Thursday, May 31, 2012

EIA: Storage +71 Bcf to 2.815 Tcf

The EIA working gas in storage report was below average again this month with a 71 Bcf net injectin, bringing the total gas in storage to 2.815 Tcf.  The weekly injection was 20% below last year (+89 Bcf) and 29% below the five year average (+100 Bcf).  The current storage level is 35.1% above last year (2.083 Tcf) and 34.6% above the five year average (2.091 Tcf).

Temperatures in the Lower 48 last week averaged 67.6 degrees, which was 1.6 degrees warmer than last year and 3.6 degrees warmer than normal.

Tuesday, May 29, 2012

A Whole Mess of New Texas Completions

5/11/12 - 5/29/12:

  • Patton Unit #1H, EOG Resourcces: 12.284 MMcf/day IP, 18/64" choke, 8,760 psi; Perfs: 13,992-20,015, length: 6,023 ft.; Carthage Field (Haynesville Shale), Nacogdoches Co., Survey: CORDOVA, J & BROS, A-20 
  • Brittain Unit #1H, EOG Resourcces: 11.96 MMcf/day IP, 18/64" choke, 8,477 psi; Perfs: 14,013-19,238, length: 5,225 ft.; Carthage Field (Haynesville Shale), Nacogdoches Co., Survey: PROCELA, P, A-47 
  • PEC Minerals Gas Unit No. 2 #1H, XTO Energy: 8.583 MMcf/day IP, 16/64" choke, 4,774 psi; Perfs: 10,938-15,532, length: 4,594 ft.; Carthage Field (Haynesville Shale), Panola Co., Survey: PEARCE, S, A-525 

Sunday, May 27, 2012

A Great Take on the Impact of U.S. LNG on the World Market

Here is an interesting commentary in Forbes on the potential impact of U.S. LNG on the dynamics of the world natural gas market.  It's a good read, sort of written in a Jack Kerouac "On the Road" style, but it is full of interesting thoughts about world gas markets.  It doesn't fail to amuse me that because gas sells for $2.50/MMBtu in the U.S. these days and upwards of $20/MMBtu in Asia, North America could become an exporter of "cheap gas" to Asia.  Sort of the reverse of what has happened over the past several decades in manufacturing.

Saturday, May 26, 2012

Haynesville Shale Rig Count Unchanged at 38

For the third straight week, the Haynesville Shale rig count held at 38.  Louisiana was unchanged at 25 and Texas was unchanged at 13.

Friday, May 25, 2012

It's Official: El Paso E&P Ain't El Paso No Mo

Private equity company Apollo Global Management yesterday announced that it and its partners have completed the acquisition of El Paso's E&P division for around $7.15 billion.  This transaction comes as part of Kinder Morgan's acquisition of El Paso.

I'm sort of sorry to see this come to pass. I liked the ring of "El Paso."  Now we have yet another boring initial-based name, EP Energy.  Yaaaawwwwnnn.  Possibly the greatest loss was the change of St. Mary Land and Exploration to SM Energy. What happened to creativity? Sounds like lawyers are naming companies these days. Where are the cool company names? We don't need stupid names, just something interesting that reflects the business and the heritage of the company.  While I'm no fan of A&P Grocery, at least I have the knowledge that "A&P" represents The Great Atlantic and Pacific Tea Company.  Now that is a cool name!

A Good Take on Gas Prices

Before getting too excited about the recent uppies in natural gas prices, read this column from Reuters. Things always look bright when the ticker is pointed up, but it always helps to keep your eye on the big picture.

U.S. Rig Count: -3 to 1,983

The Baker Hughes rig count showed a three rig decrease this week, bringing the number of working rigs in the U.S. to 1,983.  Oil rigs were up one to 1,383, gas rigs were down six to 594 and miscellaneous rigs were up two to six. By type, horizontal rigs were down two to 1,191, vertical rigs were up four to 570 and directional rigs were down five to 222.

Thursday, May 24, 2012

More Shale Gas Used by Utilities = Less CO2 Released

The International Energy Agency announced yesterday that carbon dioxide emissions in the U.S. dropped by 450 million tonnes over the past five years, largely because of increased use of natural gas as a replacement for coal in recent years. Unfortunately carbon emissions worldwide continue to rise, increasing by one gigatonne last year to 31.6 gigatonnes. Fast growing economies like China and India are largely responsible for the increase, but it is nice to see the U.S. leading the way in the attempt to keep carbon dioxide in check, and shale gas is the biggest reason for these improvements.

