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Permalink Reply by Skip Peel - Mineral Consultant on February 25, 2015 at 17:25

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. 

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Permalink Reply by w.r. frank on February 25, 2015 at 19:25

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.

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Permalink Reply by Henry on February 26, 2015 at 1:07

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.

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Permalink Reply by Skip Peel - Mineral Consultant on February 26, 2015 at 2:33

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).

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Permalink Reply by Two Dogs, Pirate on February 26, 2015 at 5:56

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

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Permalink Reply by dbob on February 26, 2015 at 12:40

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.

 

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Permalink Reply by Skip Peel - Mineral Consultant on February 26, 2015 at 13:50

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. 

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