Replies to This Discussion

Permalink Reply by Bacon on November 30, 2011 at 8:05

Hmmm, things kind of winding down.  I thought BHP/HK still had a notion to drill?  Somewhere else I guess?  On a different note, looks like the Baker Hughes site is no longer giving the well name on their rig locator thing or is that me?  Thanks for all the info Les.

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Permalink Reply by The_Baron on November 30, 2011 at 9:15

only reason to drill expensive gas wells in this price environment is to hold acreage.

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Permalink Reply by Les Bamburg on November 30, 2011 at 9:58

Baron, much of the play is still economic at the current forward strip.  Most of the current drilling activity is unrelated to holding acreage as evidenced by the multiple wells per unit.

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Permalink Reply by The_Baron on November 30, 2011 at 10:24

I disagree, I think that those units that are being drilled with multiple wells are simply efforts to boost production #'s and proven reserves to make wallstreet happy. While there are many good wells that will payout, I personally believe that at current prices that most of the play is not economic. Just my humble opinion.

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Permalink Reply by Les Bamburg on November 30, 2011 at 10:34

Baron, so you agree most of the wells are not being drilled to acreage.

 

By the way I have run the economic analysis on various scenarios and the wells seem to still generate double-digit returns based on decision case economics.  Also recall much of current drilling activity is hedged at higher prices but I did not include this benefit.  

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Permalink Reply by The_Baron on December 1, 2011 at 7:53

No,

 I agree that units with alternate wells may be economic, if not just for pumping up reserves.

 

I also believe that these sections are chosen very carefuly in the sweet spots of the play.

 

But I believe that the bulk of the wells being drilled are not economic at this price and are being drilled to hold acerage. I also believe that the rig count will continue to decline in the HA as operators look for and discover more lucrative liquid rich plays.

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Permalink Reply by Les Bamburg on December 1, 2011 at 8:37

Baron, clearly when you look at current rig locations the majority of the wells are not the initial well in the unit and therefore are not related to holding acreage.  Most acreage in the play has already been held or been allowed to expire.

 

Operators will always seek to optimize drilling activities in order to generate higher returns.   

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Permalink Reply by Bruce on December 1, 2011 at 10:24

 "Operators will always seek to optimize drilling activities in order to generate higher returns."

  Well said, Les, it is not difficult, it is economics 101. Thanks for your perspective, it is appreciated.

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Permalink Reply by Les Bamburg on November 30, 2011 at 10:05

Bacon, you may see some uptick from BHP but it would likely not be substantial.

 

You are correct that Baker Hughes has reduced the amount of information conveyed.  I will extend your thanks to someone else that deserves much of the credit. 

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Permalink Reply by Hopeful About Natural Gas on November 30, 2011 at 15:00

As always I enjoy reading your discussions.  Does anyone know when the SEC will complete it's review of company's reserves and balance sheets?  The huge drop in price from the $12+ range down to the weak $3 would wreck havoc with any company's SEC filings.  When might that review be completed?

 

The Baron wrote:  "I disagree, I think that those units that are being drilled with multiple wells are simply efforts to boost production #'s and proven reserves to make wallstreet happy."

 

Les B: wrote:  "I have run the economic analysis on various scenarios and the wells seem to still generate double-digit returns based on decision case economics. "

 

Now, if I could just figure out wtf "decision case economics" means :)

 

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Permalink Reply by Les Bamburg on November 30, 2011 at 15:57

Hopeful, decision case economics would exclude any prior sunk costs such as lease bonus, seismic work, etc.  So the economics only include the future capital cost for the well and operating cost.

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Permalink Reply by The_Baron on December 1, 2011 at 7:54

excluding sunk costs... sounds like me at the Blackjack table!

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