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Permalink Reply by Skip Peel - Mineral Consultant on October 30, 2023 at 9:01

Although this move by BP may seem a surprise, it's not.  BP, as BPX, has been working with other Haynesville operators to drill wells across multiple units for some time.  In May of 2019, Goodrich applied to the state to drill HC (Horizontal Cross) wells that included a Haynesville unit operated by Chesapeake.  This was a specific request but also an attempt to have the Office of Conservation end it's long standing rule allowing only one operator per drilling and production unit.  Once the state approved that application, the door was opened for any other Haynesville operators who wished to drill HC wells that included a unit operated by a cooperating competitor.  The reason that Haynesville operators would cooperate in this manner is the desire to drill long lateral horizontal wells.  The desire for longer lateral wells eventually led to operators trading drilling units.  Many of the companies that applied to drill long laterals that included another operators' unit eventually ended up acquiring the operatorship of that unit.

There is another reason why we see this announcement in BP's name.  Recall that BP acquired the bulk of their units from BHP who acquired them from Petrohawk.  Although the original Haynesville Shale land rush included no reason for operators to stack units north to south, Petrohawk ended up with the fewest such "stacks".  Petroahawk's land leasing program took a big hit in 2008 when their main source of credit, Lehman Brothers, was allowed to go bankrupt.  Petrohawk  had numerous drilling units that were not adjacent to other of their units and many times the next closest Petrohawk unit was miles away. I coined the term, "stranded units", back then to emphasize how scattered and unconnected were Petrohawk's units. At that time the main problem was building out infrastructure to accommodate producing wells.  The more units that an operator had grouped together, the more efficient they could be in building out the infrastructure.  Back then long lateral, multi-unit wells were not allowed or foreseen.  Now all Haynesville operating companies want to drill the longest laterals possible. 

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Permalink Reply by Les on October 30, 2023 at 9:22

Thank you for your insight on this announcement. Initially it did seem like a surprise to me as well.  I also wondered whether BP wants to position themselves as a dominant player in the growing LNG export market which the Haynesville Shale seems ideally positioned for.

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Permalink Reply by Skip Peel - Mineral Consultant on October 30, 2023 at 9:36

You're welcome.  BP (BPX) wants the cost advantages of long lateral wells but needs other operators to cooperate in order to drill those long laterals.  I think BP and other Haynesville/Bossier operators are looking at their assets as a more mature trend.  How do you squeeze the most profit out of your Haynesville assets over the last ten to fifteen years of the play?

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Permalink Reply by Chad Ellis on October 30, 2023 at 10:58

Another factor to consider is the corporate spending aspect.  BP may spend more per well than other operators because of internal policies and procedures.  Partnering with a leaner and nimbler operator will add efficiencies.  BP supplies cash and expertise if needed.  Medium sized operator supplies lean and efficient operation.   As an example, look at the Exxon/XTO relationship.  

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