What Are the Chances? - Integrated Majors Breathe New Life into the Haynesville-Texas Gas Play

Natural gas production volumes from the Haynesville Shale have raced up over the past 18 months or so, from about 5.3 Bcf/d in December 2016 to more than 8 Bcf/d now. In fact, volumes are now just 1 Bcf/d or so shy of the all-time peak of 9.5 Bcf/d in January 2012. Despite the gains, there’s been a cloud of skepticism hanging over the play’s longer-term growth prospects — most of the recent gains have come from a relatively small footprint in the play’s western Louisiana sweet spot, and many of the surrounding areas are fraught with geological challenges, such as high water and clay content. But now the Haynesville story is changing once again, with a shift in rigs to the Texas side. How does this shift affect Haynesville’s growth prospects? Today, we provide an update of our view of the Haynesville Shale.

When we last wrote about the Haynesville comeback earlier this year in Back with a Vengeance, gas production from the shale play was in its ninth straight month of gains. Yet questions were still swirling about its growth prospects. After facing steep declines earlier in the decade and leveling off near the 5.5 Bcf/d level through 2015-16, Haynesville gas production volumes reached an inflection point in early 2017 and climbed 650 MMcf/d through the first half of last year, bringing volumes back to just under the 6-Bcf/d mark. Then, growth accelerated in the second half of 2017, with volumes rising another 1 Bcf/d or so to top 7 Bcf/d by December 2017.

Several factors — from enhanced drilling technology to burgeoning LNG export demand and higher gas prices along the Gulf Coast — have breathed new life into the Greater Haynesville, a region we define as the Haynesville, Bossier and Cotton Valley formations that straddle northwestern Louisiana and East Texas. A couple of years ago, we began to see a whole new slate of players enter the fray, primarily private equity-backed management firms (as opposed to the publicly held producers of the early days). When they came in, they did so armed with new methods, including laterals that were double the lengths seen during the Haynesville’s heyday and that could achieve much higher output per well (see Don’t Call It a Comeback).

But there also have been problems. With gas prices generally stuck between $2.50 and $3.00/MMBtu, Haynesville’s resurrection looks nothing like the first go-round when gas prices were topping $4/MMBtu. First and foremost, the lower prices have limited drilling activity to only the most economical and productive areas, shrinking the play’s footprint to just a handful of parishes and/or counties.