Replies to This Discussion

Permalink Reply by sesport on July 22, 2009 at 14:07

Okay, now you have to give us more time ... say 24 hours. I've got to round up some pirates to engage in some "corporate espionage" and raid your work table. :0)

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Permalink Reply by Skip Peel - Mineral Consultant on July 22, 2009 at 14:41

Nope. You and your pirates have run out of time.

I review the public hearing schedule for HA unit applications several times every day. My tracking spreadsheets go back to January 9, 2007 as it is part of how I make my living. It is rare that an application catches my attention as being unusual. What struck me initially about this ENC application is that it was for three sections in three different townships. Normally sections in unit applications are contiguous to pending or approved sections in the same or adjoining townships/fields. They connect. As in a production block. A square. A rectangle. A row or column of contiguous sections. This has been the norm and makes perfect sense as it is cost effective in building infrastructure ( roads, well sites, pipelines, etc.)

As has been discussed and confirmed by recent events, Encana (ENC) is assuming operations from SWEPI in the southern reaches of the Play. Section 11 - 11N - 10W is ENC's first section/unit in the township but it connects to an existing block of existing SWEPI section/units. Section 26 - 12N - 10W and Section 29 - 11N - 9W are isolated. They do not connect to any existing units. In several recent site discussion threads, the expiring term of leases in the SE quadrant of the Play has been acknowledged and discussed. This appears to be an attempt by Encana & SWEPI to confirm the prospective nature of their southern leasehold by drilling test wells. If my assumption is accurate, the near term future of north Sabine and Natchitoches Parishes will be decided by the results of these ENC wells. That is not to say that there will not be future value in the minerals in the far SE quadrant of the Play. It is just a logical assumption that Encana/SWEPI needs more hard data before deciding to hold their existing leases. By production or lease extension offers. Those members with minerals in the SE margin of the Play will be interested to follow this activity to its conclusion with reported initial production from the ENC test wells. Good Luck.

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Permalink Reply by w.r. frank on July 22, 2009 at 15:42

sorry, I did not participate in the contest, but unless I had your data base, I am not sure I could from the materials furnished. According to Les. B., SWEPI has 71 units in Sabine alone, and it has drilled Olympia and Murray. Why would they need additional units to drill three test wells?

Between July 1, 2009 and July 20, 2009, there were 17 permits issued in Red River; of those, 14 were issued to ECA (this is the stock symbol for Encana; I am not familiar with ECN). I would not put to much credence in applications for units, as opposed to permits or, even better, spudding of a well

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Permalink Reply by Skip Peel - Mineral Consultant on July 22, 2009 at 16:04

wr. ECA is the correct stock symbol. My apology. You are also correct, the unit applications are of import only if followed by a well permit and a spud. I anticipate that will be the case in due course for the reasons I presented. The existing SWEPI HA units are concentrated in development blocks and would not give the wider coverage required to make the short term determination of the prospective nature of the existing leasehold. IMO, these are not units intended for development, they are units intended for test wells. The closest existing pipeline connection is miles away.

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Permalink Reply by BirdDawg, plain ole' idiot on July 22, 2009 at 16:18

Skip,
You are right on the money. Test wells, and I hope them much success.

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Permalink Reply by Les Bamburg on July 22, 2009 at 16:55

Skip, I would caution against the use of the term "test wells" as it may cause confusion and imply they are not intended for production. Most of the Haynesville Shale wells drilled to date have been test wells.

These units are not too far removed from the Red River-Bull Bayou Field that is being heavily drilled. I also believe there may be exising gas pipelines in the region. Of course, pipelines are easily laid in the sparsely populated, flat Red River Valley area.

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Permalink Reply by Les Bamburg on July 22, 2009 at 16:25

Skip, I didn't see this application as anything unusual.