EIA: Storage +77 Bcf to 2.744 Tcf

The EIA working gas in storage report showed a 77 Bcf net injection this week, bringing the total gas in storage to 2.744 Tcf.  The weekly injection was 24% less than last year (+101 Bcf) and 21% below the five year average (+97 Bcf). The current storage level is 37.6% higher than last year (1.994 Tcf) and 37.8% above the five year average (1.991 Tcf). Things are moving in the right direction, but they've got a loooooong way to go.

Temperatures in the Lower 48 last week averaged 64.3 degrees, 4.9 degrees warmer than this week last year and 2.6 degrees warmer than normal.

Wednesday, May 23, 2012

New Louisiana Completions

Check out the very consistent seven well cluster in DeSoto Parish (Oden Heirs):

  • Weyerhaeuser 1-16-10 H #1, Chesapeake Operating: 5.472 MMcf/day IP on 22/64 in. choke at 4,137 psi; Perfs: 11,086-15,786, length: 4,700 ft.; Lake Bistineau Field, Bienville Parish, S1/T16/R10; res. A, serial #243695 
  • Weyerhsr 24-16-10 H #1, Chesapeake Operating: 11.304 MMcf/day IP on 22/64 in. choke at 5,377 psi; Perfs: 11,246-15,739, length: 4,493 ft.; Lake Bistineau Field, Bienville Parish, S24/T16/R10; res. A, serial #243696 
  • Oden Heirs 31 #10-ALT, EXCO Operating: 9.667 MMcf/day IP on 16/64 in. choke at 7,664 psi; Perfs: 12,291-16,468, length: 4,177 ft.; Holly Field, DeSoto Parish, S31/T14/R13; res. A, serial #243783 

Sundrop Fuels Moves Forward with Green Gasoline Plant in LA

Sundrop Fuels of Longmont, CO today announced a partnership with technology and engineering company ThyssenKrupp Uhde to develop a "green gasoline" production facility near Alexandria, LA.  The plant was announced in November 2011, but the news today is the formalizing of the working partnership between Sundrop and ThyssenKrupp Uhde.

The plant would create auto fuel, in their words: 
"...using a commercially-proven production path that integrates gasification, gas purification, methanol synthesis and a methanol-to-gasoline (MTG) process. The clean, affordable biofuel is ready for immediate use in today’s combustion engines and will be delivered to the marketplace via the nation’s existing fuels distribution infrastructure."
Basically, they will combine "forest residues and thinnings" as a feedstock with natural gas to create auto fuel.

Monday, May 21, 2012

Haynesville Shale Rig Count: Unchanged at 38

The Haynesville Shale rig count didn't change much last week, holding at 38, with Louisiana unchanged at 25 and Texas unchanged at 13.

Friday, May 18, 2012

U.S. Rig Count: +12 to 1,986

The Baker Hughes rig count added twelve rigs this week, bringing the number of working rigs in the U.S. to 1,986. Oil rigs were up ten to 1,382, gas rigs were up two to 600 and miscellaneous rigs held at four.  By type, horizontal rigs were up six to 1,193, vertical rigs were up seven to 566 and directional rigs were down one to 227.

Thursday, May 17, 2012

New Louisiana Completions

  • Priest 13-11-11 H #1, Chesapeake Operating: 15.552 MMcf/day IP on 22/64 in. choke at 7,290 psi; Perfs: 13,009-17,029, length: 4,020 ft.; Chemard Lake Field, DeSoto Parish, S13/T11/R11; res. A, serial #242667 
  • LRE/DLP 13-13-12 H #1, Chesapeake Operating: 13.453 MMcf/day IP on 22/64 in. choke at 7,790 psi; Perfs: 12,622-17,134, length: 4,512 ft.; Red River-Bull Bayou Field, DeSoto Parish, S13/T13/R12; res. C, serial #242645 

EIA: Storage +61 Bcf to 2.667 Tcf

The EIA working gas in storage report showed a 61 Bcf net increase, bringing the current level of gas in storage to 2.667 Tcf.  The weekly injection was 29% lower than last year (+86 Bcf) and 33% below the five year average (+91 Bcf). The current storage level is 40.9% above last year (1.807 Tcf) and 40.8% above the five year average (1.803 Tcf).  While things have been trending the right way for storage over the past several weeks, there is still a long way to go to get levels back to normal.

