Replies to This Discussion

Permalink Reply by Skip Peel - Mineral Consultant on August 7, 2013 at 4:26

john, how does KKR figure into EXCO's development of the units acquired from CHK?

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Permalink Reply by tc on August 7, 2013 at 4:52

KKR is EXCO's partner only for the Eagle Ford acreage.

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Permalink Reply by john goodday on August 7, 2013 at 5:55

Sorry - Thought they were an equity partner in the Haynesville as well as Eagle Ford.  Perhaps they were keen enough to know that after well cost were recouped in a Nat. Gas play, there would not be alot of juice left in the lemon.

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Permalink Reply by Skip Peel - Mineral Consultant on August 7, 2013 at 6:15

KKR has a connection to CHK but it is limited to solicitations to purchase mineral interests.  CHK inserts the KKR flyers in royalty statements.

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Permalink Reply by john goodday on August 9, 2013 at 0:34

Would you scan a copy of the KKR flyer & post?

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Permalink Reply by Skip Peel - Mineral Consultant on August 9, 2013 at 2:35

Read through this discussion thread.  A member posted a copy of their letter.

http://www.gohaynesvilleshale.com/forum/topics/offer-to-acquire-add...

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Permalink Reply by Methuselah on August 9, 2013 at 9:56

They're already drilling on Section 6 with 3 rigs up. 2 more are planned, 1 for section 1 and one for Section 12. There's a new pad ready for another on Section 6.
Township 13N-13W Sections 1,6 & 12
Township 13N-14W Section 1
Township 13N 12W Section 7- we have received paperwork on this one also. I can see the 3 rigs up from my bedroom window. Right now the paperwork is for 5 alternate wells.

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Permalink Reply by john goodday on August 9, 2013 at 12:56

Awesome for the mineral owners with a good royalty & a good OGML.  Not the same for the operator - business plan must be questioned. 

Let's say each section will have 6 wells drilled @ $10MM per well = $60MM investment.  

Assume each well produces 5 BCF (over time- maybe 5 years) X current price of $3.23 = $16MM X 6 (wells) = $96MM X 75% NRI = $72MM minus acreage cost for 640 ac. X $4K per ac. = $2.5MM leaves a net of $69.5MM minus cost associated with pipeline, seismic, brokerage, legal, operational & administrative, etc. = $67MM

 

To risk $60MM to get back $67MM (over time) & assume each well can produce 5 BCF and further assuming Nat. Gas prices remain above $3 (with an unfriendly political administration).  Alot of assumptions and monetary risk, not to mention having to wait several years to make so little profit.

 

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Permalink Reply by 1kw6x71km1v37 on August 9, 2013 at 14:01

My God, that is a horrible scenario. Are these people Aggies, or what?

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Permalink Reply by tc on August 9, 2013 at 14:34

Exco would say you made a lot of bad assumptions.  They drill wells for $7.8m in Desoto (Q1 13) and get realized NG prices of $3.93 in Q2 13 and you can't include the cost of acreage in drilling decisions as that acreage was already paid for.

So now using the formula: 5BCF * $3.93 = $19.5MM *6(wells) = $117*75% NRI = $88MM minus $2.5 LOE = $85MM.  So risking $47MM to get back $85MM. 

To be honest I think the calculations are too bullish as I think the 5 year BCF is high and LOE is low and it doesn't include the cost of capital and the present value of future revenues, but they are not as dire as some believe.  Of course they don't compare favorably against oil shale as GDP is forecasting IRR's of 156-209% in the TMS on development wells.  Our 2 calculations show how little difference in assumptions can made big differences in ending values, and when companies make bad assumptions they can get into big trouble.

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