HK Misses On Bottom Line Which I Think Will Get Overlooked, Guides 2009 to 30 to 40% Growth

This post was included in the Wednesday post and is reposted here for inclusion in the archives. Notes from the conference call are attached at the bottom

HK Misses On Bottom Line Which I Think Will Get Overlooked After The Fall; Guides 2009 To 30 to 40% Growth

2Q Numbers:

  • Revenue of $305 vs $268 million expected
  • EPS of $0.23 vs $0.27 expected
  • CFPS of $0.80 vs $0.86 expected (range of $0.70 to $0.97)
  • Production of 283,000 Mcfepd (91% gas) vs guidance of 280 to 290,000 Mcfepd. This represents
  • Lease operating expense of $0.50 / Mcfe vs $0.52 last quarter. Very low.


  • 3Q Expected production of 310 to 320,000 Mcfepd
  • 2008 range stays the same at 295 to 315,000 Mcfepd. Implies annual growth of 27% and implies a 4Q average of 360,000 Mcfepd.
  • 2009: Anticipates 30 to 40% organic growth

Mid Year Reserves up 25%: Reserves rise to 1.33 Tcfe (internal estimate) from 1.1 Tcfe booked at YE07. This includes no reserves from the Haynesville which should be a significant add by year end putting gross reserves of between 5 and 7 Bcfe per well on the books.

Operations Update: Getting Busier

Haynesville Shale:

  • > 300,000 net acres in LA and TX, up from 275,000 at last count…plan was to go to 400k
  • half acreage is longer than 3 year lease term, avg cost is $5,000 per acre.
  • First well results to date:
    • 30 day average production of the first well was 13.7 MMcfepd
    • Core analysis indicates possibility of 170 Bcf gas in place per section (they have been thinking the whole play in the core would be seeing 45 to 55 Bcf per section).
  • Second horizontal well: the Hutchinson 9-5 (91% working interest)
    • completed at 16.7 MMcfepd; recall the first well IP’d at 16.8 MMcfepd.
    • see 151 feet of Haynesville
  • Third well still drilling, expect to complete early September, see 160 feet of pay here.
  • A fourth non-operated well is completing now and shows 158 feet of pay
  • 3 rigs running, doubles in September…plan to drill 29 wells here (including the four above) this year so its about to get very busy. Sees spud to connection timeline of 75 days falling to 60 days in 2009.
  • 2009 plan calls for 140 wells

Fayetteville Shale:

  • Production: > 90 MMcfepd gross which should put their net production > 50 MMcfepd
  • 9 rigs drilling horizontals and one spudder rig, up from 6 rigs last quarter. Moving to 10 rigs and 2 spudders this quarter.
  • Continuing to see improved initial results here. Also seeing improved results from cemented liner systems and from added gas lift (300 Mcfepd for $40,000 add) which they plan to add field wide. 


Elm Grove

  • 10 rig program now (up from 8 last quarter); 2 horizontal and 8 vertical
  • The horizontal Taylor Sand program continues to wow. 3 IPs this quarter:7.8, 9.8, and 11 MMcfepd.


  • 3D expansion to the west being shot dor 4Q delivery…it’ll be interesting to see if they mention the Gray sand with regard to that.
  • Added some nice CV and Bossier Sand wells during the quarter with average IP’s of 5.6 MMcfepd.

WEHLU- West Edmond Hunton Lime- Horizontal oil recovery play out in the middle Oklahoma

  •  increasing rigs here to 3
  • nothing else new


Conference Call: Wednesday, 10 EST.

Conference Call Notes:



Net debt to cap of 30%
borrowing line remains undrawn

Fayetteville Shale
44% increase in wells drilled count 1 Q to 2Q
27% seq growth in production, non op well count incr 36 to 59 in 2Q
operating wells : state tests show 2.3 MMcfepd, vs 1.7 mmcfepd in 1Q in same region.

North region - this is cheaper area - saw 3.2 mmcfepd with cemented line with 6 stage frac (first cemented liner in the northern part of play (shallower makes cheaper).

Elm Grove update
those Taylor wells - avg 9.5 mm/d for those 3 wells.
Hosston recompletions: 11 mmcfepd gross/7.5 mm/d net aggregate. Nice low $ adds.

Sawyer Field - Sutton County - excellent results so far. They finalize their JV with EOG.

Haynesville update on the way…

10 rigs by 2008 YE and 20 for 2009. Rigs have been secured.

140 operated in 2009 and more in later years.

Drill at least 1 well per section in the 3 year lease area which is about 150,000 acres.

The H.S. works in a wide variety of gas price environments.

See the coming wells here as better as dictated by learning curve and experience.

CHK moving on these comments.

regional estimate for takeaway capacity: current takeaway is - didn’t say.

several new projects underway will add 2 to 3 Bcfgpd in between 2009 to 2011. That should settle the gas market a bit as that is not glut style growth.

Rigs secured for 2009. Are they newbuild? 7 or 8 are newbuilds coming in late 2008/early 2009.

E Texas - Haynesville …when do you move west and test? Scheduled wells in Harrison down to Shelby in 2008, will have results by year end. Wow, that’s PVA / QMXR country.

170 Bcf per section. They are not saying that gas in place factor covers all their area. They have joined the sharing of core data groups to get the well costs down. Recall others have been saying 45 to 55 and 30% recovery factor. He thinks they do better, at least in this area that its early to say, trying to stay conservative. Undertaking a very extensive reservoir modeling study.

HK saying they are still trying more techniques in the Fayetteville shale and they will spend $ to try cemented liners and more stages to optimize. They are watching what SWN is doing. In the quarter they were in a greater number of non-operated wells than operated so they are learning from the “larger players” in the play.


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