Tickers in this Article: HK, OAS, BEXP, APC
Petrohawk Energy's (NYSE:HK) recent operational update and reserve report contains some important facts about the company's development of various oil and gas plays in the United States. The data in this end-of-year release can be incorporated into an investor's decision on whether to buy the stock.

IN PICTURES: 9 Simple Investing Ratios You Need To Know

Natural Gas Company
Petrohawk Energy has embarked on a program of shifting some capital to the development of formations that contain oil and other liquid hydrocarbons. This is a slow transition due to the size of the company, and it still is primarily a natural gas company as measured by reserves and production.

Ninety two percent of its proved reserves were composed of natural gas at the end of 2010, and this percent might have been higher if not for the company divesting 500 Bcfe of proved reserves from several natural gas areas. Oil and liquids were only 5% of reported production in 2010, and the company expects this to reach 12% of production in 2011.

One exploration and production company that has a large percentage of its reserves composed of crude oil is Brigham Exploration Company (Nasdaq:BEXP). The company reported that 78% of proved reserves were crude oil at the end of 2010. Oasis Petroleum (NYSE:OAS) was even more oily than Brigham Exploration, with 92% of proved reserves composed oil at the end of 2010.

Proved Reserves
Petrohawk Energy reported proved reserves of 3.4 trillion cubic feet of natural gas equivalent (Tcfe) at the end of 2010, up sharply from 2009. Thirty five percent of these proved reserves were in the proved developed category, with the balance as undeveloped.

Other exploration and production companies have a much higher percentage of reserves in the proved developed category. Anadarko Petroleum (NYSE:APC) reported 69% of its proved reserves as developed at the end of 2010.

Increased EUR's
Petrohawk Energy has continued to focus on efficiency in drilling and completion and has seen an improvement in well performance in many of its plays. In the Black Hawk area of the Eagle Ford Shale, the company has experimented with an improved design of its hydraulic fracturing process, including tighter spacing and higher proppant volumes.

This improvement has led to a 30% increase in the estimated ultimate recovery (EUR) of average wells here. The company saw EUR improvements in the Hawkville portion of its Eagle Ford Shale acreage as well.

Cost Cutting
Under the manufacturing model of oil and gas development, operators pursue a relentless drive to reduce the cost of drilling and completion. In the Haynesville Shale, Petrohawk Energy has used different drilling and completion techniques to reduce an estimated $250,000 off the cost of a well into the Haynesville Shale. The company will eventually try to apply these efficiencies on its entire 225,000 net acre position.

The Bottom Line
Petrohawk Energy released its 2010 reserve report and operational update on its oil and gas activities. These reports have important information that should be reviewed by investors. (Before jumping into this hot sector, learn how these companies make their money. See Oil And Gas Industry Primer.)

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

comments powered by Disqus

Trading Center