Tuesday, April 28, 2015

EXCO Reports Q1 Earnings

EXCO released its first quarter earnings this afternoon in anticipation of a Wednesday conference call (with pretty PowerPoint pictures).  Here is the Haynesville-centric view of EXCO's update (all references to wells are gross numbers):
  • As advertised, EXCO drilled only two Haynesville wells in north Louisiana but completed 14, mostly in the Holly field.  
  • In January, the company also completed its first Mid-Bossier well since 2010, and it is currently flowing 5.3 MMcf/day at 6,700 psi.  I had previously guessed that the Mid-Bossier well is Branch Ranch 5, #3, serial #248472.
  • All three of the company's Haynesville drilling rigs have moved to the Shelby area of Texas and no more drilling is expected in north Louisiana in 2015.
  • EXCO has recompleted six mature Haynesville wells in north LA over the past nine months and seems pleased with the outcome.  The company has identified 270 suitable candidates for re-fracking, and the average cost is around $1.8 million.  The company didn't give more details on its re-fracking plans for the rest of the year in the release.  It will be interesting to see if EXCO will spend more on cheaper, lower return re-fracs and dial back on new drilling later in the year.  My guess is that they will stick with the current plan and keep re-fracs in their back pocket for now.  I think re-fracks will be a line item on the capital budgets for years to come, though. 
  • EXCO drilled four Haynesville/Mid-Bossier wells in Texas in the first quarter with plans to drill 17 more and turn 14 to sales in 2015.
  • Average well costs in Texas are around $10.8 million, down from $12.8 million a year ago, and that includes more proppant per foot and average lateral lengths greater than 7,000 feet for the newer wells.  It was unclear how much of this decrease comes from greater efficiencies or better well design and how much comes from sharing pain of the downturn with suppliers.
  • The company is "in the process of evaluating its drilling plans in the Eagle Ford shale for the remainder of 2015."  I don't focus much on the EF shale, but my guess is that EXCO didn't end up with primo acreage in the play and it finds it more cost effective to drill $3 million Buda oil wells with its one area rig rather than drill EF wells.
I'll make another post tomorrow(ish) if the conference call reveals anything of note.


Anonymous said...

Do you think Exco is a viable company over the long haul? Or is there too much debt and gas prices too low?

Robert Hutchinson said...

They have done the things that they need to do to stay viable, such as cut back on drilling, reduce costs and push out debt maturities. They don't have much left to sell, and their resource assets are mostly tied up in joint ventures and other deals, so that limits their flexibility. They are obviously tied to gas prices and they didn't get the winter kick they needed.

I'm still confused by the Bluescape deal. Seems really strange for a public company, but I think they've been rudderless for a while and this can be viewed as a vote of confidence in some way. The stock price seems to have stabilized at +/- $2. They've got a rough road ahead if gas prices stay low. They are hoping for a blazing hot summer, though.

I think their leases are decent and they have had good success as an operator. If they can keep from crashing in the next 6-9 months, they are probably positioned fairly well for a survivable outcome (how milquetoast-y is that statement?). Will they thrive? That will probably require $5 gas prices.

Anonymous said...

Thanks! Good answer - who the heck knows right! Why is it that after a long time of historic low gas rig counts and increase in usage of gas that inventories stay strong? Is it the associated gas from all the shale oil wells or what?
Also Exco says they drilled 8 wells in E. Tx last year - 5 targeting Haynesville and 3 bossier. I only see the IPs for the Thomas wells and a Crenshaw well. Do you know the IPs for the other 3 or 4?

Robert Hutchinson said...

In terms of the EXCO wells, I haven't reported completions for a month (I've been busy with other things...), so it might be that I haven't posted the rest of the 2014 completions yet (they are always delayed by a few months anyway).

In terms of storage, the culprit has been continued strong shale gas production, primarily from the Marcellus. They are still nailing down leases for HBP up there, so the level of production probably is not sustainable. Right now, the price of Marcellus gas trades below Henry Hub (Haynesville pricing) because a lack of takeaway options. That will change as more pipelines come on in the near future. But look at EXCO - they nailed down their leases in the Marcellus and pulled out. Will that be the trend with continued low gas prices? It may depend on the operator.

I've always been concerned with associated gas. Much of the gas produced from the Bakken over the past few years has been flared. If that gas ever hits the market it will be a supply shock. With oil drilling tapering off, associated gas won't be as big of an issue this year, but it will always be out there as a concern.

I don't think the rig count is as highly correlated to production and supply as it used to be. When producers are not trying to HBP leases, they are going to invest in the most profitable ventures, and those will be big wells in the sweet spots. Completion techniques continue to evolve and more jurisdictions allow longer laterals. Newer wells will be highly productive, so there will continue to be upward supply pressure from these big shale plays.

It's the consumption side that will have to improve to help balance storage, and the biggest change on the horizon is LNG export. Oddly, the success of LNG gas worldwide has more to do with oil prices than gas prices since most gas sold in the rest of the world is pegged to the price of oil. But these projects are constructed with long investment horizons and temporarily low oil prices probably won't stunt the development of LNG facilities that are approved. It will make it harder to get new facilities off the ground, though.

Anonymous said...

Thanks for your insights. Your website is the most relevant and informative I've seen out there about our shale play. I will continue to refer it to others interested in this sort of thing.