rig count decreased by two to 196.  The Louisiana count was down four to 130 and the Texas count was up two to 66.  The Louisiana rig count is as low as it has been since late January 2010, having peaked at 143 in late July.

I hope to have the detailed rig count posted this weekend.