Temperatures last week in the Lower 48 averaged 64.1 degrees, 2.6 degrees warmer than last year and 4.4 degrees warmer than normal.

Monday, May 14, 2012

Will Petrohawk Cut Back on Haynesville Drilling?

It looks like BHP Billiton, which bought Petrohawk Energy last year, may cut back on drilling for dry gas after an internal review to be completed at the end of June. The blockbuster Petrohawk acquisition, along with a $4.75 billion deal to buy Chesapeake Energy's Fayetteville Shale assets, was followed by a plunge in gas prices  and BHP is facing its year end and likely will have to write down the value of those acquisitions on its balance sheet.

Petrohawk has been one of the most active players in the Haynesville Shale of late and is the only producer that has increased rig count over the past nine months. It currently maintains eight rigs in five different Louisiana parishes, which represents 21% of the current drilling activity across the whole play. That level of activity seems unsustainable in the current environment unless it is directed at holding leases.

There are few specifics at this point, but expect BHP to direct more of Petrohawk's capital spending to liquids in the Eagle Ford Shale and Permian Basin, perhaps 85% to 90% of the company's approximate $4 billion capital budget. Petrohawk is unlikely to leave the Haynesville Shale at this point, but look for the company's rig count to dip in the second half of the year as long as gas prices stay depressed.

The Vulture Circles Above Chesapeake

The vulture is "activist investor" Carl Icahn, who caused Chesapeake Energy to straighten up a bit and behave last year - remember the 25/25 plan? After agitating long enough to get a quick $158 million return on his investment, Icahn flew the coop. But now heeeeeee's baaaaaaak.  The Wall Street Journal reported that Icahn will soon report that he has taken another stake in the company.

But what does he plan to accomplish with this investment? Last time around, he didn't stick around long enough to "go activist" on CHK by shaking up the board or breaking up the company. But last year the stock price was twice as high as it is today. Fast forward to today and the company is vulnerable:  it's over-leveraged and taking on more debt, both expensive traditional debt and off-balance sheet volumetric production payment deals, and selling off valuable assets, including some of its valuable oil producing lands, to stay ahead of cash flow needs. CHK has some great assets, but the company has entangled itself in lots of complicated deals that make me wonder how much future cash flow management will have to sell to keep the land acquisition machine rolling.

Based on the value of the underlying assets, there is room for the stock to rise, but when the smoke clears how much of the company will be left?

Haynesville Shale Rig Count: -6 to 38

The Haynesville Shale rig count dropped by six rigs (-14%) last week to 38 working rigs. Louisiana was down three to 25 and Texas was down another three to 13. Notable for the week was the disappearance of Encana from the list, dropping from two to zero and DeSoto Parish falling into single digits for the first time since I started compiling this list in late 2009. (I finally started compiling historical rig counts from before 2010, so hopefully they will be available in a month or two...or three).

Friday, May 11, 2012

Only One New Texas Haynesville Permit in Past 10 Days

4/30/12 - 5/10/12:
  • Redhawks DU #1H, XTO Energy; Carthage Field (Haynesville Shale), Shelby Co. Co., Survey: HARRISON, J, A-306

New Texas Haynesville Completions

4/30/12 - 5/10/12:

  • Porter Deep GU #1H, NFR Energy: 10.968 MMcf/day IP, 20/64" choke, 6,415 psi; Perfs: 10,744-18,154, length: 7,410 ft.; Carthage Field (Haynesville Shale), Harrison Co., Survey: BLAIR, HRS J, A-74 
  • Little Estate #4H, NFR Energy: 3.707 MMcf/day IP, 29/64" choke, 950 psi; Perfs: 10,892-16,161, length: 5,269 ft.; Carthage Field (Haynesville Shale), Rusk Co., Survey: GILBERT, J, A-325 

U.S. Rig Count: +9 to 1,974

The Baker Hughes rig count showed a nine rig increase, bringing the number of working rigs in the U.S. to 1,974. Oil rigs were up 17 to 1,372, gas rigs broke the 600 rig mark, down eight to 598, and miscellaneous rigs held at four. By type, horizontal rigs were up 29 to 1,187, vertical rigs were down 14 to 559 and directional rigs were down six to 228.

