Sky's The Limit In The Haynesville Shale
Posted: Jan 12, 2010 09:30 AM by Eric Fox
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Filed Under: Commodities,Fundamental Analysis,Stock Analysis,Stocks
Tickers in this Article: ECA, CHK, PXP, UNT, GMXR, GDP
The exploration and production industry will continue its full court push to develop the Haynesville Shale in 2010, the fastest growing shale play in North America. Investors will also hear more about the Bossier shale, as the area will see more drilling to test the potential of this emerging shale, located above the Haynesville Shale in many areas.



Crowded Shales
Many exploration and production companies are crowding into the Haynesville Shale in 2010. GMX Resources (NYSE:GMXR) is one of those companies, and plans on spending $220 million in 2010 to drill 33 gross wells in 2010. This aggressive plan is based on adding a fourth operated rig in March 2010. GMX Resources estimates that the company will exit 2010 with a production rate of 84 million cubic feet equivalent of natural gas.

Goodrich Petroleum (NYSE:GDP) is also planning major development on its Haynesville Shale acreage in 2010. The company plans 44 gross (22 net) wells spread across various fields it has leased in East Texas and Louisiana.

Unit Corporation (NYSE:UNT) is a smaller company with Haynesville Shale acreage. The company has 20,000 net acres in East Texas, and plans several horizontal wells in the second half of 2010. During 2009, Unit Corporation focused on drilling vertical wells to hold acreage in the play. The company has well locations near successful horizontal wells drilled by other operators in Shelby County, Texas.

Attactive Features
One of the attractions of the Haynesville Shale in 2010 is that it has a decent rate of return at a low price for natural gas. Wells in the Haynesville Shale will generate a 10% rate of return at a natural gas price of $3.39, assuming a well cost of $7.5 million.

Plains Exploration and Production (NYSE:PXP) has 113,000 net acres in the Haynesville Shale, and estimates that its finding and development costs in 2010 will be $1.37 per mcfe. This is based on a well cost of $7.5 million and an estimated ultimate recovery of 6.5 Bcfe per well. Plains Exploration and Production is in a joint venture with Chesapeake Energy (NYSE:CHK) in the Haynesville Shale, and was operating 50 rigs in late 2009.

The Bossier Shale, which is located above the Haynesville Shale, will also attract capital in 2010. EnCana (NYSE:ECA) has 435,000 net acres under lease in the Haynesville Shale, with much of it prospective for the Bossier Shale. The company recently commented on the potential of the Bossier Shale, saying that recent Bossier Shale completions compare favorably to the Haynesville Shale.

The Bottom Line
The Haynesville Shale is a "sure thing" for the exploration and production industry, as operators are attracted to an area where there is little exploration risk, and abundant shale gas available for development. (For a primer on the oil and gas industry, refer to our Oil and Gas Industry Primer.)

Buck