Monday, October 31, 2011

Haynesville Shale Rig Count: -2 to 109

Last week's Haynesville Shale rig count was down by two rigs to 109.  The count in Louisiana was down three to 77, while the count in Texas was up one to 32.  The maps and spreadsheets have been updated for your viewing pleasure.

Friday, October 28, 2011

U.S. Rig Count: +8 to 2,021

The weekly Baker Hughes U.S. rig count showed an eight rig increase to 2,021.  Oil rigs were down one to 1,078, gas rigs were up seven to 934 and miscellaneous rigs were up two to nine.  By type, horizontal rigs were up 13 to 1,155, vertical rigs were down seven to 623 and directional rigs were up two to 243

Thursday, October 27, 2011

QEP to Dial it Back in the Haynesville

QEP Resources (formerly Questar) stated in its quarterly earnings and operations update conference call that with the exception of one section for which it recently became the operator, it has concluded its Haynesville lease retention strategy in north Louisiana.  The company has started drilling 80 acre density pilot programs in several areas to assess the proper density to drill the play.

But management warned that it likely will "dial back activity going forward" in the Haynesville Shale.  The company currently operates six rigs in the play, but expect QEP's attention (and rigs) to shift to some of its acreage in the west that features oil and natural gas liquids. The CEO said that QEP won't go down to zero rigs, but he "would expect a substantial pulldown" in terms of rig count.  The company will continue to invest capital in non-operated wells, and that commitment likely will impact its investment in its own drilling program.

Cheniere Inks Deal with BG for LNG

BG Group of the United Kingdom (and partner with Exco Resources in the Haynesville Shale) signed an LNG export deal with Cheniere Energy to purchase 170.5 Bcf per year of LNG over 20 years, or about half a Bcf per day.  This is the first export deal signed with Cheniere and the first of its kind in the Gulf Coast region.  If all goes as planned, Cheniere's Sabine Pass facility can be exporting natural gas by 2015.

EIA: Storage +92 Bcf to 3.716 Tcf

The weekly working gas in storage report showed a 92 Bcf net injection, bringing the natural gas storage level to 3.716 Tcf.  The weekly injection was 24% higher than last year (+74 Bcf) and 96% greater than the five year average (+47 Bcf).  The current storage level is only 0.7% below last year and 4.4% above the five year average.  After spending most of the year around or below the five year average, current storage levels are now poised to break last year's record high levels.

Temperatures last week averaged 58.0 degrees, which 1.7 degrees warmer than normal and 1.1 degrees warmer than last year.

Monday, October 24, 2011

Haynesville Shale Rig Count: -1 to 111

The weekly Haynesville Shale rig count showed a one rig decrease, bringing the number of working rigs in the play to 111.  Louisiana held at 80, while Texas was down one to 31.

CNG: Zoom Zoom!

CNG has taken a stylish new turn.  J.T. Nesbitt, a designer and Haynesville Shale royalty owner living in New Orleans, designed and hand-built a roadster called the Magnolia Special.  The vehicle is powered by compressed natural gas and is soon to make a cross-country trip from New York to Los Angeles. (More info on the Magnolia Special with lots of pictures)

Nesbitt formerly designed motorcycles for Confederate Motorcycles before the company decamped from New Orleans after Hurricane Katrina.  Check out his Bienville Studios web site, he does some pretty interesting work.

This is not the first CNG hot rod.  A few years ago, Chesapeake Energy commissioned a CNG chopper, which it has taken on numerous publicity runs.

Friday, October 21, 2011

U.S. Rig Count: -10 to 2,013

The weekly Baker Hughes rig count showed a ten rig decrease, bringing the number of working rigs to 2,013.  Oil rigs were down one to 1,079, gas rigs were down nine to 927 and miscellaneous rigs held at seven.  By type, horizontal rigs were down 11 to 1,142, vertical rigs were up ten to 630 and directional rigs were down nine to 241.

Coal Ash to Get a Pass?

No matter how much evidence persists about the dangers of producing and burning coal, the coal lobby in Washington maintains it's strong grip on power.  Because coal is produced in a number of states, both red and blue (if not blue, at least purple), it has bipartisan support, much like cigarettes enjoy from tobacco states.

