Shale Plays Gone Wild - The Haynesville (GDP, COP, PVA, ECA, BRY)
March 20, 2009 | by Eric Fox
Any investor who is actively involved in the energy sector knows about the many new shale plays that have come to dominate North American exploration and development. While some may feel there are few differences between these areas because they are all categorized as "shale", the differences are vast.

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The Haynesville
The Haynesville shale is located in North Louisiana and East Texas. On the Texas side, the shale is usually called the Bossier. Geologically speaking, the shale is 10,500 to 13,000 feet deep and is from the late Jurassic era, from rock approximately 150 million years old. Gas is already produced from the Cotton Valley Sands, which is a zone just above the Haynesville, and several other nearby zones.

It is expensive to drill wells in the Haynesville shale due to the depth and the necessity of doing horizontal drilling with long laterals to get the most recovery. Goodrich Petroleum (NYSE:GDP) uses a figure of $8 million per well in its marketing materials for the area. (Find out how to make oil work for you, check out Unearth Profits In Oil Exploration And Production.)

Too Much Growth
Development of the Haynesville shale is progressing so quickly that it may be hard for the region's infrastructure to keep up with the production from the area. Regency Energy Partners (Nasdaq:RGNC) just obtained financing from several outside partners, including a unit of General Electric (NYSE:GE), to build an extension onto its existing pipeline in Louisiana. Regency said that it already had commitments for 84% of the pipelines capacity even though it won't open until the end of 2009.

The Haynesville shale attracts both large and small energy companies. Integrated major Conoco Phillips (NYSE:COP) has a position in the shale but did not disclose at its latest analyst meeting how many acres are under lease. The company seems to be more focused on other shale plays in 2009, like the Eagle Ford shale where it has 300,000 acres under lease. (For further reading on companies such as these, read our Oil And Gas Industry Primer.)

The Big Players
Small Cap Penn Virginia (NYSE:PVA) had 58 Bcfe (billions of cubic feet equivalent) of proved reserves in the Haynesville at the end of 2008 on its 61,000 acres under lease. The company plans 12 wells in 2009 on its acreage, and believes that it can earn an after tax rate of return of just over 20% with a gas price of $5.00 per Mcf (thousand cubic feet).

EnCana Corp (NYSE:ECA), a Canadian energy company, has been acquiring acreage in the Haynesville since 2005. The company has a joint exploration agreement with Royal Dutch Shell (NYSE:RDS) to explore the area. During 2008, EnCana spent $1 billion to acquire properties in the Haynesville.

Berry Petroleum (NYSE:BRY) got involved in the shale when it purchased two properties on the Texas side of the field for $650 million in July 2008. The company believes it can get 100 Bcfe of reserves from the Haynesville on its acreage. This is in addition to the 335 Bcfe of reserves that are already in the proved category on this acreage, in other zones.

The Bottom Line
The Haynesville, like other shale plays, is a promising area for exploration and development of our natural gas resources in the U.S., but investors should take note of the differences in the various North American shale plays. (To learn more about shale as an alternative source of oil, be sure to read Peak Oil: What To Do When The Wells Run Dry.)

By Eric Fox

Eric J. Fox, is the founder of Brittain Capital Management, LLC., which manages the Alesia Fund, LP., a Value oriented long/short investment partnership. You can read more of his views on investments at his blog - Stock Market Prognosticator. Mr. Fox also publishes a paid investment newsletter. Please visit The Unknown Stock Report for more details. At the time of writing Eric Fox did not own shares in any of the companies mentioned in this article.