Wednesday, February 29, 2012

Speaking of Shutting Down Coal Plants...

Earlier I mentioned Dominion's plan to replace two aging coal facilities in Virginia with a new gas-fired plant, but even bigger news came out that Chicago will see an early retirement of two controversial coal-fired plants on its South Side.  The Fisk plant will close in December 2012 and the Crawford plant will close in 2014.  The two plants are merchant plants operated by Midwest Generation that produce power that is sold out of state.  Midwest has owned the plants since 1999, but they were put into service in 1958 (Crawford) and 1968 (Fisk).

Additionally, merchant generator GenOn announced today that it will be shutting down eight coal-fired power plants (with a little oil-fired power in there) in Ohio, Pennsylvania and New Jersey between June 2012 and May 2015 because the cost of upgrading them to meet environmental standards outweighed the economic return.

Over the past several years, there have been around 100 coal plant retirements announced, either because of economic reasons or because of political pressure from environmental groups.

Dominion Announces New Gas Fired Power Station

Yesterday, East Coast utility Dominion Virginia Power announced that it is building a new $1.1 billion 1.3 megawatt combined-cycle natural gas-fired power station in Brunswick Co. in southern Virginia that will replace two coal-fired plants that are being phased out in Chesapeake and Yorktown, VA.  Targeted completion of the new plant is summer 2016, which should coincide with the retirements of the coal plants.

Expect more of these announcements from utilities in the coming years.  Dominion is already underway with another 1.3 MW gas plant in northern VA.  We've already seen a handful of these announcements and with the price of gas remaining low and the costs (economic and environmental) of operating old coal plants rising, it is a prudent action for utilities and ratepayers.

New Texas Completions

2/22/12 - 2/28/12:

  • Pace Unit #1H, EOG Resources: 10.605 MMcf/day IP, 116/64" choke, 8,656 psi; Perfs: 14,022-18,972, length: 4,950 ft.; Carthage Field (Haynesville Shale), Nacogdoches Co., Survey: SCHILLEN, JA, A-507
  • Haynes Unit #2H, EOG Resources: 3.421 MMcf/day IP, 16/64" choke, 7,827 psi; Perfs: 13,426-18,085, length: 4,659 ft.; Carthage Field (Haynesville Shale), Nacogdoches Co., Survey: RECTOR, GW, A-470

New Texas Permits

2/22/12 - 2/29/12:

  • Ruth Stewart #2, Valence Operating; Carthage Field (Haynesville Shale), Nacogdoches Co. Co., Survey: YBARBO, JI, A-60
  • CGU 14 #53HH, Anadarko E&P; Carthage Field (Haynesville Shale), Panola Co. Co., Survey: DUNCAN, S, A-158

Tuesday, February 28, 2012

Cushing to Houston Keystone XL Pipeline to Proceed

TransCanada announced yesterday that it will proceed with the portion of the Keystone XL pipeline running from Cushing, OK to the Houston, TX area.  This now stand-alone Gulf Coast Project will cost about $2.3 billion and should be in service in mid to late 2013.  It will be subject to typical regulatory approvals but not the same permit process as the whole controversial Keystone XL pipeline project (the orange dashed line below).

This is a smart move on many fronts.  First, it is an economic project.  As TransCanada notes, the Gulf Coast portion "has its own independent value to the marketplace."  Second and more importantly, the Cushing-to-Coast project attacks one of the biggest problems we have in the U.S. oil market:  the choke point that has been created in Cushing, which is the settlement point for West Texas Intermediate crude on the New York Mercantile Exchange (much like Henry Hub is for natural gas).  There is too much oil flowing into Cushing and not enough pipeline capacity to get it out.