- First, there have been other unit applications that were scattered across multiple T-R's.
- Second, this could simply be a convenience to avoid three separate applications as some companies (ie Petrohawk) may do.
- Three, this may have been a matter of being the only three sections where EnCana controlled the majority of the acreage. Recall Petrohawk applied for the 1st Haynesville unit in the Redoak Lake Field.
- Four, there have been Haynesville units applied further south and further east than these.
- Five, EnCana has already drilled the Messenger well in Natchitoches Parish.
- Six, unit applications do not necessarily translate into actual wells drilled. EnCana & others already have a bunch of units in the southwest corner of the play with no well permits. EnCana stated last year they like to get their units in place well in advance of drilling and units do not expire.

Frankly, I looked at the Alpha Field Haynesville units as a bigger deal.

Sorry for clouding the picture, Skip.

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Permalink Reply by BirdDawg, plain ole' idiot on July 22, 2009 at 16:35

Les,
I am not sure, but I think that the more recently applied for units may carry more credence than some earlier applied for units. I think that early on in the play there were more units applied for than will be drilled, especially in the fringe.
I think that units applied for now in the finge areas may bring quicker drilling. Sure, they probably have a significant leasehold, but they think it may be producive and they want to etablish the boundaries of their PRODUCTIVE leaseholds.
Just my opinion, which is worth about 5 cents.

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Permalink Reply by Les Bamburg on July 22, 2009 at 17:07

BD, that was exactly my point. I just see these units as kind of filling in the checkerboard.

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Permalink Reply by Skip Peel - Mineral Consultant on July 22, 2009 at 16:36

No apology necessary, Les. #1 - not many that I am aware of. Since the Play has matured, this is unusual. #2 could be a coincidence. #3 - I am unaware of any LOC requirement to control a majority of acreage by lease in a section in order to apply for a unit order. #4 - the existing ECA/SWEPI HA unit blocks are widely scattered and not in close proximity to these new units. #5 - if wells follow in these new units, they represent significant step outs from the Messenger well. #6 - Agreed, I suspect that well permits will follow shortly. The Alpha Field units are significant but they represent a normal development block. Two of the Redoak Field units do not. They are anomalies, IMO.

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Permalink Reply by w.r. frank on July 23, 2009 at 1:39

Following is an excerpt from the 57 page HA. Shale report dated June 24, 2009 from Barclay's Capital:

"Partners
! ECA and Shell are seeking a partner to develop 134,000 acres of exploration leases
in Sabine and Natchitoches Parishes on the southernmost part of the area. The
partners are taking bids on as much as 50% interest in the properties and ECA
commented the goal was to expedite the evaluation of the properties and address
lease expiration issues. "

IMO, ECA/SWEPI are getting properties dressed up for sale/JV and getting units formed is one more step in that process. I do not think ECA/SWEPI will be drilling many wells to the south. For example, from July 1, 2009 to July 22, 2009, there were 17 permits issued in Red River for HA. Shale wells--14 of which were issued to ECA and one to SWEPI. During the same period, there were three Sabine permits issued to ECA and none to SWEPI.

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Permalink Reply by Skip Peel - Mineral Consultant on July 23, 2009 at 2:33

wr. Can't fault your logic. And I shared your view to the extent that ECA was looking for a sale or JV opportunity until recently. It is also possible that ECA tested that possibility and found no interest. The 134,000 acres placed in the on-line auction didn't stay there long and was withdrawn. Then reports indicated a much smaller acreage offer.

I am looking at the lease aging and the poor economics as a reason that ECA needs to move forward soon with or without a sale or JV. They need to prove up their acreage and they need to prove to stockholders and investors that they have the ability to drill it successfully. With a tight credit market, borrowing is difficult. Especially when you have only one well completion in this area of the play and it's a vertical. The three recent HA well permits in three different fields in Sabine Parish where locations had been staked and now the three units in three separate townships is leading me to speculate that ECA will try to address all the mentioned questions with a series of wells drilled across their leasehold prior to the end of the year. IMO, 2010 is drill it, extend the lease or loose it time for the ECA/SWEPI leasehold in Sabine and Natchitoches parishes.

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