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Petrohawk (NYSE:HK) Follow Up Commentary. They gave their quick pitch at the IPAA Tuesday so here's a little follow up commentary on the name. We continue to be quite long. (4/08/08 closed @ $21.82)

  • Haynesville Shale Update: After bumping their Haynesville Shale exposure to "more than 70,000 net acres" they also bumped their non-proved resource potential by 1.7 Tcfe or 36% from 4.7 to 6.4 Tcfe…
    • … by increasing their Haynesville shale acreage by 40,000+ net acres (acquisition price was not disclosed but it will be higher later as CHK more than doubles their position) and
    • by increasing their estimate of Haynesville EURs (estimated ultimate recovery) from 3.0 to 4.0 Bcfe per well on 60 acre spacing.
    • In a nutshell, they are getting more confident in the play.
  • Note that they had proven reserves of 1.1 Tcfe booked at year end for the whole company (Elm Grove, Terryville, Fayetteville Shale and their Permian division).

Elm Grove Field: Taylor Sand - Lower Cotton Valley Horizontal Program: Still waiting on results.

  • They did not release well results here yet but listed two wells, the Knighton #14-5 and the Killen #13-4 as completing. These wells straddle in close proximity, to the west and east, the Killeen #13-3 which had initial production of 16.5 mm/d back in January.
  • The Roos #8, a little further afield to the northwest from the Killeen #13-3, is flowing back now, so they should be able to announce a rate any day now, although if it is of the smaller variety, I imagine they will wait to lump it in with the previous two wells from the preceding bullet when they report 1Q results.
  • They plan to drill another 7 or 8 Taylor Sand horizontals here this year plus 10 Davis Sand horizontals, but these last 10 are not of the same game changer potential as the Taylors. Success with more monster rate Taylor tests would likely auger for increased production guidance (currently mid-point guidance gets you to 25% YoY pro forma growth).

Fayetteville Shale Keeps Gunning Higher: Not much new to report as they just continue to drill wells and grow production at attractive rates of return. Gross operated production is close to 80 MMcfepd, up from a little over 70 at the time of the analyst meeting on March 12 and 2 MMcfepd one year ago.

In an initiation of coverage report Monday, Merrill termed results in the northern part of the Fayetteville play as "mixed" due to recent lower IPs at two wells in the northern section of the play which is the heart of HK's acreage. However, in HK's IPAA presentation, a first slide in the Fayetteville section has a the new subtitle "Multiple new well results suggest core is expanding to the north" which is telling.

Merrill heavily discounts the company's Fayetteville acreage saying the "jury is still out" - which is a fair statement - and goes on to write that this discounting "effectively excludes a significant portion of the company's northern acreage" - which is probably overly conservative. More data on the north will be an essential checkpoint on the 1Q conference call.

Source: Petrohawk: Growth Continues