Thursday, November 1, 2012

Questar CEO on Haynesville's Strategic Importance

In its third quarter conference call yesterday, QEP Resources (formerly Questar) CEO Charles Stanley was asked about the strategic importance of the Haynesville Shale.  Stanley responded "the Haynesville asset is a very high quality dry gas asset" but added, "(w)e are deemphasizing it in the current price environment."  He continued,
"So in terms of importance today, the Haynesville is not attracting capital because we have much higher return places to invest. But I would say that it is a great asset. It's an asset that we now have completely held by production. And it's a part of our portfolio that awaits a return to higher gas prices and/or lower completed well costs. And a combination of those 2 things or a dramatic change in one or the other could cause it to attract a significant capital allocation in coming years."
QEP's only planned capital spending in the play is to complete five already drilled and cased wells.  Still, the company expects a 30% production decline in 2013 (from 110 Bcfe/year to 75).  Production declined 10% in Q3 2012.

Given the comments above and the fact that the company recently invested $1.4 billion in the Williston Basin, I don't expect to see much of an effort from QEP to drill new rigs in the Haynesville now that its acreage position is held by production.  The good news is that the threshold may be lowering now that drilling costs are going down (EXCO expects its Haynesville wells to cost $8.0 million by year end) and natural gas prices are starting to rise, but the big question is whether either of those two factors are sustainable.

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