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.

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