This Haynesville Hypester's Not Off the Hook

Yesterday, Goodrich Petroleum (NYSE: GDP  ) announced the completion of its third operated Haynesville shale well in East Texas. You may recall that I placed Goodrich, along with fellow Haynesville hero Petrohawk Energy (NYSE: HK  ) , on my Well Test Wall of Shame for proclaiming highly ambiguous initial results.

Maybe somebody down there took my heckling to heart. In this latest release, Goodrich says its new well "produced into sales at a 24 hour initial production rate of 9.3 MMcf per day on a 24/64 inch choke with 5,200 psi." That wording, which specifies a time period and actual production from the wellhead into the sales line, is certainly an improvement over Goodrich's past releases.

Still, Goodrich hasn't gotten onto my good side just yet. As I said last time, companies need to provide 30-day production data. Anything less is just too light on information for my taste, particularly when we're talking about wells that decline as fast as these Haynesville gushers.

To illustrate the hype potential of these initial production rates, let's take Goodrich's first of three East Texas Haynesville completions back in May. This was reported to have "tested" at a rate of 7 million cubic feet per day. As we learned in June, Texas requires a 72-hour test to determine the deliverability potential of a well. That state data recently became available, and guess what? This well didn't produce at 7 million. Or 6 million. Or 5 million.

No, the J.K. Williams 7H potentialed at just under 2.5 million cubic feet per day. That's a woefully inadequate rate for a pricey Haynesville well.

Fortunately, Goodrich is seeing some better results on the Louisiana side of the play, with partner Chesapeake Energy (NYSE: CHK  ) . Petrohawk, meanwhile, looks like it may have the best position in the entire play. So the Wall of Shame doesn't mean "going down in flames." It just indicates that the potential for misleading investors is higher than in the case of EQT (NYSE: EQT  ) , Penn Virginia (NYSE: PVA  ) , or others who highlight 30-day rates.

Chesapeake Energy is an Inside Value pick. See if any of our newsletters spins your drill bit with a free 30-day trial.

Fool contributor Toby Shute doesn't have a position in any company mentioned. Check out his CAPS profile or follow his articles using Twitter or RSS. The Motley Fool owns shares of Chesapeake, and has a delightful disclosure policy.


Read/Post Comments (1) | Recommend This Article (16)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 17, 2009, at 12:05 PM, Independent6 wrote:

    Please refer to CHK first Q webcast. CHK top technical people state (verbally, not in written presentation) Haynesville well first year decline approx 86%, second year approx. 30%, third year approx 26% and further state they are not sure where the production curve flattens out. Very honest assessment and a very significant warning sign that things are not all roses. CHK has an excellent technical team and they may be able to tackle all of the technical issues and they may not. Companies with lesser teams are at risk of getting a very big bloody nose. HK may be one of the winners, but people need to ask a lot of hard questions.

    Also note GMXR presentation where they go to great lengths to describe all of the things they are doing on completions. This suggests they might be struggling to get the right formula. This is a very expensive kitchen to be playing with your recipes. They may figure this out, but you chew up huge amounts of capital in the process.

    Full cycle ecomomics and the economic success of the project require that you get the right drilling and completion processes in place rapidly. In a $3 mcf gas environment you simply cannot afford many mistakes. Some companies' balance sheets can stand more experimentation than others.

    Anecdotal data from the field suggests all companies in play are likely experiencing significant issues formulating an effective and long lasting completion procedure. Rock mechanics and reservoir quality are different in each and every shale play and different within the play area itself. Case in point, CHK notes their LA wells are better than the TX side.

    IPs are for press releases, production data is for reservoir engineers. The more data the better.

    Question, if first year decline is somewhere around 85%, why would you produce this gas at lowest prices in years? This has a huge impact on the return on investment for that well. One answer is to save very, very expensive leases. You can also think of other reasons that are not so altruistic.

    This area may well turn out to live up to the hype, but you guys are on to something. In ANY new oil and gas play there is a lot of risk and uncertainty in initial production estimates and IPs are NOT the defining metric upon which to place your bets. Wall Street, in my view is paying up for the POTENTIAL upside and not properly factoring in the very large risks associated with these wells and the entire Haynesville play.

    Finally Comstock Resoruces has some great slides on how many of these companies are perfroming from a financial perspective. You have to perform both technically and financially. Do your homework, if you like the bet, go for it but the Motley Fool guys have given you something big to think about, my hat is off to them. Again with roughly $3 gas it is hard to see any play where the economics really work. Choose both the play and the company you wish to invest in wisely. There are big differences.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 942905, ~/Articles/ArticleHandler.aspx, 10/26/2014 4:44:33 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement