04
Aug

Petrohawk Beats, Guides Up, Announces Deal

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Petrohawk Reports Much Better Than Expected Production; Revises Guidance Sharply Higher ... And Does A 25 Million Share Deal.

The 2Q Numbers:

  • Production of 483 MMcfepd (94% gas), a world away above the 2Q guidance range of  425 to 435 MMcfepd.

    • vs 412 MMcfepd in 1Q09 and
    • vs 283 MMcfepd in 2Q08
  • Operating Costs: Better than expected cash costs at $2.97 / Mcfe

    • LOE of $0.43 Mcfe vs and last quarter's $0.44,
  • EPS of $0.10 (ex items) vs $0.05 expected
  • CFPS of $0.50 vs $0.48 expected

Guidance: Monster Upward Revisions

  • 3Q09: Initiated at 495 to 505 MMcfepd.
  • 4Q09: Initiated at 525 to 535 MMcfepd.
  • 2009:  Upwardly revised from a prior range of 435 to 445 MMcfepd to a new range of 475 to 485 MMcfepd.

    • This equates to going from up 44% on the year to up 58% on the year which puts them in the second slot for growth this year after SWN amongst E&Ps of significant size. 
  • 2010:  They see 30 to 40% growth in 2010 for the same capital budget as 2009. The mid point of that range puts average production in 2010 at 650 MMcfepd.
  • There was no operating guidance issued with the press release but it should be coming down on a per unit basis as volumes ratchet up.

Budget: No mention of a budget increase which would mean lower than expected finding costs. In fact, the only mention of the budget was to say that deal proceeds may go to partially fund the budget and that the budget for 2010 could match that of 2009 (which at last check was $1.3 B)


Where's The Growth Coming From? Production Pie:

Operations Update

  • Haynesville Shale:

    • Fourteen operated wells were completed during the quarter with an average IP of 17.3 MMcfepd. The play is showing consistency as far as IPs (and presumably less so for reserves) with an average of 42 operated wells to date average 17.9 MMcfepd.
    • Average 1st 30 day production of 14.2 MMcfepd.
    • 12 rigs now running.
    • 285 MMcfepd gross at quarter end.
    • Drilling time continues to fall and spud to first production was 71 days in the quarter, down from 80 days in 1Q09.
    • CWC of $8.5 to $9.5 mm - they continue to experiment with completions to reduce costs and improve well performance.
    • Acreage: 325,000 net acres now, concentrated in the N. Louisiana core part of the play.


  • Eagle Ford Shale: (added a third rig)
    • IPs on 8 completed wells now average 8.6 MMcfepd
    • 30 day average production is 6.0 MMcfepd which is not too shabby.
    • Last six wells reached TD in 18 days
    • CWC now $5 mm per well, middle of past estimate.
    • 210,000 net acres, up from 156,000 as of last notice.
    • Plans to drill several stepouts to explore newly added acreage.
  • Fayetteville Shale:

    • Still 2 operated rigs
    • 80.3 MMcfepd net at quarter end, up 13% from the beginning of the year with all growth attributable to non-operated wells.

Share Offering: 25 mm share secondary

  • Use of proceeds: potential acquisitions, funding part of the budget, and potentially to repay bank borrowings
  • If the green shoe is exercised (3.75 mm shares) this comes to 10% of current outstanding shares.
  • Proceeds would be somewhere around $625 to $675 mm (depending on pricing) after fees.

Nutshell: Fantastic results. Hard to say they bagged the Street when the growth trajectory did such a hockey stick off of the first quarter's results. Of course that is all overshadowed in the immediate term by yet another secondary. It's not clear yet how much of this deal was needed to fund the budget or if the budget was being expanded (without giving it too much thought I'd say it is and they just are not ready to make it official yet).  What I'm going to do. Listen to the call. Then decide if I would buy more, do nothing, or punt. Just looking at the results of the quarter and the guidance, the answer would have been obvious. The deal clouds sentiment so they will need to talk about why they are doing it and why they don't find their shares a bit more precious in this low gas price environment.

Conference Call: Wednesday, 9 am EST

3 Responses to “Petrohawk Beats, Guides Up, Announces Deal”

  1. 1
    bill Says:

    down 1.38 in after hours..so the secondary offsets all this good news

  2. 2
    zman Says:

    Bill – I think only in the very immediate term. It traded into the low 23’s just after the deal was announced and has limped higher for the last couple of hours, now 23.90 by 24. If it opens in this area I’ll be pretty tempted to add here.

  3. 3
    zman Says:

    One other thing to note, they added 10% to the share count and guidance for 2009 went up 10%. So production per share stays the same as before the announcement. Take the overallotment into account and production per share falls a little bit. One thing about these guys and production growth targets: They don’t set targets they can’t beat.

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