UPDATE 2-Petrohawk cuts '09 capital budget; to sell some assets

(Recasts; adds details, share movement, analyst comments)

By Arup Roychoudhury

BANGALORE, Oct 1 (Reuters) - Oil and natural gas producer Petrohawk Energy Corp (HK.N) cut its 2009 capital budget by 33 percent and said it was looking to sell some of its Permian Basin assets.

"It makes sense for the company to scale back its capital expenditures in an environment where commodity prices have fallen by a disproportionate amount as compared to drilling and production costs," analyst Curtis Trimble of Natixis Bleichroeder told Reuters.

Petrohawk, whose 2009 capital budget is now $1 billion down from $1.5 billion, said it will reallocate spending to develop projects in Haynesville and Fayetteville shales that it believes have higher overall reserve growth potential and internal rates of return.

Advances in drilling technology and high oil and gas prices have led to an increase in exploration activity in "unconventional" fields like the Haynesville and Fayetteville, where oil and natural gas are locked in substances like shale that were once considered too costly for drilling.

Petrohawk also increased its revolving credit facility to $1.1 billion from $800 million on Sept. 10 and said that the facility is currently undrawn.

ASSET SALE

Petrohawk said it was looking to sell some of its Permian Basin region assets, which are spread over west Texas and south eastern New Mexico, during 2009.

Natixis Bleichroeder's Trimble said he expects sale of these assets to generate $600 million to $650 million in property sale revenue for the company.

"These assets were slated for spin-out into a master limited partnership (MLP) in early 2007. The MLP market for producing oil and gas assets more or less dried up shortly after Petrohawk filed to spin-out the assets," he said.

It makes strategic sense for the company to again revisit the possibility of divesting these assets, he added. The Permian Basin properties currently produce about 35 million cubic feet of natural gas equivalent per day (mmcfe/d), the company said.

Trimble said the sale of the company's Permian Basin assets could lead to a production decrease of 8 percent to 12 percent in 2009, but added that Haynesville Shale could offset the decrease.

For 2009, Petrohawk said it expects a growth of 25 percent to 35 percent in production over its 2008 estimate of 305 (mmcfe/d). The company reiterated its third-quarter production outlook of 310 mmcfe/d to 320 mmcfe/d.

Trimble cut his price target on the stock to $42 from $46, as a result of deferred cash flow, while maintaining a "buy" rating.

Shares of the Houston-based Petrohawk were trading down 14 cents at $21.49 Wednesday afternoon on the New York Stock Exchange. The broader Dow Jones U.S. Exploration & Production Index .DJUSOS was down 2.98 percent at 581.48. (Editing by Amitha Rajan) (arup.roychoudhury@thomsonreuters.com; within U.S. +1 646 223 8780; outside U.S. +91 80 4135 5800; Reuters Messaging: arup.roychoudhury.reuters.com@reuters.net))