Interest in the Haynesville shale continues unabated despite low gas prices that have plagued most other U.S. gas plays this year. “This will be the last play standing,” said Ken Kenworthy, chairman, president and chief executive officer of GMX Resources Inc., at the fourth annual Developing Unconventional Gas (DUG) conference hosted by Oil and Gas Investor and E&P magazines in Fort Worth last week.
“The rig count trajectory is biased higher in the Haynesville,” said Dave Pursell, managing director of Tudor, Pickering, Holt & Co. Securities. Even though the onshore gas rig count has plummeted from its peak of 1,543 last August to less than 860 today, and the Barnett shale rig count has been halved, companies are still moving rigs to the Haynesville to capture its tremendous upside, he said.
That upside includes an estimated 40.9 trillion cubic feet of reserves for nine E&P companies he covers, with production likely to peak in 2017 or 2018. He estimated a gas price of $4.16 per Mcf is the breakeven threshold for a good well that IPs at 7.5 million cubic feet per day. A marginal well in the play would need up to $6.85.
Leasing has slowed down, however. The Haynesville had quiet beginnings with acreage going for about $200. The city of Shreveport even leased 2,600 acres for as little as $1 per acre, according to Randy King, attorney with Porter & Hedges in Houston. But Petrohawk Energy Corp. and Chesapeake Energy Corp. competed for acreage, driving up prices in the process.
After they revealed the Haynesville’s huge potential to investors in March 2008, a leasing boom was on. Prices soared as high as $30,000 per acre for a three-year term at one point last year during the regularly scheduled Louisiana state mineral lease sales. However, after gas prices collapsed and the economy soured, buyers at last October’s sale paid a nominal amount for only 1,000 acres out of the 700,000 up for lease, King said.
Petrohawk was an early believer, initiating a major leasing effort in March 2008, and spending close to $1.5 billion to lease “before we even had one molecule of production,” said chief operating officer Dick Stoneburner. Showing a photo of the famed Oklahoma land rush during his presentation, “The rest, as they say, is history.”
Thus, Petrohawk enjoys a cost advantage. It paid an average $5,000 per acre because it entered the play early, thanks to its existing knowledge, and held-by-production acres, in the Elm Grove Field, said Stoneburner.
Today Petrohawk has 13.7 trillion cubic feet (Tcf) of unrisked potential on its nearly 300,000 acres in the Haynesville. As completion techniques improve and the length of horizontal laterals increases, the play’s economics look better and better. The company now estimates an average EUR of 7.5 billion cubic feet per well. Its average initial potential (IP) has been about 18 million cubic feet per day. The company estimates 170 Bcf per section, making the Haynesville a standout U.S. gas play. Rock quality improves as one trends to the east. The play appears to be about 50 miles from, north to south.
Petrohawk had 15 wells producing by yearend 2008, with gross operated production reaching 220 million cubic feet per day by early April 2009, he said. The company’s 2009 capital budget is $690 million, with 12 rigs in the play.
Issues in the Haynesville include proper use of technology since this play is more technically intense than other shales, and proppant selection is part of that. Well spacing and number of wells to be drilled is important not only to the reservoir engineers involved, but also to Wall Street, Pursell said. “Before this downturn, proppant was hard to get, no matter what ‘flavor’ you were looking for,” he said.
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