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.

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