Replies to This Discussion

Permalink Reply by Terry L. Antee on February 26, 2010 at 5:13

Gas prices will not get better till the economy gets better, that will start in 2010 when conservatives take back congress and another 2 years to take back the white house. CHK is looking for oil and other companies need to cut back on drilling and let the gas bubble burst, then gas prices will go up and drilling and leasing will start again.

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Permalink Reply by drilltheshale on February 26, 2010 at 12:20

Thanks for the interesting discussion, all. (TA, don't politics belong over in that other section that most of us don't read?)

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Permalink Reply by Skip Peel - Mineral Consultant on February 26, 2010 at 12:55

Ditto, drillingtheshale.

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Permalink Reply by RBH on February 26, 2010 at 15:24

skip peel--thanks for the explanation of "stranded well" and efficiencies..makes a lot of sense. Not asking about E Tx just stating that they are not the operator in Shelby/Nacogdoches positions

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Permalink Reply by Skip Peel - Mineral Consultant on February 26, 2010 at 15:52

RBH. Among those companies that we all consider major shale players in the HS Play, Petrohawk stands out in this regard. My first thought was that HK was following a strategy of establishing initial units in every area of the Play that they had reason to believe prospective and would come back and add units and build development blocks around these initial units. If we recall the lease rush of the early days of the HS Play, this would seem a reasonable strategy. Then something happened. The economy tanked. Credit dried up. And the price of nat gas dropped from $13 to $4. And HK's primary lender went bankrupt. HK struggled to keep up with the CHKs and the SWEPI/ECAs. They sold assets. They issued more stock. IMO, they made an effort to buy time until nat gas prices rebounded. Not only has the nat gas price failed to experience normal, seasonal improvement, the end of the winter heating season is on the horizon and gas in storage is still high. Expanding production and continued slow economic recovery and depressed demand is probably causing concern and changes in plans for many E&P's heavily weighted to nat gas. We see it in news releases by companies noted for a bias to nat gas who are touting oil plays or wet gas prospects. IMO, Petrohawk needed to dedicate their capex to drilling and HBPing what they have at the expense of acquiring additional leasehold. They will still take a small number of targeted leases as they prepare to drill units. And they may survive this downturn and avoid acquisition by a bigger company. I'm not betting against that as I think the possibility is better than 50/50. HK is one of the most attractive M&A targets for any major seeking a foothold in the leading shale plays. The thing that we will miss is the element of competition that supported lease offers advantageous to mineral owners.

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Permalink Reply by RBH on February 26, 2010 at 15:58

SKIP...TOTALLY AGREE..THINK THE GAS PRICE DROP AND THE ECONOMY SITUATION WAS NOT SOMETHING ANY OF US COULD HAVE EXPECTED. HOPE THEY CAN HANG IN AS COMPETITION IS ADVANTAGEOUS AND EXCITING... AS YOU SAID.

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Permalink Reply by Les Bamburg on February 26, 2010 at 19:39

Skip, almost all the major operators are scattered across the play. This was especially evident as the play began to shift south as only EnCana had a starting position in that region. A company will certainly not pass of some of the best acreage just because they cannot assemble several sections together. A single section could support a drilling rig for 1-2 years.

Several companies have sold off older assets to help fund development in the new shale plays. It is called high-grading assets and the stock analysts love it.

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Permalink Reply by Bobi Carr ("parker") on February 26, 2010 at 19:42

They can also always exchange acreage (like trading cards).

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Permalink Reply by Spring Branch,mineral owner on February 26, 2010 at 22:46

They can also bring in a deep pockets partner, which I feel the most likely outcome, rather than a merger.

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Permalink Reply by Skip Peel - Mineral Consultant on February 27, 2010 at 2:39

Les, you are correct that all the majors have positions scattered over the play. The difference is in the number of contiguous sections in each of those areas. I particularly agree with your comment about the southern areas of the Play. When HK sold their assets and issue the additional stock, I thought they would use that capital to expand and consolidate in the northeast but they have continued to form units all over the Play. parker,yes, HK has some good cards to play when it comes to trading leases. SB, I believe you are correct that Floyd will wish to go the JV route instead of be acquired.

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Permalink Reply by Skip Peel - Mineral Consultant on February 27, 2010 at 3:24

Frank. There is no database that will answer your question. Those of us maintaining spreadsheets to track unit orders can tell you if a unit is "stranded". Please keep in mind that although HK has stopped wide spread leasing, they are still forming units. And will take some mop up leases in sections that they plan to develop in the near term. The 'stranded" units will certainly be drilled. They are just less cost effective than units grouped in development blocks. That cost will not effect royalties paid to mineral owners in a unit. It will make those units more costly to develop and produce but still profitable as long as nat gas prices do not get too low.

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Permalink Reply by Frank Martin on February 27, 2010 at 3:27

Thanks, Skip. I appreciate it.

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