Monday, February 27, 2012

Southwestern Talks Smackover

In its fourth quarter earnings announcement, Southwestern Energy gave an update on its drilling progress in the Lower Smackover Brown Dense in northern Louisiana and southern Arkansas, where the company has 520,619 net acres under lease.  From the release (emphasis mine):
In February 2012, Southwestern completed its first well in the area, the Roberson 18-19 #1-15H located in Columbia County, Arkansas, at a total depth of approximately 9,369 feet and a horizontal lateral length of approximately 3,600 feet. The lateral was landed in the lower third of this zone and subsequent core analysis indicated this section had some of the lowest permeability in the entire interval. The well has been producing from 8 of 11 stages fractured stimulated for 20 days of an expected 20 to 30 day cleanup period. Oil production began on day 8 and the company is encouraged, with the highest 24-hour rates to date of 103 barrels of oil per day, 200 Mcf per day and 1,009 barrels of water per day (45% of load recovered to date). The company’s second well, the Garrett 7-23-5H #1 located in Claiborne Parish, Louisiana, was drilled to a vertical depth in February 2012 at approximately 10,863 feet with a 6,536-foot horizontal lateral. Learning from the first well, this lateral was steered into the top of the interval, drilled faster and had better oil shows than the first well. The company has also spud its third well in February 2012, the BML #31-22 #1-1H located in Union Parish, Louisiana.

Cheniere Gets $2 Billion Financing for LNG Export

Cheniere Energy announced today that it received a $2 billion equity investment from the Blackstone Group (press release).  The investment will partially fund the $4.5 to $5 billion needed to build two of the planned four liquefaction trains, with the remainder to be funded through debt.  Construction is expected to begin in the first half of 2012.

This is big news for gas fans, as equity financing is usually the harder piece of the funding puzzle to secure (at least in a normal banking environment - which this is finally starting to become).

Wouldn't it be interesting in a few years to see the United States as a net gas exporter?  Don't think the concept of "energy independence" is that far-fetched.  Between abundant natural gas supplies to satisfy domestic needs, natural gas exports, increased domestic oil production, increased vehicle fuel efficiency and the increased exports of coal (especially as natural gas displaces coal for power generation), the U.S. stands a good chance of being energy independent (assuming your definition of "energy independent" is being a net energy exporter and not just avoiding the purchase of oil from the Middle East).  For fun, read Thomas Friedman's column from yesterday's New York Times about the question, "should the U.S. join OPEC?"

Goodrich Revises 2012 Capex Budget

Goodrich Petroleum revised its already small Haynesville Shale 2012 capital budget downward last week.  The company now is allocating $37.5 million to the Haynesville:  $17.5 million for completion activities on 15 gross (5.5 net) wells and $20 million to drill two new wells in the Angelina River Trend area in East Texas.  The company reallocated $20 million from the Haynesville program to the Eagle Ford by deferring completion on 15 gross (7 net) wells that were drilled in Q4 2011 or Q1 2012.

Coal Cars

If a picture is worth a thousand words, here is what I've been saying about electric cars captured by an editorial cartoon in the Investors Business Daily:

But the coal lobby seems to make the same case themselves.  

It's amazing how two people with different perspectives can look at the same picture and have wildly divergent responses.  How can you look at the picture below and not see toxic fumes belching out of power plants raining mercury and other pollution on the landscape?

QEP: Haynesville 2012 Capex to Drop 58%

In releasing its earnings last week, Questar management noted continued strong Haynesville results, but it it indicated that the company will divert most of its 2012 capital spending away from dry gas to liquids and oil production.  QEP's Hayensville capital spending will decrease from approximately $430 million in 2011 to around $180 million in 2012 (lower than previously estimated three months ago), a reduction of 58%.

QEP will continue its one drilling rig program.  Management didn't offer guidance as to whether the rig would be pulled, but I would find it highly unlikely given the capital budget.  The company currently has 18 wells awaiting completion or in the process of being completed.

Additionally, QEP has also seen success with its restricted flow rate program and will continue to choke back its wells.  The downside is that total production volumes are somewhat lower, but the trade-off is worthwhile given the long-term benefits.

EXCO Cutting Back in Haynesville

Add EXCO to the list of companies (that pretty much includes every producer) cutting back in the Haynesville Shale.  The company announced in its year-end conference call (presentation) that it will be reducing rig counts from an average of 13 down to an average of nine.  That doesn't sound bad, but behind the numbers, the actual plan is to reduce the count to eight in the second quarter and four to six by year end. Depending on gas prices, the rig count may stay in the low single digits for a while. If prices start to move up, the company will ramp up the rig count to follow.  In its call, management indicated that if prices get back to $5/MMBtu the company could be looking at 20 rigs in the Haynesville Shale.

This seems pretty manic depressive at first glance, but the strategy is to keep capital spending within cash flow, something many other producers can't or won't do. Since EXCO largely is focused on shale gas and is not going headlong into chasing oil and liquids, it is particularly at the mercy of gas prices.  For the next two years, EXCO sees prices staying between $2.50 and $3/MMBtu.

