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Permalink Reply by herefordsnshale on March 10, 2009 at 13:07

Does GMX have very much acreage outside of Harrison County, TX? During the winter of 2007 I worked almost exclusively doing timber appraisals for them for CV wells just south of Marshall. I've never seen any of their activity anywhere else.

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Permalink Reply by Skip Peel - Mineral Consultant on March 10, 2009 at 13:28

SONRIS does not list any current Louisiana wells for GMXR. I do not follow E. TX. closely enough to speculate on the location of their leasehold. I do know that they have previously announced 28,000 acres of leasehold prospective for the shale. I will contact a few members who I know follow E. TX. development closely. I suspect that other operators will find themselves having to make some tough financial decisions in the coming months. Even if the price of natural gas increases later this year, it may be too late for some E&P companies.

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Permalink Reply by Skip Peel - Mineral Consultant on March 10, 2009 at 15:13

Bump.

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Permalink Reply by jffree1 on March 10, 2009 at 16:45

Skip, Here is a press release for GMX Resources from last summer. The budget for 2009 has since been adjusted downward. Also a number of rigs dropping out of their program early in the year.
I think they do have some acreage in Caddo, but most is in Harrison with a little in Panola, Marion and Cass Counties. Here's a link to their website and a pretty good map of Operator Activity in E. Tx. and N. La.:

http://www.gmxresources.com/2009.03.09_Haynesville_Shale_Activity/G...

GMX Resources Inc. Announces Haynesville/Bossier Shale Drilling to Begin 3Q08;
Increases 2008 Capital Expenditure Budget; Haynesville Acreage Acquisition Closed;
Upcoming Conference and Webcast
OKLAHOMA CITY, Jul 7, 2008 (PrimeNewswire via COMTEX News Network) -- GMX Resources Inc. (Nasdaq:GMXR) (visitwww.gmxresources.com to view the most recent Company presentation and for more information on the Company) today announced the commencement of a Haynesville/Bossier drilling program, beginning in Q3 2008. The Company expects to spud four rigs drilling horizontal wells in the Haynesville/Bossier Shale in its 100% acreage in 3Q08. GMXR will change its drilling program to development of the gas shale. Additionally the Company expects to deploy two Flex "purpose built" rigs in early
2009. "The early successful results of nearby and offsetting Haynesville/Bossier wells warrant our company's conversion to focus the majority of our efforts drilling horizontal wells. This plan will fully develop our underlying gas shale over the next five years at 80 acre density. Production rates from the shale and rates of return appear to be far superior, which should increase GMXR's production, cashflow and return on equity over the period. We will continue to add shale acreage around our core area and will also add additional rigs to develop the shale during this period of high natural gas prices," stated Ken Kenworthy, Jr., the Company's Chief Executive Officer.

Increase in Capital Expenditure Budget
GMXR also announced an increase in its 2008 capital expenditure budget from a previously announced $195 million to $271 million. This increase will allow the Company to drill up to 4 to 6 net horizontal Haynesville/Bossier shale wells in its 27,500 net Haynesville acres. The new capital expenditure budget also includes acreage acquisition cost, infrastructure build-out and equipment upgrades. The Company expects to fund its entire capital expenditure budget with cash flow and its forecasted bank borrowing base. Additionally, the Company has increased its 2008 guidance for discretionary cash flow to $100 million, up from $80 million, revenue to $140 million, up from $125 million and EBITDA to $115 million, up from $95 million. Production guidance will also be raised to 7.8 BCFE for 2H08 and 13.8 BCFE for the full year. 3Q08 production will be flattened somewhat to 3.3 CFE due to longer drilling times for the horizontal wells, but 4Q08 should increase to 4.5 BCFE and raising daily production rate expectations to 60 Mmcfe/d by year end, up from previous guidance of 42 Mmcfe/d.

Successful Completion of Haynesville Acreage Addition

GMXR successfully closed its previously announced acreage acquisition. Effective July 1, 2008, the Company has added anadditional 7300 net acres in Harrison, Marion, and Cass counties in East Texas plus acreage in Caddo Parish, Louisiana. TheCompany now operates a total of 28,000 net acres with 27,500 Haynesville/Bossier acres with 344 locations on 80 acre spacing.

