What We Learned about the Haynesville Shale During Earnings Season
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The Haynesville Shale is down but not out as a number of exploration and production companies continued development here or disclosed other information regarding the play during the second quarter of 2012.
Falling Rig Count
The Haynesville Shale rig count fell to a new low of 24 rigs in the week ending Aug. 10, as operators continued to shift development from this dry gas play to ones that produce oil and liquids. The number of rigs working in the Haynesville Shale peaked at above 180 rigs back in early to mid 2010.
Natural Gas Impairments
Some operators had to write down the value of Haynesville Shale and other natural gas properties due to persistently low gas prices. SM Energy (NYSE: SM) reported a $38 million impairment charge for this reason during the second quarter of 2012.
There are signs that the reduction in drilling activity may be leading to lower production for some operators. Plains Exploration & Production Co. (NYSE: PXP) reported daily sales volume of 172.9 million cubic feet of natural gas equivalents per day during the second quarter of 2012. This was down from the 181.7 million cubic feet of natural gas equivalents per day of sales volume in the same quarter of 2011. However, some of this reduced volume was due to wells intentionally being shut in by the company, and this production can be put back on line quickly.
Despite the large cuts in drilling activity in the Haynesville Shale over the last two years, some operators are still cutting back. QEP Resources (NYSE: QEP) dropped the company’s last operated rig during the second quarter of 2012 and has decided to defer five wells that were to be drilled during the final six months of 2012.
QEP Resources has 50,700 net acres in the Haynesville Shale and reported proved reserves of 685 Bcf as of the end of 2011. The company still considers its Haynesville Shale properties to be of value in the long term, and estimates that it has 1,200 additional drilling locations here assuming 80 acre spacing.
QEP Resources has seen Haynesville Shale production move higher since entering the play in 2009 but expects the drilling reductions to start to impact production shortly. The company is looking for 10% sequential production declines in the Haynesville Shale beginning in the third quarter of 2012.
Comstock Resources (NYSE: CRK) has also been busy reducing activity in the Haynesville Shale and pulled the company’s last two operated rigs from here earlier in 2012. During the second quarter of 2012, Comstock Resources participated in four Haynesville Shale wells on a non-operated basis. The company estimates that its properties here have total resource potential of 7 Tcfe and plans to develop these resources once natural gas prices increase enough to make returns on wells competitive with crude oil and liquid plays.
EXCO Resources (NYSE: XCO) is a large operator in the Haynesville Shale and has dropped two operated rigs here since the end of the second quarter of 2012, bringing its total rig count to five rigs.
EXCO Resources is seeing a reduction in drilling and completion costs in the Haynesville Shale and is currently spending less that its $8.3 million per well target cost. The company expects costs per well to drop to $8 million by the end of 2012 and ultimately to $7.5 million in the Haynesville Shale. EXCO Resources said that the main reason for the decline was a reduction in hydraulic fracturing costs.
EXCO Resources is also seeing a much shallower decline curve on Haynesville Shale wells due to a restricted choke program on recent wells and estimates that the first year decline rates is at 60% compared to the previous range of 80% to 90%.
The Haynesville Shale was once the king of domestic shale plays and lost that title with the collapse of natural gas prices. The industry is now operating here at close to minimum levels and can ramp up quickly if natural gas prices recover.
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