HAYNESVILLE PLAY MATURES

Two database reviews today brought home to me how far the Play has progressed and that it has entered a new phase of development.

 

 I check the public hearing schedule each day to record Haynesville unit applications, as I have done for almost three years now.  The spreadsheet that I use to track the unit applications has 37 lines per page.  Over the last half of 2010 each page has contained the applications for 2 to 4 hearing dates.  The page I am working on currently contains the applications for 11 hearing dates.  And I still have 2 lines left.  The formation of HA Drilling & Production Units has slowed to a crawl.  IMO, this indicates that HA operators have ceased step out drilling and are now focused on production drilling.  A number of recent company reports have stated this shift in focus.  Most recently EnCana.

 

I regularly check the "Wells Permitted By Date"portion of the database as I maintain a running list of new permits for an industry client in their area of operation.  The list of District 6 permits for Monday through Wednesday contains 37 total.  27 are Haynesville horizontal wells.  Of those 27, 9 are permits for the initial well in a unit or section.  18 of the permits are for alternate unit wells. All but 2 are EnCana/SWEPI wells.  Of those 9 permits for initial wells, Chesapeake had 5, SWEPI - 1, Petrohawk - 1, EXCO - 1 and J-W - 1.

 

Development activity has been on this trend through the last quarter of 2010.  And the continuing supporting data makes it plain to me that we will likely see this for some time to come.  I am hopeful that future improvement in nat gas prices will stimulate a return to step out drilling.  The EnCana corporate report mentioned previously tends to give the impression that ECA and SWEPI think they have performed sufficient exploration to model the  majority of the basin over 30 months of drilling.

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Replies to This Discussion

Permalink Reply by Spring Branch,mineral owner on February 17, 2011 at 6:59
There are some special situations which may eventually be highly productive, but are being deferred for good reason, such as the Dolet Hills lignite mine.
Permalink Reply by Shayne S on February 17, 2011 at 8:57
special situations? being defered just for cost reasons? I think i am in part of the Dolet Lignite mine area and just got leased by CHK.  This saying they will most likely hold on to it for a while
Permalink Reply by P.G. on February 17, 2011 at 6:17

It seems odd that as large as the NG lobby should be that they aren't in talks with auto and engine manufacturers.. NG is cheap because there are only dead end markets for it.. NG powered transportation growth would set the NG market on fire and take the edge off petroleum prices. Maybe we aren't seeing it happen because of the petroleum lobby, huh?

Speculators will go where the money is...

Permalink Reply by JHH on February 17, 2011 at 6:56
I'll buy a NEW pick up when it come natural gas ready.  Don't want to do a conversion... but it looks like i might have to do it.
Permalink Reply by Skip Peel - Mineral Consultant on February 17, 2011 at 6:20
Lerret,  I wish this discussion to stay on topic.  My purpose is to provide an explanation for why many members are experiencing lease expirations and wondering what is happening to development in their area.  For those who would care to discuss the politics of national energy policy, I would suggest the Political Group.
Permalink Reply by Robert Duke on February 17, 2011 at 7:09

So I did just a little analysis.  Encana is basically letting go of 20 units here - actually 19.5, so it may actually be 39 units they have a half interest in (so I don't know what Shell is doing, or whether Shell has a half interest in all Encana units).  If you take Les's townships map, and scan it North to South for HS units without well (summing across), you get:

 

Township              HS Units, without wells

20N                            16

19N                            60

18N                            50

17N                            99

16N                            59

15N                            49

14N                            31

13N                            46

12N                            81

11N                            76

10N                            84

  9N                            80

  8N                            54

  7N                              1

 

The total of units without wells is then 786 on the LA side.  So the Encana move represents letting go of 2.5% of the units without well on the LA side of the HS (it may be 5% that are being let go in actually Shell has half interest in all units and they are letting theirs go too; I don't know how that really works).  Of course Encana is only one operator, but I do seem to recollect they have a pretty sizable amount of the HS leased - they claimed 429,000 acres I think in a 3/2010 presentation, or about 670 units.  So looking at it another way, they are letting go of about 3% of their total leasehold.  So this does not seem to me to represent a major contraction of the play area envisioned by leasing, but maybe I am being optimistic.  I would think these guys would really get anything with Bossier Shale HBP before having to re-lease too, if they can afford it.  This is of course all only LA side of the play, since the starting data is all on the LA side.  So the actual percentage of units dropped is lower, given there are a bunch of units over in Texas, or so I would think...

 

Permalink Reply by Skip Peel - Mineral Consultant on February 17, 2011 at 7:34
Most of the undrilled units north of I-20 (20N and 19N) were formed in the first 8 months of the Play and there have been none formed since early in 2009 when the first group of wells showed the area to be non-commercial.  I believe that Encana has a relatively small percentage of their total leasehold in the 18N and 17N townships.  The vast majority is south from there.  The dwindling of unit applications to a trickle is a result of all operators in the Play, not just ECA/SWEPI.  I made no comment as to a "major contraction" of the Play.  I stated that '"Step Out" development has ceased except in small isolated areas and that some shrinkage is occurring in areas where leases are being allowed to expire.  Those expirations cover leases for a number of operators besides ECA/SWEPI as has been stated by members in numerous recent discussions.
Permalink Reply by Robert Duke on February 17, 2011 at 8:39

Hi Skip,

No intent on my part to disagree with your major premise - that the edges of the play are somewhat defined, and given the current economics, it makes sense to move toward focusing on currently profitable drilling.  I just found it interesting to see just how many undrilled units there still are on the edges - basically on all the edges except the Desota - Texas border.  And the operators either have to HBP these, or they will be dropping a bunch more leases, it would seem.  I don't have the numbers on other operators, so I don't know what % has already been shed for the time being.  Folks aren't talking much about the Bossier Shale either, and if I were making business decisions and had cheap leasehold in areas with good potential for Bossier but less prospective for Haynesville, I guess I would hate to lose that leasehold and potentially have to pay a premium for it later.  This of course applies more to the southern edge of the play.

Permalink Reply by Skip Peel - Mineral Consultant on February 17, 2011 at 8:49
Robert, keep in mind that units aren't leases.  And those unit designations will remain in effect until dissolved often long after the last lease has expired.  This year will see a significant number of units with no remaining effective leases.
Permalink Reply by Robert Duke on February 17, 2011 at 9:47
Yes, good point.  I suppose that an operator can form a unit if they get over half the land leased?  If that is the case, then letting go of 320 acres or so could effectively mean a unit won't be developed until re-leased, so there could be on the order of twice the number of units being cut free as a calculated, based on the 12,500 acres?
Permalink Reply by Skip Peel - Mineral Consultant on February 17, 2011 at 10:55
There is no requirement in LA. mineral codes for a mandatory percentage of acres under lease for an applicant to file for a unit order.
Permalink Reply by Robert Duke on February 17, 2011 at 11:24
Wow, that surprises me, and seems hostile to landowners.  I guess it implies that an operator really only has to lease enough land for a well pad somewhere in the unit?  I had never seen any specifics on this, but presumed that the whole concept of unit was intended to protect landowner rights; it still does in the sense of distributing profits at some point based on acreage in the unit, but it makes it pretty easy for an operator to force development where the landowners perhaps don't want development also...  I guess the thing that actually prevents this is that when substantial amounts of a unit are unleased, the operator may cover his costs, but will not reap profits for the unleased acreage, so will not be motivated to develop such a unit?  Any idea what a "typical percentage of acreage leased in a unit" is in the Haynesville?

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