El Paso E&P Goes to Apollo

Last week El Paso announced that the company was selling its exploration and production company (called EP Energy) to a group led by private equity company Apollo Management Group for $7.15 billion.  The transaction was initiated by Kinder Morgan to fund part of Kinder's acquisition of El Paso.  The EP Energy/Apollo transaction is expected to close around the time of the Kinder/El Paso deal and is contingent upon the Kinder closing occurring.

There is no word yet on how Apollo plans to operate the company vis-a-vis its North American drilling operations.

Sunday, February 26, 2012

Haynesville Shale Rig Count: -1 to 64

The Haynesville Shale rig count dropped by one to 64 this week.  Louisiana was down two to 47 and Texas was up one to 17.  Of note, this is the first week...I don't know, ever?...that any company operated more Haynesville rigs than Chesapeake Energy in Louisiana.  This week, EXCO Resources is operating 11 rigs in Louisiana compared to Chesapeake's ten.  (But in total the two companies are tied at 11 because Chesapeake has one rig operating in Texas.)  In Texas, Anadarko is tied with EOG Resources for the lead with four rigs.  XTO Energy, which pretty much ruled the roost through mid-2011 with up to 12 rigs operating in Texas, now only runs three in the state.

Friday, February 24, 2012

U.S. Rig Count: -13 to 1,981

The Baker Hughes working rig count showed a 13 rig decline to 1,981. Oil rigs decreased by seven to 1,265, gas rigs decreased by six to 710 and miscellaneous rigs held at six.  By type, horizontal rigs were up two to 1,165, vertical rigs were down nine to 606 and directional rigs were down six to 210.  The chart below shows the changing rig count since 2005

Thursday, February 23, 2012

Where Are They Drilling?

Today, I was glancing over the falling Haynesville Shale rig counts wondering if there were any trends in terms of location over the past two years of collecting this data. Being a visual person, it helps me to look at numbers graphically. The charts below show the rig counts since January 2010 and reveal some interesting activity.

New Texas Permits

2/12/12 - 2/21/12:

  • Red Raiders DU #2H, XTO Energy; Carthage Field (Haynesville Shale), Shelby Co. Co., Survey: KIMBRO, W, A-401
  • Kyle, J.R. "A" #15HH, Anadarko E&P; Carthage Field (Haynesville Shale), Panola Co. Co., Survey: ANDERSON, W, A-4

EIA: Storage -166 Bcf to 2.595 Tcf

The weekly EIA working gas in storage report showed a 166 Bcf decrease, bringing the total gas in storage to 2.595 Tcf.  The weekly withdrawal was 63% greater than last year (-102 Bcf) and 14% above the five year average (-145 Bcf).  While it's nice to see the weekly withdrawal beat prior years, the current storage level is way too far out of whack to get back into the normal range any time soon.  Even with the "win" the current level is 753 Bcf above last year (+40.9%) and 744 Bcf above the five year average (+40.2%).

Temperatures last week were 0.3 degrees cooler than last year and 0.1 degrees cooler than the 30 year average.  While not exactly a  new ice age, it represents the first time since November 2011 that the average national temperatures were below average.

Wednesday, February 22, 2012

Chesapeake Maximizes Curtailment, But Net Production Decrease Small

In its year-end earnings report, Chesapeake Energy reported that it has curtailed production on nearly 1 Bcf/day of dry natural gas production, mainly from the Haynesville and Barnett Shales.  Last month CHK said that it would curtail 0.5 to 1.0 Bcf, so the company hit the high end. The company also previously announced that it will defer as many dry gas completions as possible and reduce its dry gas rig count from an average of 75 in 2011 to 24 in 2012.

Chesapeake emphasized that it "has demonstrated industry leadership" to take one for the greater good of the natural gas industry.  But even with these actions, Chesapeake's daily natural gas production is only expected to drop only 4% from 2011 levels, from 2.75 Bcf/day to 2.65 Bcf/day.  Why?  The company notes that the "sacrifices" it is making are "...partially offset by growth in associated natural gas production in liquids-rich plays."

So, bottom line is that Chesapeake is cutting production in Louisiana and Texas, slashing dry gas rig count by two thirds and deferring completions only to have gas from liquids wells make up the difference so that production is nearly flat year-over-year.