GMXR is a 'Pure Play', E & P company with 435 BCFE in proved reserves and 3.1 TCFE in total 3P reserves that are 94% natural gas; consisting of 294 gross / 163.9 net Cotton Valley ("CV") producers with 344 Haynesville /Bossier 80 acre horizontal locations and 1,500 gross / 930 net CV un-drilled locations; drilled at a 100% success rate. Eight drilling rigs are currently developing this contiguous, multi-layer gas resource play on the Sabine Uplift; Carthage, North Field, in Panola & Harrison County of East Texas, where the Company has invested $60 million in infrastructure; which has contributed to 'Best In Class' finding and development costs; which also contains 38 gross / 31 net Travis Peak/Hosston Sands & Pettit producers on the property. These multiple resource layers provide high probability, repeatable, organic growth. The Company, headquartered in
Oklahoma City, Oklahoma, has interests in 351 gross / 207 net producing wells and operates 74% of its reserves. The Company's strategy is to grow shareholder value through acceleration of development and acreage additions achieving operational growth around its core area, converting its natural gas reserves to proved, while maintaining balanced prudent financial management.

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Permalink Reply by sesport on March 10, 2009 at 23:19

Skip -The end of the first quarter is near, so we'll probably know soon if there will be reshuffling. IMO, if there is reshuffling to be done, it will probably be among smaller companies struggling hardest with the economics. If anything, I expect to see an adjustment in the number of new rigs for this year, new leasing and acquisition of acreage should remain pretty much stagnant. As for the publically traded companies, depending who the majority shareholders are, the squeaky wheels, if there are any, should get the grease.

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Permalink Reply by Skip Peel - Mineral Consultant on March 11, 2009 at 0:42

With natural gas under $4 and no rebalancing of supply and demand predicted in the next two quarters (at least), a number of E&P companies may be in financial straits. Whether they seek to sell the company or some assets, the question is, are there any buyers out there at this time?

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Permalink Reply by gregory richardson on March 11, 2009 at 0:49

FBR: Shale Gas a Priority, but U.S. Spending to Fall through 2010
The huge capital expenditures (capex) by the U.S. energy sector in 2008 are unlikely to be seen again "for many years," FBR Capital Markets analysts said Monday. Shale natural gas now is a priority, but total domestic spending has to fall through 2010 to balance the market, FBR analysts said.
FBR's Robert MacKenzie, Doug Garber and Christopher Breaux offered their bearish take in a report to clients. Exploration and production (E&P) operators have begun to direct more of their capex to gas shale projects and less to "nonshale" and U.S. Gulf of Mexico (GOM) shelf wells, and that is seen continuing through at least 2010.
The FBR team defined the U.S. land rig count using three categories: shale gas, conventional gas and oil.
"The conventional gas rig count should decline the most severely, dropping almost 60% in 2009 and another 30% in 2010," said the trio. "We expect the shale (Barnett, Fayetteville, Haynesville, Marcellus and Woodford) rig count to decrease by a third in 2009 and then increase 14% in 2010 and 20-30% in 2011 and 2012. The oil rig count should decrease by nearly 50% in 2009, then increase 13% in 2010 and 5% in both 2011 and 2012 when oil prices recover."
U.S. operators are seen spending "only 80% of their cash flow in 2009, 67% in 2010, and 80-85% long term, as projects are not economical at a long-term gas price of $4.50," wrote the trio. "In 2009, we assume $18.3 billion is spent on nonshale capex, at a weighted-average marginal finding and development cost of $2.70/Mcf (representing a 20% decrease from 2008 costs). Assuming a 20% decline curve results in 680 Tcf of gas produced in 2009, or an incremental 1.86 Bcf/d...based on our E&P team's other natural gas forecasts, this will lead to a surplus of 0.84 Bcf/d in 2009."
The lag in gas production declines and the weak economy will lead the 2009 U.S. natural gas market to be oversupplied even with a 62% cut to gas-directed capex, and that will lead to another 23% cut to gas-related capex in 2010, said the analysts.
"Nonshale capex will have to decrease another 37% to $11.6 billion" in 2010, said MacKenzie and his colleagues. "Assuming the weighted-average finding and development cost falls another 20% to $2.16/Mcf and the base decline rate is still 25%, then 534 Tcf will be produced in 2010, or an incremental 1.46 Bcf/d. This should balance the natural gas market."
Like recent forecasts by several other energy analysts, the FBR energy analysts think the U.S. gas rig count, already falling fast, will average 882 rigs in 2009 and 782 in 2010. FBR is forecasting that by 2011 the gas-weighted U.S. land rig count will begin to build once again to average 1,220 for the year and long term. However, capex spent to drill nonshale and GOM shelf wells will be "lower for longer."
The FBR team also thinks it's time to redefine shale gas wells because of their increased productive capacity. Fewer gas rigs will be needed to balance gas supply and demand over the next few years, said the FBR team.
"We expect overall capex in the U.S. to decrease by 50% in 2009 and by another 9% in 2010 to balance the natural gas market," said the analysts. "Total natural gas capex should decrease by 61% in 2009 and 27% in 2010. Conventional capex (nonshale and non-U.S. GOM shelf) is expected to decrease by 67% and 43% in 2009 and 2010, respectively. Deepwater capex should increase for the next two years as the overall rig count increases and then decreases in 2011 and 2012 as pricing declines."
Going forward, the FBR team is forecasting U.S. shale spending to continue to grow while the oil rig count remains roughly flat. U.S. deepwater capex also should be up, and "nonshale capex is the swing capex that is used to meet incremental demand or cut back on if there is an oversupplied situation."