As we approach the third anniversary of the massive Kingston, TN coal ash spill, news comes that House of Representatives is progressing with legislation to block the EPA from releasing rules to treat coal ash as hazardous waste under federal guidelines.  The House measure, backed by utilities, would treat it as non-hazardous waste like other municipal landfill products.

Coal ash is some pretty nasty stuff.  It is the byproduct of burning coal at utilities and contains toxic chemicals such as chromium, arsenic and lead.  Utilities mostly stockpile the stuff in retaining ponds. Some coal ash is used in building materials like cinder blocks, but most of it sits around.

Coal is ever present in our lives.  It generates about half of the electricity we use in this country, but it is dirty and dangerous to mine (mountain top removal, polluted watersheds, dangerous mining conditions), hazardous to burn (mercury, nitrogen dioxide, sulfur dioxide, carbon dioxide, etc.) and leaves behind dangerous waste.

Every time I hear about how great electric cars are, I chafe.  Clean energy, my a**.  Using electric cars allows us to import a little less oil, but it causes us to burn more coal.  That's not clean!  Every Chevy Volt should be sold with a lump of coal to hang from the rear view mirror to remind the driver what he or she is really burning.

EPA Launches Natural Gas Water Rule Making Process

As expected, the U.S. Environmental Protection Agency has embarked upon a lengthy process - up to three years - to create new standards to address how natural gas drillers dispose of wastewater.  Responses by the usual characters were typical, with one side applauding the EPA's proactive stance and the other decrying federal regulation.

(It is interesting that the rules are only targeting natural gas, which has become a national punching bag, when fracking is used to produce other underground products, most notably oil.  Does oil get a free pass from the media circus?)

The EPA is walking a well worn path, one that has been trod upon since the 1700's, namely balancing the powers of state and federal governments.  Evidence from this battle can be seen in every major piece of legislation dating back to the Constitution.  Hydraulic fracturing certainly fits the mold because of the myriad of different rules for drilling and water disposal at the state and local levels that need to be reconciled with overlying regulation (is three years enough?!?).

Thursday, October 20, 2011

Fracking Disclosure Comes to Louisiana

The Louisiana DNR issued a statement today that the Office of Conservation has enacted a new rule "requiring oil and gas operators to obtain a work permit and disclose the types of fluids used in the hydraulic fracturing process of wells in Louisiana."  Disclosure of the quantities and composition of the fluids would be done after the fact and be submitted to the Office of Conservation or a public registry like

The rule is not a surprise, having gone through a public comment phase, and it doesn't differ materially from similar rules in Texas and Arkansas.

New Texas Permits

10/13/11 - 10/20/11:

  • Belle Crawford #13H, XTO Energy; Carthage Field (Haynesville Shale), Panola Co. Co., Survey: STANDIFER, MR, A-613
  • Butler Rooney (SL) Gas Unit #1HB, XTO Energy; Carthage Field (Haynesville Shale), San Augustine Co. Co., Survey: MARTIN, TJ, A-193
  • BSI/UFS Unit F6 #1H, Encana; Carthage Field (Haynesville Shale), San Augustine Co. Co., Survey: COLWELL, W, A-8

New Texas Completions

10/13/11 - 10/20/11:

  • Westerners (SL) DU #1H, XTO Energy: 10.071 MMcf/day IP, 17/64" choke, 8,811 psi; Perfs: 13,760-18,838, length: 5,078 ft.; Carthage Field (Haynesville Shale), Nacogdoches Co., Survey: YBARBO, J I, A-60
  • Westerners (SL) DU #1HB, XTO Energy: 11.663 MMcf/day IP, 17/64" choke, 8,689 psi; Perfs: 13,820-18,322, length: 4,502 ft.; Carthage Field (Haynesville Shale), Nacogdoches Co., Survey: YBARBO, J I, A-60

No New Louisiana Completions This Week

I would expect a bunch next week, though...

More on El Paso E&P Sale

To me, one of the more interesting Haynesville Shale stories this year is the potential sale of El Paso's exploration and production arm.  El Paso is not a big Haynesville player and there have been other big acquisitions this year (BHP's of Petrohawk), but because the deal is being shopped publicly by Kinder Morgan's bankers, we actually get to engage in rampant speculation long in advance of a deal announcement.

Here are a couple of good articles with some back story on El Paso and speculation about the potential acquirer.   It's funny to think that a business that has been a drag on the parent company would be a "juicy" acquisition for another.  I totally get it, but it reaffirms the old adage about one man's trash and one man's treasure.

