Many of you have looked to various indicators and bellwethers as to the general health of the industry as a whole, and in particular, how same will apply to the Haynesville Shale for the coming year. From those of us "in the business", many of us look to the turnout, prospects, and outlook gleaned at NAPE (formerly the North American Prospect Expo) as a significant bellwether as to the general state of the business in the coming year.

A little background:

NAPE began in 1993 as a means to an end. The purpose was to provide a forum to which the business could attract interest and partnership as well as promote properties, and in which business professionals could participate, extend goodwill, and build relationships, as well as enlist providers of capital to fund trades, and other means to facilitate dealmaking.

As most things commence, NAPE started small. There were less than 800 in attendance, approximately 120 booths, and less than 100 companies in attendance. However, the word was out, and in subsequent years the exposition has only grown in attendance and in scope. The most recent years have begun to resemble a global oil and gas bazaar, with prospects from all over the world. Personnel from oil and gas companies and corporations, service firms and companies, state natural resource representatives, national oil ministries and others attend this event each year in the thousands.

This year, the attendance again broke records. The business is still upbeat on the whole, even with the sudden retreat of oil and natural gas prices in recent months. There is dealmaking to be done.

That being said, at least anecdotally, there appeared to be less 'on the block' as far as prospects being shown and actively marketed compared to last year. Emphasis seemed to concentrate on many more historically conventional trends and production patterns. The most notable exception appeared to be prospects in the Marcellus Shale. Haynesville proximity and potential was put out there, but seemed to be tilted towards pairing it with or utilizing existing or predicted Hosston and Cotton Valley production in addition to the Haynesville potential (as opposed to last year, when the 'rumblings' seemed to predict the reverse). As has been the case for many years, there was a strong segment of prospects in wildcats, infilling and offsetting in the Wilcox, Yegua, Frio/Sparta, and Woodbine intervals. Estimates on AFEs (Authority for Expenditure; well cost) seem to have declined to some degree off of their highs (reached in the past six months) due to decreasing rig rates, increasing rig availability, and restructuring.

What does this appear to indicate about NW Louisiana, in general, and the Haynesville Shale area in particular?

Some of the larger landholders in the state were out full force to market their unleased minerals for leasing and exploration. There was still significant interest in these areas and prospects; it is important to realize that major landowners are much more willing to trade at bonus terms comparative to the market at the time. Also, many of the bigger players (CHK, HK, Shell, Encana) were out there showing their acreage positions in the HS area, as well as other holdings. From this writer's perspective, however, the positions of the major players as far as leasehold and E&P plans do not appear to have moved significantly from 3Q 2008. It seems to confirm, at least in the short term, that these players are less interested in broadening their bases of presence and more in drilling their existing leasehold in an effort to secure reserves and additional income, unless additions outside of their 'bases of leasehold' can be acquired at 'more reasonable' terms. Based upon pipeline construction and existing estimated dates of completion, significant rampup in capacity is not expected until around 2010-11, which coincides with the estimated completion date range of the Energy Transfer 42" line tying in from Carthage TX to Delhi, LA. So while required E&P will continue, the chances of gas production being left behind pipe (wells being shut-in), or wells being brought online at significant choke are increasingly likely, at least until some more capacity is built or 'freed up' along existing gathering systems and into the trunklines. Particular to the gathering systems will be the upgrades required to transport, treat, and regulate gas that will initially be collected in much higher volumes and at signicantly above line pressure into a system that is primarily built to gather, treat, and transport lower volumes of low-pressure gas.

IMO: As far as the 'gas glut' proposed by others on this forum and in other cited sources due to Western US projects, there appears to be a developing window of delay for 'wait and see' by the O&G Cos. in place while the Obama team (particularly Interior - BLM/NPS, but other key departments as well) is empaneled and initial policies and directives are put into place, which may put additional E&P on federal lands on hold for at least the short term. All this would seem to point to ng prices stabilizing if not moderating upwards in the near term. Continued economic backsliding would serve to drag on any upward trend, however, and anything other than a real return to growth would likely result in stagnation at current levels. Also, there appears to be (at least to this observer) some moderation of in the President's position of ('clean'!) coal use in power generation, which has also been offered by some on this site and by others as a factor to consider in future upward trending of ng prices. Only time will tell as to the real direction of the administration's agenda, however: the collective "boots" of Mr. Obama's staff have not completely touched ground yet, and those on the ground seem to be pushing towards passing the current stimulus / spending measures in particular and economic solutions in general.

So, all things considered, what should landowners / mineral owners expect in the HS this next year?

If you're in the 'core area': (widely considered to be located in the southern halves of Caddo and Bossier, portions of southern Webster, northern Desoto and Red River, and the western projection of Bienville, but this varies from company to company) - Activity will continue much as it has - full bore. Texans, please do not look upon your absence from my commentary as a snub; I'm just a lot more familiar with issues on the east side of Sabine.

If you're leased: if your unit / section is 'leased up' to a significant degree, expect drilling. Soon. Expect it real soon if landmen start contacting your unleased neighbors looking to 'sew up the unit'.

If you're unleased: if you have more than ten to twenty acres, and other people around you signed in 2006 - 2007, start looking for phone calls. If you start getting phone calls (or have already been receiving them), or if there is less than 100 - 140 acres left in your unit, realize that a drilling decision probably will be made based upon what remaining acreage can be 'leased up'. If there is less than 60 acres (±40 ac., compared to your proximity to the 'core area') remaining unleased in your unit, be prepared to have a well drilled in your area, with or without you. If there is more than this amount, be prepared to be bypassed in favor of another prospect area. As the leasehold positions near expiration, the O&G companies will look to secure as much leasehold as possible, irrespective of bonuses previously paid, prioritized by proximity to the 'core area' and working outwards.

If you're HBP: if your land is located in the 'core area', you might see drilling soon, you might not. If existing production is going down in your unit, or your operator needs a revenue infusion, it may be sooner rather than later. Pre-'Haynesville Shale' operators that have not already farmed out their acreage have been moving very deliberately in this new play. They have time on their side, and are more disposed to 'getting it right' versus 'getting in it'. If your HBP owner (shallower operator) has farmed out your acreage, there is usually a limited term provided for the farmee/assignee to perform ('drill to earn') the deeper rights. If they (your operator and their Haynesville partner) have formed a area of mutual interest through a joint development agreement, the timetables to drill could be significantly extended, depending upon the terms of their agreement.

Offers: Bonuses and royalties should not change significantly in any given area, unless an area or section can be 'sewn up' prior to a well being drilled. Also, the terms should not significantly change unless gas prices rebound above $7 - $7.50/mcf. Offers may increase after a well is permitted, or as a well spud is imminent or is going down. Any significant departure from prevailing terms would be rare given the current environment.