Petrohawk (NYSE: HK ) investors just got punk'd.
Upon the release of its year-end results earlier this week, the oil and gas company raised both its production guidance and its estimated per-well recoveries in the company's Haynesville shale play to 7.5 billion cubic feet equivalent (Bcfe) of gas. The latter revision bumped up the company's estimated Haynesville resource potential by 15%, to 13.7 trillion cubic feet equivalent. Chesapeake Energy (NYSE: CHK ) and XTO Energy (NYSE: XTO ) use a 6.5 Bcfe-per-well model and Comstock Resources (NYSE: CRK ) goes by 5 Bcfe per well.
The following day, Petrohawk announced a placement of 22 million shares, which would dilute equity owners by roughly 9% in one fell swoop.
So much for October's declaration of "no current plans or need to access the equity capital markets." "The Hawk" just hocked a loogey in your eye, Fool.
No wonder management struck a defensive tone on its conference call. Regarding 2009 spending, CEO/Chairman Floyd Wilson said, "We're not going to back off from a good business."
I agree that drilling Haynesville wells is a good (but not great) business today. Even though the darn things cost around $10 million each, they're still a good economic bet, thanks to huge initial production rates. But that leads to one of the things that irks me here: Chesapeake recently spoke about modeling 82% first-year decline rates on these monster wells. You would think this extremely front-weighted production would encourage Petrohawk to follow folks such as EOG Resources (NYSE: EOG ) and St. Mary Land & Exploration (NYSE: SM ) in deferring spending so as to maximize value creation.
Petrohawk's production is hedged to the tune of 60% this year, so the folks at the company aren't completely off their rockers. But the clear choice of growth over per-share value maximization is enough to turn me off -- for good.