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Join Chesapeake Energy Corporation and the Minden-South Webster Chamber of Commerce for a CNG/LNG Workshop.
Monday, August 20, 2012 from 11:30am to 1:00pm.
Minden, LA Civic Center at 520 Broadway, Minden, La.
Contact Sarie Joubert at sarie.joubert@chk.com or at 318-674-7206.

Louisiana Gov. Bobby Jindal’s natural resources secretary, Scott Angelle, resigned Wednesday from the job that he’s held for more than eight years.

Jindal’s office announced Angelle’s decision without offering any explanation for the departure.

But the announcement comes amid speculation that Angelle, who has been a member of the governor’s inner circle of advisers, is considering a bid for a vacant seat on the Public Service Commission in this fall’s election.

“Effective today, I am resigning from the position of Secretary of the Department of Natural Resources. Thank you for all the courtesies you have extended to me. I am very grateful for the opportunity to have served in this capacity. I wish you all the best,” Angelle wrote in a letter to Jindal.

Angelle, from Breaux Bridge, has worked in many roles for the Republican governor. In addition to his cabinet post, Angelle was the governor’s chief legislative lobbyist and the administration’s liaison for federal oil and gas permitting issues.

“Scott has worn a lot of different hats for our administration and been a warrior for the people of Louisiana,” Jindal said in a statement.

Angelle didn’t return requests for comment about his resignation. A Jindal spokesman didn’t answer questions about why Angelle resigned, directing the question to Angelle.

The governor appointed Stephen Chustz, an assistant secretary to Angelle, to lead the Department of Natural Resources as its interim secretary. Chustz has been assistant secretary of the Office of Coastal Management since October 2011. Before that, he was deputy assistant secretary for the office. He’s also been the director of the Atchafalaya Basin Program since January 2009.

Angelle had been DNR secretary since 2004, when he was named to the job by then-Gov. Kathleen Blanco. Jindal appointed Angelle as a temporary lieutenant governor when the office was vacant for six months in 2010.

Jindal named Angelle to a seat on the LSU Board of Supervisors on Tuesday.

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With over 1.1 million net acres under lease across Oklahoma, Kansas, and Texas, Apache (APA) is increasing its productivity for the latter half of 2012 and is on track for operating an average of 25 rigs and drilling 240 wells. Just as impressive is the company’s $33.63 billion market cap, a dividend yield of .80%, and estimates of oil and gas production growing at double digit rates over the next five years, reaching approximately 160,000 barrels of oil equivalent (BOE) per day by 2016. While all of this is impressive for investors, the icing on the cake is that fact that last month the company discovered one of the world s largest finds: One well with shale-gas discovery in a massive field with estimates that it contains as much as 48 trillion cubic feet of recoverable natural gas. Obviously, this is a huge find and one that I believe will surely catapult Apache even further down the road to success providing energy resources for consumers and great returns for investors for years to come. Based on the aggressive exploration of the company and its ramped-up drilling efforts, I believe that buying this company now will be an investment that the wise investor will never regret.

In the Granite Wash Field, Apache has completed 92 horizontal wells with plans to have 79 additional wells completed by the end of 2012 with estimated recovery of 1.1 million BOE. With hopes of natural gas prices coming back to a respectable level, oil and gas companies continue exploration in this region while keeping a balance with oil and liquid plays. This area is rich with resources as competitors Devon Energy (DVN), which has roughly 64,000 net acres in this play, reports average production of 19,000 BOE by day, and QEP Resources (QEP) with 25,300 acres, estimates that it has 103 billion of cubic feet equivalents (Bcfe) of resource potential are both taking advantage of this profitable play. This is just one of the plays that Apache is including in its recent second quarter report that its production is now at 774,000 barrels of oil equivalent per day.

Apache also recently announced that at the Bacchus Field in the United Kingdom sector of the North Sea, it has increased production to 12,900 barrels of oil per day. The company’s first well, Bacchus South, began producing this past May putting out approximately 6,000 barrels per day. The newest well, Bacchus West, is producing approximately 8,500 barrels of oil per day. In a released statement by Apache, Rodney J. Eichler, president and COO said, “Increased output in the North Sea stemming from our drilling successes at Bacchus and the Beryl Field are expected to make a significant contribution to Apache’s second-half 2012 production growth.”

