This afternoon several gas market watchers triaged the trifecta of bad news in the gas sector – low prices, tight credit and the (still) high cost of doing business.
Here are some of their comments:
Robert Ineson of CERA said even though the rig count has dropped 30 percent since September, horozontal drilling activity is up.
The last two times the natural gas sector has cycled down — in 2001 and 1998 — horizontal drilling only accounted for about 10 percent of activity, according to Ron Hyden, senior business manager of production enhancement for Halliburton. Today it’s 37 percent.
Using that method costs a lot more for each wellbore, but Halliburton’s numbers show the Haynesville and Barnett shales, where horizontal drilling is big, are among the lowest cost basins on a per barrel of oil equivalent basis.
That’s a strong signal that horizontal drilling will keep happening in big numbers, Hyden said
William Garner of Parkman Whaling told the crowd if history is any guide it will take anywhere from two to four years to see sustained price recovery despite optimists who say natural gas prices could rebound by year-end.
Garner worries about the March to April time frame when companies have to turn in their reserve reports to banks and the U.S. Securities and Exchange Commission. That’s when he cautions the market could see “a resetting of the borrowing base.”
“We might see lenders slashing lines of credit because reserves aren’t worth what they used to be at these prices. But what happens if you’ve already drawn down that line of credit above that new amount? Things could get really ugly.”
But one company’s disaster is, potentially, a boon to another. Garner, an investment banker, is predicting merger and acquisition activity will pick up later in 2009 along with bankruptcy filings.
“Right now if you have cash in your pocket you will be able to acquire companies once they face the bitter truth about their survival,” he said, adding this year might yield months of disagreement between parties over discount rates and other factors that go into how a company gets valued.
“You may start dancing with somebody and find that, at the end of the dance, you aren’t married because of these issues.”