Replies to This Discussion

Permalink Reply by Les Bamburg on September 21, 2008 at 3:48

CheckmateKing, my opinion is the larger players have built up an initial acreage position and will shift more money to drilling. They will continue to lease but just at a much slower pace.

Other players (XTO, EOG, etc) may now enter the play since the initial leasing frenzy has slowed. Also, some will want more data (seismic & drilling results) before leasing in some areas further from the center of the play. Finally, O&G companies need to see plans by gas pipeline companies to build additional long haul takeaway capacity. I expect this to happen within the next 6 months.

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Permalink Reply by Checkmateking on September 21, 2008 at 4:18

I was reading about Regencys new pipeline plans.

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Permalink Reply by Les Bamburg on September 21, 2008 at 4:23

CheckmateKing, Regency's pipeline is short haul to Northeast Louisiana so does not cover the long haul issue (ie to Northeast or Southeast US markets). The long haul pipeline projects are just around the corner.

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Permalink Reply by Friend on September 21, 2008 at 4:23

the companies must work to use their limited capital ($$$) where it does the most good... ie ROI... the leasing speculation bubble (here) has burst (for the moment).

until the infrastructure is in place to move the gas it makes little sense to lease and lease when the public is demanding high prices / acre. They are pulling back / letting the lease market cool, redeploying capital to drilling programs and pipelines. Not to mention fear has entered the financial markets... which raises costs.

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Permalink Reply by Grice on September 21, 2008 at 5:28

While I agree with your assessment, I also want to throw in my own.

If you follow the stock market, you will have seen that the lease incentives dropped when stock prices begin to fall. The uncertainty of the stock markets, held many O&G companies "captive", due to potential stock movements, complimented by the less attractive financial support that the companies have relied on in the past. Early July was when the market began to fall, and was the last we seen of the lease frenzy that had been taking place around here. Now that the government announced that they are going to relieve the banking industry, we are seeing stocks begin to stir again. Once the banking industry is able to "dump" those bad debts, and can clean up their books, they will be more acceptable to future lending. When that happens, the financial support for the O&G companies will be restored, and leasing activity will resume on a wider scale. When there's confidence in the future, it is illustrated by the activities of the present.

I could be wrong in my assessment, but at least I hope it provides "food for thought" to some.

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Permalink Reply by mekat on November 19, 2008 at 13:02

For those of us who work at lightly leveraged companies, funding exploration out of cash flow, it's the lower NG price.

And even with less acreage than say a CHK, for instance, it's tough to get a rig capable of drilling a horizontal Haynesville well and these new lease terms are only 3 to 5 years. So how much acreage do you really need if you can't line up a whole bunch of 1500Hp rigs to drill it? These wells take up to 90 days to drill, so you get 4 or 5 wells drilled per rig year. Do the math.

Your list pretty much nails it, except the commercial paper market really has hurt the highly leveraged companies, some of whom were the most exuberant leasers.

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