Liquid plays
I've read 4 investor presentations and I've listened to 2 conference calls and there is a recurring theme of decreasing natural gas production and switching to unconventional oil plays. CHK has stated they want to be 50/50 oil/gas by '12, eog reports they want to be 70/30 oil/gas, and Devon is reporting similar goals. It's strange because a year ago these same companies were selling the benefits of being a majority natural gas producer and now they seem embarrassed by the label but mention over and over their new oil finds.
What is the reason for this shift? Is it because these companies have just learned how to economically produce oil using horizonal methods? Is it that the price of NG is so low that it will doom the company if it doesn't diversify? Is this a hail mary attempt at preventing their companies from imploding or are these plays for real?
When asked about the Haynesville shale the response was pretty much the same by all of the companies and that was something like "we'll drill enough to get HBP but then we're out of there until prices go above $6.00".
So is the gas boom over?
What is the reason for this shift? Is it because these companies have just learned how to economically produce oil using horizonal methods? Is it that the price of NG is so low that it will doom the company if it doesn't diversify? Is this a hail mary attempt at preventing their companies from imploding or are these plays for real?
When asked about the Haynesville shale the response was pretty much the same by all of the companies and that was something like "we'll drill enough to get HBP but then we're out of there until prices go above $6.00".
So is the gas boom over?
Views: 139
Replies to This Discussion
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Permalink Reply by benny688 on
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The reason for the shift? I think mainly because we don't have the infrastructure to suddenly shift to cheaper and cleaner LGN or NG from crude.
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Permalink Reply by Skip Peel - Mineral Consultant on -
The writing is on the wall. Natural gas prices will remain depressed for several years. Possibly longer considering that drilling to HBP will prolong the gas glut and the slow economic recovery will not appreciably stimulate demand.
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Permalink Reply by BirdDawg, plain ole' idiot on
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The reason for the shift?
Simply because oil (condensate) prices are much more attractive than NG prices.
Its all about profits.
Just my opinion, which ain't worth 5 cents.
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Permalink Reply by DJG on
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Looking at some completion reports from Eagle Ford in Texas just tonight. One that caught my attention was a well in Karnes Co. Texas that had under 2 mmcfd/Gas in the IP report but had a whopping 1,776 bbls/day of oil/condensate.
With gas currently at $4.50, not hard to do the math that even some of those 32 mmcfd dry gas HA/BO barn burners are not as exciting for the O&G's to tout to their investors/share holders when compared to more liquid rich prospects.
Would it be correct to assume that, unless NG increases back up to over $6 and beyond, then most of the drilling activity in the HA/BO over the near term will be mostly just to protect lease-hold and get acreage HBP'd with a very low degree of in-fill production.
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Permalink Reply by Les Bamburg on
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DG, many companies that are already HBP'd are continuing to drill. Look at Exco and Questar.
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Permalink Reply by Mac Davis on
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Peak oil may have a lot to do with it. Plus the offshore drilling moratorium will really hurting US production. All of these could give a boost to oil prices.
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Permalink Reply by Les Bamburg on
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North LA, several companies have commented they intend to continue drilling at current pace or even increase rig count. These include EnCana, Petrohawk, Questar, Exco, EOG, Comstock, GMX, Goodrich, Crimson and El Paso.
Chesapeake was the only company I recall saying they may reduce rig count but they did not say they intended to drop all drilling in the Haynesville Shale.
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Permalink Reply by ALongview on
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Les, Do you think the Haynesville will have fewer players once the leases are HBP? Kind of a natural gas natural law so to speak. I was looking at the cash and borrowing base positions of some of these companies and they are not pretty. It seems that after a year of 82% Haynesville declines in wells that were drilled to hold leases these companies may be selling out just to survive to fight another day in another play. Declining cash flow and no way to afford to drill and replace production is the position that I see some of these companies in. What do you see as their options if gas stays at $4.50?
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Permalink Reply by Les Bamburg on
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AL, there may be a few of the very small players (Camterra, Valence, NFR, etc) that will get out but most of the players have large enough acreage positions to stay in the game. The Haynesville Shale is still one of the very best places to maintain or grow earnings in a low natural gas price environment especially given the leases have already been acquired. There are other areas of the country that are under more pressure at a $4.50 natural gas price and such level is unsustainable. Over the next 2-3 years many older coal power plants are being decommissioned and replaced by natural gas powered plants. This should help push the floor price up to $5.00+.
Much of the leased play acreage is already held by production and the majority will be by mid to late 2011. Most companies have indicated they plan to continue drilling at their current pace in the Haynesville/Bossier Shale.
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Permalink Reply by Spring Branch,mineral owner on
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The process of many shale gas producers increasing emphasis on oil production vs natural gas only serves to speed up the time when the price of nat gas rises to a more lucrative level. It is the herd instinct. I watched it over and over again in the stock market during a 32 year career as a stockbroker.
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Permalink Reply by Les Bamburg on
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SB, noticed many companies are using the expression "liquids" which can include NGLs in addition to oil & condensate. Now you have someone like EOG clarifying that 75% of their "liquids" are oil and condensate as a way to differentiate themselves from the competitors.
Some of the statements are more "lip service" than factual just to appease the investment community. Of course there have been some technology improvements that now allow "oily" shale plays to be economically developed.
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