Monday, April 25, 2011

Goodrich Petroleum Corporation shifting towards Oil and Liquids development from Natural Gas; Allocated 70% of its 2011 Capital Program to Oil Exposure (62% Eagle Ford Shale Trend)!!

Goodrich Petroleum increased 2011 capital program to develop the company's new acreage in the Eagle Ford Shale, as the company joins the shift towards oil and liquids development. Goodrich Petroleum increased its total 2011 capital budget by $10 million, from $225 million to $235 million.  The company increased the allocation to the Eagle Ford Shale formation by $45 million, from $100 million to $145 million.
Goodrich Petroleum has been focusing its attention and capital over the last few years for developing the company's natural gas assets, including the Haynesville Shale and Cotton Valley formations in East Texas and North Louisiana.
In April 2010, faced with low prices and weak fundamentals for natural gas, the company decided to diversify away from this commodity, and purchased 35,000 net acres in the Eagle Ford Shale in Texas. The acreage is located in La Salle and Frio County, which is considered the oil window of the play. During the fourth quarter of 2010, the company drilled 4 gross or 3 net wells into the Eagle Ford Shale. Goodrich Petroleum is operating two rigs on its Eagle Ford Shale acreage and expects to drill from 22 to 26 wells on its 40,000 net acres.

Recent M&A Deals in Eagle Ford Shale:

Although Goodrich has been focusing in the Haynesville Shale, the company is deemphasizing development here in 2011 in favor of more oil focused properties in its portfolio. In 2010, the company spent approximately 56% of its total drilling budget, or $156 million, to drill 18 net wells into the Haynesville Shale. In 2011, the company plans to spend only $90 million to drill nine net wells on its Haynesville Shale properties. One area of focus for Goodrich Petroleum in 2011 will be in the Shelby Trough area of East Texas, where the company has 28,000 net acres under lease. The company drilled its first Haynesville Shale well here, and also plans development of the Bossier Shale in 2011. This formation lies just above the Haynesville Shale and produces natural gas.

Recent M&A Deals in Haynesville Shale:

EnCana seeks JV partner for development of unconventional gas in British Columbia

Encana Corporation has engaged RBC Capital Markets and Jefferies & Company Inc as its exclusive agents in connection with the proposed sale and/or joint venture of selected interests of the company in Northeast British Columbia. The company’s Greater Sierra area has been divided into two areas of opportunity - an asset sale and a joint venture. A portion of the company’s holdings are also being offered for joint venture.

Greater Sierra: The acquisition area for sale includes all lands, production and related infrastructure. The joint venture area is available for partnering with Encana on its existing production and infrastructure and future development plans.

Acquisition area:
-- Jean Marie: 1,500 net sections of land (95% WI)
-- 73 MMcfe/d (97% gas) - sales October 2010
-- 593 undrilled booked locations
-- Shale Gas: 35 net sections of land (93% WI)
-- 36 Horizontal locations in Muskwa, Otter Park and Evie.

Joint venture area:
-- Jean Marie: 1,281 net sections of land (90% WI)
-- 129 MMcfe/d (96% gas) - sales October 2010
-- 856 undrilled locations (575 booked + 281 unbooked).

Horn River: Offered for joint venture
-- 52 net sections of land (100% WI)
-- 120 Horizontal locations in Muskwa, Otter Park and Evie.

Earlier on 9-Feb-2011, PetroChina and Encana have signed a Co-operation agreement, that PetroChina would acquire a 50% interest in Encana’s Cutbank Ridge business assets in British Columbia and Alberta at a consideration of C$5.4 billion (US$5.451 billion). Under the Co-operation agreement, the two companies would establish a 50/50 Joint Venture (JV) that would ambitiously grow natural gas production from the Cutbank Ridge lands for years ahead.

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Encana acquires liquids-rich Duvernay Shale acreage for C$1,600/acre.. Encana turns focus to gas liquids as low natural gas prices persist.

In recent months, Encana has assembled about 190,000 net acres in the Simonette and Kaybob areas of the Duvernay shale in Alberta, which it acquired for about $300 million or an average cost of about C$1,600 per acre. This exciting new play has the potential to add significant liquids production to the Canadian division and is a promising complement to the company’s liquids rich acreage in the Montney where it has 495,000 acres of land with liquids potential on it, in addition to 380,000 net acres in the Alberta Deep Basin area.

Michael Graham from Encana said, “The Duvernay play seems similar to the Eagle Ford and that there we could go from sort of a dry gas window into a liquids-rich window. Bulk of our acreage, probably 2/3 of our acreage, we think certainly will be in the liquids-rich area.” Encana plans to drill 3 or 4 horizontal wells into it and then the company may consider joint venture partners for Duvernay Shale. Recently, Encana struck a C$5.4 million JV with PetroChina on its Cutbank Ridge project. The snapshot of this deal is as follows:

Source: Derrick Petroleum E&P Transactions Database

Encana shifts focus to gas liquids!!
Encana delivered solid cash flow and grew natural gas production by 4% per share in the first quarter of 2011. Cash flow was US$955 million, or $1.29 per share – down 17% largely due to lower natural gas prices compared to the first quarter of 2010.

It’s part of a strategic shift that will see Encana focus on gas deposits with a higher proportion of condensates and light oil. Because natural gas liquids receive premium prices compared to crude, companies like Encana are using the dollars to offset the lower gas price and continue with ambitious unconventional gas drilling.

“By bringing on more oil and NGL production and stripping out more NGLs from our natural gas stream, we expect to significantly increase the weighting of liquids in our portfolio, capturing more value and enhancing returns,” CEO Randy Eresman said on a conference call.

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