HK 1Q09 Operations Update


HK 1Q09 Operations Update:

  • 1Q09 Production Released:
    • 412 MMcfepd vs guidance of 400 to 410 MMcfepd. Under promise, Over deliver.
    • This is up 14% from the 361 MMcfepd of 4Q08 which itself was up 15% from 3Q08 …
    • … and up a whopping 58% from1Q08.
  • Haynesville Shale Update:
    • 8 rigs running (down from 11 operated at year end); dropping spudder rigs to keep activity from ramping
    • Spud to first sales of 80 days, expected to go to 75 average for 2009
    • 28 operated wells completed to date in the play
    • Average production of 18 MMcfepd gross excluding to mechanically limited wells
    • Plan for 2009 is to step out from early hunting grounds with wells out 40 miles east-west and north-south in Louisiana (Caddo, Bossier, Red River, DeSoto parishes targetted).
    • In east Texas they are JV’d with (EOG), very encouraged by first well - not yet completed.
    • Expect takeaway capacity of 850 MMcfepd in 2009.
    • "quietly, surgically acquiring leasehold" - not a big program right now.
    • they have redefined the field in terms of prospectivity - see NY IPAA slide show (darker gray more p
  • Eagle Ford Shale Update:
    • 2 rigs running
    • 2 wells completed during the (4 so far to date)
      • rates of 6.1 MMcfepd and 9.3 MMcfepd - not out of line with the first wells, condensate rich(getting better than expected realizations here)
    • declines appear shallower than modeled or seen in other shale plays
    • high gas content, porosity, permeability in at least part of the play (still only a handful of wells drilled)
    • bigger EUR than originally thought - bumping it to 5.5 Bcfe with a range 4 to 7 Bcfe
    • quicker to drill - a five well has been drilled but not yet completed - 22 days, down from 53 day average for the first 3 wells (no pilot hole, no intermediate casing string). Past comment here was that they expected the wells to take 50 days to drill. This is a pretty remarkable change as opposed to the usual learning curve and cost reduction regime (don’t think they will do all of them in 20 days but still, far less than 50 can be expected). Assumption is now 30 to 35 days spud to spud.
    • current well cost of $4.5 to $5.5 mm (sub $1/Mcfe finding costs on the average well…nice)
    • If you look at their latest presentation they now see their Eagle Ford shale position as holding more potential future reserves as their Fayetteville position.
    • Leasing continues with 160,000 acres now held.
  • Fayetteville Shale Update:
    •  Operating 2 rigs
    • 27 well backlog due to delay of the Boardwalk pipeline completion. So they beat the top end of guidance without these wells ….
    • … and now get to take advantage of frac costs to complete the wells that have fallen 60%. Nice.
  • Capex Updated:
    • Budget maintained at $1 B. Thanks HK for not raising this due to the Eagle success.
      • they do see increased activity in the Eagle Ford but that cost reductions will stretch their dollars.
  • Guidance:
    • 2Q09 of 420 to 430 MMcfepd. Exit rate for 1Q09 not provided but may get at IPAA this afternnoon.
    • 2009: reiterated at 40% growth which equates roughly to 428 MMcfepd.
    • No plan to curtail production. Would require a $3 to $4 two year strip
  • Conference Call: they held one early this morning.

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