In the Permian Basin, production was up quarter-over-quarter by 5%, putting Apache on track to deliver its long-term Permian production growth target of 13% per year. The company has been quickly expanding its presence in this play increasing its rig count from five to 32 with plans to drill 760 wells in the Permian this year, compared to 263 in 2010. The company’s total investment in this region has increased to $1.9 billion, from $0.4 billion in 2011. With 70% of the production being crude oil and natural gas liquids, the company is producing about 101 thousand barrels of oil equivalent per day in the basin. This type of momentum that Apache is riding puts the company ahead of Marathon Oil (MRO) in terms of assets and allows the company to be a stronger competitor to EOG Resources (EOG) than ever before. Apache remains strong in the Anadarko Basin, where production increased 47% placing the company in line with its target rate of growing by 24% per year through 2016.

The company is also showing aggressiveness in other areas as well. It recently a CNG public access fueling station in Lafayette, Louisiana. For Apache, this investment into the community by forming a partnership between both private and public entities and enabling the area to prosper by decreasing the operating costs of public transportation and government vehicles. Eichler commented, “The state of Louisiana is a leader in supporting increased use of natural gas. The addition of this CNG fueling station in Lafayette is a step toward building the infrastructure needed to fuel America’s cars and trucks with natural gas, a cleaner-burning and abundant domestic resource.” The CNG fueling station provides private industry, the government, as well as the public with an economic and environmentally friendly alternative to gasoline. That is why Apache chose the site of the station to be in close proximity to a concentration of large public and private natural gas fleet vehicles. According to NGVAmerica, there are only 120,000 natural gas vehicles on U.S. roads today, but vehicular natural gas nearly doubled between 2003 and 2009, and in 2010, natural gas displaced more than 350 million gasoline gallon equivalents. Apache has converted 274 vehicles to run on CNG and expects to have 80% of its 1,000-plus fleet in the U.S. converted by 2015.

Apache reported 2nd quarter 2012 earnings totaling $337 million or 2.07 per share. For the same period last year, Apache reported earnings of $1.24 billion, or $3.17 per diluted share, and had 2nd quarter 2012 revenues of $3.97 billion, and had revenues for the full year 2011 of $16.89 billion. Year on year the company grew revenues 39.66% from $12.09 billion to $16.88 billion while net income improved 51.19% from $3.03 billion to $4.58 billion. In addition, Apache increased its cash reserves by 120.15%, or $161.00 million earning $9.95 billion from its operations for a Cash Flow Margin of 58.94%.

Apache is a winner for long-term growth and returns. The company has great leadership and is reaching target goals ahead of pace and is finding success in the drilling of both existing as well as new plays.

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The key argument often used by natural gas bulls is that the dramatic reduction in rig counts in the dry gas producing shales will translate into a rapid drop off in supply and lead to the price recovery toward the $5 level, and possibly higher. The Haynesville shale, where the rig count has declined from the peak of over 180 rigs two years ago to approximately 27 currently, is often presented as the most compelling evidence supporting that argument.

The view has been advocated by several prominent industry CEOs, including Chesapeake’s Aubrey McClendon and Ultra Petroleum’s (UPL) Michael Woodford. During Ultra’s 2Q earnings conference call on August 2, Michael Woodford re-iterated his macro perspective on natural gas: “Capital is being withdrawn from natural gas investment as seen in the rig count reduction and pressure pumping softness. Production lags capital expenditures and the decline in production is imminent. We see $4 gas in 2013 and $5 gas in 2014.” With regard to Haynesville specifically, he commented: “We have a view that says: production supply is about to shrink pretty rapidly. I think there are some comments out yesterday, with some companies that announced and talked about the Haynesville, that they would see a 10% per quarter reduction in their production. I think it is plus or minus 40% for the year. If you apply that to the 6 Bcf per day of Haynesville production, it is 2.5 Bcf per day of annual rate reduction, so I think we are about to see a drop off in supply.” Michael Woodford was referring to the earnings call remarks by QEP Resources (QEP) the night before.

2.5 Bcf per day is a big number, particularly given that Haynesville is just one producing field of many, albeit a significant one. If that rationale held, the $5 natural gas outlook would probably be conservative. However, a more rigorous look at the Haynesville operating data leads to somewhat different conclusions.

In less than four years since its discovery announcement, the Haynesville production went from zero to almost 7 Bcf per day, by some industry estimates, or over 10% of the total US natural gas production, demonstrating the exceptional productivity of this field as well as the scalability of the supporting operational infrastructure including oilfield services, gathering systems, and pipeline off-take. The rig count peaked at about 186 rigs during the summer of 2010 but has been in a steady decline ever since. There are currently approximately 27 rigs working in the play, about evenly split between the Louisiana and Texas portions of the play. Of these rigs, approximately 11 rigs, including 8 run by Anadarko (APC), are focusing on the liquids-rich part of the Haynesville, mostly in Panola County of Texas. The other approximately 16 rigs are targeting dry gas.