Looking more closely at just gas rigs, horizontal rigs were up four to 412, directional rigs were up two to 111 and vertical rigs were down 14 to 75.

To further illuminate the chart above, data shows that the bulk of the decrease in gas rigs over the past six months has come from a decline in horizontal rigs (to nobody's surprise). As the chart below shows, horizontal gas rigs have dropped by 233 rigs (or 36%) in the little more than five months since the end of October. The decline has leveled out over the past month, but I wouldn't be ready to call an end to the slide. Over that same period, vertical gas rigs have dropped by a greater percentage (-53%), but that only represents 85 rigs.

Thursday, May 10, 2012

New Louisiana Completions (Including Some New Old Ones)

Interestingly, this week there eight of the 19 completions below were from 2009 or 2010. Not sure why they are surfacing now.

  • E+L Development Inc #1, Matador Production: 0.05 MMcf/day IP on 15/64 in. choke at 680 psi; Perfs: 10,370-10,460, length: 90 ft.; Caddo Pine Island Field, Caddo Parish, S15/T19/R15; res. A, serial #237178 
  • Querbes 29 #4, Enduro Operating: 4.801 MMcf/day IP on 24/64 in. choke at 1,500 psi; Perfs: 12,113-15,365, length: 3,252 ft.; Greenwood-Waskom Field, Caddo Parish, S29/T16/R16; res. A, serial #238959 

Don't Get Too Excited

After suffering through the month April with natural gas prices below $2/MMBtu, gas fans are breathing an audible sigh of relief as things are starting to look up for gas. When I say "look up" I don't mean that we are headed for a recovery. It's more like prices have bounced off the ground and have enjoyed a little rally. The past couple of storage reports have not been as bleak as they have been all winter as production levels have started to drop (or more correctly, it is not growing at the breakneck speed it has been for the past several years).

But don't get too excited because this rise might encounter a little whack-a-mole reaction in the next six months.  If nothing else, we might see a ceiling pretty soon. Utilities have been the savior for natural gas of late as gas prices are much cheaper than coal. But over time this will equalize because most utilities have long-term coal purchase contracts that often require minimum purchases. As a result, coal will keep piling up at utilities and it won't make sense to keep buying gas, no matter how cheap it is.

EIA: Storage +30 Bcf to 2.606 Tcf

Another good week in the storage department, which is quite a reversal from a dismal winter (although there was probably a lot of pain to get to this point). The EIA working gas in storage report showed a 30 Bcf weekly increase, bringing the total gas in storage to 2.606 Tcf. The weekly injection was 58% below last year (+71 Bcf) and 64% below the five year average (+84 Bcf). The current storage level is still out of whack, 44.2% above last year (1.807 Tcf) and 44.5% above the five year average (1.803 Tcf), but the spread is narrowing. Any movement in the right direction is a win in my book.

Temperatures last week averaged 60.3 degrees, 3.3 degrees warmer than last year and 2.6 degrees warmer than the 30 year average.

Wednesday, May 9, 2012

Cloudy With a Chance of Lawsuits

I wouldn't be surprised if Chesapeake Energy's next big investment isn't a gigantic moat around its sprawling Oklahoma City campus filled three deep with defense lawyers. With Chesapeake and CEO Aubrey McClendon both vulnerable after reports of the CEO's extracurricular business activities, the revelations continue to come and are piling up outside the company's gates. I'm sure lawsuits will follow. Here is a sampling of this week's revelations:

  • Reuters reports that McClendon arranged an additional $450 million from hedge fund EIG Global Energy Partners as recently as March 2012 to fund his working interest participation in CHK wells. This brings the current tally to around $1.55 billion of loans to support his participation in this program. While it's not illegal, there are many ethical issues involved since EIG also loans big sums to CHK.
  • Analysts are digging into past revisions of McClendon's employment contracts and are finding evidence that the board may have known more about his side businesses than previously disclosed. Expect more juicy tidbits on this subject.
  • The Wall Street Journal reports that Chesapeake is being sued by a shareholder over the use of CHK senior management's fractional private aircraft for personal use. 
The last one is probably just piling on with a frivolous lawsuit, but the smell of blood attracts sharks. Expect the Huns to start massing outside the gates and the moat digging to begin immediately.

