Halcon's New Eagle Ford Core Play And More - Floyd Wilson

Floyd Wilson recently sat down with Jim Cramer to discuss Halcon's development strategy across its shale plays. The company keeps to a strategy of developing infrastructure before developing assets.

“ $200 oil is no longer a risk.”

 Halcon plans significant divestitures of as much as $400 million or more. Halcon is ramping up in the Eagle Ford and Utica.

"Hard to say if the Eagle Ford is going to be the company's Saudi Arabia, but it is going to be big", Halcon CEO, Floyd Wilson.

He also expects the price of oil to stay volatile with our new supplies. He believes the opportunity is that oil prices might be moderate for some time.

Chesapeake - Utica JV - Eagle Ford Drilling at a High

Chesapeake Energy continued its string of successful joint-ventures (JV) following leasing that has added more than 5 million acres in shale plays over the past few years. In all, the company has spent $2,200 per acre and gone on to sell a portion of that acreage for almost $11,000 per acre. Chesapeake has recouped its investment in all of those plays by selling no more than a 33% interest in each shale play. In the latest JV, CHK is getting $2.14 billion or $15,000 per acre for a 25% interest in 650,000 net acres in the wet gas window of the Utica Shale in Ohio. I assume this is the area where CHK references "superior economics". It will be interesting to see what happens in the dry gas and oily windows.

Chesapeake's Eagle Ford drilling program has ramped up to 29 rigs running across the play. 29 rigs leads the way in South Texas and those numbers are expected to stay high as CNOOC's cost carry continues to help fund development.

This new JV would make our seventh. We started with the Haynesville in July of 2008, and in the 3 years since then, we have brought in partners on the Fayetteville, Marcellus, Barnett, Eagle Ford, Niobrara and now into 1 phase of the Utica play. In these seven JV areas, the company initially acquired approximately 5.1 million net leasehold acres at a cost of $11.1 billion. That's around $2,200 per net acre overall on average. We then sold 1.5 million of those acres for total consideration of $16.4 billion in cash and carries, meaning we recovered 150% of our total leasehold costs in all the plays combined, while leaving ourselves with 3.6 million net acres in 7 of the nation's very best plays, at a negative leasehold cost of $5.3 billion. That's about a negative $1,500 per net acre. I really don't think the magnitude or significance of what we have accomplished by owning 3.6 million net acres at a profit of $1,500 per net acre has been fully appreciated. It is quite simply unprecedented in our industry.

Read the entire press release at chk.com

Magnum Hunter Resources 2012 Capital Expenditures Down $55 Million

Magnum Hunter released its capital spend for 2012. The company will spend a total of $200 million with $50 million directed to midstream investments through Eureka Hunter Pipeline.  That's a drop of approximately $55 million from 2011, but 2012's budget will be funded without the need for raising external capital.

Magnum Hunter Resources Corporation MHR announced today that the Company's Board of Directors has approved a capital expenditure budget for fiscal year 2012 of $200 million. The 2012 budget includes an upstream capex budget of $150 million which will be allocated to fund the exploration and development programs within the Company's three unconventional resource plays: (i) the Williston Basin -- Bakken/Three Forks Sanish/Madison; (ii) the Appalachian Basin -- liquids rich Marcellus/Utica/Huron/Weir; and, (iii) the Eagle Ford Shale oil play of Central and South Texas. In addition, the Company has allocated $50 million of capex to the midstream division, Eureka Hunter Pipeline. The 2012 capital budget does not include any expenditures for potential acquisition activities.

Read the full press release at magnumhunterresources.com

Utica Shale - Eagle Ford Shale Debate Pits Texas vs. Ohio

The Utica Shale vs. the Eagle Ford Shale debate has drawn a lot of attention since Chesapeake announced a 1.25 million acre position in the Utica Shale. Aubrey McClendon's comments have gotten a lot of traction:

As a result of its analysis, the company believes the Utica Shale will be characterized by a western oil phase, a central wet gas phase and an eastern dry gas phase and is likely most analogous, but economically superior to, the Eagle Ford Shale in South Texas.

That quote sent many articles to the press touting the Utica Shale as the new great shale play and made many Texans wonder if we'd lose some drilling rigs to Ohio. You can track the rig count yourself with the Eagle Ford Shale Drilling Index that is updated each Friday, but if you don't have the time, the counties where the Eagle Ford is present have seen more than 40 rigs come into the play over the past three months. That's more than 10% of the total U.S. onshore rig count (230+ rigs) working in an area that is economically inferior. The catch, it's possible, but the Eagle Ford shouldn't lose much if anything.

We'd like to see an open debate between Chesapeake and other operators like Anadarko, BHP, EOG Resources, Petrohawk, and Marathon Oil. I doubt the guys that have poured billions into the Eagle Ford will agree. But if the hype is true, you'll see rigs working in both plays and will not have to worry about the Utica pulling resources away from Texas.

While the Utica Shale likely has areas that provide better economics than parts of the Eagle Ford, it is hard to imagine any drilling rigs leaving for Ohio. Natural gas rigs deployed in other parts of the country are far more likely to make the move. Natural gas is trading below $4 per mcf as of August 2011. That's not what most plays need to make an economic return and you'll see more drilling shift to liquids plays like the Utica and Eagle Ford.

Not every acre in any play will be economic. We've seen how a highly touted play can do a 180 in the Haynesville Shale and we've even experienced a little of that in South Texas. Most recently, Petrohawk abandoned its Red Hawk Field in Zavala County. That means that Zavala County might face more challenges than we thought, but Dimmit County, DeWitt County, Gonzales County, Karnes County, LaSalle County, and Webb County will likely benefit as rigs move within the Eagle Ford.

In summary, I don't think the entire Utica will prove to be economically superior to the entire Eagle Ford, but I do believe you could read between the lines and say that Chesapeake's Utica Shale acreage looks to be better than Chesapeake's Eagle Ford Shale Acreage.

In short, the Eagle Ford and the Utica look to be big resource wins for the U.S.

R.T.