A review of earnings reports and management commentary from the exploration and production industry indicates that the shortage of hydraulic fracturing capacity is starting to ease in the Haynesville Shale. This is occurring as rig counts in this area fall due to weak natural gas prices and companies winding down drilling done to hold acreage in the play.

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The Players
GMX Resources
(NYSE:GMXR) reported that the company was able to complete eight wells into the Haynesville Shale during the fourth quarter of 2010. This was a record number of completions in any one quarter for this small capitalization exploration and production company and was attributed to "increased availability of fracture stimulation services."

Comstock Resources (NYSE:CRK) said that production in the last six months of 2010 was lower due to the unavailability of hydraulic fracturing capacity to complete Haynesville Shale wells. The company had 26 wells that were awaiting completion at the end of 2010.

Comstock Resources indicated in its operational update for the fourth quarter of 2010 that completion services were now available and that the company expects to reduce its inventory of uncompleted wells during 2011.

Shifting Markets?
Some of these comments may seem to contradict recent earnings reports from the major oil service companies, all of which reported strong demand from North American operations. Although these oil service companies may see less business in the Haynesville Shale due to a lower rig count in 2011, the development activity is shifting to onshore plays that produce oil and natural gas liquids.

Schlumberger (NYSE:SLB) reported revenue in North America of $1.6 billion in the fourth quarter of 2010, up 84% with the strongest demand from the U.S. land market. The management of Schlumberger noted a "growing demand for services in liquid-rich plays" during the fourth quarter of 2010.

Halliburton (NYSE:HAL) labeled the recovery in North America as "dramatic" and reported 10% sequential growth in revenue over the third quarter of 2010. Both companies also reported pricing improvements in North America.

Weatherford International (NYSE:WFT) also made similar comments and said that demand was strong in the U.S. land market due to higher activity in "oil directed drilling and liquid rich plays."

Oil service companies that provide completion services may see higher demand in 2011 as operators crowd into the Bakken and Eagle Ford Shale plays. Halliburton noted during its conference call that the average rig count grew by 20% sequentially in each of these basins in the fourth quarter of 2010. The company reported that one exploration and production company plans to increase its lateral length from 6,000 to 10,000 on future wells in the Eagle Ford Shale.

Bottom Line
The tight market for hydraulic fracturing services in the Haynesville appears to have loosened up as operators shift activity to oil and liquids plays. (To learn more, see our Oil & Gas Industry Primer.)

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Tickers in this Article: GMXR, CRK, HAL, SLB, WFT

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