Small companies cautiously optimistic on natural gas drilling

HOUSTON, April 11 Fri Apr 11, 2014 12:54pm EDT

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HOUSTON, April 11 (Reuters) - The winter rally in natural gas prices is creating cautious optimism among companies like Matador Resources Co and Swift Energy Co, smaller energy producers that see opportunity and future deals in a once-moribund market.

Consumers pulled a record amount of gas from storage this freezing winter, leaving stockpiles at the lowest level since 2003. This has spurred expectations for higher prices.

"Gas isn't a bad word today," Bruce Vincent, president of Swift Energy Co told the OGIS conference of energy investors and companies in New York earlier this week. He added that returns for Swift's Eagle Ford gas have improved but more pipeline is needed to carry the gas to Gulf Coast markets.

Swift is also seeking a strategic partner for its Fasken Field gas project near the Rio Grande River in far south Texas, with an announcement on the deal expected midyear, Vincent said.

Houston-based Swift is eyeing the Mexican export market for its south Texas gas as that country finalizes its energy reforms, said Vincent.

Sentiment about drilling for dry gas, or gas that does not have a high content of more valuable liquids, is also improving in places like the Haynesville in north Louisiana and the Barnett Shale in north Texas.

Gas prices in the Haynesville have improved dramatically and "the will be increased activity there," Joe Foran, chairman and founder of Matador Resources told the OGIS conference held in New York.

Analysts have boosted 2014 price forecasts for gas at Henry Hub, the benchmark U.S. supply point in Louisiana, to an average of $4.59 per million British thermal units, up about 5 percent over their previous $4.37 forecast in February.

Dallas-based Matador plans to spend about 3 percent of its budget in the Haynesville Shale, but that share is likely to grow to 6 percent or more over time, said Foran.

Its 2014 plan does not include any Matador-operated wells, but the company may benefit from Chesapeake Energy's plans to add rigs in the Haynesville this year, said Foran.

In 2008, Matador sold drilling rights in about 9,000 acres to Chesapeake for $180 million, but Matador retained an interest and royalty rights on those properties.

Quiksilver Resources Inc, which resumed drilling in the Barnett Shale in the third quarter of 2013, told investors that its partnership with Tokyo Gas is thriving and hinted at increased investment by the Japanese natural gas supplier.

Last year, Quicksilver sold a 25 percent stake in its Barnett Shale assets to a unit of Tokyo Gas for $485 million

"I think there's more to come with Tokyo Gas," John Regan, Quicksilver's chief financial officer told OGIS. (Reporting by Anna Driver; editing by Terry Wade and David Gregorio)

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