As long as the natural gas futures prices are "north of $5.50/Mcf on the strip," Petrohawk Energy Corp. doesn't plan to defer development in two big onshore plays, the Haynesville and the Eagle Ford shales, the company's CEO said last week.
In fact, Petrohawk may increase its rig count in those two leaseholds by the end of the year, CEO Floyd C. Wilson said during a conference call.
Petrohawk is sticking with plans to spend $1 billion for its capital program this year, but it pulled some funding out of higher-cost, lower-priced plays, such as the Fayetteville Shale in Arkansas, to redirect the money to its Haynesville Shale leasehold, which extends from northern Louisiana across East Texas. Another chunk of the revamped budget is to be spent in its promising South Texas leasehold.
"We still have north of $5.50 on the strip in the next 10 years," said Wilson. "The current month might be $3.50...but it would take us to see the strip at $4.00 two years out to change what we are doing today. That may occur, and if it does, we are fully prepared to curtail our activities."
The Houston-based independent in the first three months of the year averaged 412 MMcfe/d, which was 14% higher than in the final period of 2008 and 58% higher than year/year. Petrohawk drilled 165 wells gross in the quarter, 34 operated, at a success rate of 99%.
"This has been an interesting time...and it's created an atmosphere that demands action," Wilson said. "Our response is to put our capital on high-response prospects like the Haynesville Shale...We've basically stripped of financial resources from almost every area besides Eagle Ford and Haynesville, mainly Haynesville. In the Fayetteville, we ran 10 rigs last year. We're at two rigs now, and maybe we'll drop those...Activity has all but stopped there now. There's no more drilling on the books there this year."
Petrohawk also wants to spend money where the pay off will be higher down the line, said Wilson.
"It's important to maximize our present value and build a platform for future growth," he said. "The boundaries of the Haynesville are better and better defined. Much progress has been made in the past year, and the results are consistently above our expectations. We realize there's a disconnect between supply and demand, but we want to be ready for the upturn."
Petrohawk used eight horizontal rigs on average in the Haynesville Shale in the quarter, and by the end of March, 28 wells had been completed in the play. Initial production (IP) rates for its operated wells were 3.3-24.8 MMcfe/d, averaging 17.1 MMcfe/d -- among the highest IPs recorded. The average IP rate for all operated Haynesville Shale completions to date, excluding two wells that were "mechanically compromised," was estimated at 18.0 MMcfe/d.
"We have eight rigs now, and we have a rig or two coming every quarter in the Haynesville...around 12 by the end of the year," said Wilson. "Then we'll see later this year how 2010 looks..."
In South Texas, Petrohawk has "quietly leased" around 160,000 contiguous net acres in LaSalle and McMullen counties. Called the Eagle Ford or "Eagleford" by some producers and the "Hawkville Field" by the Texas Railroad Commission, Petrohawk said its testing results led it to add a second rig in the play by the end of March.
Petrohawk drilled three wells and completed two more in the Eagle Ford in 1Q2009. The Donnell #1H had an IP rate of 3.6 MMcf/d and 395 b/d of condensate. The Brown Trust #1H had an IP rate of 8.1 MMcf/d and 200 B/d.
"If all goes as expected, we'll add a couple more rigs this year, more toward the second half of the year," Wilson said. "Our ability to do so is almost unlimited with the rig situation right now. But we are making sure we have the technology defined, and what is best for this stage of the play."
Petrohawk still is forecasting a 40% hike in year/year growth this year. Output in 2Q2009 is expected to average 420-430 MMcfe/d. The company might consider curtailing output at some point, but the CEO indicated that is not likely to happen in the near term.
"We've hedged our gas always a year or two in advance," Wilson said. "Why bother to hedge if it weren't for this sort of time? If the wells cost more, if we weren't hedging, of course, we would slow down or curtail...Beyond that, being in the oil and gas business, we're optimists. These fields are new enough that we need to do the infrastructure, we need to define them technology, to be fully prepared with personnel, pipelines, rigs...to step up activities at some point in the future...
"We're quite happy with where we are," he said. "If anything, we're unhappy that we're not able to apply our resources to other great fields."
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