EIA: Storage +103 Bcf to 3.624 Tcf

The  EIA working gas in storage report showed another big jump with a net injection of 103 Bcf last week, bringing the total gas in storage to 3.624 Tcf.  The weekly injection was 11% higher than last year (+93 Bcf) but 78% higher than the five year average (+58 Bcf).  The current storage level is 1.3% below last year (3.67 Tcf) and 3.2% higher than the five year average (3.453 Tcf).

Temperatures last week were pretty warm, averaging 63.1 degrees,  which was 4.1 degrees warmer than normal and 0.7 degrees warmer than last year.

Wednesday, October 19, 2011

Kitimat LNG Gets Export License

The Kitimat LNG project in Kitimat, B.C. has taken another step towards realization.  Canadia's National Energy Board has granted the project's owners, a consortium of Apache, EOG and Encana, a 20 year license to export liquefied natural gas.  If all continues to go well for the US$5.5 billion project, it could begin exporting gas by late 2015.

This is very good news for the western Canadian natural gas market.  The region has a wealth of shale gas but demand for the gas is shrinking as less and less is piped to the U.S. and the Canadian market cannot sustain the extra supply.  B.C.'s geographic isolation doesn't help sell gas in the rest of Canada, but it is positioned well to export to Asian markets.

Infrastructure and Growth

With the ups and downs in the natural gas market and the recent big deals with producers (i.e. BHP buying Petrohawk), it's sometimes easy to forget about the pipeline guys.  This weekend's deal between Kinder Morgan and El Paso with an enterprise value of around $38 billion broke that spell.  That was followed yesterday by the news yesterday that Crestwood Midstream Partners, LP has agreed to buy Tristate Sabine, LLC, which provides 52 miles of gathering pipelines in Sabine Parish, for $65 million.

Here is a good article that sums up recent developments in the infrastructure "space."  The challenges and opportunities are great, but the midstream side of the business will be key to the viability of long-term domestic energy production.  The article correctly suggests that the "one word" Mr. McGuire urges Benjamin to remember in the movie "The Graduate" might today be "infrastructure" rather than "plastics."

Monday, October 17, 2011

El Paso E&P Sale Makes Kinder Purchase Work

As more details of the agreed-to Kinder Morgan purchase of El Paso Corp. come out, it looks like the biggest variable will be the sale of El Paso's exploration and production business.  A sale could generate anywhere between $7 and $10 billion, which would represent a third to nearly half of the $21 billion equity value of the deal.  The numbers don't really work for Kinder Morgan if the E&P sale isn't done alongside larger deal in Q2 2012.

While El Paso has a good acreage position in the Haynesville Shale of around 46,000 net acres, it is the half million acres the company controls in west Texas that will be more attractive to a prospective buyer.  Speculation ranges from a foreign company with a taste for shale like Statoil (Norway) or Reliance (India) to a large independent, like Hess, Apache or Occidental, that is looking to get more involved in shale.  Investment bankers have already started to market the business, and we should expect an announcement in a few months.  El Paso's E&P business will be attractive to someone.  The question is how much will Kinder Morgan get for it?

Sunday, October 16, 2011

Haynesville Shale Rig Count: +3 to 112

The weekly Haynesville Shale rig count was up by three rigs this week to 112.  The count was up one in Louisiana to 80 and up two in Texas to 32.

Kinder Morgan to Acquire El Paso

El Paso Corp. announced today (Sunday) that it has agreed to be acquired by Kinder Morgan, Inc. for $21 billion ($38 billion including assumed debt).  The acquisition price represents a 37% premium over Friday's close.  Being a transport company, Kinder Morgan is only interested in El Paso's large pipeline infrastructure and it plans to sell off EP's exploration and production business, which EP was already in the process of spinning off into EP Energy Corp. It is unclear at this point if the E&P business will be a standalone entity or be sold to an acquirer.

After closing of the deal, Kinder Morgan will be the largest midstream company in North America and a major player in Haynesville Shale takeaway.  It is also a significant bullish bet on natural gas for the company.

This is the second deal (or at least hint thereof) involving a Haynesville company in a week.  Last week, it was reported that Samson Investment Co. was shopping for an investment bank adviser to "explore its strategic alternatives," meaning that it is seeking a deal anywhere from a joint venture to an outright sale.  Analysts speculate that an outright sale might fetch between $7 and $10 billion.

