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Permalink Reply by Skip Peel - Mineral Consultant on July 23, 2015 at 10:20

BHP will keep their lights on (wells producing) but won't be drilling any new wells anytime soon.  Such are commodity prices.

Oil & Gas Firm Continues Downsizing Fayetteville Shale Operations

By Wesley Brown/ Talk Business & Politics • Jul 22, 2015

BHP Billiton said Tuesday that it plans to make further spending cuts to its U.S. onshore oil and gas development, pushing the Australia industrial giant’s current U.S. shale play budget down nearly 60% from $3.7 billion to $1.5 billion for the upcoming fiscal year.

Of that operating budget, the Sydney, Australia-based mining and industrial conglomerate plans to spend only $200 million in the Arkansas shale play to maintain ongoing production at 45 natural gas wells that the company has already drilled and completed.

But BHP’s Fayetteville Shale drillings program has essentially come to a halt with plans to operate “zero” rigs operating in the Arkansas play in fiscal 2016, which began July 1.

Last week, BHP said that it expected to take a $2.8 billion pretax write-down of its U.S. shale gas operations, essentially mothballing its Fayetteville Shale drilling operations until natural gas prices return to higher levels.

BHP Billiton Chief Executive Officer Andrew Mackenzie provided an operational review of the company’s global operations after the close of market on Tuesday, which is about the same time that the stock market opens on Wednesday in Australia. In his 22-page report, Mackenzie emphasized that BHP would go back to a “simpler portfolio” in fiscal 2016 by focusing on its core iron ore and copper mining businesses.

“Our businesses performed well over the 2015 financial year. We have improved the performance of our equipment, reduced costs, and increased volumes despite a significant reduction in capital spend,” Mackenzie said. “Our simpler portfolio following the demerger of South32 will help us maintain the pace of operational improvement, further supporting cash generation, margins and returns.”

Mackenzie added: “Although our decision to cut spending in the onshore US will mean deferring gas volumes in the near term, we expect to realize greater value by developing our acreage later.“

THE GAME PLAN
During the company’s six-month review in January, Mackenzie told analysts that the industrial mining giant was speeding up plans to reduce costs and invest in more profitable businesses by cuttings its previously announced U.S. shale capital budget by 50% from $4.2 billion to $2.1 billion.

Still, BHP’s total U.S. petroleum production for 2015 increased by 4% to a record 256 million barrels of oil equivalent (MMboe). However, petroleum production is forecasted to decrease by 7% in the upcoming fiscal year to 237 MMboe.

“We anticipate a 19 per cent decline in the combined production of the predominantly gas-rich Haynesville, Fayetteville and Hawkville fields as we continue to defer development of these assets for longer-term value,” the company said. “Conventional volumes are expected to decrease by approximately four per cent to 125 MMboe as a result of planned maintenance programs and natural field decline.”

Currently, BHP’s U.S. operated rig count has declined 54% from 24 to 10. During the 2015 financial year, the Australian industrial conglomerate said it moved quickly in response to lower prices and benefited from significant productivity improvements. And although the company has no rigs operating in the Fayetteville Shale, it has still been able to increase production from fewer wells – down to 45 from 71 a year ago.

In late 2011, shortly after the Australia mining giant landed in Arkansas, BHP said it planned to quadruple production from its onshore U.S. shale operations, adding nearly 20 new rigs in the Fayetteville Shale region and increasing natural gas production four-fold by the end of the decade. At the time, BHP said its U.S. capital spending program would jump from $4.5 billion to $6.5 billion annually by 2020, with the lion’s share targeted toward its Arkansas natural gas development.

BHP’s leasehold position of 487,000 net acres makes it the second-largest Fayetteville Shale operator behind Southwestern Energy Corp. with an average operating stake of 58%. Those pricey assets were originally purchased from Chesapeake Energy Corp. in early 2011 with an average per well drilling and completion cost of $3.5 million.

THE OUTLOOK
Although Mackenzie indicated that BHP plans to ramp up U.S. production again once commodity prices improve, current Wall Street and U.S. Department of Energy forecasters don’t see that happening in the near-term.

In its most recent short-term outlook, the DOE’s Energy Information Administration forecasts that international Brent crude oil prices will average $60 per barrel in 2015 and $67 per barrel in 2016. West Texas Intermediate, the benchmark U.S. crude, is forecasted to average about $5 a barrel less than its international market rival.

The Henry Hub natural gas spot price averaged $2.78 per million British thermal units (MMBtu) in June, a decrease of 7 cents per MMBtu from the May price. EIA expects monthly average spot prices to remain lower than $3 per MMBtu in July, and projects Henry Hub prices to average $2.97 per MMBtu in 2015 and $3.31 per MMBtu in 2016.

In Tuesday’s session on the New York Mercantile Exchange, natural gas futures rose 5.9 cents, or 2.1%, to $2.882 per MMBtu. West Texas light, sweet crude for August delivery closed at $50.36, up 21 cents.

Permalink Reply by Bradley McWilliams on July 23, 2015 at 13:46

I saw that.  Of course, BHP hasn't had a rig up here in over a year, so I don't really think that is much change.  I don't know what their budget for FY 2015 was. bit I would guess about the same.

I think XTO may still have one rig running, but certainly no more than that.

SWN has 4 running, with that number flexing a little from time to time.  Lots of SWN hands have been making the move to West Virginia.  A few vendors are finding themselves without much to do.  Not being "run off" from poor service or anything, just simply not enough to keep everyone busy.

There are still a few lights on, (ours included), but it is notably muted up here...

Permalink Reply by Skip Peel - Mineral Consultant on July 23, 2015 at 13:58

SWN has 5 rigs drilling by my 7/17 weekly rig report with 4 of those already assigned to the next well. No rig was listed for XTO.  Yeah, not much activity for the size of the Fayetteville Shale footprint. 

Permalink Reply by Bradley McWilliams on July 23, 2015 at 14:14

I've been told the SWN count will be between 4-6.  I think most of the new triple rigs have gone to WV, with the older singles staying here.  I've also heard that the well count has been raised a little, but that's pretty much field hand talk.

I'm just happy those 5 are still here.

Permalink Reply by john goodday on July 25, 2015 at 10:38

It's the 3rd largest natural gas producing shale play in the country.  SWN is probably the best operator in the country and these wells only cost $2.5 million to drill.  Very surprised to see SWN take on the $5 billion debt for the CHK acreage in W.Va - ask anyone what debt does to a balance sheet when coupled with declining commodity prices and revenue.  

BHP's $4.5 billion purchase was ill-timed, however, it's difficult to recover any real part of that investment without pursuing their acreage position via the drill bit.  XTO is not a whole lot better .

Permalink Reply by Bradley McWilliams on December 24, 2015 at 12:33

Well, we have a clearer picture on what the future holds for us here, pretty much nothing.  The WV purchase may have been good from a long term perspective, but I'm afraid your comment about taking on the debt at this time may be true.