Just a Few New Louisiana Completions

  • Weyerhaeuser 23 H #1-ALT, El Paso: 14.222 MMcf/day IP on 18/64 in. choke at 7,100 psi; Perfs: 12,000-16,579, length: 4,579 ft.; Bethany Longstreet Field, DeSoto Parish, S14/T13/R15; res. B, serial #243704
  • M+M Long Prop 4 H #5-ALT , Encana Corp.: 15.792 MMcf/day IP on 23/64 in. choke at 6,793 psi; Perfs: 11,923-16,408, length: 4,485 ft.; Holly Field, DeSoto Parish, S9/T14/R14; res. A, serial #241671

SM Energy Pulling Back in Haynesville Too

SM Energy (formerly St. Mary L&E) announced in its year end earnings report today that it is scaling back its operations in the Haynesville Shale by cutting back on drilling operated wells.  The company, which doesn't have a huge Haynesville operation to begin with, is opting not to drill four of its planned 2012 operated wells. As a result, SM is lowering its 2012 Haynesville capital expenditure budget to $35 to $40 million, which is a small fraction of its $1.2 to $1.3 billion drilling budget.  Once the company drills its current program, it will have 80% of its leased acreage held by production.

On the uglier side, the company had to take a non-cash write-down of $170.5 million reflecting an impairment to its proved assets - specifically its ArkLaTex dry gas properties targeting the Haynesville and Cotton Valley - because of low gas prices.  The company didn't offer any specifics about whether it is releasing any acreage, but presumably the choice to not drill certain wells reflects on the economic viability of those properties' locations as well as a decision not to chase dry gas at these prices.

New Texas Completions

2/12/12 - 2/21/12:
  • Bailey #2, Valence Operating: 1.53 MMcf/day IP, 17/64" choke, 1,415 psi; Perfs: 10,349-11,740, length: 1,391 ft.; Carthage Field (Haynesville Shale), Harrison Co., Survey: ALEXANDER, SG, A-56
  • Cayenne GU 1 #1H, Samson Lone Star: 4.304 MMcf/day IP, 10/64" choke, 9,250 psi; Perfs: 14,118-18,807, length: 4,689 ft.; Carthage Field (Haynesville Shale), Nacogdoches Co., Survey: CHIRINO, J A, A-17
  • Haynes Unit #3H, EOG Resources: 4.438 MMcf/day IP, 10/64" choke, 8,939 psi; Perfs: 13,742-19,217, length: 5,475 ft.; Carthage Field (Haynesville Shale), Nacogdoches Co., Survey: RECTOR, GW, A-470

Saturday, February 18, 2012

Haynesville Shale Rig Count: -5 to 65

Another round of rig losses this week as the Haynesville Shale rig count dropped five to 65.  Louisiana dropped two to 49, while Texas dropped three to 16.

Friday, February 17, 2012

U.S. Rig Count: +5 to 1,994

The weekly Baker Hughes rig count showed a five rig increase, bringing the number of working rigs in the U.S. to 1,994.  Oil rigs were up nine to 1,272, gas rigs were down four to 716 and miscellaneous rigs held at six.  By type, horizontal rigs were down eight to 1,163, vertical rigs were up 12 to 615 and directional rigs were up one to 216.

UT Study Finds No Link Between Fracking and Water Pollution

The University of Texas Energy Institute released a study this week concluding that there is no direct link between hydraulic fracturing and groundwater contamination.  The report notes that there have been isolated accidents and problems, but they the same problems that can occur in any drilling operation.

While the drilling industry is obviously pleased at the result of this study, it by no way ends the "discussion" over the practice of fracking.  Its own conclusions suggest are that there are inherent risks in all drilling.  As time passes and the practice of fracking is better studied, I think the debate about fracking will shift from one specifically about fracking to one about drilling in general.

With rig counts climbing and drilling coming closer to populated regions, the fear of the unknown is real, and it is not to be dismissed casually.  With all the talk about "energy independence" out there, this is not a debate that will just fade away.

