Petrohawk announces plan to drop 1-2 rigs soon

Petrohawk announces plan to drop 1-2 rigs soon, considers deeper cuts if gas prices remain low in 2011-12. Speaking to some of the fundamentals above, CEO Floyd Wilson remarked "derivative markets won't support drilling like they have in the past." Year-to-date, Petrohawk has relied on asset sales and cash flow (supported by a nice hedge position), as opposed to JVs, to support its drilling budget. As the pressure to hold Haynesville leases subsides in 2011, Hawk's flexibility to drop rigs will improve. If gas prices remain at $4, Hawk will reduce its Haynesville rig count by 35% in 2011 and 45% in 2012. Even if gas prices rise to $5 or $6, Hawk said it would still cut Haynesville rigs by 15% in 2011 and 2012.

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Permalink Reply by Skip Peel - Mineral Consultant on August 27, 2010 at 10:48
Petrohawk and other shale oriented operators will move rigs out of the Haynesville to other plays to continue the HBP process until those leases are secured. The process of HBPing current outstanding leasehold over all those plays will take some years to accomplish. And the leasing continues.
Permalink Reply by Les Bamburg on August 27, 2010 at 12:15
Skip, many of the other shale gas plays are already substantially held by production or have much longer lease terms. Some of the players do not have stakes in the other shale plays. The pressure is still on to maintain earnings and the Haynesville Shale is the best option for many players. Do not expect to see any substantial decrease in the Haynesville Shale rig count.
Permalink Reply by Skip Peel - Mineral Consultant on August 27, 2010 at 12:30
Les B. just to be sure I understand, you are saying that the Marcellus leasehold, as one example, is HBP?
Permalink Reply by Les Bamburg on August 27, 2010 at 12:41
Skip, no but the leases have longer terms and there are other issues (challenges) that make ramping up rig count difficult. Plus many of the Haynesville Shale players do not have a stake in the Marcellus Shale. The plays that are essentially HBP or close to HBP are the Woodford Shale, Barnett Shale and Fayetteville Shale. The Eagle Ford Shale could add a few more rigs but the players are limited.
Permalink Reply by Skip Peel - Mineral Consultant on August 27, 2010 at 13:17
As to Woodford, Barnett and Fayetteville, I agree. The Eagle Ford is still expanding and adding active lessees besides Petrohawk, XOM/XTO, CHK. Other shale plays are in their early stages of development. A short list with the active companies that are HA players would be: Piceance-Unita XOM/XTO, Encana), Niobrara (EOG, CHK), Bakken (EOG), Granite Wash (CHK, Questar, Forest).
Permalink Reply by Les Bamburg on August 28, 2010 at 4:17
Skip, the Piceance-Uinta Basin & Granite Wash play are tight sand plays and are HBP due to their age and other producing horizons.

My understanding is the Niobrara & Bakken oil shale plays have most of their acreage HBP and you will notice there are few Haynesville Shale players that have a position in these areas.
Permalink Reply by Skip Peel - Mineral Consultant on August 28, 2010 at 4:47
You may be correct. I don't follow specific development in those plays. How about the Monteney, Utica, Horn River, Green River, Antrim, New Albany, Bend, Chattanooga and the Huron shales? My point is that until the leasing ceases it is impossible to prognosticate how long drilling to HBP will take. EXCO recently loaded up on non-HBP Haynesville/Bossier acreage from Southwestern and Common Resources in San Augustine and Nacogdoches counties that must be drilled and the undrilled, non-HBP leasehold in Sabine and Natchitoches parishes is significant and still growing. If predictions of Mergers & Acquisitions prove correct and cash strapped and over-leveraged small and mid-size shale players sell out to the majors, the leasing and drilling to HBP will be extended significantly. IMO, barring some unforeseen demand dynamic, the HBP/production over supply period extends for another 5 years at least.
Permalink Reply by Les Bamburg on August 28, 2010 at 10:40
Skip, your original statement seem to indicate there would be some type of mass exodus of drilling rigs from the Haynesville/Bossier Shale to other shale gas plays. My intial response was to say for various reasons I do not expect a significantly large movement of drilling rigs from the Haynesville/Bossier to other shale gas plays.

The Antrim Shale, New Albany, Huron Shale & Chattanooga Shale are all very old, mature plays that are likely fully HBP'd.

The leases for the three Canadian shale gas plays (Horn River, Montney & Utica) are obtained from the government and have very lengthy terms so no immediate issues. Most Haynesville Shale players do not have a position in those three plays.

Petrohawk did say recently that there is not another "Haynesville Shale" which is pretty telling.

It is interesting that you mention the EXCO aquisition since that would suggest rigs are more likely to stay in the Haynesville Shale play rather than leave.

The bottom line is the primary driver for rig count post 2011 will be earnings growth rather than trying to hold leases. Most companies focus now is on filling in acreage holdings or renewals in existing plays rather than building acreage positions in new plays.
Permalink Reply by Les Bamburg on August 28, 2010 at 10:51
GD, I agree that 2011 will be a interesting point to gauge future activity in the Haynesville/Bossier Shale. First, we will see where the nation's natural gas supply/demand balance stands. Second, a large portion of the Haynesville/Bossier Shale play acreage will be held by production and the primary operators will show their longer term position on development. A lot of the new pumping capacity will be available and should reduce well completion costs. Drilling times are already falling into the 20-30 day range in some instances.

Unfortunately, I don't think we will know the US position on climate change legislation by the end of 2011. This would help assess the longer term view on natural gas prices.
Permalink Reply by Les Bamburg on August 27, 2010 at 12:07
Jay, just keep in mind most operators have heavily hedged and are selling gas at well above $6.00 per MMBtu. The issue is more with post 2011 production because the current derivatives market is not providing the value.
Permalink Reply by ken hatcher on August 27, 2010 at 14:34
They are leveraged and trying to out last each other...every one has known something had to give and it will soon be time to pay the piper...HBP or otherwise. It is like 11 little pigs and 10 teats, root hog or die.
Permalink Reply by Les Bamburg on August 28, 2010 at 4:37
Ken, also much of today's drilling is still profitable at $4.00 per MMBtu NYMEX prices.

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