Cheapeake's massive shale find in Louisiana

— At a time when it seems everyone in industry is hunting for the US' next big exploitation play, the Haynesville shale in north Louisiana debuted on the energy stage early last month during conference calls by small operators Goodrich Petroleum and Petrohawk Energy. But the play really captured rave reviews when shale slugger Chesapeake Energy revealed its presence there a couple of weeks later. Chesapeake said it already believed it had 7.5 Tcfe of Haynesville reserve potential across its net 200,000 acres, but estimated up to 20 Tcfe with anticipated company acreage increases to 500,000 net acres. Those kind of numbers, coupled with whatever Petrohawk and Goodrich acreage might hold, potentially class the Haynesville in almost the same league as the Barnett Shale, whose estimated 29 to 39 Tcfe (3 Tcfe of which have already been produced) have ranked it among the US' biggest gas fields.

Chesapeake, which said it had hoped to keep Haynesville secret but largely devoted a conference call to its initial findings in the play after the two smaller operators leaked out news of its existence, has been by far the most vocal on the Haynesville's potential. Chesapeake CEO Aubrey McClendon said the play, a relatively deep formation found at depths of 10,500 to 13,000 feet , "has a chance of being the most significant shale play in the company's history." For a company the size and breadth of Chesapeake, which has its hand in every significant US shale play and is the third-largest Barnett producer with 410,000 Mcfe/d there, that's saying something. The company has drilled four vertical wells and three horizontal wells at Haynesville, and in fact McClendon called the latter wells "much better than the first three horizontal wells drilled in any of our plays to date." With such an elevated opinion of the Haynesville, Chesapeake plans to expand its operation there on multiple fronts. The company expects to speed up its Haynesville acreage acquisition in anticipation of a land grab and subsequent rise in land values. It also expects to add six rigs by year-end to its four rigs currently drilling the play. And, having stumbled on a jewel in the Haynesville, the company is also raising capex to fund stepped-up activity there as well as the Barnett and the Fayetteville Shale in Arkansas. Based on Chesapeake's Haynesville gab, Wall Street began adding up the revisiting the implied per-share values of both Goodrich's Bethany Longstreet leasehold of 19,000 acres plus 9,000 nearby acres and Petrohawk's 30,000 net acre leasehold at the Elm Grove field. Both Petrohawk and Goodrich have drilled a vertical well on their properties; Petrohawk will spud its first horizontal well in April. Neither Chesapeake nor its smaller rivals have released flow rates or other actual well data, although Petrohawk has projected potential reserves of 5 Bcf/well, and analysts are projecting 4-5 Bcf/well for Chesapeake. But until some solid, repeatable well data emerges, the Haynesville will remain more diamond in the rough than diamond ring. As BMO Capital Markets analyst Dan McSpirit rightly noted in a report last week: "The proof (of Haynesville economics) is in how the wells get drilled and the rates of return such operations yield." He added, "These are early innings. Lasting value creation should be revealed later in the game."