New Louisiana Completions

  • Wiggins etux 35 H #1, Petrohawk Operating: 5.203 MMcf/day IP on 14/64 in. choke at 6,827 psi; Perfs: 11,111-15,703, length: 4,592 ft.; Elm Grove Field, Caddo Parish, S34/T17/R12; res. A, serial #243875
  • CHK Min 16-14-12 H #1, Chesapeake Operating: 15.127 MMcf/day IP on 22/64 in. choke at 6,835 psi; Perfs: 12,446-16,764, length: 4,318 ft.; Caspiana Field, DeSoto Parish, S9/T14/R12; res. A, serial #243638
  • ASJ et al 4-10-11 H #1, Chesapeake Operating: 18.552 MMcf/day IP on 22/64 in. choke at 8,410 psi; Perfs: 13,429-17,355, length: 3,926 ft.; Grogan Field, DeSoto Parish, S4/T10/R11; res. A, serial #241783

Thursday, February 16, 2012

EIA: Storage -127 Bcf to 2.761 Tcf

Another week, another crappy storage report.  The storage level dropped 127 Bcf to 2.761 Tcf.  Sounds like a lot, but it was still 45% lower than last year (-230 Bcf) and 29% below the five year average (-178 Bcf).  The current storage level is 817 Bcf, or 42.0%, below last year and 765 Bcf, or 38.3%, below the five year average.

Temperatures last week were warm: 9.9 degrees warmer than last year and 5.6 degrees warmer than the 30 year average.

Tuesday, February 14, 2012

Chesapeake's Yard Sale

Bloomberg reported yesterday that Chesapeake Energy is looking at raising approximately $12 billion from asset sales and joint venture-type deals to "to cope with a cash crunch amid rising debt and tumbling gas prices."  The biggest potential asset on the block is the company's (oily) Permian Basin acreage.  Chesapeake will be completing an upfront payment deal in the Granite Wash and might negotiate other deals in the Cleveland and Tonkawa formations in Oklahoma.  Also for sale might be interests in the company's infrastructure, including pipelines, gas processing plants and services companies.

Like many operators, Chesapeake is in its usual position of outspending operating cash flow - analysts estimate that Chesapeake might fall $3 to $6 billion short.  It doesn't look like gas prices will rise any time soon to rescue the company and Chesapeake's oil production is not sufficient yet to support the business.  The company is over-leveraged, and selling more stock is unlikely, so it pretty much has to sell valuable assets to raise money.

Rig Counts: Visual Perspective

I've always been a believer that a picture usually can say more than words.  That belief is particularly strong when discussing rig counts.  It's not an particularly brilliant analysis, but just look at the chart below (red = gas rigs, blue = oil rigs), showing rig counts since 1987.

It's interesting to see the changes in the domestic energy industry over the past decade.  The shift to oil drilling is particularly dramatic given the context of the past 35 years of history - it's the proverbial "hockey stick" line.  The question is, where does it stop and what happen to the shape of the line when it does?

Monday, February 13, 2012

New Texas Permits

1/30/12 - 2/12/12:

  • Whitaker #1, Samson Lone Star; Carthage Field (Haynesville Shale), Panola Co. Co., Survey: MATTHEWS, TD, A-458
  • Fightin' Irish (SL) DU #3H, XTO Energy; Carthage Field (Haynesville Shale), San Augustine Co. Co., Survey: LAWRY, WN, A-188
  • Werner-Lagrone #1HS, Chevron USA; Carthage Field (Haynesville Shale), Panola Co. Co., Survey: ANDERSON, WG, A-9

New Texas Completions

There were only three Haynesville Shale completions in Texas over the past couple of weeks, and they were all clustered together from one producer.

1/30/12 - 2/12/12:

  • CGU 8 #52HH, Anadarko E&P: 1.5 MMcf/day IP, 14/64" choke, 4,865 psi; Perfs: 11,087-14,564, length: 3,477 ft.; Carthage Field (Haynesville Shale), Panola Co., Survey: LONGACRE, UJ, A-403
  • CGU 8 #53HH, Anadarko E&P: 1.1 MMcf/day IP, 14/64" choke, 4,790 psi; Perfs: 10,918-14,659, length: 3,741 ft.; Carthage Field (Haynesville Shale), Panola Co., Survey: LONGACRE, UJ, A-403
  • CGU 8 #54HH, Anadarko E&P: 3.021 MMcf/day IP, 16/64" choke, 5,390 psi; Perfs: 11,053-15,366, length: 4,313 ft.; Carthage Field (Haynesville Shale), Panola Co., Survey: LONGACRE, UJ, A-403

Sunday, February 12, 2012

Haynesville Shale Rig Count: -4 to 70

The Haynesville Shale rig count continues to slip, dropping four rigs this week, ending at 70 working rigs.  Over the past two weeks, there are nine fewer working rigs in the play.  Louisiana lost one to 51 and Texas lost three to 19.

