GDP Notes Post


GDP Announces First Haynesville Shale Success

  • (CHK) operated Holland 17H-1 IP of 14.5 MMcfgpd (one of CHK’s better wells to date here)
  • Working interest (50% GDP, 40% CHK, 10% PXP)
  • Nothing to write home about as Haynesville wells go but very solid…does make one wonder if CHK has an ops update around the corner.
  • GDP also announced a stout 7 MM/d James Lime horizontal.
  • Quick stats:
    • GDP net debt to total cap is 4%, ($250 mm debt but $224 mm cash), $175 mm revolver remains undrawn
    • reserves are 97% natural gas,
    • 1P reserves of 422 Bcfe (properties concentrated in E. Tx and NW and W. La),
    • Primarily a Cotton Valley player, increasing focus on Haynesville Shale and James Lime
    • 3P reserves of 2 Tcfe + another 2.5 to 5 Tcfe for the Haynesville, 
    • 2009 estimated growth: 30 to 40%
    • 65% of $300 million 2009 budget goes to the Haynesville (capex entirely out of cash flow and cash on hand)
    • In 2009 they plan to drill 47 net wells with 27 of these targeting the H.S.; they have over 2,500 net well locations on their acreage
    • 2009 hedges: just under 50% of expected gas production hedged at $8.54 with another 20% hedged with $8.75 floors and $13.10 ceilings. Nice.
    • Trades at 7.5x 2009 CFPS estimates which is high to the group now (group closer to 4x) but it is one of the few expected to generate positive top and bottom line growth next year.


GDP Offers New Presentation - little new meat here but a few morsels

  • Haynesville shale program will 65% of 2009 budget; probably can add 30% to 40% to company-wide proven reserves with the 2009 H.S. alone.
  • That will bode for another triple if not quadruple reserve replacement year which will be best in class or next to it.
  • Using the mid-point of their potential reserve guidance they see Haynesville Shale reserve potential of 3.6 Tcfe vs the 0.422 Tcfe they had booked at mid-2008 which contained no H.S. impact.
  • Everyone is sticking with 6.5 Bcfe per well at present for a middling H.S. well but given the high initial rates its seems likely that 4Q will see HK and CHK both up their thoughts close to 8 to 10 Bcfe per well meaning the finding costs are going to be better than most people seem to be writing about. 
  • At $6 gas, the worst H.S. well (4.5 Bcfe type curve) is still a 20% IRR well even if it costs $8 mm which now looks high. At $7 and $7 mm with the mid sized 6.5  Bcfe well that IRR improves dramatically to 60%. So in a nutshell, the wells are some of the most profitable ones in the U.S. during times of low gas prices. 
  • GDP has 2 wells completing in the Bethany Longstreet field (H.S. nw La) where they completed at 14.5 mm/d well last week.This is 8.5 Bcfe recoverable country.
  • They have another 2 wells completing in the Longwood area (H.S. nw La due north of Bethany) in the area where HK has been completing 20+ mm/d IP (initial production) wells.These are bigger, although its not linear to IP, they are probably over 10 Bcfe.
  • 60% of 2009 production hedged at $8.61. Beats the 12 month strip pretty handily which now sits at $6.09.
  • 2009 Production growth of 30 to 40% - unchanged from last update.

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