Monday, May 7, 2012

Think YOU'RE Busy???

Check out the side projects of Aubrey McClendon, as documented by the Wall Street Journal:

  • Chairman and CEO of a Fortune 500 Company
  • Working interest owner of thousands of gas and oil wells
  • 19% owner of the Oklahoma Thunder NBA team
  • Resort real estate developer in Texas/Oklahoma and Michigan
  • Part-owner of a cancer treatment center
  • Owner of a cattle ranch
  • Part-owner of several restaurants
  • Part-owner of a TV station 
  • Investor/owner/manager of a hedge fund and two venture capital firms
  • Oenophile extraordinaire 
Now, not all of these were concurrent ventures, but most are ongoing. Oh, and I think he owns at least four houses in different states. As I struggle to scratch out a living with two little kids and a curious web site, I wonder how he has time to even keep track of his many ventures, let alone manage them.

Haynesville Shale Rig Count: -2 to 44

The Haynesville Shale rig count fell by two last week to 44. Louisiana was down one to 28 and Texas was down one to 16.

Friday, May 4, 2012

U.S. Rig count: +20 to 1,965

The Baker Hughes rig count showed a 20 rig increase this week, bringing the number of working rigs in the U.S. to 1,965. Oil rigs were up 27 to 1,355, gas rigs were down seven to 606 and miscellaneous rigs held at four. This is the lowest the gas rig count has been for ten years (on April 5, 2002 it dipped to 591). By type, horizontal rigs were up 19, vertical rigs were up ten and directional rigs were down nine.

Chesapeake to Cut More Haynesville Rigs

In its first quarter conference call earlier this week, Chesapeake mentioned that it intends to reduce the number of gas-focused rigs in the U.S. to 12, with only two rigs drilling in the Haynesville Shale. Back in January 2012, the company set the target at 24 gas rigs, six of which would be in the Haynesville.  The continued low price of gas and the combination of a steep reduction in Chesapeake's operating cash flow and an increase in the funding gap for capital spending necessitated cutbacks.  For the time being, it looks like Chesapeake's only activity in the Haynesville Shale will be to hold leases.

This call got lots of press for the mea culpa that began the call, as McClendon said he was "deeply sorry for all of the distractions of the past two weeks." He was referring to embarrassing disclosures about his personal finances, the poor state of corporate governance of Chesapeake and the report that he ran a commodities trading hedge fund on the side from 2004 to 2008. But the famous apology was more of an insincere "I'm sorry you got your feelings hurt" rather than an "I apologize to all shareholders for creating Chesapeake as a vehicle for my self-enrichment and I promise to be just a regular old CEO from this point forward." Don't hold your breath waiting for that one.

Thursday, May 3, 2012

Recent Louisiana Completions

  • Culpepper 8 H #1, Petrohawk Operating: 7.919 MMcf/day IP on 14/64 in. choke at 8,604 psi; Perfs: 12,542-17,134, length: 4,592 ft.; Alabama Bend Field, Bienville Parish, S17/T15/R10; res. A, serial #241923
  • Williams 20-15-9 H #1-ALT, QEP Resouces: 11.842 MMcf/day IP on 18/64 in. choke at 8,675 psi; Perfs: 12,682-17,173, length: 4,491 ft.; Woodardville Field, Bienville Parish, S29/T15/R9; res. A, serial #242790

The "King of Natural Gas" Retires

No, not Aubrey McClendon.  John Arnold, founder of the Centaurus commodity trading hedge fund, is retiring and closing his fund. Arnold has gained great wealth over the past 17 years trading natural gas, first at Enron then at his own fund. His reasons for quitting were not specifically enunciated, but the pressure to maintain big returns, the greater regulation on commodity traders and the very low price of natural gas probably played a part.