Based on the analysis of the well distribution profile by vintage, I estimate that the field-wide base production decline is currently in the 2.5%-3.0% per month range. Applying the decline rate to the estimated base production of 6.5 Bcf/d, the base production drop off equates to 165-195 MMcf/d per month. How many new wells per month would it take to offset the base decline?

For illustrative purposes, let’s assume that half of all wells are being completed in the liquids-rich area or in the less productive Tier II part of the play (to hold acreage) with an average first-month restricted dry gas flow rate of 4.5 MMcf/d per well, while the other half of the completions are concentrated in the dry gas sweet spots and flow at an average first-month restricted rate of 7.5 MMcf/d (my analysis of recent completions data leads me to believe that these assumptions are conservative). This translates into a total of 27 to 33 wells that need to be put in-line per month to maintain the base production flat. In a pad development mode, one rig can yield as many as 10 wells per year. In the delineation mode, rig productivity is lower and I assume a yield of 8 wells per rig-year. These calculations result in a total of 36 to 45 rigs required to keep the production flat, assuming no completions are deferred. These figures will likely decline with time as the operational productivity and completion techniques continue to improve.

The graph below illustrates this analysis. It shows the number of wells added to the “producing” category for the past two years in the Louisiana part of the play (the Louisiana Haynesville data are more available and consistent than the Texas Haynesville data). During that period, the producing well count in the Louisiana Haynesville went from approximately 570 at the end of July 2010 to approximately 2,038 at the end of July 2012. Data is subject to frequent adjustments and reporting delays and therefore should be thought of as approximate. The red line on the graph shows the calculated number of wells that would have been required to be brought to sales during each month in order to keep the Louisiana Haynesville production flat at that time.

During the period from August 2010 through January 2011, the number of new producing wells averaged over 70 per month, or four times the minimum number of new wells required to keep the production flat. As a result, during that period the aggregate production from the field showed strong growth.

Well additions slowed in February 2012 and crossed below the minimum required new wells line in June, for the first time since the field’s inception.

The analysis implies that the field’s production should have grown all the way through May 2012, although the growth pace would have slowed substantially at the beginning of the year. In actuality, Haynesville pipeline deliveries peaked in November-December last year, with the field’s production declining by approximately 0.4 Bcf/d during the first quarter. The difference to the model is explained most likely by the January 2012 decision by Chesapeake (CHK), the largest operator in the field, to curtail as much as 1.0 Bcf/d of its Haynesville and Barnett production throughout the year, with as much as 0.5 Bcf per day curtailed in January or possibly even earlier. Also in January, Chesapeake announced the decision to defer new well completions and pipeline connections whenever possible. Other operators may have joined Chesapeake with similar measures as natural gas prices continued to roll over.

Another important factor in this equation is the inventory of wells waiting on completion or pipeline connection. In the Louisiana part of the play that number stood at approximately 250 wells at the end of July 2012, according to Louisiana Department of Natural Resources (LDNR). In light of the math presented above, this is a significant backlog. Assuming for illustrative purposes that 100 wells, or 40% of the total inventory, will be brought to sales within the next 12 months, the rig requirement is effectively reduced by approximately 10 rigs during that period. While the backlog in the Texas portion of the field is difficult to estimate, it is clear that it is also sizeable.

The staggering conclusion of this analysis is that the 27 rigs currently working in the Haynesville, in combination with some reduction in the drilled but not producing well backlog and the unwind of the production curtailments, may be sufficient to keep Haynesville production at its current level for at least a year, or even longer.

The natural gas industry needs the Haynesville and other dry gas fields to reduce their contribution to the total supply so that the rapid production growth from the more profitable liquids-rich areas can be accommodated. Therefore, more rigs must go on the sideline in the Haynesville and elsewhere so that the production can show tangible declines. That is unlikely to happen with natural gas prices above $4. At that price, dry gas sweet spots in the Haynesville can deliver solid returns (30%+ IRR at the well level, in my estimate). The liquids-rich part of the field will be even more profitable. In addition, the economics of the play will likely continue to improve, due in part to the lower services cost, but more importantly, as a result of the better wells being drilled. Encana (ECA) reports that it has already reached its cost of supply target in Haynesville and can drill economic wells (9% rate of return) even at $3 Henry Hub.

