Petrohawk Energy cuts 2009 budget by a third

Petrohawk Energy Corp., Houston, said it will cut its 2009 capital budget by a third and focus on those projects "with the highest internal rates of return and highest potential for reserve growth, namely, development in the Haynesville and Fayetteville shales."

Sam Fletcher
Senior Writer

HOUSTON, Oct. 1 -- Petrohawk Energy Corp., Houston, said it will cut its 2009 capital budget by a third and focus on those projects "with the highest internal rates of return and highest potential for reserve growth, namely, development in the Haynesville and Fayetteville shales."

The company sliced its budget to $1 billion for drilling, completions, seismic exploration, and facilities, down from $1.5 billion previously. Petrohawk officials said the change affirms the company's strong capitalization. The firm has "no current plans or need to access the equity capital markets," they said. Petrohawk's undrawn credit facility was increased to $1.1 billion from $800 million Sept. 10.

In addition, the company is looking to divest some conventional assets in the Permian basin next year. These properties include interests in Waddell Ranch, Sawyer, Jalmat, and TXL fields of West Texas and southeastern New Mexico. The Permian basin properties currently produce 35 MMcfd of gas equivalent.

Petrohawk's move comes just a few days after Chesapeake Energy Corp., the second-largest independent and third-largest overall producer of natural gas in the US, slashed its drilling capital expenditure budget by $3.2 billion, or 17%, for the second half of 2008 through 2010 (OGJ Online, Sept. 25, 2008). Chesapeake officials blamed a 50% drop in gas prices since June and the possibility of an emerging gas surplus in advance of increased demand from the US transportation sector.

At that time in the Houston office of Raymond James & Associates Inc., analysts said they expected other producers to cut their budgets and "lay down rigs as well." They said, "We continue to see reduced drilling activity (lower rig count) as necessary to balance the natural gas market. Still, this may lead to the decline in activity about a quarter earlier than we anticipated."

Even with the budget reduction, Petrohawk expects a production growth of 25-35% in 2009. It reaffirmed a third quarter guidance of 310-320 MMcfed.

The company plans to emphasize development of nonproved locations in its successful Haynesville and Fayetteville shale projects and expects higher overall reserve growth potential. It projects that its production will grow 25-35% through the drill-bit in 2009 from estimated 2008 production of 305 MMcfd. The Haynesville shale sits 11,000 ft underground in East Texas and northwestern Louisiana. The Fayetteville shale play is east of Little Rock, Ark.

Petrohawk Energy is engaged in the acquisition, production, exploration, and development of natural gas and oil primarily in north Louisiana, Arkansas, East Texas, Oklahoma, and the Permian basin.

Chesapeake is focused on exploratory and developmental drilling and acquisitions in the Mid-Continent, Fort Worth Barnett shale, Fayetteville shale, Haynesville shale, Permian basin, Delaware basin, South Texas, the Texas Gulf Coast, the Ark-La-Tex region, and the Appalachian basin.

Chesapeake's budget cut included an $800 million drilling capex carry in its recently formed Fayetteville shale joint venture with BP America Inc., along with an anticipated $500 million drilling capex carry in a Marcellus shale 25% joint venture that the company expects to complete by the end of this year.

But the bulk of Chesapeake's budget cut, $1.9 billion, will reduce its current count of 157 operated rigs to 140 rigs by yearend. Chesapeake then expects to keep its rig count relatively flat in 2009-10.

The company lowered its production growth forecasts to 16%/year for 2009-10 from 19% previously.

Contact Sam Fletcher at samf@ogjonline.com

More in General Interest