Kimmeridge to Grow to 1 Bcf/d Via Bits and Bids, Including Haynesville

Kimmeridge Texas Gas (KTG) is looking to double its Gulf Coast production to 1 Bcf/d in the coming years, possibly by adding Haynesville acreage “at some point when an opportunity makes sense,” CEO Dave Lawler said.

That’s “part of the reason I'm here today,” Lawler told Hart Energy’s DUG Gas Conference & Expo attendees recently in Shreveport, Louisiana, the capital of the Haynesville shale-gas play.

The aim is to add Mcf’s per day organically by developing the 200,000 acres it already holds along the Texas-Mexico border.

But it could partner with another operator or buy some, including in the Haynesville, Lawler said.

“We’re looking at everything.”

The goal, “unlike many companies, is we're just trying to grow for the sake of growth. We're going to incrementally grow production about 100 MMcf/d year-on-year.”

Owned by investment fund Kimmeridge Energy Management, KTG also holds 100% interest in Commonwealth LNG, a 1.3-Bcf/d (9.5 million tonnes per annum (mtpa)) export facility planned for Calcasieu Pass on the Louisiana coast south of Lake Charles.

Global natural resources producer and trader Glencore Ltd. has signed for 2 mtpa. KTG is looking to sign up to 8 mtpa of offtake contracts.

It expects to reach 1 Bcf/d of production at the same time the plant is to come online in 2029. “So we're going to just have a steady [production] growth platform,” Lawler said.

With two key federal approvals expected this summer—one from the Federal Energy Regulatory Commission; the other, from the Department of Energy—Commonwealth targets a final investment decision (FID) before autumn.

Of the “wellhead to water” LNG business model, he said, “the idea is that, through these two structures [of E&P and export], we'll be able to create what we think is a unique product offering … [that] can generate significant value going forward.”

KTG is currently a $3.5 billion company. Lawler said it should be a $15 billion to $20 billion company in five years and reached investment-grade status before that.

“We're getting significant [offtake] interest from not only the super-majors, but banks and consumers of natural gas across the world.

“They want access to the molecules. They want a project that they can get in on early.”

Partner, buy

While the Haynesville is fairly wrapped up by roughly a dozen operators, KTG is open to “big acreage blocks that may need partnerships” in the play in addition to buying any “who may be looking to divest,” Lawler said.

A joint venture could include “getting some of that [partnership] gas into our plant. That could be something accretive for everybody involved.”

KTG’s gassy Eagle Ford expertise translates well to the Haynesville. Both are high-temperature, high-pressure (HTHP) and require “a very sophisticated view” on how to D&C these screamers.

“This isn't [a] rock for everybody. It's a specific talent that I think you have to have in order to get the wells down cheaply,” he said.

The Haynesville is a great play.

“Obviously, I've told you we're interested in it,” he said.

He emphasized, though, that already having 200,000 net acres of “very, very prolific” South Texas leasehold, “it's not incumbent upon us to do something” in terms of partnering or buying.

KTG’s leasehold—located in Webb, McMullen, La Salle, Karnes and Live Oak counties—makes gas gushers, so “we think we can do most of this organically.”

KTG tried to buy a South Texas neighbor, SilverBow Resources, for $34 a share last year but was outbid by Crescent Energy’s $38/share offer that resulted in a total deal value of $2.1 billion.

Most of KTG’s current acreage is Laredo Energy’s former Webb County property and BlackBrush Oil & Gas’ assets in Karnes, La Salle and McMullen counties.

KTG recently added Live Oak County acreage, Lawler said.

0.7 value investment ratio

The stimulated-horizontal code was cracked in the gassy, southern phase of the Eagle Ford play where KTG operates currently in the late aughts after Petrohawk Energy Corp. made the play’s liquids-fairway discovery in late 2008.

Lawler was most recently chairman and president of BP America and CEO of BPX Energy, which owns Petrohawk’s property, including in the Eagle Ford’s liquids window and in the dry-gas Haynesville.

While Eagle Ford liquids-phase D&C soared since 2008, development of the Eagle Ford’s gas fairway was stunted by the advent of Marcellus gas in 2007 and Haynesville gas in early 2008, flooding the U.S. market with CH4.

Taking some gas off the market since then, though, has been LNG exports, which began in 2016 and have grown to more than 15 Bcf/d. Also contributing to gas-demand growth have been exports to Mexico, which were minimal pre-shale-gas and are currently 7 Bcf/d.

In South Texas, KTG’s property abuts EOG Resources’ gas-fairway D&C program it calls “Dorado.”

Lawler said of the area, “There are fantastic well results that we're achieving right now that largely don't have the recognition of a Marcellus or a Haynesville or certainly some of the byproduct gas in the Permian.”

KTG is making a value investment ratio (VIR) of 0.7, which he described as net present value (NPV) per well per dollar spent.

“So you spend $500 million, you make $350 million in NPV,” he said.

Finding and development is less than $1/Mcf.

“These are prolific wells, some of the strongest wells that I've seen in my career.” In addition to leading BPX Energy most recently, Lawler began his 35-year petroleum engineering career with wildcatters Burlington Resources and ConocoPhillips, which bought Burlington.

KTG’s proved reserves are 5.8 Tcf. January production was 506 MMcf/d gross and about 450 MMcf/d net.

It’s running between two and three rigs. To meet its 1 Bcf/d goal, it expects to have at least two rigs and one frac crew at work continuously.