After six years of output declines, Haynesville Shale natural gas production surged 25% in 2017, with the lion’s share of the increase coming in a remarkable second-half growth spurt. Preliminary 2018 guidance indicates that producers intend to keep the pedal to the metal, either sustaining or boosting the investment that has brought the play’s output to nearly 8 Bcf/d. Such increased activity indicates that producers have found new advantages in the region. But even though new drilling and completion techniques and producer strategies have significantly enhanced the economic viability of the dry gas Haynesville, it is much more highly dependent on natural gas prices than liquids-rich plays. Today, we continue our series on the rebounding Haynesville play with a look at RBN’s production forecast for the region.
First, a little background. We highlighted the signs of resurgence in this play in April 2017 in Don’t Call It a Comeback, pointing out that new drilling technology and burgeoning Gulf Coast gas markets had changed the dynamics for the “Greater Haynesville” — a region we think of as the Haynesville, Bossier and Cotton Valley formations in northwestern Louisiana and East Texas. The application of horizontal drilling and hydraulic fracturing drove production from less than 4 Bcf/d in 2008 to more than 10 Bcf/d in 2011-12, when the region briefly reigned as the top U.S. gas producing play. But a plunge in gas prices and the lack of natural gas liquids (NGLs) in the production stream led producers to move on to plays rich in NGLs and/or crude oil. The Haynesville rig count fell from a peak of 160 in 2011 to just 11 rigs in April 2016. Then, remarkably, this Lazarus of shale plays suddenly arose from the dead in 2017, with the rig count tripling by April 2017. Three months later, as we detailed in Don’t Call It a Comeback, Part 2, pipeline flow data showed that output from the Haynesville Shale was beginning to rise for the first time in six years, and the rig count continued to increase to 47, the highest total since mid-2012. As a result, monthly average volumes started rising fast, growing from about 6.2 Bcf/d in December 2016 to 7.8 Bcf/d a year later — a gain of 1.6 Bcf/d, or 25%.
In Back With a Vengeance, we looked at the who, what, where and how of the remarkable resurgence. We pointed out that the recovery has been driven by a new cast of characters, many of them new entities formed by experienced management teams that partnered with private equity (PE) firms, which have funded much of the growth in the U.S. exploration and production (E&P) sector in recent years. Drilling results from the first wave of unconventional development beginning in 2008 showed that the geology of the Greater Haynesville is not uniform, and includes many clay-rich areas (as opposed to calcite-rich rock beds) where the sedimentary rock is mushier and unconventional techniques are less effective. From the vast available acreage packages across the 9,000-square-mile play, these new entrants focused on highly concentrated acreage in and around DeSoto Parish in the Louisiana portion of the play. In this core area, these producers began experimenting with longer laterals, enhanced completion techniques and optimized drawdown strategies that more than tripled recoveries per well and drove down breakevens from $4.00/MMBtu to $3.00/MMBtu and, in some areas, below $2.50/MMBtu. These economics drove the turnaround in drilling activity that spurred the dramatic output growth.