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Debate swirls around future of Haynesville Shale


By Jim Magill


April 23, 2014 - With the brutal winter of 2013-2014 receding into the rearview mirror, some prominent industry observers have speculated that evidence of increased gas demand -- as well as higher wellhead prices -- would prompt a return of drilling rigs to the Louisiana portion of the Haynesville Shale.


But that doesn't appear to be the case, as producers are taking a wait-and-see approach before committing significant resources to the once red-hot dry-gas play.


Drilling in the play ramped up quickly following its discovery by Chesapeake Energy, which drilled its first wells in 2006. But activity in the high-cost Haynesville fell off just as quickly as producers in recent years shifted their focus to higher-return, oilier and more liquids-rich plays such as the Eagle Ford Shale of South Texas.


Analysis continues below...


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The slowdown in drilling activity has been followed by a sharp falloff in gas production. According to a report by the Louisiana Department of Natural Resources, in 2012 the Haynesville Shale area produced 2.07 Tcf, about 5.67 Bcf/d, of gas, about 70% of the state's gas production excluding the federal portion of the Gulf of Mexico offshore Louisiana.


But the DNR estimates that production in 2013 fell to 3.97 Bcf/d, about a 30% drop, and continues to decline.


"Some industry observers say the Haynesville play remains at a disadvantage since it produces mostly natural gas and it has one of the highest costs of drilling among shale plays in the US," the DNR report states.


In a recent column, Louisiana Oil and Gas Association President Don Briggs predicted that a renaissance was in the offing for the once booming play. Briggs pointed out that gas demand for manufacturing, power generation and LNG exports is poised to increase, driving prices upward and attracting producers back into the play.


"Since 2012, the market has now moved in a positive direction, as natural gas prices are now well over $4[/MMBtu]," Briggs wrote.


In an interview, Briggs acknowledged the dramatic shift among producers in the last several years to oil and liquids. "In 2008, 82% of all the rigs were drilling for natural gas. Today 82% of all the rigs are drilling for oil," he said. "Now we're creating this incredible supply of oil."


But Briggs said that dynamic is beginning to change."We're growing our demand for natural gas, and even though we have that surplus, eventually we're going to see prices creep back up," he said.


Although the Haynesville straddles the Louisiana-Texas border, Briggs said the Louisiana portion alone comprises about 2,200 640-acre units, with each unit capable of holding as many as six wells. "So you could have more than 12,000 wells there to drain the fields," he said.


With about 2,500 wells having been drilled to date in the play, "we're a long way from that resource being depleted," Briggs said.


Briggs added that gas prices in the Haynesville, which have dipped in the last few years to well below $2/MMBtu, have recovered and are on a steady upward trend. "I think in the next year or two we're going to see $6 gas, especially if demand continues to grow. With all the new LNG exporting and new projects going on line here in Louisiana, I think we're going to see the bubble disappear pretty quick."


But following the drilling boom in the 2010-2011 period, the play saw "a mass exodus starting in early 2012 due to natural gas prices dropping to an historic low of $1.81," Briggs said. The number of drilling rigs operating in the play has fallen from a high of 139 rigs at the peak down to about 20 currently.


In the past decade, prices producers have been able to get for their gas in the Louisiana portion of the Haynesville have fluctuated wildly. According to Platts' data, mean gas prices at the Columbia Gulf Mainline (seegraph)have gone from about $6.96/MMBtu in 2007 to $8.84/MMBtu the following year.


From 2011, prices at the point traded in a range between about $3.95/MMBtu and $4.35/MMBtu, then fell to about $2.71/MMBtu in 2012, before increasing to a mean of $3.69 last year.


According to the Louisiana DNR, gas production in the Louisiana portion of the Haynesville Shale shot up from a trickle in 2007 to a flood of 5.67 Bcf/d in 2012 before last year's steep drop.


Next page: Haynesville loses producers, rigs to other plays







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