Friday, October 14, 2011

Good Haynesville Overview Article

World Oil magazine published a very good feature article on the Haynesville Shale in its October edition (if that link doesn't work and you don't mind a lack of paragraph breaks, try this).  The article offers a comprehensive look at the play, with a fair amount of technical specifics.  Perhaps the best part of the article is that they quoted yours truly.  You can't imagine how enormous my ego is now.  I'm totally insufferable (even more than usual).

U.S. Rig Count: +11 to 2,023

The Baker Hughes U.S. rig count was up 11 rigs to 2,023 this week.  Oil rigs were up 10 to 1,080, gas rigs were up one to 936 and miscellaneous rigs held at seven.  By type, horizontal rigs were up five to 1,153, vertical rigs were up two to 620 and directional rigs were up four to 250.

Look for the detailed Haynesville Shale rig count by the end of the weekend.

Thursday, October 13, 2011

New Louisiana Completions

  • Prince 29 H #1, Petrohawk (KCS): 7.816 MMcf/day IP on 12/64 in. choke at 7,802 psi; Perfs: 11,586-16,154, length: 4,568 ft.; Elm Grove Field, Bossier Parish, S32/T16/R11; res. A, serial #241901
  • Jarrett 2-10-13 H #1, Chesapeake Operating: 15.2 MMcf/day IP on 22/64 in. choke at 7,130 psi; Perfs: 12,641-16,584, length: 3,943 ft.; Benson Field, DeSoto Parish, S2/T10/R13; res. A, serial #242682
  • Nolan 34-13-11 H #1, Chesapeake Operating: 16.078 MMcf/day IP on 22/64 in. choke at 7,785 psi; Perfs: 12,541-16,747, length: 4,206 ft.; Red River-Bull Bayou Field, Red River Parish, S34/T13/R11; res. B, serial #241812

EIA: Storage +112 to 3.521 Tcf

The weekly working gas in storage report showed another big weekly injection, rising 112 Bcf to 3.521 Tcf.  The net injection was 22 Bcf greater than last year and 40 Bcf higher than the five year average.  The current storage level is 1.6% lower than last year (3.577 Tcf) but 2.0% higher than the five year average (3.453 Tcf).

Temperatures last week averaged 67.7 degrees, which was 0.3 degrees warmer than last year and 1.7 degrees cooler than normal.

Wednesday, October 12, 2011

Three Weeks of Texas Permits

9/22/11 - 10/12/11:

  • Letourneau Gas Unit 4 #27HH, Anadarko E&P; Carthage Field (Haynesville Shale), Harrison Co. Co., Survey: TOBY, T, A-720
  • Longhorns (SL) DU #3HB, XTO Energy; Carthage Field (Haynesville Shale), Nacogdoches Co. Co., Survey: YBARBO, JI, A-60
  • Robert Walton #10H, XTO Energy; Carthage Field (Haynesville Shale), Panola Co. Co., Survey: HAMMER, LT, A-335

Two Weeks of Texas Completions

9/29/11 - 10/12/11:

  • Furrh W.K. Deep GU #1H, NFR Energy: 13.444 MMcf/day IP, 22/64" choke, 6,735 psi; Perfs: 11,384-16,816, length: 5,432 ft.; Carthage Field (Haynesville Shale), Harrison Co., Survey: HOOPER, BF, A-296
  • Lauren Alston Unit #2H, EOG Resources: .473 MMcf/day IP, 12/64" choke, 1,421 psi; Perfs: 13,849-19,439, length: 5,590 ft.; Carthage Field (Haynesville Shale), Nacogdoches Co., Survey: MORA, JM, A-827

Go East, Young...Gas

Dominion Resources announced last week that it has applied to the Department of Energy for permission to export liquefied natural gas from its Cove Point facility on the Chesapeake Bay in Lusby, MD.  The facility is intended to operate as an import and export hub, but I am sure the main activity at the facility would be export in the years to come. Construction on the export infrastructure would begin in 2014 with an estimated completion in 2016.

The company had already applied for permission to export to any country with which the U.S. has a free trade agreement, but that is a preliminary step towards a wider permission, since those countries do not represent much of an LNG market.  The current application is for permission to export up to 1 Bcf/day to any country with which the U.S. does not prohibit trade.

