EXCO Resources (XCO) reported earnings for the first quarter of 2010, and held a conference call on May 5, 2010, to discuss the results. During the call the company made comments on some of its operations, including the Haynesville Shale in Louisiana.
EXCO Resources said much of its acreage in the Haynesville Shale is not economical to drill due to the low price of natural gas. The problem is that many operators are drilling to hold acreage rather than for rate of return reasons, and this is keeping the market oversupplied. This is also driving up service costs in the area.
Haynesville Shale Drilling Deferment
“In certain areas of the Haynesville we are seeing right now that with costs up there is only very few areas in the Haynesville that make our 20% hurdle rate…and in fact, we have elected to defer of the drilling in parts of the Haynesville play. We are focusing on DeSoto Parish. Some of those other parts don't give us the economic returns we want, and in turn we are moving out of those areas.”
“At (an initial production rate of) 20 million a day this thing works at $3 gas. If you get down to 10 million a day IP, this is a tough ticket. So we're managing this. We are working very diligently to manage our drilling and completion costs.”
Oil Service Costs
“When you've got Chesapeake, Encana and Petrohawk drilling to hold leases as fast as they are drilling – they have to drill, and they have a lot of demand for services, and it's hurting us. Our costs are up $1 million to $1.5 million a well and gas prices are down 30%. So it's something we're looking at. And I mean we talk about it every day. But I mean it's simple supply and demand right now.”
Haynesville Shale Acreage
“We are looking at approximately another 100,000 acres in the Haynesville, probably 10 different deals. None of which can be assured we are going to get. All of which, if the price is right, we would entertain.”
“If gas stays at $4 or below, they will be a lot bigger. Because what we have seen here over the last, especially six months, with gas cheap I think the big three in the Haynesville with huge acreage positions and drilling commitments pretty much have stopped leasing. So we are seeing a lot of opportunities.”
Source: Seeking Alpha