 

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Permalink Reply by Skip Peel - Mineral Consultant on March 11, 2009 at 1:06

Gregory, thanks for the FBR article post. I hope improving national and global economic conditions in the last quarter of '09 will prove the FBR analysis to be overly conservative. I certainly would not put my crystal ball up against theirs however. As a greater percentage of US natural gas production shifts to unconventional reservoir plays and specifically to shale gas, a new dynamic would appear to come into play. The cyclical nature of natural gas supply and demand has historically been over rather extended periods of time as the process of decreasing supply to balance demand could not be affected quickly without operators shutting in large percentages of their production. The high initial production of shale gas wells and the steep decline curves would seem to offer producers a means to reduce or increase production more economically and on a much compressed time line. Thus rebalancing the supply/demand equation more quickly.

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Permalink Reply by jffree1 on March 11, 2009 at 5:51

"The Company's board of directors will consider Mr. Seldin's request and respond in due course. However, in the meantime, the Company continues to operate its business in the ordinary course and believes that its current business plan reflects a balanced and prudent approach in light of currently prevailing economic conditions."

Skip,
This is the "balanced and prudent approach" referred to in the response to Mr. Seldin"s letter (from Mar. 9 press release):

2009 Capital Expenditures and Revised Guidance

GMXR has reduced its 2009 CAPEX budget by $70 million to $150 million. Under this modified CAPEX budget, the Company expects to drill fourteen and complete sixteen net Haynesville Bossier horizontal ("H/B Hz") wells (100% GMXR operated) including the two completions that have already occurred in the first quarter. There are four rigs currently drilling with completions expected in April. Once these four rigs finish drilling, the Company will release the two rigs on well-to-well contracts and lay down the other two rigs which are owned by a subsidiary of the Company. The Company will transition to two new H&P FlexRigs(tm) for drilling its H/B Hz wells in the second quarter of 2009. The Company will be focused on the Haynesville/Bossier horizontal drilling program (98% of 2009's CAPEX) that has a rate of return of 25% at current natural gas prices.

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Permalink Reply by Skip Peel - Mineral Consultant on March 11, 2009 at 6:26

jffree. I suspect that Mr. Seldin and his board of directors was fully aware of GMXR's capex reductions and drilling program for 2009. And found the plans to be inadequate in some way. When a company's largest stock holder begins to disagree with the board publicly, it gets my attention.

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Permalink Reply by Skip Peel - Mineral Consultant on March 11, 2009 at 7:12

It's comforting to think that there are HS players with strong balance sheets who can weather a lengthy depressed market. However, Comstock, XTO and EOG together have a rather small slice of the play in NW. LA. The list is notable for being rather short. KB, I know you didn't try to make a comprehensive list and I suspect that it could quite possibly be longer. I am wondering how many of the shale players that we discuss on a regular basis would not qualify to be on it.

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Permalink Reply by sesport on March 11, 2009 at 12:43

KB - RE. Stewart vs. Kramer ... I heard that on the news this morning, too. ha, ha, ha, ha So much for "gurus", huh?

Best - sesport :0)

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