Petrohawk and Chesapeake Fly on Haynesville Shale News

Includes: CHK, GDP, HK
by: TraderMark

Petrohawk Energy (NYSE:HK) and Chesapeake Energy (NYSE:CHK) both are ripping up 9-11% in early action - right now anything associated with the Haynesville Shale is gold in this sector - not that the other natural gas players aren't doing great as well. [Jun 18: Will Encore Acquisition (NASDAQ:EAC) be Bought Out?] Another name I've seen continuously on my top weekly performer list for 2 months now but have not been pulling the trigger (waiting the never surfacing "pullback") is Goodrich Petroleum (NYSEMKT:GDP). Chesapeake announced a new partnership and Petrohawk has a nice upgrade.

  • Shares of Petrohawk Energy Corp. advanced in premarket trading on Wednesday after an analyst hiked his price target on the oil and gas producer, saying its oil fields are increasingly more valuable.
  • Friedman, Billings, Ramsey analyst Rehan Rashid raised his price target on Petrohawk to $60 from $45 in a note to investors early Wednesday. The new target represents a 25 percent rate of return on the stock over Tuesday's close of $48.
  • Rashid said the recent purchase by Plains Exploration & Production Co. of a portion of land owned by Chesapeake Energy Corp. in northwest Louisiana implies Petrohawk's portion of the same oil field is more valuable than originally expected.
  • Late Tuesday, Chesapeake said Plains agreed to buy 110,000 acres of its Haynesville Shale tract in northwest Louisiana. By Rashid's calculation, that purchase came to a price tag of $25,600 per acre.
  • Based on the transaction, he says Petrohawk's own share of Haynesville Shale can now be assumed to be worth $7.4 billion, which in turn makes Petrohawk stock significantly more valuable.
  • Rashid said many oil companies with a presence at Haynesville Shale have seen their shares climb sharply in recent months as companies seek to buy up the land, and reiterated his "Outperform" rating on Houston-based Petrohawk.
Motley Fool has an article on the subject just out as well... "The Haynesville is Hot"
  • It seems that not a day goes by without some news out of the smoking-hot Haynesville shale. The news flow is downright torrid for such an early-stage natural gas play. Of course, few investors had heard of companies like Goodrich Petroleum (NYSE: GDP) or GMX Resources (Nasdaq: GMXR) before Chesapeake Energy (NYSE: CHK) blew the story wide open back in March. You can hardly blame these companies for flaunting their stuff.
  • On Monday, Petrohawk Energy (NYSE: HK) also updated its ever-growing leasehold. Land that's prospective for the Haynesville/Bossier (two gas-rich shale layers stacked on top of one another in the same region) now stands at a hearty 275,000 net acres. This renders Petrohawk highly levered to the Haynesville -- much more than larger companies like Chesapeake or Hunt-happy XTO Energy (NYSE: XTO). This looks like a positive thing, judging by the company's latest well result.
  • Petrohawk just completed and production-tested its very first horizontal Haynesville well. With a horizontal well, you drill horizontally to hit the gas contained in a laterally extensive formation. Petrohawk drilled this particular well down 11,000 feet, and then nearly 4,000 feet laterally. To better coax the gas out of the rock, the company also induced fractures at eleven separate intervals.
[June 27: Natural Gas 75% Gain Speeds Horizontal Drilling at Devon Energy, Range Resources]

I've mentioned one small sliver of positive of this oil/gas boom is that it is creating overnight millionaires for people who just happen to own land in the right places in Texas, Pennsylvania and now it appears North Dakota of all places.
  • Oscar Stohler was raised in a sod house in western North Dakota and ranched there for nearly seven decades. He never gave much thought to what lay below the grass that fattened his cattle. When oilmen wanted to drill there last year, Stohler, 83, doubted oil would be found two miles underground on his property.
  • In less than a year, Stohler and his wife, Lorene, 82, have become millionaires from the production of one well on their land near Dunn Center, a mile or so from the sod home where Oscar grew up. A second well has begun producing on their property and another is being drilled — all aimed at the Bakken shale formation, a rich deposit that the U.S. Geological Survey calls the largest continuous oil accumulation it has ever assessed.
  • Some of their neighbors in the town of about 120, from bar tenders to Tupperware salespeople, have become "overnight millionaires" from oil royalty payments.
  • State and industry officials say North Dakota is on pace to set a state oil-production record this year, surpassing the 52.6 million barrels produced in 1984. A record number of drill rigs are piercing the prairie and North Dakota has nearly 4,000 active oil wells.
  • "I have heard, anecdotally, that there is a millionaire a day being created in North Dakota," said Ron Ness, president of the North Dakota Petroleum Council.
  • The number of taxpayers reporting adjusted gross income of more than $1 million in North Dakota rose from 266 in 2005 to 388 in 2006, Strombeck said. The 2007 numbers won't be known until October, she said.
Good times! Now these people can feel 1/100000th of what it feels like to be a Saudi Sheikh which from nothing but good luck of sitting on oodles of dead dinosaurs are now among the most rich and powerful on Earth.

Disclosure: No position in names in this story but own a 4 stock natural gas basket