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El Paso Calls Heating Up

Written By Brian Hicks

Posted June 24, 2008

You may want to keep El Paso (EP) on radar.  The El Paso August 2008 23 calls are seeing interest with 7,986 call contracts trading hands versus open interest of 69.  The spike is being attributed to news that the company has expanded land holdings in the Haynesville shale area.  While the stock has since retreated on the comments made at the Wachovia Nantucket Equity Conference, it and the call options are a buy.

“The Haynesville natural gas shale is found in a vein approximately 11,000 feet underground,” says Energy and Capital editor Keith Kohl  “Although the Haynesville shale is being touted as the largest onshore natural gas field, it’s a little too tell exactly how much natural gas is down there, that’s not stopping companies rushing to grab acreage in the play.”

Just how big is the potential?

According to the Wall Street Journal, “Chesapeake Energy has snapped up more than 300,000 acres of potential mineral reserves and is bargaining for 200,000 more in the Haynesville area. The company, which has vast resources to unearth gas deposits, accelerated a real-estate bidding war in April, when it declared that Haynesville “could potentially have a larger impact” than any of its previous energy investments…”

“The race to acquire Haynesville acreage started fewer than two years ago. Petrohawk was already drilling a gas deposit known as Cotton Valley, a separate deposit that runs roughly 3,000 feet above parts of Haynesville’s deposits, when it became aware of Haynesville in 2006. Chesapeake later raised expectations with claims that Haynesville holds large quantities of natural gas.”

“The real-estate frenzy, largely inspired by Chesapeake’s initial claims of vast resources, has created a short-term windfall for Goodrich, which has acquired most of its Haynesville land at an average price of $350 per acre. New territory in Haynesville is selling for more than $4,000 an acre, according to a senior official at Goodrich. The rush to develop Haynesville is also being fueled by natural-gas-futures prices that recently reached $11.17. All three energy producers are in a hurry to begin drilling while natural-gas prices are high.”