Refining Goodrich Petroleum's Resource Play

By Eric Fox | December 13, 2008 AAA

Goodrich Petroleum Corporation (NYSE:GDP) has a promising acreage in Haynesville Shale, an unconventional resource play with huge potential once the economy and natural gas prices stabilize.

Goodrich Petroleum is an oil-and-gas exploration and production company with operations in East Texas and Northwest Louisiana. The company had 422 Bcfe (billion cubic feet equivalent) of proved reserves as of midyear 2008, and 97% of the reserves were natural gas, and Goodrich Petroleum had total net acreage of 128,000 acres under lease.

Operations
Goodrich Petroleum has been in hyper growth mode the last five years. Proved reserves and production have grown at a compound annual growth rate of 34-43% since 2004. The company replaced its reserves at a ratio of 1,150% in 2007, and this was accomplished organically without acquisitions. (Learn more in Unearth Profits In Oil Exploration And Production.)

Haynesville Shale
Goodrich Petroleum is currently focused on the Cotton Valley Trend, a play that is 8,000-10,000 feet deep in East Texas and Northwest Louisiana, where it has been drilling in the Travis Peak and James Lime areas. The more exciting future play is the Haynesville Shale, which is located just below the areas that Goodrich Petroleum is currently developing.

The company has 60,000 net acres in several different areas of the Haynesville Shale, and has announced a preliminary 2009 budget of $300 million, where 65% is devoted to the shale with plans to drill 27 net wells there. Due to the size and cost of developing the area, Goodrich Petroleum decided to enter into a joint venture with operator Chesapeake Energy (NYSE:CHK), who paid $178 million for a 50% interest.

The economics of the Haynesville Shale also works at natural gas prices of between $5-6 per MCF (1,000 cubic feet). Only at prices below $4 would the play become economically unfeasible to develop according to Don Briggs, president of the Louisiana Oil & Gas Association.

Goodrich Petroleum estimates that its current Haynesville properties have the potential of between 2.4-4.7 Tcfe (trillion cubic feet equivalent) of reserves. This number is based on 789 probable and possible net wells, and reserves per well in a range of 4.5-8.5 Bcfe each. Investors should note that these are very rough estimates and are based on other operators experience since Goodrich Petroleum has a limited history in the play.

Other companies with operations in the East Texas and Northwest Louisiana area include Exco Resources (NYSE:XCO) with 1,005 Bcfe of proved reserves. Petrohawk Energy Corporation (NYSE:HK) recently announced the results of three new wells with a combined initial production rate of 73 Mmcfe/d.

Financially Speaking
Goodrich Petroleum is in good financial shape to survive during the energy bear market and recession. The company had $223 million in cash at the end of the third quarter (ending September 30, 2008), and long-term debt of $250 million. The debt consists of two pieces: a $175 million convertible issue, and a second lien term loan for $75 million.

Goodrich Petroleum also has a $175 million senior credit facility that is undrawn. The convertible issue does not mature until 2026, so the company does not have rollover risk. The issue is puttable every five years, with the first put date in December 2011. The second lien term loan does not mature until December 2010.

Goodrich Petroleum is a high-growth pure play in the exploration and production sector with promising acreage in a developing shale play. (Before jumping into this hot sector, learn how these companies make their money in our Oil And Gas Industry Primer.)

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