Natural gas-heavy Goodrich Petroleum Corp., whose primary exploration is in the Haynesville Shale, is planning a $55-65 million capital budget for 2020, down 35% from the midpoint of this year’s spending.
The Houston-based independent expects to grow year/year production in 2020 by 12.5-17.5% to about 53-56 Bcfe, or an average of 145,000-153,000 Mcfe/d for the year.
Natural gas is expected to comprise 99% of total production from Goodrich’s three primary Lower 48 targets: the Haynesville, Eagle Ford and Tuscaloosa Marine shales.
Most of next year’s capital expenditures (capex) are earmarked to drill and complete core Haynesville wells in the Bethany-Longstreet area in Louisiana’s Caddo and DeSoto parishes.
At average natural gas prices of $2.50/Mcf and oil prices averaging $55.00/bbl, management expects to generate $15-25 million of free cash flow (FCF). At the midpoint of guidance, FCF yield is estimated at 9% on current enterprise value and 16% at market capitalization.
Under the current capex plan, Goodrich expects to complete and turn in line 5.8 net horizontal wells in 2020 with an estimated blended net average lateral length of around 8,500 feet.
Around 72% of the net wells to be completed next year would be operated by Goodrich.
The preliminary capex budget is subject to a quarterly review and approval by the board, “with the flexibility to accelerate in the second half of the year depending on commodity prices.”
Management also noted that “cash margin is expected to continue to expand as unit costs decrease with the growth in volumes.”
In addition, Goodrich has hedged 45-50% of its expected natural gas volumes for 2020 at a blended average price of $2.60/Mcf.
During 3Q2019, Goodrich ran one rig in the Haynesville, which mirrored the second quarter. The company did not run rigs in its other plays over that period.
Total gas and oil output increased by 61% year/year, but it fell 1% sequentially to average 136,000 Mcfe/d. The slight decline followed the loss of about 4,100 Mcfe/d total because of third-party pipeline maintenance of 2,200 Mcfe/d and shut-ins from the offset fractures of 1,900 Mcfe/d. Only 0.9 net well was completed in the quarter versus previous guidance of 2.0 net wells.
Because of market conditions, Goodrich deferred completions on 1.0 net operated well and 0.75 net nonoperated wells until 1Q2020, bringing total drilled but uncompleted Haynesville wells to 2.5 net going into the new year.
Production for 4Q2019 is expected to be 140,000-145,000 Mcfe/d, which is lower than previous guidance by an estimated 14,000 Mcfe/d because of the deferred completions. For 2019, Goodrich said in the third quarter results that it expected to complete 7.2 net wells, down from previous guidance of 9.3 net wells.
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