Petrohawk Energy's Spending Spree Days Over

• The Company: Petrohawk Energy, an oil and gas company with principal operations in Mid-Continental region.
• The Filing: Common Stock Prospectus filed with the SEC on August 11, 2008.
• The Finding: Petrohawk Energy Corporation said Wednesday it would reduce its 2009 capital budget by a third to $1.0 billion and intends to shift spending to those projects with the highest internal rates of return and greatest potential for reserve growth, namely,  development in the Haynesville and Fayetteville formations.

The Upshot: What management is not saying is that during the first-half of 2008, the company spent about $1.1 billion primarily on property acquisitions, including leasehold interests, in the Haynesville and Fayetteville shale plays. As budgeted capital expenditures for 2008 were expected to substantially exceed net cash generated by operations, Petrohawk had to make some prudent financial changes. Ergo, it made sense for the company to reallocate capital on development of drill bit projects with the highest expected overall reserve growth potential.

Management has directed approximately 68 percent of its 2009 capital budget, which includes drilling, 3-D seismic activities, and production costs, on its Haynesville and Fayetteville Shale plays. As of June 30, these premier assets held an estimated 12.2 trillion cubic feet of natural gas equivalent (Tcfe) resource potential.

Capitalizing on tight-gas drilling, a built-out midstream infrastructure (cost-advantage in drill-to-connection time and gas take away capacity), and compelling development costs per well of $0.85 - $3.41 per Mcfe (depending on drilling depth), Petrohawk calculates the burgeoning shale plays can generate internal rates of return close to 40 percent at minimum natural gas prices of $6.00 per MMbtu.

The company is also looking to divest certain mature conventional assets with declining flow rates in its Permian Basin region during 2009. Curtis Trimble of Natixis Bleichroeder told Reuters he expects sale of these assets to generate $600 million to $650 million in property sale revenue for the company.

The Question: Chesapeake Energy and Petrohawk Energy — two natural gas companies who leveraged their balance sheet with debt during shale play buying binges over the last two years — are now paring capex budgets and unwinding some of their asset holdings to reduce debt and improve their balance sheet profiles. As natural gas prices continue to stumble, what company is next in line to auction off oil and gas properties?