HK Notes Page

 

HK Notes Page - collection of notes and short pieces on Petrohawk:

From 10/1:

HK Cuts The Budget

• Cutting Budget by One-Third, shifting to higher return projects (Haynesvile & Fayetteville shale)
• Reduces rig count by 20 to 25%
• Reaffirmed guidance for this year (growing 10% per quarter)
• 2009 production growth set at 25 to 35%
• Borrowing facility of $1.1 billion is not drawn at this time
• No plans or needs to access the capital markets
• They could still grow 15 to 20% with a budget of half a billion…in the words of CEO Floyd Wilson they could cut capex back further, still grow 15% per year if things "got really shitty".
• Will look at selling Permian assets, not today due to market conditions but at some point
• Haynesville Shale Update - press release out shortly
  • average cost $5,000 per acre
  • 300,000 acres
  • Will spend $500 million (half of their capex) here in 2009
  • 100 to 125 wells next year based on that $0.5 billion budget here
  • "never seen anything quite like it"
  • have a new well with an IP of 20.1 MMcfepd (Hutchinson 9 #5); last big well they announced was 16.8 MMcfepd
  • "sufficient capital committed to retain all leases"
  • 12 rigs + 6 spudder rigs. Note the drill time is expected to fall from 75 days to 60 days next year. That’s like adding three more rigs.
• Fayetteville Shale Update:
  • "going great"
  • laying their own gathering system (150 miles) due to some infrastructure delays
  • will spend about $400 million
• In A Nutshell. The writing for capex reductions has been on the wall for a couple of months here and in all the fast growing E&Ps. Production growth is still very strong and they have a lot of financial flexibility. Market may see it as a negative on a bad day but why spend more, growing at accelerated rates when no one cares. I think a dip here today is a buying opportunity for me, market willing of course. Besides this is a pretty painless reduction with no adjustment to 3Q earnings (despite the impact of Ike) and nothing to 4Q (pretty strong results in Haynesville and Fayetteville).

10/21/08

HK 3Q08 Operations Update + Plus Announces the Eagle Ford Shale

 HK Provides 3Q08 Operations Update

Somewhat better than expected decline rates in the Haynesville. Probably suggests a) better than expected production to targets and b) high recoverable reserves (probably above 6.5 Bcfe)

• Another high rate Haynesville well announced at 17 MMcfepd IP; more important was the 30 rate of 15.4 MMcfepd
• The EGP #63H (their first Haynesville well) now has been online for 100 days with average production of 8.8MMcfed; this IP’d at 16.8.
• Another well with 67 days of history as averaged a whopping 14.6 MMcfepd over the period.
• 16 wells drilled to date - very consistent, thick, high quality shale
• Using 10 horizontal rigs and 5 spudders.

Fayetteville Shale: Seeing better rates.

• They are seeing rates fo 4 to 5 MMcfepd which would put them among the best wells seen in the play (as good as play drivers SWN and CHK’s best wells) due to improvements in completions.
• Lateral length and number of frac stages growing.
• Boardwalk pipeline should be on line mid-November…this has been a headache for operators in terms of delay as the play is currently constricted.

Eagle Ford Shale Discovery: La Salle County (south Texas).

• over 100,000 acres leased
• discovery well IP’d at 9.1 MMcfepd with a high liquids cut (7.6 MMcfgpd and 250 barrels of condensate per day)
• second well drilled 15 miles away (I guess you can call that an extremely long range step out) appears to be of higher quality on logs and cores and the lateral section of the well is drilling now.
• First well drilled pretty deep at 11,300 feet with a 3,200 lateral. HK is putting well costs at $5 to $7mm and will hold a 90% interest in this play and operate
• 3rd well to spud in November and 1 rig will run continuously here for now
• This play is in no analyst’s numbers but notably the capex for early development of the field is within the numbers already published for the remainder of 2008 and full year 2009.

What The Eagle Ford Could Mean To HK:

Just roughing out some quick numbers on the Eagle Ford Shale for HK:

they say they have leased over 100,000 acres, lets call it 100K to keep the math straightforward.

With the following assumptions they may be able to say could have potential reserves of around 3 Tcfe.

80 acre spacing…just a guess for now but is being done in other shale plays (8 laterals per section (1 sq mile)

5 Bcfe per well…based on the IP of the first well sounds doable to light but its too early to say definitively

25% royalty

90% working interest

risk the acreage by 1/3 to be conservative meaning 66K acres can be developed for the Eagle Ford and you have:

66,000 acres / 80 acres = 825 drilling locations.

5 Bcfe/well X 90% WI X royalty = 3.6 net BCFE per well.

3.6 Bcfe X 825 locs = 2.97 TCFE.

take the middle of their well cost range and you have 825 wells @ $6 mm apiece = $4.95 billion of CWC completed well cost which puts F&D around $2 when you add in acreage and gathering system costs. Not too shabby.

Put that 2.97 Tcfe up against the year end 2007 reserves of 1.1 Tcfe and then think about what the Haynesville is adding and you have a lot of reserves.