Friday, February 10, 2012

U.S. Rig Count: -8 to 1,989

The weekly Baker Hughes rig count was down eight rigs to 1,989.  Oil rigs were up 18 to 1,263, gas rigs were down 25 to 720 and miscellaneous rigs were down one to six.  By type, horizontal rigs were down three to 1,171, vertical rigs were down three to 603 and directional rigs were down two to 215.

While it's nice to see gas rig counts drop, it's hard to get excited because there are so many more oil rigs out there, and they are usually producing gas too.  We basically have the same number of total rigs as we did in the peak of August 2008, but the percentage of gas rigs has dropped from 79% to 36%.  Buuuut over that same period gas production has increased.

Thursday, February 9, 2012

New Louisiana Completions

  • Burkett 5-15-10 H #4-ALT, QEP Resouces: 9.593 MMcf/day IP on 16/64 in. choke at 7,900 psi; Perfs: 12,290-16,780, length: 4,490 ft.; Alabama Bend Field, Bienville Parish, S5/T15/R10; res. A, serial #242819
  • Burkett 5-15-10 H #5-ALT , QEP Resouces: 10.534 MMcf/day IP on 16/64 in. choke at 8,525 psi; Perfs: 12,770-17,330, length: 4,560 ft.; Alabama Bend Field, Bienville Parish, S8/T15/R10; res. A, serial #242821
  • Pieronnet 29-15-11 H #1, Chesapeake Operating: 16.138 MMcf/day IP on 22/64 in. choke at 7,670 psi; Perfs: 12,212-16,483, length: 4,271 ft.; Caspiana Field, Caddo Parish, S29/T15/R11; res. B, serial #243222

The Sierra Club's Slippery Slope

In the past, I've offered lukewarm praise for the national Sierra Club's stance on natural gas.  The organization reluctantly viewed gas as a cleaner alternative to coal, against which it has waged war with its "Beyond Coal" campaign.  But while the national organization held this view, the local Sierra Club organizations often took a more negative stance against hydraulic fracturing and natural gas.

Unfortunately, now the national Sierra Club organization has shifted its stance and has begun the attack on natural gas.  In a recent post on its blog, the Club announced that it had filed objections against applications for LNG export in Oregon, Maryland and Louisiana.  In objecting to the Sabine Pass, Louisiana application, the Club says environmental assessment by the Federal Energy Regulatory Commission, "does not consider the damaging effect of extracting natural gas through fracking."

We can argue the errors of the above statement, but the point is that the Sierra Club has boxed itself into a corner and has gone from an environmental advocate to a gadfly with much less to offer.  You can't damn coal without at least tacitly supporting an alternative.  If the organization really wants to clean up the environment, causing power generators to switch from coal to natural gas is the fastest and cheapest way to achieve that goal.

EIA: Storage -78 Bcf to 2.888 Tcf

Another stinker storage report!  The EIA working gas in storage report showed only a 78 Bcf withdrawal, bringing the current storage level to 2.888 Tcf.  The weekly withdrawal was 62% below last year (-206 Bcf) and 59% lower than the five year average (-191 Bcf).  The current storage level is 32.8% below last year and the five year average (2.174 Tcf).

At this point, the storage level is 714 Bcf behind the five year average.  By my very rough calculations, for storage to catch up to the average level, we will have to see freezing temperatures across the country into June!

The anemic withdrawal can be traced to unseasonably warm temperatures across the country that were 9.9 degrees warmer than last year and 9.7 degrees warmer than normal.

Wednesday, February 8, 2012

When Will Haynesville Production Peak?

With rig counts steadily falling for the past 18 months, the next big question is when does Haynesville production peak and start to decline?  Follow the red line on the chart below:

With the low price of gas, the U.S. rig count has declined as well, although not as dramatically as the Haynesville count. Since its recent peak in the summer of 2010, the national count has dropped by 247 rigs, a decline of 25%.  Over that same time, the Haynesville count has dropped by 110 rigs, or 60%.  At the peak 18 months ago, Haynesville Shale rigs represented 18.5% of all working gas rigs in the U.S.  That number is now 10%.

