El Paso Corporation (NYSE:EP) has a significant program underway to develop natural gas assets in the Haynesville Shale in 201. Despite the company and industry tilt towards oil and liquid plays, El Paso believes that today's natural gas prices allow for decent returns from the project.

TUTORIAL: Stock Basics

El Paso first entered the Haynesville Shale through the acquisition of Peoples Energy in 2007 and has built up a 43,000 net acre position across the play.

El Paso has Haynesville Shale acreage in the Holly, Bethany Longstreet and Logansport fields, and it believes that its Holly acreage in Louisiana is the most attractive in the current environment of low natural gas prices.

El Paso estimates that wells in the Holly Field will cost between $8.7 million and $9.3 million to drill and complete, and yield an estimated ultimate recovery (EUR) between six and seven Bcfe. The company will earn an internal rate of return (IRR) between 20 and 30% at $4.00 natural gas prices. Haynesville Shale wells drilled and completed in the company's other two fields will only have an IRR between 5 and 15%.

This cost is in line with operators in the Haynesville Shale. QEP Resources (NYSE:QEP) reported that the company's average cost to drill and complete a well in the play during the first quarter of 2011 was $9.1 million.

El Paso has increased production rapidly from the Haynesville Shale and reported production of 258 million cubic feet of natural gas equivalents per day from 74 operated wells as of March 31, 2011. This was 31% of the company's total quarterly production of 821 million cubic feet of natural gas equivalents per day.

El Paso plans to operate four rigs in the Haynesville Shale going forward and concentrate on improved drilling efficiencies in an effort to reduce costs. The company estimates that it has 415 future drilling locations here and resource potential of 800 Bcfe.

One operator that is reducing its activity in the Haynesville Shale is Petrohawk Energy (NYSE:HK), which operated an average of 16 rigs in the play during the first quarter of 2011. The company plans to cut this to only six rigs by the end of 2011, as most if its acreage will be held by production by that time. Plains Exploration and Production (NYSE:PXP) is involved in a joint venture in the Haynesville Shale and anticipates that the number of rigs operating will drop from the 33 that existed as of May 2011, to 25 by the end of the year.

The Bottom Line
El Paso is still putting capital into the Haynesville Shale in 2011, in spite of the industry focus on oil and liquids assets, as the company believes that wells here still earn an adequate return at current natural gas prices. (These five qualitative measures allow investors to draw conclusions about a corporation that are not apparent on the balance sheet. Refer to Using Porter's 5 Forces To Analyze Stocks.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    3 Resilient Oil Stocks for a Down Market

    Stuck on oil? Take a look at these six stocks—three that present risk vs. three that offer some resiliency.
  2. Economics

    Keep an Eye on These Emerging Economies

    Emerging markets have been hammered lately, but these three countries (and their large and young populations) are worth monitoring.
  3. Stock Analysis

    Is Pepsi (PEP) Still a Safe Bet?

    PepsiCo has long been known as one of the most resilient stocks throughout the broader market. Is this still the case today?
  4. Investing Basics

    Learn How To Trade Gold In 4 Steps

    Trading spot gold or gold futures, equities and options isn’t hard to learn, but the activity requires skill sets unique to these markets.
  5. Economics

    The Effect of Fed Fund Rate Hikes on Gold

    Explore the historical relationship between interest rate increases and the price of gold, and consider what effect a fed funds rate hike might have on gold.
  6. Investing

    The ABCs of Bond ETF Distributions

    How do bond exchange traded fund (ETF) distributions work? It’s a question I get a lot. First, let’s explain what we mean by distributions.
  7. Savings

    Easy Ways to Go Green and Stay Budget Friendly

    Social entrepreneurs recruit "skeptics" to team green, by providing economically efficient products and services that minimize consumers' carbon footprint.
  8. Investing

    Top Investment Banks In The Energy Industry

    Many global Investment banks are highly involved in the energy industry, but there are also some smaller banks and boutiques that are strong players.
  9. Stock Analysis

    3 Stocks that Are Top Bets for Retirement

    These three stocks are resilient, fundamentally sound and also pay generous dividends.
  10. Investing News

    Are Stocks Cheap Now? Nope. And Here's Why

    Are stocks cheap right now? Be wary of those who are telling you what you want to hear. Here's why.
  1. Does working capital measure liquidity?

    Working capital is a commonly used metric, not only for a company’s liquidity but also for its operational efficiency and ... Read Full Answer >>
  2. How do I read and analyze an income statement?

    The income statement, also known as the profit and loss (P&L) statement, is the financial statement that depicts the ... Read Full Answer >>
  3. Can working capital be too high?

    A company's working capital ratio can be too high in the sense that an excessively high ratio is generally considered an ... Read Full Answer >>
  4. How do I use discounted cash flow (DCF) to value stock?

    Discounted cash flow (DCF) analysis can be a very helpful tool for analysts and investors in equity valuation. It provides ... Read Full Answer >>
  5. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  6. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!