With service costs once again escalating onshore, "joint ventures are still in vogue" and some producers are prowling for investors, SunTrust Robinson Humphrey/Gerdes Group (STRH) said this week.
Over the course of a few days in late June, analysts John Gerdes, Cameron Horwitz and Ryan Oatman sat down with executives at some of the Houston area's busiest domestic producers, as well as an oilfield services provider, to get a feel for what's ahead in the gas patch.
The bus tour with investors took the STRH team to sit-downs with 10 producers: Anadarko Petroleum Corp., Apache Corp., Cabot Oil & Gas Corp., Carrizo Oil & Gas Inc., Goodrich Petroleum Corp., Petrohawk Energy Corp., Newfield Exploration Co., Rosetta Resources Inc., Southwestern Energy Co. and Ultra Petroleum Corp., as well as one service operator, National Oilwell Varco.
What they came away with were certain "key themes," said Gerdes. Among other things, service costs are continuing to rise.
"Haynesville operators report fracing [hydraulic fracturing] costs are up 75% from the '09 trough," he said. "In the Eagle Ford Shale, some operators are extending contracts and working with smaller private service providers to alleviate completion cost pressure."
Anadarko has six rigs running in the Eagle Ford play. It's begun to extend contracts and is working with smaller private operators to "alleviate completion cost pressure," Gerdes said.
Another venue on the table being considered by some operators is joint ventures (JV).
Anadarko, Carrizo and Petrohawk "expressed interest" in exploring partnerships, and "the industry appears most enthusiastic about Eagle Ford partnerships," said Gerdes.
Anadarko hasn't paid for any of the clean-up/remediation costs associated with the Gulf of Mexico oil spill. The company owns a one-third interest in the BP plc-operated Macondo well.
"A settlement appears likely, as Anadarko seeks to provide certainty to the marketplace," said Gerdes.
Given the $10,000-plus per acre valuations in the Eagle Ford Shale, a "Marcellus-type" JV could accelerate the company's value, Anadarko officials told STRH.
In February an affiliate of Japanese trading giant Mitsui & Co. Ltd. acquired a one-third stake in Anadarko's Marcellus Shale leasehold (see Daily GPI, Feb. 17).
Carrizo, meanwhile, faces a backlog of 30 drilled but uncompleted wells in the Barnett Shale, and the company is planning to complete 20 of them this year "if gas prices cooperate."
Carrizo also faces the loss of its current Marcellus Shale partner, which is "looking to sell its interest in Pennsylvania," said Gerdes. Last year energy investor Delphi Midstream Partners LLC struck a deal to buy one of Carrizo's Barnett gas gathering systems and agreed to invest up to $100 million in its Marcellus infrastructure (see Daily GPI, Oct. 6, 2009).
Eventually Petrohawk also wants to partner on its Eagle Ford midstream assets, the company told analysts. In addition, it's "open to the idea of selling its Fayetteville [shale] leasehold for the right price."
But don't look to the "natural buyer," said Southwestern, which is the Fayetteville Shale's largest producer. Company officials told Gerdes and his team that they are "not interested in Petrohawk's acreage at this time..."
At Southwestern, officials are considering "10 new venture opportunities, comprising eight in the U.S. and two in Canada. Seven are gas prospects and three are oil prospects," Gerdes said.
Producers operating in the Haynesville/Bossier play in Texas also reported to the STRH team "highly prospective" results from the Shelby Trough.
"Reportedly, multiple industry wells have commenced at 30-plus MMcfe/d, with one averaging 20-plus MMcfe/d over the first 25 days of production," said Gerdes. "The Bossier Shale may prove superior to the Haynesville in this area."
Overall, STRH found "few near-term changes in the Gulf. The moratorium appears unlikely to alter operators' near-term production outlooks given prior drilling. Companies showed little interest in aggressively buying Gulf of Mexico assets despite market weakness."
Separately, energy investment guru G. Allen Brooks of Parks Paton Hoepfl & Brown noted this week that "the number of rigs drilling for natural gas in the U.S. has increased by about 200 since the start of the year...
"There are about 275 more gas-oriented rigs drilling today than a year ago, so there has been some moderation in the pace of increase in response to low gas prices."
Lease exploration timetables, said Brooks, have become the "controlling factor" for gas drilling because producers don't want to lose the money they've paid for the right to drill even if current gas prices are "nowhere close to supporting the economics" of drilling projects.
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