With the inherent decline rates in producing shale gas, production in the Haynesville will start to fall at some point in the near future.  The question is when?  Summer?  Fall?  Will it even happen in 2012?

Track the NAT GAS Act

It might be a futile activity, but you can track the progress of the NAT GAS Act, as reintroduced for the 2011-12 Congressional session by following these links for House Resolution 1380 and Senate bill 1863.  As you may remember, the NAT GAS act is a bipartisan bill pushed by T. Boone Pickens to provide incentives to convert trucks to natural gas and help build natural gas fueling infrastructure.

While the idea has much support, it also has some very powerful enemies.  Chief among them are the infamous Koch brothers, who control Koch Industries.  When they aren't pumping hundreds of millions of dollars into political campaigns, they are using their money and influence to fight the NAT GAS Act, mainly through lobbying efforts and donations from the Koch Industries Political Action Committee targeted at removing bill co-sponsors.  

While often pitched as a battle between billionaires over free market principles, I think the Koch brothers' real motivation is to maintain cheap gas prices for its Koch Industries' industrial businesses like chemical and fertilizer businesses and not to disturb the flow of oil tanked to its refining businesses.

However you define the kerfuffle, looking at the big picture, it is unlikely that Congress will take any action on the NAT GAS Act other than shuffling it between committees to kill it for another session.

Monday, February 6, 2012

Haynesville Shale Rig Count: -5 to 74

The weekly Haynesville Shale rig count dropped by another five to 74.  Louisiana was down two to 52, while Texas was down three to 22.  This week marks the first week since 2008 that no rig in Harrison County, TX has targeted the Haynesville.  Yet another milestone of a rapidly declining rig count.

Friday, February 3, 2012

U.S. Rig Count: -11 to 1,997

The weekly Baker Hughes rig count showed an 11 rig drop, bringing the number of working rigs in the U.S. to 1,997.  Oil rigs were up 20 to 1,245, gas rigs dropped by 32 to 745 and miscellaneous rigs were up one to seven.  By type, horizontal rigs were down by 11 to 1,174, while vertical rigs (606) and directional rigs (217) were unchanged.

Wyoming Takes Harder Look at Flaring Gas

This week the Wyoming State Board of Land Commissioners, which includes the top elected officials in the state, decided that it will take a larger role in determining whether or not a producer can flare or vent gas on state land.  The big issue at stake is whether the state can require a producer to pay royalties for the lost gas, as is done in Texas.

While this decision only affects a small number of wells and is being done for economic reasons, it should have a positive environmental impact as well.  Recent studies have pointed out that leaked or vented methane in natural gas is more harmful as a greenhouse gas than carbon dioxide (although CO2 has a longer life in the atmosphere).  While it's hard to measure precisely, a fair amount methane is being released in the drilling and transportation of gas, either leaked accidentally or purposely vented or flared when pipeline infrastructure is not in place (although flaring has more of a CO2 impact than methane impact).

There has been a rush towards drilling oil and liquids wells in the western states, and dry gas is an afterthought, so much so that producers would rather flare it than build pipelines to bring it to market.  I'm certainly not advocating putting additional gas on the market in the current environment, but if natural gas is really a "greener solution" to coal, the industry needs to tighten up its practices and equipment infrastructure to prove it.  Not only must drilling wells be perfectly executed to avoid leakage of fracking chemicals, but the extraction and handling of gas has to minimize leakage.

Thursday, February 2, 2012

New Louisiana Completions

  • Turner et al 34 H #1, QEP Resouces: 10.066 MMcf/day IP on 16/64 in. choke at 8,550 psi; Perfs: 12,420-16,980, length: 4,560 ft.; Alabama Bend Field, Bienville Parish, S3/T15/R9; res. A, serial #242179
  • Burkett 5-15-10 H #1, QEP Resouces: 9.534 MMcf/day IP on 16/64 in. choke at 8,300 psi; Perfs: 12,300-16,856, length: 4,556 ft.; Alabama Bend Field, Bienville Parish, S5/T15/R10; res. A, serial #242816

Matador IPO Excitement!!!

