Goodrich Petroleum, a small exploration-and-production company that emerged from the protection of bankruptcy courts in 2016, on Wednesday announced its proposed capital expenditure budget for 2018, focusing exclusively on the gas-centric Haynesville Shale play in northern Louisiana.
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Goodrich set a capex budget for 2018 of between $65 million and $75 million, with the entire budget allocated to its core Haynesville Shale acreage position in the Bethany-Longstreet and Thorn Lake areas of Caddo, DeSoto and Red River parishes, Louisiana.
The decision to zero in on the Haynesville was "rate-of-return driven," Goodrich President Robert Turnham Jr. said in an interview.
"We have the best economics in the Haynesville within our core portfolio of opportunities and therefore we've allocated 100% of capex to the highest rate-of-return projects," he said.
Goodrich, like many of its E&P peers, was hard-hit by the impacts of the crash in crude oil prices, which began in mid-2014.
The producer filed for Chapter 11 Bankruptcy protection in April 2016 and emerged from the bankruptcy process in October of last year.
Following the bankruptcy, Goodrich, which had been moving into the Tuscaloosa Marine Shale oil play in southeastern Louisiana and southwestern Mississippi, scaled back its efforts in that play to focus on its more profitable core operations in the Haynesville.
Turnham said the Haynesville, which many producers over the past few years had downplayed in order to concentrate on more economical plays, in recent months "has gone through a transformation," as Goodrich and other producers ave been able to dramatically increase their returns through advanced drilling and completion technologies.
"We're making much better wells such that we're generating 75% internal rates of return at $3[/MMBtu] gas in the Haynesville," Turnham said.
The producer said in a statement that it expects that 95% of its total 2018 production will be gas. "The oil production will gradually decline over the years and gas production is growing dramatically," Turnham said.
Producers' interest in the Haynesville surged in 2017, and gas production grew steadily throughout the year, hitting a number of milestones.
The play started the year with about 20 active rigs, and has since increased to more than 45 rigs, which marks a five-year high. Gas production in the Haynesville picked up 0.6 Bcf/d to just over 4.1 Bcf/d currently, very close to a four-year high.
Increases in gas prices drove the surge; the rates of return in the play remained under 10% for most of 2016 (in fact, they were negative at certain points), but have since grown to about 12% this year, according to Platts Analytics.
Goodrich said it anticipates drilling 16 gross (6.5 net) horizontal wells for the year, with an average lateral length of about 9,000 feet. The company said it expects to operate about 85% of its net wells for the year.
Based on the preliminary budget, Goodrich said it expects to grow production in 2018 by 130% to 145% compared with 2017, to a range of about 28.3 Bcf of gas equivalent to 30.3 Bcfe, or an average of 77,000 Mcfe/d to 83,000 Mcfe/d for the year.
The company said it has hedged 40% to 42% of its expected gas volumes for 2018 at a blended average price of $3.02/MMBtu and 50% to 55% of expected crude oil volumes for the year at $51.08/b.
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