But I have to wonder if the biggest reason is the lack of price volatility in the natural gas market. Speculators love volatility because it creates opportunities to exploit for great gain (or spectacular losses; see: Amaranth Advisors). Over the past few years, shale gas has flooded the market, suppressing prices and making the market much more predictable. While nobody can predict future prices with certainty, it definitely has gotten easier to make predictions and the whipsaw volatility that speculators love is harder to find. A Gulf of Mexico hurricane isn't going to cause a $3/MMBtu natural gas price increase overnight.

Natural gas has become more predictable and boring. The customers love it, but the speculators have to hate it.

EIA: Storage +28 Bcf to 2.576 Tcf

The EIA working gas in storage report showed a 28 Bcf increase, bringing the total gas in storage to 2.576 Tcf. The weekly injection was 53% lower than last year (+60 Bcf) and 65% lower than the five year average (+79 Bcf). While this is good news, the current storage level is still 48.4%, or 840 Bcf, greater than last year and 49.9%, or 857 Bcf, above the five year average.

Temperatures for the previous week were 1.7 degrees cooler than last year and 1.1 degrees warmer than the five  year average. But the average doesn't tell the story fairly. As the map below depicts, temperatures were hot relative to historical averages in the west and mountain region (12 degrees warmer than normal in the mountains) and slightly cool to normal in the eastern half of the country.

Wednesday, May 2, 2012

QEP's Price Threshold for Return to Haynesville

I view it as a foregone conclusion that QEP will drop its remaining rig in the Haynesville Shale by fall 2012 because of low gas prices. The company mentioned this in its earnings release last week, but in the Q&A portion of QEP's Resources' first quarter conference call, CEO Charles Stanley offered this guidance for a possible return:
"(W)e likely will not recommence drilling activity in the Haynesville until we see an improvement in gas prices to a zip code somewhere between $4.00 and $4.50, probably toward the high end of that range before we would commit the resources to restart development activities in the Haynesville."
Waiting for $4.50 gas might mean at least a couple of years on the sideline.  On the positive side, Stanley noted that he expects decline rates for wells that are produced with a restricted choke to see considerably flatter decline rates, so he expects QEP's production this year to remain relatively flat with little capital investment. Declines will start to impact production more significantly next year. QEP is dedicated to the restricted flow technique because it yields better total production and because the company believes that producing wells with a wider choke can damage reservoirs.

More Trouble at Chesapeake

Reuters reported this morning that Chesapeake Energy CEO Aubrey McClendon and Chesapeake co-founder Tom Ward (now CEO of SandRidge Energy) operated a $200 million hedge fund from 2004 to 2008 that bet on commodities, including natural gas. (Reuters also broke the story about McClendon's $1.1 billion of loans associated with his 2.5% working interest in all CHK wells.) The linked article has more specifics, but the upshot is that it creates yet another ethical gray area for McClendon as he struggles to hold onto his CEO position at the company.  Yesterday the board separated the chairman and CEO jobs with McClendon keeping the CEO position. Pressure on the board will continue to mount with this news.

There are at least two issues of concern: 1) having the CEO personally trade in a commodity of which his company is a big producer can present a huge conflict of interest and 2) Chesapeake shareholders expect the CEO of the company to devote all of his business attention to CHK's business. Regarding #2, it should come as no surprise that McClendon has side ventures, including the Oklahoma Thunder NBA basketball team and a proposed high end (and highly controversial) development in Saugatuck Township, Michigan called Singapore Dunes.

Tuesday, May 1, 2012

Chesapeake Kills CEO Well Program

Chesapeake Energy announced this morning that it has negotiated an early termination to the controversial Founders Well Participation Program, in which CEO Aubrey McClendon is allowed a 2.5% working interest in all CHK wells. The program will end on June 30, 2014 instead of December 31, 2015 and McClendon will not get any additional compensation as a result of losing this perk. From the outside, cutting 18 months from the program doesn't sound like that big of a give because he still has two years to enjoy its benefits, but in truth, the program would have continued indefinitely until the company was called on it.

Additionally, Chesapeake, which has been spotlighted as a cauldron of poor corporate governance, is separating the CEO and Chairman position.  McClendon will remain CEO and an outside board member will be nominated Chairman. Only time will tell if this move has any real impact since the board is a pretty chummy group.