December 9, 2008

(HK)’ Haynesville Wrap and Long Term Thoughts:

• Putting today’s HK well news in perspective with their guidance:
  • 3Q production: 315 MMcfepd
  • 4Q guidance: 355 to 365 MMcfepd
• Yesterday’s three wells initially add 73 MMcfepd gross or about 48 MMcfepd net after royalties and half that figure after their first 3 months considering the usual declines.
• Production at the end of the third quarter was higher than the 315 MMcfepd quarterly average but deducting normal declines while adding say 20 MMcfepd or so for these wells which came on late in the quarter may not ensure the 4Q target is reached but it doesn’t hurt and it sets up a strong start to 2009. They’d already modeled a good ramp in and nothing like these wells was in the mix. So look for stronger than expected guidance for 2009 (it had been 25 to 35% and though I bet they leave it alone, it will become an easier beat with this kind of performance)

Current plans call for a 12 rig program in 2009 for Haynesville Shale horizontal wells. What that means:

• Production Growth: They assume the wells will be drilled in 65 days but lets just make it simple and say those 12 rigs drill and complete 1 well each per quarter for 48 years on the year. Just for kicks, the back of the envelope production add on those wells were they to come on stream at an average IP of 15 MM/d, evenly spaced over the year with a decline rate of 81% (seems like a good decline rate for the basin according to the lead players here) , with an average working interest of 75% and an average royalty of 75% would be mean an add of 200 MMcfepd net to HK over the four quarters from the end of 1Q09 to 1Q10.
• Reserve Additions: From a reserves standpoint, those same wells adding an average of 6.5 Bcfe of reserves per well, again assuming they over 3/4 of each one, would yield reserves of 175 Bcfe, net of royalties for the 2009 reserves report (net of the aforementioned production of course) which compares pretty favorably to year end 2007 reserves of  1.1 Tcfe.  

Eagle Ford Shale: This is upside the Street is not giving the stock credit for. Could see another press release on 2 more wells here prior to year end.

Hedges are strong. Latest is 70% of expected 2009 hedged at $7.97,

Feb 2, 2009

HK Provides 4Q08 Operations Update & 2008 Reserve Metrics

• Production Comments: Mostly unchanged from last press release
  • 361 MMcfepd up 15% from 3Q and 52% YoY, this was in the middle of the guidance range for the quarter. The only thing new to note is that they noted they achieved this despite "some" shut ins due to low prices in the Fayetteville Shale as basis differentials there widened due to constrained takeaway capacity (since resolved by the completion fo the Boardwalk pipeline)
  • 2008: exited at approximately 400 MMcfepd. Nothing new here. Note that held flat, they achieve their 25 to 35% growth target for the year.
• Reserves:
  • 1.42 Tcfe, up 34% (Netherland Sewell reserve engineers so you’ve got a good, conservative handle on reserves here). Recent guidance here was 1.35 to 1.40 Tcfe.
  • Only 11% of proved reserves are from the Haynesville meaning they have a long way to go here
  • Reserve Replacement of 419% - that will be above average this quarter and above their last thought of 300%
  • F&D: 4Q spending not given so its a bit early to get a drill bit only F&D rate. The "all in" number will be high this year given the land grab in the Haynesville in the first half of 2008.
• Operations Update:
  
  • Haynesville Shale:
    • 4 New wells completed: Average IP of 17.7 MMcfepd
    • 2 others completed with mechanical issues (this is deep, hot, high pressure stuff): IP of 5.4 and 11.1 MMcfepd.
    • Current Production: 160 MMcfepd gross with 16 wells on:
      • 11 wells averaged 15.2 MMcfepd over their first 30 days of production
      • 8 wells averaged 13.2 MMcfepd over 60 days
      • and the 4 wells they had on over 90 days so far have seen average production during that 3 months of 8.8 MMcfepd. 
      • So you can see the impact of an 80% harmonic decline in the first quarter of a well’s life comes out to something like cutting the initial production rate in half over the period. 
      • The will be conducting a pilot program using a smaller choke size to see if that impacts recoverable reserves so we may see less of the big wells for a time going forward.
    • Current Well Methodology
      • Laterals of 4,300 to 4,600′
      • up to 15 frac stages (at about $350,000 a pop)
      • These are probably $8.5 to $9.0 mm wells
      • 75 days spud to spud
      • 12 rig program (unchanged from prior guidance)  which allows for 75 to 80 wells here this year (about 6 per month.
• Fayetteville Shale
  • Gross operated production: 145 MMcfepd at YE08 (yes, it got passed up by the H.S.)
  • lateral lengths and frac stages per well inched up all year long …
  • … as did initial production from 1.919 MMcfepd in 1Q08 to 2.456 by 4Q08.
  • No mention of rig count for 2009, I’d guess it may be under review for a reduction
• Eagle Ford Shale
  • 2nd well completed with an IP of 8.3 MMcfepd on a 4,300 foot lateral with 12 frac stages
  • the first well saw a higher IP (9.1 mm/d) with a shorter lateral (3,200 foot) so this may be a bit of a disappointment.
  • a third well is expected to be completed by mid February so we may see a rate there on the Feb 25 conference call.
  • 1 rig program and 50 days from spud to completion means we will likely see 6 wells here this year in this 100,000+ acre developing play.
• In a nutshell: Good operations update, good reserve growth, nothing of world-beater status in here beyond what we already know, no further guidance given, if it pops on this I’ll likely punt my February calls and take a wait and see approach with a small trade here and there based on market whimsy. Not sure what new they will have to talk about on their call on the 25th as this kind of steals the show and I have a suspicion that they may be thinking its time to get the stock up a little to do a secondary. I’ll add this to the HK notes page on the Reports tab.