With the well productivity like in the Haynesville, $5 natural gas may not be a realistic economic assumption for the foreseeable future. $4 may also prove to be unsustainable, despite the recent strength of the forward curve.

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LOGA’s new TV talk show, The Energy Zone, hosted by Gifford Briggs, will have Chesapeake’s Katie McCullin as its first guest to discuss the impact of the Haynesville Shale, CNG conversion, demand and how it is a viable option in transportation.

The show begins, today, August 7^th and will be televised weekly on Cox 4 on Tuesdays at 6:00pm, and Wednesdays and Saturdays at 9:30am. Additional airings for the Acadiana Region will begin on Friday at 6:30am and will occur throughout the week on the Acadiana Open Channel (LUS 3, Cox 15). The Energy Zone is also negotiating TV air times for the Shreveport and Ark-La-Tex region and hopes to have these details finalized by next week.

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The board meets weekly to discuss issues of importance to Acadiana and topics for upcoming editorials. For the last year, we’ve enjoyed the participation of two citizen members — Michelle Matthews Calloway of Lafayette and Michele Veillon of Rayne. They join Publisher Karen Lincoln, Executive Editor Karen Lincoln Michel, Managing Editor Kristin Askelson, Online Editor Mark Stevens and Community Conversations Editor Bill Decker on the editorial board.

The citizen members will also write guest columns for this page and posts for the Editorial Board Blog at theadvertiser.com.

The roster of citizen members will be:

Bobby Breaux, co-owner, Bobby and Dot Catering of Kaplan

Breaux started life as a farmer, but decided to turn his love of cooking as a career. He started by cooking for oilfield workers and then sought advanced training as a chef. That training allowed him and his wife Dot to open their current catering business in Kaplan.

Dud Lastrapes, former Lafayette mayor and former Louisiana Republican Party chairman

Lastrapes has been involved with local media since 1955, when he first went to work for KLFY. He was news director at the station from 1957 to 1970.

Lastrapes was elected to the Lafayette Parish School Board in 1972 and was elected mayor in 1980 and re-elected in 1984 and 1988. He led the state Republican Party in the mid-1990s.

Don Briggs, president, Louisiana Oil and Gas Association

Don Briggs is a native of Miami who attended what is now UL. He worked in the oil and gas business, starting with Owen Drilling Co., before organizing the Louisiana Independent Oil and Gas Association to represent the interests of independent exploration, production and service companies.

Gary Kinsland, professor of geology at UL

Dr. Kinsland received his Ph.D. in 1974 at the University of Rochester and is currently the Pioneer Production Endowed Professor of Geology at UL. His main areas of research are seismic and potential-field geophysics, and he has written articles on topics related to energy and on the geology of Southwest Louisiana.

Dana Baker, executive director, Festival International

Dana Baker graduated from UL in 1995 with BA in Public Relations. She worked for The Graham Group and the Louisiana Film Commission before returning to Lafayette in 2000 and joining Festival International de Louisiane as marketing coordinator. She was soon promoted and has served as the organization’s executive director since October 2001.

Baker is a graduate of the Greater Lafayette Chamber of Commerce’s Leadership Lafayette program, was named the 2007 Festival Professional of the Year by the Louisiana Association of Fairs and Festivals and won the 2006 Louisiana Restaurant Association’s Distinguished Service Award.

Nancy Mounce

Nancy Mounce is a native of New Orleans who came to Lafayette to attend UL, where she earned a degree in English and French education and a master’s in rehabilitation counseling. She taught at Lafayette High School for 24 years

Mounce served on the Lafayette City Council 1988-96. She is a graduate of the Leadership Lafayette and Leadership Louisiana and is currently a member of the Lafayette Museum board, Friends of the Humanities, the Acadiana Symphony Women’s League, the Chamber of Commerce and the ULL Friends of Music. She is on the board of directors of Cochrane Technologies.

Michele Veillon

Michele Veillon lives in Rayne and is a mother of five, ages 8-18. She holds a master’s degree in social work and is the program director for Elder Outreach, a long-term care company.

She loves traveling, company, experiencing new foods and experiencing new cultures.

Michelle Matthews Calloway

Michelle Calloway was raised in Acadiana before moving to Dallas to manage the city’s election departments. She returned to Lafayette and is studying for her Ph.D. in education.

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