Replies to This Discussion

Permalink Reply by kittycatmama on January 31, 2012 at 17:23

Assuming  Encana is moving toward more JVs, then wouldn't they farm out the shallow areas of their plays where the liquid condensate is in eastern Desoto? Encana has lots of sections in the Holly Field. The far western part of the Holly should be positive for the CV liquids that Indigo is now unitizing just 3 miles little north of there. That would give Encana cash & less risk with a JV

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Permalink Reply by Skip Peel - Mineral Consultant on January 31, 2012 at 17:29

If Encana is cutting capital expenditures in their oil and liquid plays, they are cutting their proverbial throat, IMO.  Severe cut backs beyond limited, selective drilling to HBP (ECA calls it "high grading) in dry gas plays makes sense and is over due.  To do otherwise would probably upset The Street and their share holders. 

If cash rich energy companies (read as "majors") see ECA as an acquisition target I think they are unlikely to bail them out with JV's.  They should hope that curtailed production by their industry segment has a salutary effect on nat gas prices long before 2014.

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Permalink Reply by dbob on January 31, 2012 at 18:16

Skip, with due respect, the push for oil/condensate/NGL's is going to drive production growth over the next few years.  Curtailment, particularly in Haynesville is going to simply help prices level off, not increase dramatically.  Worse, curtailment means that when demand/prices do start to rise, there will be production that can be brought on fairly quickly to meet that increase.  

I think Encana may be doing a pivot that will upset the street for a while.  I think its being done before they get backed into a corner, or a situation like Aubrey found himself in.  At the very least, if they are keeping capex the same, its getting directed elsewhere.  

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Permalink Reply by dbob on February 1, 2012 at 13:10

Skip, all, 

I confirmed today with two additional outside sources the pullback by Encana.  No one has any visibility on the specifics, just the the work and many projects are gone.  

Kittycatmama

CV development or JV might make sense in a strategic sense, but one person I discussed the issue with today essentially said that Encana has to put its development dollars into projects with a high liquids potential and that the CV, while potentially attractive, was unlikely to attract those development dollars.

As things get re-centered for Encana, look for them to target low to moderate risk conventional oil and unconventional oil. 

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Permalink Reply by Skip Peel - Mineral Consultant on February 1, 2012 at 13:14

Thanks, dbob.  Seems the chickens are coming home to roost.

Permalink Reply by dbob on February 1, 2012 at 13:20

Skip

Sources confirmed they were slow or stopping Leon and Robertson County development in Texas which is probably natural gas with lots of liquids.  Some of it really doesn't make sense to me, as the work in that area would seem to have a near term payback, low to moderate risk, and high ROI.  Maybe not as good as oil window Eagle Ford, but a reasonable place to put their money.  Me thinks the balance sheet needs a lot more attention.

Permalink Reply by kittycatmama on February 1, 2012 at 15:08

dbob, Chesapeake has farmed its CV to Indigo. Couldn't Encana do the same thing

Permalink Reply by kittycatmama on February 1, 2012 at 15:13

Have you all checked out the alternate well units that Exco is still filing for? Why would they continue to do that with the gas glut

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Permalink Reply by Skip Peel - Mineral Consultant on February 1, 2012 at 15:26

EXCO has been in a different operating mode compared to other operators since early in the HA Play when they sold a 50% interest to British Gas (BG).  BG had, and may still have, some of the most lucrative, long term gas sales contracts in the industry and was in need of reserves.  That's why EXCO has acquired HA/BO development rights from other energy companies in NW. La. and E. TX on a continuing basis for the last three years.

Chesapeake's deal with Indigo was a quid pro quo deal.  Both had something the other wanted.

Permalink Reply by dbob on February 1, 2012 at 15:44

To carry this a bit further - Indigo or others may very well want to JV when it aligns with their existing units/wells  but in most cases, in this price environment, unless you have really really deep pockets, you can get a better return on your investment elsewhere.

For example, I worked with a group recently that drilled a 7000'  vertical well into a conventional oil formation.  I don't know IP, but that well is producing about 360 bbls/day.  total cost (I'm speculating) was in the $4 million range.  It will near payout 120-150 days after drilling.  

If you drill a horizontal CV well, and get 8 mmcf/day, and 20 bbl condensate, but your cost is in the $8 million range and payout is 400 days or further out.  That CV horizontal looks a lot more attractive if gas gets to $4/mcf.

Permalink Reply by Les Bamburg on January 31, 2012 at 17:06

CM, parties should look at the combined EnCana/Shell rig count and drilling permits because most of the acreage in the play is in a 50/50 JV. Attached is the rig count trend which has dropped ~ 50% over the last year. Of the 13 current drilling rigs, 12 are in Louisiana with 9 in Red River Parish and 3 in Sabine Parish. Most of these rigs are drilling alternate wells.

Attachments:

• EnCana-Shell HS Rig Count 1-31-12.pdf, 103 KB

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Permalink Reply by Les Bamburg on February 1, 2012 at 16:26

It is interesting to see the over-reaction and mis-information that can sometimes be spread on the board regarding company's financial status, gas contracts, liquids production, etc.

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