Independent producer Petrohawk Energy Corp. Tuesday announced a “significant” natural gas field discovery in the Eagle Ford Shale in South Texas, long believed to be the source of much of the oil and natural gas produced in the prolific Austin Chalk.

The Houston-based producer said it has leased more than 100,000 net acres in what it believes to be the most prospective areas for commercial production from the Eagle Ford Shale, which is immediately south of the Stuart City Field on the Edwards Reef Trend, which extends across South Texas. “The shale is rich in natural gas. The gas is high [in] Btu, which should lead to [a] price realization that meets or beats Nymex [New York Mercantile Exchange] pricing,” said Petrohawk CEO Floyd C. Wilson.

On the news, shares of Petrohawk rose Tuesday to $16.40/share, up 8.54%, or $1.40, from Monday’s close.

The discovery well (the STS #241-1H) was drilled to an approximate true vertical depth of 11,300 feet during which extensive coring and open-hole logging was performed. The well was placed on production at a rate of 9.1 MMcfe/d (7.6 MMcf/e of gas and 250 bbl/d of condensate). A confirmation well (the Dora Martin #1H) is located approximately 15 miles from the discovery well, and has been drilled, cored and logged, Petrohawk said.

The quality of the Eagle Ford Shale in the second well appears to be superior to that found in the discovery well, the producer noted. Petrohawk said it is currently drilling the lateral on this second well. A third well is expected to spud by mid-November.

In keeping with its belt-tightening moves, Petrohawk Energy estimates that drilling and completion costs for development wells in the Eagle Ford Shale will range $5-7 million. It said the development costs, including one rig that will run continuously on the project, have already been factored into the company’s 2008-2009 capital budget, which the company has scaled back in response to the upheaval in the financial and credit markets (see Daily GPI, Oct. 2). It has been “tremendously less” costly to invest in the Eagle Ford formation than other plays, Wilson said.

The Eagle Ford acreage “can be developed at relatively low cost [and] at a pace of our choosing,” he said. While Petrohawk Energy’s “growth plan…can be dialed up or dialed down,” he said that “in a falling price environment for natural gas, [you’ll] certainly not see us dialing up expenditures. We need to see some clarity there and make sure we understand where the long-term trend is.”

The Eagle Ford formation is similar in age and organic composition to the Haynesville Shale play, which is offering the highest rate of return on invested capital for Petrohawk, Wilson noted. The rocks in Eagle Ford are younger than the Barnett, Fayetteville, Woodford and Marcellus shale formations, and could provide “viable reservoirs,” said Petrohawk COO Dick Stoneburner. But it’s “way, way too early to make a comment on reserves.” Besides Petrohawk, only two other producers are known to have a presence in the Eagle Ford play — TXCO Resources and St. Mary Land & Exploration.

Petrohawk is operator of the project and owns a 90% working interest in it, with 10% owned by industry partners.

The extent of the Eagle Ford shale play could reach from the Mexican border in South Texas to northern Louisiana and beyond, according to experts. The pay appears to be productive and blankets at least four counties in South Texas. If the play is extended to the East Texas Austin Chalk fields, experts believe the potential of Eagle Ford could be significant.

In other shale plays, Petrohawk said its third operated well in the Haynesville Shale in Northwest Louisiana (the Hunt Plywood 36 #11H) has averaged 15.4 MMcfe/d over the first 30 days of production, while its second operated well (the Hutchinson 9 #5H) has averaged 14.6 MMcf/e over 67 days and its first operated well in the Haynesville Shale formation (Elm Grove Plantation #63H) has averaged 8.8 MMcfe/d over 100 days.

Petrohawk said it has instituted a “pre-drill” or spudder rig program in the Haynesville to accelerate the pace of drilling. Ten operated horizontal rigs are currently drilling in the play as well as five spudder rigs. It expects to exit the current year with 12 operated horizontal rigs drilling in the Haynesville play. So far, Petrohawk said it has drilled through the Haynesville Shale in a total of 16 wells.

The company estimates that approximately 18 wells will be on production prior to the end of the fourth quarter out of a total of 26 wells drilled through the shale section.

In addition to the Haynesville Shale activities in Louisiana, Petrohawk said it will begin testing Haynesville and Bossier Shale prospects in Shelby County, TX, with initial results expected before the end of the year. Two operated rigs will be dedicated to this program during the fourth quarter. Drilling activity also will begin on acreage included in the previously announced joint venture with EOG Resources in Nacogdoches County, TX, in the fourth quarter. Three rigs are expected to be operating within this joint venture area, targeting the Haynesville Shale, James Lime and Travis Peak formations.

Petrohawk reported that it has drilled 45 operated and 36 nonoperated wells in the third quarter in the Fayetteville Shale in Arkansas. Of the 22 operated wells that have been completed and tested by the state, four wells tested in excess of 3.9 MMcfe/d, with one of the wells testing in excess of 5 MMcfe/d, according to the producer. Production in the Fayetteville formation reached 115 MMcfe in the last quarter, Stoneburner said.

Petrohawk and other producers “have had some production curtailed [in the Fayetteville Shale] during the quarter due to construction delays [with] the Boardwalk Pipeline,” he said. As a result, producers there are seeing “less than expected prices.” Stoneburner said he expects the situation to be resolved in mid-November.

Also in Northwest Louisiana, Petrohawk said it has drilled 39 operated wells and 15 nonoperated wells during the third quarter in Elm Grove and Terryville fields. Three operated rigs are currently running in Elm Grove, as well as two operated rigs in the Terryville field. The company’s 2008 Cotton Valley horizontal program concluded during the third quarter with an average initial production rate of 7.3 MMcfe/d from three wells completed. In the Terryville Bossier/Lower Cotton Valley program, seven wells with an average initial production rate of 4.1 MMcfe/d have been completed.

A second well in the new horizontal development program at the West Edmond Hunton Lime Unit in Oklahoma County, OK, produced 1.5 MMcfe/d, while a third well has completed drilling and is expected to be placed on production this month, Petrohawk said.

Petrohawk still is evaluating the divestiture of Permian Basin properties including its interests in the Waddell Ranch, Sawyer, Jalmat and TXL fields of West Texas and southeastern New Mexico, according to Wilson. The Permian Basin properties currently produce approximately 35 MMcfe/d.

Petrohawk “[will] let commodity prices and the marketplace sort [of] dictate our direction there,” he said, adding that the “timing of this [transaction] is uncertain,” possibly sometime in 2009.

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