Exco Resources just closed a US $1 billion acquisition of properties in the Eagle Ford and Haynesville plays from Chesapeake Energy. On a conference call on July 8 announcing the deal, Exco’s officers were just as excited about the gas prospects in the Haynesville as they were about the oil in the Eagle Ford.
“We still like gas. We think there are a lot of reasons to be buying gas instead of aggressively drilling for it,” said Doug Miller, chairman and CEO of Exco. “There are a lot of properties for sale. We are still looking at a lot of them and will continue to look.”
The company spent around $320 million for about 3.2 Mcm/d (114 MMcf/d) average net production in May along with 9,600 net acres and internally engineered reserves of more than 10.3 Bcme (365 Bcfe). With this acquisition, the company expects to have three drilling rigs working on the 11 sections that are dead offsets to its own producing wells.
Adding gas drilling rigs is interesting, even though the Baker Hughes US rig count has done a 180° turnaround between oil-targeted and gas-targeted rigs since 2008. The numbers are intriguing. On July 11, 2008, there were 370 rigs drilling for oil. Fast forward five years and on July 12, 2013, there were 362 rigs drilling for gas. There were 1,544 rigs drilling for gas in 2008 and 1,391 rigs targeting oil in 2013, indicating an overall drop in the rig count.
Barclays’ July 10, 2013, Gas and Power Kaleidoscope titled “No capital crunch” indicated that data compiled from its “equity, credit, and leveraged finance teams suggest that the capital markets are wide open to producers. In fact, in 2012, despite low natural gas prices, the E&P sector raised a record $64 billion in debt and equity issuance and another $10 billion through joint ventures.”
According to the report’s authors, Biliana Pehlivanova and Shiyang Wang, “The E&P sector remains attractive for high-yield investors, and year-to-date high-yield issuance is running at a healthy pace. In total, debt issuance provided $53.2 billion to US E&P companies in 2012, compared with $29.2 billion in 2011. In the first half of this year, equity issuance has exceeded the pace of the first half of last year.”
The authors continued, “While aggregate debt and equity issuance might slow in 2013 from last year’s record levels, investor sentiments are favorable to the E&P sector, and capital markets appear wide open to producers. Oil targets will likely remain more attractive to producers than gas ones for the foreseeable future if our price projections prove accurate. We expect gas-directed drilling to post only modest gains for the rest of 2013 and 2014.” And that is good news for companies like Exco that are in the business of looking for new deals.
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