See the 11th page of the conference call transcript:

http://www.thestreet.com/story/13058853/11/chesapeake-chk-earnings-...

Paraphrasing - why are you keeping rigs in the Haynesville?

"....With respect to the Haynesville, as I mentioned the teams are really just crushing it there on cost. We do have the minimum volume commitments there that we consider when we're making our economic decisions. When you consider that we will pay those gathering fees whether or not we drill or produce the well or not, those returns are 40% rate of return internally in the Haynesville. They're the most economic project that we would invest in our Company right now, so they're really strong."

"...

Views: 1319

Reply to This

Replies to This Discussion

The "gathering fees" referenced by CHK are "standby" charges incurred when the natural gas produced is less than the pipeline capacity that is required by contract (minimum volume commitments).  The savings from not incurring the standby charge boosts the Internal Rate of Return (IRR).  Well efficiencies and decreasing operating costs are the reason that all the original Haynesville operators, or their successors, are in the process of drilling again. 

At today's NG prices, CHK probably considers lease bonus, MVC gathering and MVC transportation as "sunk costs" to achieve a 40% IRR. In fact, they are "sunk costs" so the IRR is only on the new money invested to drill and complete a new well and avoid some MVC.

Yeah, yeah, yeah.  CHK reported earnings yesterday.  They stunk.  Stock price dropped 10%.  This was a $60 stock in 2008.  Now it's $18.  Way to go Aubrey -- what a great job you did for your stock holders.

CHK is allocating 13% of 2015 capital expenditures to their Haynesville ops up from 8% in 2014.  Their 32 wells completed in the last half of 2014 might surprise a few people.

Haynesville allocated 13% of this year's budget (vs. 8.0% last year) with plans to operate an avg. 7-8 rigs (vs. 8 avg. rigs in 2014). Q4 Haynesville production (~14% of CHK's total Q4 production) increased 5.0% sequentially. CHK connected 18 Haynesville wells to sales in Q4 at an avg. peak of ~13.4 MMcfe/d (vs. ~11.9 MMcfe/d from 14 wells in Q3).

Henry CHK stock went from $60 to 75 cents in the late 1990's.

The most interesting thing to me in the whole discussion was the gas prices they are seeing in the Marcellus, the level of activity, and the fax that they are curtailing 250  mmcf of production.  

When prices begin to creep up, thy and other operators will have a strong ability to increase flows. The Marcellus will get the ability to dictate our regional prices when pipelines reversing the flow of gas to the Northeast are brought online.

 

The Marcellus will continue to be in lease capture mode for two more years.  Marcellus operators learned the lessons from the Haynesville and took leases with 5 year primary terms.  They can curtail production from existing wells but they can not stop drilling new wells required to hold leases until all prospective leasehold is Held By Production (HBP).  That will effectively put a cap on the price of Haynesville natural gas for some years to come. 

RSS

Support GoHaynesvilleShale.com

Not a member? Get our email.

Groups



© 2024   Created by Keith Mauck (Site Publisher).   Powered by

Badges  |  Report an Issue  |  Terms of Service