Replies to This Discussion

Permalink Reply by CB on June 16, 2009 at 4:36

More like $7-$8 from unbiased analysts predictions that I have seen. This does not bode well for the HS unless prices increase, which I predict they will.

• ▶ Reply

Permalink Reply by ALongview on June 16, 2009 at 4:48

Encana did state they would be looking at a profit of 20% on the hedged gas price.

• ▶ Reply

Permalink Reply by Grillin' - MmmMmm on June 16, 2009 at 5:57

CB: I have sat through a large number of meetings with various banks, investment advisors, etc. as well as technical folks, economists, etc. An overwhelming majority of folks have looked at the $7-8 figure published by stock analysts and picked it apart as flat out wrong. They did it on financial terms, cashflow terms and technical terms. Again, a huge percentage of those folks come up with $5-6 given the current cost of services, the estimates for ultimate recovery and current offtake rates/pipeline infrastructure. Ben Dell from Berenstein is an outlyer.

Yes, I saw the 20% profit on top of the hedged prices. At $6 HH and a "normal" price differential in North Louisiana, that's probably about right for them. That's a "going forward" economic result I'd probably bet...land/lease cost is 'sunk'. But most of their acreage is "older" acreage so it cost them probably less than $250/acre.

• ▶ Reply

Permalink Reply by Les Bamburg on June 16, 2009 at 17:26

Mmmarkkk, I heard a recent projection by a well known consultant that Nymex (Henry Hub) will stay at ~ $4.00 until mid-2011 when it will rise and stabilize at ~ $6.00 - $7.00. I tend to believe this may be close to the truth with continued near term decline in industrial natural gas demand and record natural gas storage levels. On top of this we are likely to see significant LNG import volumes in 2010.

Regarding Haynesville Shale, most of the studies are way over-estimating the natural gas required to support continued drilling. I have run numbers and believe the required price is much lower.

• ▶ Reply

Permalink Reply by Grillin' - MmmMmm on June 17, 2009 at 1:45

Les: The numbers we are running for Marcellus and Haynesville are very similar. I can get down to $4 if you consider costs to acquire the leases as "sunk costs". Since the companies have already written the checks for most of the leases, they can't get that money back (other than through tax deductions against other revenue). So, on a "going forward" cashflow basis, the money spent previously on leases shouldn't be a part of the economic decision (again, forgetting about the tax writeoff for a second). Using the current EUR and rate figures as well as current drill/complete/hook up costs, I can make a good 10% IRR case at $4 gas. But that's $4 in North Louisiana. To get to Henry Hub, need to add a bit more, so that gets you into the $4.50 range plus or minus.

I'm not sure about $4.00 through mid-2011. I think more like mid 2010 then a slow rise to $6. But I'm thinking it won't be above $6 for a while. I think we'll continue to see reductions in drilling budgets, more shut in's, etc. Around September, you'll start to see the pipelines restricting flow into the system as there won't be anyplace to move the gas as our storage will be full or nearing full. Storage operators will be reducing flow into their systems as well. All of this back up in the system will cause people to shut wells, reducing their cash flow and their ability to drill. This will take a little while to work through the system but I think mid-2011 may be long. But all of these forecasts and prognostications are opinions...and everybody's got one!

• ▶ Reply

Permalink Reply by king john on June 17, 2009 at 3:00

Les b and Mmmarkkk
really appreciate yalls professional insight. i was looking at a price chart going back to the mid-70s and it seems every time NG got too high priced it crashes. the historical data indicates it takes about one year to get back to a moderate level while taking about two years to return to a "good" price. dont the operators put themselves in this situation by over drilling and producing to the point that it gluts the market ? my chart going back to the seventys doesnt account for the looming threat of LNG imports and this may keep the price lower for some time to come, thus making the projection of depressed prices till 2011 more likely than not in my personal opinon.
kj

• ▶ Reply

Permalink Reply by CB on June 17, 2009 at 5:22

You have got to be kidding! Do you take working interest in wells? I do. With a $7-$8MM well and an 85% decline rate, there is no way anybody (putting with their own $) would participate at $4, $5, or $6 gas. Work the numbers. I would rather have a CD.

• ▶ Reply

Permalink Reply by The_Baron on June 17, 2009 at 5:34

you'll be lucky to get in a HA well for just 8 million.....

• ▶ Reply

Permalink Reply by CB on June 17, 2009 at 10:22

I follow everything pertaining to nat gas. I'm just waiting for these idiots who keep drilling this trend to go bellyup. They keep drilling and dumping more gas on the market, holding prices down. It's an endless cycle. Obviously they have to keep drilling to maintain a positve attitude with analysts to prop their stock up. This will catch up with them if the price doesn't go up soon. Dream all you want, HS needs $7.50 to be profitable. I think you will see $7.50 by late 2010 or 2011.

• ▶ Reply

Permalink Reply by Les Bamburg on June 18, 2009 at 2:26

CB, no they have to keep drilling or loose the acreage - just that simple. Take some time to follow EnCana's most recent statements about their "acreage retention" plans.

• ▶ Reply

Permalink Reply by w.r. frank on June 18, 2009 at 2:35

More like $3.50 to $4. Sorry, but you are wrong!

• ▶ Reply

Permalink Reply by Grillin' - MmmMmm on June 17, 2009 at 6:26

With than decline rate, what "b" factor do you use in the hyperbolic decline equation? What IP do you start the wells at? We're working off of EUR's in the 7 BCF range. These give us acceptable IRR's assuming costs to drill are in the $8 MM range. We also expect that as more wells are drilled, the cost of each well will go down by a significant %. Its happened in the Barnett, the Fayetteville and the Woodford and so far, its holding up in the HS.

• ▶ Reply

• ‹ Previous
• 1
• 2
• Next ›
• Page