Think $25,000 an acre is top of the market for the Haynesville play? Don’t stop there. When looking at Chesapeake Energy Corp.’s deal with Plains Exploration & Production, one may think acreage prices are “topping out,” says Deutsche Bank Securities Inc. research analyst Shannon Nome in her report “From Shale To Shining Shale: A Primer On North American Natural Gas Shale Plays.” Instead, “we believe Chesapeake’s monetization was simply motivated by a pressing need for cash, and not a statement that $25,000 to $30,000 per acre is a high-water mark for leasehold values; in fact, we see ample room for rising acreage value from here.” She estimates for the play a base case of $14-million per-well net present value, incorporating an industry-standard 10% discount rate. “Assuming a drilling density of 80 acres per well, this would imply an amazingly high pretax net present value of $175,000 per acre. On 60-acre spacing, that value theoretically expands to a stunning $233,000 per acre. “While these values are eye popping, we note that they are pretax and impute a 100% chance of success, and few operators are likely to lease acreage without applying some sort of risk factor. “As well, even though IRRs (internal rates of return) theoretically break even at a $175,000-per-acre leasehold price, most companies would find the associated F&D (finding and development) costs—$4 per Mcfe, inclusive of the leasehold—to be unacceptable. Nevertheless, these data points—and sensitivities—support our contention that per-acre prices could very well push up toward the $50,000 threshold—unrisked—before F&D costs would move much above $2 per Mcfe and before IRRs would fall much below 50%.” Nome’s shale report includes topics “Shales Gone Wild,” “Shale Gas: Play By Play,” “Got Haynesville? Drilling Down On A Red-Hot Emerging Shale Play,” “Rockies Shales: Almost Ready For Primetime” and “Shale Shock: Macro Impact.” On the Haynesville, she has developed a macro-production forecast for the play, with input from U.K.-based energy-research and –consulting firm Wood Mackenzie. “Our base-case type well analysis incorporates IP (initial production) and EUR (estimated ultimate recovery) assumptions that appear to be near the midpoint of current industry expectations at 10 MMcfe/d and 7 Bcfe per well, respectively. “Other key assumptions include a $25,000-per-acre base-case leasehold cost—this is ‘baked into’ the F&D shown and also incorporated within the NPV (net present value) analysis as part of the well cost; 80-acre well spacing—although based on other shale plays, ultimate spacing could tighten to 40 and 60 acres; a $1.50/Mcfe operating cost—potentially conservative based upon recent commentary from operators; and an 80% initial-year decline rate—conservative relative to the 73% figure cited by Chesapeake in a July conference call.” Nome says Haynesville acreage costs “have risen at a very rapid pace. Lease bonuses in the state of Louisiana were less than $200/acre as of early this year, but quickly jumped to the $5,000 to $10,000 realm shortly following the March play announcements from Petrohawk Energy Corp. and Chesapeake. “More recently, bids and land transactions have been risen into the $15,000- to $20,000-per-acre range, with a mid-June transaction between Goodrich Petroleum Corp. and Chesapeake pricing out at about $17,000. “Royalties have stayed steady on the whole, averaging 25% to date.” Contributing to the shale report is Patrick Johnston, an associate analyst with Deutsche Bank. –Nissa Darbonne, Executive Editor, Oil and Gas Investor, A&D Watch, OilandGasInvestor.com; firstname.lastname@example.org
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