Wednesday, October 29, 2014

EXCO Provides Haynesville Operations Update

EXCO Resources reported quarterly earnings yesterday and provided an operational update for its Haynesville acreage.  The company is circling the wagons a bit, especially as natural gas prices are dropping.  It is still looking for a new CEO and has been shedding assets in an effort to pay down debt to maximize liquidity.  It has also lowered capital spending and is shifted focus away from the Marcellus Shale and instead concentrating on the Haynesville and Eagle Ford.

In the Haynesville, EXCO will continue to run five rigs and will focus on its acreage in DeSoto Parish, LA and the Shelby Trough area in east Texas.  In Louisiana, EXCO is in the process of drilling its first longer cross-unit laterals that should be completed in the fourth quarter.  The company has also spud a Mid-Bossier Shale well (remember that? I'll have to dust off my old Mid-Bossier spreadsheet) in DeSoto Parish and is hoping to transfer knowledge from its East Texas Bossier wells to Louisiana.  (Given the fuzzy picture on the slide below, my guess is that the Mid-Bossier test well is Branch Ranch 5, #3-ALT, serial #248472, but that is only a vague guess on my part.)  I wouldn't expect much of a Mid-Bossier drilling program any time soon.  This well is probably more for determining an inventory of potential drill sites and optics for investors to remind them of the potential of the stacked play.

In Texas the company is focused on longer laterals and a restricted choke program to maximize EURs.  So far in 2014, the company drilled eight gross wells, three of which targeted the Mid-Bossier Shale.,  The Mid-Bossier wells are York SU 2HB, Thomas SU 2HB and Thomas SU 4HB, but none has reported completions to date.

EXCO is also exploring refracking mature Haynesville wells and refracked a Louisiana well as a test case in early July 2014 (I don't know which one, though):
"This test consisted of a second fracture stimulation treatment in an existing well to re-stimulate the shale reservoir. The refrac stimulation resulted in an increase in production for this well of 1.4 Mmcf per day on a more restricted choke as well as an increase in flowing casing pressure of 3,000 psi. The well continues to perform well as evidenced by the minimal reduction in production and pressure in the three months since the refrac stimulation."
The company expects to do three more refracs in the fourth quarter.

Overall, efficiency and optimization is the name of the game, both in finding the ideal recipe for drilling, completing and manage wells and in best using the company's limited capital.  Along these lines, here's what EXCO has to say about optimizing its existing operations in the area:
"We have implemented several initiatives during the year to enhance and manage our base production in the region. This includes the initiation of a compression program, foamer injection program and the installation of artificial lift. Our compression program included the installation of two interim lateral compressor units during the quarter. We are currently studying additional interim lateral compression options and full field compression options in this region. We have seen sustained performance improvement from these initiatives as evidenced by a flattening of our base decline."
Bottom line:  EXCO long ago bet the company on natural gas, but declining and uncertain gas prices and some internal turmoil have put the company on a conservative footing where it is spending its capital more to enhance its existing core properties rather than grow the company.  Fortunately, the Haynesville remains one of EXCO's core plays.

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