Houston Exploration Co. intends to focus on production and reserves growth, which it plans to control through its capital spending programs.
The Houston-based independent plans to develop its existing properties and add more reserves through the drillbit while also maintaining its fairly successful strategy of acquiring properties that will help it with production and reserves growth, said William Hargett, the company's new president and CEO.
At the moment, those acquired properties will likely fall within the company's core areas, although the company has used acquisitions to establish new core areas in a few instances, such as in South Texas and the Arkoma basin, Hargett said. The company "would also make an acquisition, if it were big enough, to establish a new core area in a gas basin."
Low-cost operations
HEC focuses a lot of attention on keeping its costs low. "We are the one of the lowest-cost producers," Hargett contends, citing a cash lifting cost below 70
Oil and gas prices, Hargett explained, had a huge impact during the first half of this year on industry's profitability and earnings. HEC uses numerous risk-management techniques, including price hedging, to protect its cash flow and earnings, as well as its capital spending programs.
"Right now, we're 85% hedged for the rest of the year," Hargett said. "We can continue our capital programs, and we can deploy that capital in an environ ment where pricing is fairly low, which is sometimes pretty opportunistic for acquisitions.
"The business isn't easy, but it gets a little bit easier if you work very hard and focus your organization on what it is we're trying to get done, how well we're doing it, and what we need to do to adjust if there are any issues that need adjusting," he said.
Because the company holds 100% working interests in a large portion of its properties, Hargett said, it makes it easy to alter or modify any plans.
Core areas of operation
HEC's high working interests in its properties sets it apart from many of its peers, Hargett said. As an example, he cited the company's Charco property in Zapata County, Tex., in which it holds a 100% working interest. HEC has an aggressive three-rig development drilling program on the 35,000 acre parcel. "We'll drill over 30 wells there this year," Hargett said. And because the company's operating personnel can act quickly on capital decisions, production from the wells can come on stream quickly and have a substantial impact on the company's profits.
HEC recently acquired a fairly extensive 3D survey for the Charco property, Hargett explained. "We expect to continue to expand that production base by exploration along trend and with acquisitions-when we can make them-if they have drilling opportunities," he said.
Another of the company's core areas, the Arkoma basin, contains very complex geology, and Hargett said that, over the next few years, the company would conduct "substantial" development drilling there.
Gas-weighted portfolio
HEC's reserves are almost entirely-97%-natural gas, "We're producing roughly 240 MMcfd [of gas], about half onshore and half offshore-so we're still at a size where we can make an impact on that production with the drillbit, which we expect to continue to do," Hargett said.
"We're trying to grow our gas business, which keeps our lifting costs low, and we think, long term, it's going to be a good business," he added. "We're probably focused on gas because most of the drilling that's available to add reserves production in the US is gas."
Houston Exploration Co.
Pres. and CEO William Hargett
"We are the one of the lowest-cost producers.... We keep those costs low by having very high working interests and properties that are very concentrated, so that we can operate them very efficiently. Those efficiencies show up in the cost side of our business."