In all of the excitement about Facebook's IPO and the crushing disappointment among market watchers that the company didn't choose a cute stock symbol (like "LIKE"), the initial public offering of Matador Resources was hard to notice.  The company priced its shares at $12/share and opened trading today at $11.75.  At the end of the day it closed at...$11.75.  So much for the IPO bump.  The opening price was a bit of a disappointment in the first place, as it was below the expected range of $14 to $16.

Matador is not a huge Haynesville player - it hasn't had a rig running in the play since February 2011 and it only has seven completions - but it is always nice from an analytic perspective to have another public company with a Haynesville presence from which to glean information.

Godspeed Matador!

Natural Gas Vehicles Gaining Steam

The move to bring more natural gas to our nation's highways is picking up some momentum.  Last week, in his State of the Union Address, President Obama talked up natural gas, especially as a transportation fuel, and days later appeared at a natural gas fueling station in Nevada.  The Administration is taking steps to assist in the development of natural gas vehicles, but it takes the private sector to make it work.

To that end, earlier this week, truck maker Navistar announced a partnership with T. Boone Pickens' Clean Energy Fuels Corp. to sell natural gas powered trucks at the same cost as diesel powered vehicles (press release). The rub is that the buyer must purchase fuel from Clean Energy, which would guarantee that the fuel price would be 50 to 60 cents cheaper per gallon than diesel.  While that guaranteed savings is lower than market rates, the economic payback for the buyer is significant, especially on the front end.  The program will start with medium-duty trucks this year and add heavy-duty vehicles next year.

Clean Energy previously announced plans to build 70 new natural gas fueling stations at strategic locations in 33 state by year end as part of a larger plan to build 150 stations by 2013 as part of its "America's Natural Gas Highway" program.  Many of these stations will be built at existing Flyiing J locations.

While most trucks use liquefied natural gas, this new infrastructure will still help build some CNG fueling capacity for smaller vehicles.  But the big fish here is big trucks, which represent a much larger market for natural gas because of the vast quantities of fuel these trucks use.

Texas Oil Rumor List Updated

I have updated the Texas oil rumor spreadsheet and map (look under "Oil Rumor" tab). Not much positive news to report.  I mostly updated completion data, which pretty much eliminated most wells from the list.  There are a few left and a few for which little firm data is known, but, paraphrasing one of my local correspondents in the region, "they (the producers) want us to think there is nothing going on below the Haynesville and I'm starting to believe them."

In any case, I'll continue to keep an eye on it and welcome all thoughts and rumors.

EIA: The Storage Bloodbath Continues

The EIA reported that the weekly working gas in storage inventory dropped 132 Bcf to 2.966 Tcf.  The weekly withdrawal was 29% lower than last year (-187 Bcf) and the five year average (-186 Bcf).  The current storage level is now 24.6% above last year (2.38 Tcf) and 25.4% above the five year average (2.365 Tcf).

So far this season, the storage drawdown has only been 886 Bcf.  This time last year, 1.487 Tcf had been withdrawn, a difference of 601 Bcf.  Don't look for that difference to be recaptured before spring comes.

On the plus side, the groundhog Punxsutawney Phil saw his shadow this morning, thus predicting six more weeks of winter.  Maybe he can go back down into his hole and dig out some cold weather to make it actually feel like winter.

Last week's temperatures were very unwinterly, averaging 9.1 degrees warmer than last year and 5.3 degrees warmer than the five year average.

Wednesday, February 1, 2012

Party On, Exxon

Exxon Mobil, always one to buck trends, stated today that unlike other natural gas producers it has not cut back on North American gas production in of late.

Investors and gas traders seem to be expecting all gas producers to announce curtailments and rig count reductions as a way towards higher gas prices.  A big fish like Exxon saying that its plans are unchanged sent commodity prices plummeting today.

But this shouldn't be surprising news.  First, domestic gas producers are not OPEC.  They cannot and will not agree on production levels.  If nearly everyone cuts back, it creates an opening for others - that's the free market, baby.  Second, nobody should confuse an independent like Chesapeake, Comstock or GMX with Exxon.  In many respects, that's like confusing a Boston Whaler with a battleship.  The independents are smart and scrappy but are always struggling with cash flow.  Exxon has its plan, a boatload of cash and a long-term horizon.  Third, it's hard to get excited about independents dropping shale gas rigs because they are diverting spending and rigs towards oil and liquids, which also produces dry gas as a byproduct.  Not quite as much gas, but it's enough to temper one's excitement about these recent announcements.