Monday, October 10, 2011

Haynesville Shale Rig Count: +8 to 109

The weekly Haynesville Shale rig count increased by eight to 109.  The count was up ten in Louisiana to 79 and down two to 30 in Texas.

Friday, October 7, 2011

This Week's Louisiana Completions

  • J T Bolan et al 27 #10-ALT, Encana Corp.: 25.018 MMcf/day IP on 29/64 in. choke at 7,792 psi; Perfs: 13,046-17,627, length: 4,581 ft.; Red River-Bull Bayou Field, Red River Parish, S34/T14/R11; res. Jur-A, serial #242371
  • LaBokay 34-9-12 H #1, Chesapeake Operating: 19.397 MMcf/day IP on 22/64 in. choke at 8,510 psi; Perfs: 13,280-17,659, length: 4,379 ft.; Bayou San Miguel Field, Sabine Parish, S34/T9/R12; res. Jur-A, serial #241954

Last Week's Louisiana Completions

  • Burns Forest 11 H #1, Petrohawk Operating: 3.614 MMcf/day IP on 14/64 in. choke at 5,401 psi; Perfs: 10,958-15,527, length: 4,569 ft.; Lake Bistineau Field, Bienville Parish, S14/T16/R10; res. A, serial #241680
  • Poole Ant 15-15-11 H #1, Chesapeake Operating: 15.144 MMcf/day IP on 22/64 in. choke at 7,053 psi; Perfs: 11,846-16,298, length: 4,452 ft.; Swan Lake Field, Bossier Parish, S15/T15/R11; res. A, serial #242002

U.S. Rig Count: +22 to 2,012

The weekly Baker Hughes rig count showed a 22 rig increase, bringing the total number of working rigs to 2,012.   Oil rigs (1,070) were up ten, gas rigs (935) were up 12 and miscellaneous rigs (7) were unchanged.  By type, horizontal rigs (1,148) were up 13, vertical rigs (618) were up one and directional rigs (246) were up eight.

The detailed Haynesville Shale rig count will be available over the weekend.

Thursday, October 6, 2011

Good Brown Dense Article

I read a good article on the American Association of Petroleum Geologists web site about the Smackover/Brown Dense formation in north LA, southern AR and western MS.  It is a little geologic (as one might expect) but it gives a good overview and summary to date.  It's a good read for those with an interest in the subject.

EIA: Storage +97 Bcf to 3.409 Tcf

The weekly EIA working gas in storage report showed a 97 Bcf increase, bringing the total gas in storage to 3.409 Tcf.  As with past weeks, the weekly injection surpassed last year (+15%) and the five year average (+31%).  The current storage level is 2.2%, or 78 Bcf, below last year and 0.8%, or 28 Bcf, above the five year average.

Temperatures last week averaged 67.7 degrees, which is 3.7 degrees warmer than normal.

Monday, October 3, 2011

Haynesville Shale Rig Count: -5 to 101

The weekly Haynesville Shale rig count showed a five rig decrease, bringing the number of working rigs to 101.  Louisiana slipped by seven to 69, while Texas added two to 32.

Sunday, October 2, 2011

Bye, Sandridge

Last week, Sandridge Energy announced that it agreed to sell its 25,000 acres in East Texas holdings in Gregg, Harrison, Rusk and Panola Counties, TX to NFR Energy for $231 million.  The deal makes perfect sense.  Sandridge was always a fringe player in the Haynesville Shale and hasn't been very active in East Texas for a while (last permit was approved in November 2010).  NFR, on the other hand, is East Texas-focused and acquisitive.

The deal also makes sense in terms of financial position.  Publicly traded Sandridge needs to reduce its debt while it keeps spending on land acquisition and drilling to expand production and reserves.  It is also following the market trend of chasing oil-rich properties.  Monetizing its dry gas land to pursue opportunities in oil, especially in the Mississippian and Permian formations where it now operates all of its rigs, makes sense to the company. (FYI, the Mississippian play might be the next big trendy announcement.  I heard that Shell made a rather significant acquisition in the area from a private owner in Kansas that didn't get announced because the company is still shopping for acreage. Others have their doubts about the play.)

NFR, on the other hand, is still privately held and backed by private equity and can therefore pursue a long-term plan without having to react to the whims of the stock market.  Only time will tell which strategy is right.