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Permalink Reply by Tex Calhoun on March 28, 2011 at 9:22

Today SM Energy released a presentation that has a very interesting bullet point on slide 6:

 

"Haynesville Shale: Discussing JV with interested parties in Haynesville Shale to carry SM to HBP;  ~$140MM incremental spend in 2011 if no deal is completed"

 

If I'm reading this right, SM Energy is prepared to spend approximately $140 million in 2011 to drill the wells necessary to hold their leases by production. This is a huge shift from their previous position.

 

Attachments:

• Request-sm2011 Howard Weil - 3-28-11 print version.pdf, 1.3 MB

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Permalink Reply by ALongview on March 28, 2011 at 9:37

SM Energy has been doing very well in San Augustine. The acreage position they have is in a good spot and almost all contiguous with access to pipelines. They have both Haynesville and Mid-Bossier prospects. It will be an important asset for them when gas prices rise. I would be shocked if they are not trying to work out another deal with Encana as they have 5% of the San Augustine acres already through their previous agreement.

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Permalink Reply by Plaser on March 29, 2011 at 6:31

Could someone explain what kind of deal they have with Encana or had?  I just got a check from EnCana and was surprised......

 

Thanks!

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Permalink Reply by ALongview on March 29, 2011 at 7:38

We have elected to include the following information in this Form 10-Q in lieu of reporting it in a separately filed Form 8-K.  This information would otherwise have been reported in a Form 8-K under the heading “Item 1.01 Entry into a Material Definitive Agreement.”

 

On April 29, 2010, the Company entered into a Carry and Earning Agreement (the “CEA”) with EnCana Oil & Gas (USA) Inc., (“EnCana”) which effectively provides for EnCana to earn  95 percent of St. Mary’s interest in approximately 8,400 net acres in a portion of the Company’s East Texas Haynesville shale acreage, as well as an interest in several wells currently drilling, and five percent of St. Mary’s interest in approximately 23,400 net acres in a separate portion of the Company’s Haynesville acreage in East Texas.  In exchange for these interests, EnCana has agreed to invest $91.3 million to fund the drilling and completion costs of horizontal wells in the portion of the lands where the Company is retaining 95 percent.  Of this, $86.7 million represents St. Mary’s carried drilling and completion costs.  The Company received an initial payment of $45.6 million on April 29, 2010, and the CEA provides that the Company will receive the balance of the committed funds less any adjustments allowed under the CEA for title defects within 30 days of the completion of the fourth commitment well.

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Permalink Reply by Tex Calhoun on April 12, 2011 at 8:37

SM Energy presented at the IPAA Oil and Gas Investment Symposium this morning and the President and CEO, Tony Best said the following in regard to the bullet point regarding the Haynesville Shale on slide number 6 (see attached presentation):

 

“We’re currently in discussion with a number of folks to look at additional JV opportunities. Ideally, what we would like to do is to find someone to come in, invest in that play, and carry our drilling obligations through HBP. If we do not find a compelling transaction or agreement, then we would look at continuing that drilling ourselves. The obligation this year would be about $140 million for drilling. We have about 18 wells to drill to hold that position, and about 13 of those wells would need to be drilled this year.

 

“Let me tell you something about the Haynesville:  We haven’t talked a lot about that, but we have been drilling some very strong wells – 10 to 12 million a day on restricted choke, 9,000 pound casing pressure. I’m excited about this, but no one cares too much because it’s gas, right? But we believe we are right in the middle of the fairway and we want to maintain our position in this play. So that’s going to be one area of focus.”

Attachments:

• Request-smIPAA NYC 4-12-11 - print.pdf, 1.3 MB

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Permalink Reply by Tex Calhoun on August 2, 2011 at 10:28

SM Energy indicated today in their 2nd Quarter Earnings Report that they have decided not to enter into a JV with another company because of the “significant up-hole potential, including Middle Bossier.”

 

They intend to continue with their aggressive drilling program to hold their Shelby Trough leases by production until September 2012, when they will reassess their assets and determine a development strategy according to the economics of dry gas.

When asked by one of the investment firms how they were progressing in their effort to hold the Haynesville leases by production, the SM Energy representative stated they have “eight more wells to drill, after completion of the two we’re drilling now.” I am not sure if they are referring to this year 2011 (when they have to drill 12 wells to hold expiring leases by production) or next year (when they will have to drill eight wells to hold expiring leases by production).

 

Checking the Baker Hughes drilling rig report this morning, SM Energy is drilling two wells (the MARQUETTE unit [spud 6/3/11] and the MARCO unit [spud 7/3/11]), so I'm somewhat confused by their answer since they have not requested a drilling permit for a unit including my family's property in Shelby County, even though the lease runs out in a few months and they have previously said they needed to drill eight wells in 2012 to hold those assets by production. Perhaps they have reconfigured their proposed unit alignments since the announcement earlier in the year, or have decided to let the leases on one or more properties expire.

 

WIth both MARGUETTE and MARCO, they began drilling about a month after obtaining the drilling permit, so they are preparing the drill sites very quickly. But since they only have two rigs working in the Shelby Trough, I'm wondering if they will be able to get to our property before the lease expires.

 

It should be interesting!

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