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Permalink Reply by dbob on November 22, 2015 at 17:48

Interesting - the basic logic used in the article is useful and illuminating, but the method of total number of wells and total production looks like it could seriously under weight the contribution of wells with recent production, which are less far down the decline curve.  It would be interesting to know how far, but it probably gets you to the point of figuring economics based on 5.1 to 5.5 BCF per well.  

It would also be interesting to strip out core acreage vs fringe. 

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Permalink Reply by Skip Peel - Mineral Consultant on November 23, 2015 at 2:20

Art was accused of cherry picking his data set back in 2009 also.  Although leasing was in full swing in 2008, very few wells were drilled.  Drilling ramped up in 2009 which means there were few completed and flowing wells to analyze.  Very little production/decline history.

He claims current well designs/ longer laterals do not perform differently but there would be few completed HC wells in his data set.  And they would represent a small fraction of the overall production he uses to form his conclusion.

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Permalink Reply by Nixon Dow on November 23, 2015 at 3:40

While I will be the first one to admit that the haynesville shale has it hurdles to overcome, the obvious errors that the author makes in the calculations prevents me from thinking any of his data is creditable.

Error #1- he has calculated severance tax at 6%. HS wells (or horizontal) wells are exempt from severance taxes for the first two years or until payout. After that the current rate of taxation is $.163 cents per mcf.. It is never taxed at a percentage.

Error #2 - $1.75 operating expenses is relatively high. You can account for a $1.00 of post production cost (or at least what they are charging on paper). Having owned working interest in a well operating cost are insignificant compared to the overall cost and revenue or compared to expenses of transportation and marketing(the billed operating cost, in the well we had interest in, averaged about $0.08 a mcf over the first two years) .

Well cost (assuming and non-cross unit well) seems a bit high but I can't say with any certainty that he is wrong either.

While his data on average EUR, estimated commercially producable acreage, and other cost-revenue factors  might be backed up by accurate data, his obvious oversights in other areas prevent me from considering any of it is correct.

Based on his glaring errors I can't help think that he went in with his conclusion and picked out the facts/stats that helped prove it.  

 

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Permalink Reply by Skip Peel - Mineral Consultant on November 23, 2015 at 4:45

Mr. Berman has carved out a contrarian niche in domestic E&P journalism.  Media companies such as Forbes require content, to print and post.  Throwing in a piece that goes against accepted opinion or is controversial is standard practice.  Forbes can always deny any responsibility by including the following (you just have to find the very small print):

Opinions expressed by Forbes Contributors are their own.

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Permalink Reply by tc on November 23, 2015 at 6:10

But is his track record really any worst than many industry CEOs?  Remember some of those earlier Haynesville maps and projections.  Like most things in the media the truth is somewhere in the middle.

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Permalink Reply by Skip Peel - Mineral Consultant on November 23, 2015 at 6:23

The penchant to exaggerate the positive should always be keep in mind when reading corporate announcements and pro-company analyst opinions.  In my opinion the most salient point in hind sight is that early Haynesville wells were not particularly good designs and that companies kept drilling them at a rapid pace because they had painted themselves into an HBP corner.  The percent of recoverable hydrocarbons was very low.  A lot of rock was poorly stimulated and some not stimulated at all.  Current well designs are a big improvement owing to experience and the incentive of depressed prices.  The only relevant data set would be the longer lateral HC wells drilled over the last 12 to 18 months.  Including any earlier well results would not be an accurate depiction of the current state of the play.

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Permalink Reply by Nixon Dow on November 23, 2015 at 7:32

I completely agree with you. Well production will improve as they perfect everything. Data from wells drilled beyond 2-3 years ago should be excluded from any type of evaluation. The Haynesville will never be what is was billed to be in the beginning(or now according to some of the corporate presentations). IMO the caveat that will always keep the Haynesville relevant and viable option to develop is the ability to reach multiple markets and pre-existing adaquite field infrastructure. 

While the other plays (Northeast specifically) might have have better per-well economics, the cost and difficulty to develop needed infrastructure will add a wrinkle. Infrastructure here has been a cost partially absorbed through multiple plays and over many years. In order to develop other areas said infrastructure cost will likely be sunk cost directly attributed to that single play.

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Permalink Reply by Two Dogs, Pirate on November 23, 2015 at 14:02

There seems to be a problem with building pipelines and even reversing flow of pipelines up in the Northeast portion of the country. I have been watching this pretty close because right-of-way work may be the only work left for landmen for the next couple of years if things stay the same in exploration. ROW is a lot harder to buy than leases so the weak may fall to the wayside. I am sure that many have fell already. Some of the old timers are saying that this period is worse than the 1980's.

If the production of Northeast NG is constrained like with the production of the tar sands of Canada with the Keystone then who knows what the impact will be in the Haynesville.

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Permalink Reply by Nixon Dow on November 23, 2015 at 14:42

Getting the infrastructure put in place is going to be a doozie for them due to the regulatory red tape they have up north (or anywhere) and the fact the landowners are just more demanding and difficult when it comes to granting their ROW. 

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Permalink Reply by Nixon Dow on November 23, 2015 at 6:39

I  understand the tactic, just don't believe they should allow posting this misleading. You can always adjust manipulate variables here and there to fit your agenda. I have no problem with Forbes or Mr. Berman's "Cherry Picking" data to justify their opinion; however, "Cherry Picking" implies that while data might be chosen selectively to contort the results to meet your agenda, said data is actual real data.

I image Mr. Berman's could have "cherry picked" actual information and data sources to come up with his  EUR and well cost projections. The well cost/operating expense of $1.75 in my opinion is not within range that can be corrobrated. The 6% severance tax is flat out fabrication. 

Like I said I understand they label this as an "opinion" but an opinion has to be based within some construct of obtainable truths.

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Permalink Reply by Steve P on November 23, 2015 at 9:17

to Mr. Dow's point, "opinion" is either interpretation or extrapolation of data.  Incorrect data is not "opinion."  Forbes' editors should do their job and fact check articles.

I also agree about "sunk costs."  HS has pipelines galore for gathering and transporting. The leases are, for the most part, all paid for.  In many cases, the pads are already there.  Failure to take these into account further undermines the credibility of the article (and the author).

This is probably an unfair cheap shot, but would any of you hire someone as a consultant who lists "professional speaker" as 1 of their 2 assets?  

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Permalink Reply by Skip Peel - Mineral Consultant on November 23, 2015 at 13:52

Jay, much of what Berman claims is a repeat from his earlier article (2009).  One comment I think is new, and surprising, is his statement that, "the shale is not brittle and, therefore, does not respond well to hydraulic fracturing".  Other than areas north of I-20 I haven't heard that claim made previously.

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