Wednesday, February 22, 2012

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.

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