Over the years, the Haynesville’s significance to the natural gas industry has come in waves. In 2008 many predicted it would be the play that defined US natural gas production growth, and was the hot spot where investors and large E&Ps were trying to stake their claim.
But after the Henry Hub price crash of 2012 things changed. Rigs fell from 60 in January of 2012 to its lowest point of 10 in 2016, as many producers sold out of the basin, most with the intent to shift their focus to liquids.
Today, attitudes towards the Haynesville are shifting, and activity trends are reversing. Rig counts began to recover in 2017, and have been hovering at about 30 rigs since June, leading to an increase in wells drilled across most top operators.
Note that 2017 data is year to date, meaning both Vine and Chesapeake are on track to hit 2016 levels of activity, with Chesapeake stating their intent to hit their 2016 figures in a September investor presentation.
When a Haynesville well is drilled it usually takes anywhere from 3-6 months to turn it to sale, at which point it will begin producing. Since the drilling activity ramp up began at the end of 2016, more than 9 months ago, BTU Analytics would have expected Haynesville production figures to have been impacted. Instead, production has stayed flat, and the basin has not seen an increase in wells to sale.
This implies that wells are being drilled and not completed, and that operators are beginning to stockpile these drilled but uncompleted wells (DUCs). The question now is what the impact on basin production will be when the current inventory of DUCs are turned to sale.
As pictured above, the Haynesville represents about 3.5 Bcf/d of production as of May 2017. BTU Analytics expects this number to increase as more wells are turned to sale, but not to recover to pre-2012 levels over the next five years. This is primarily due to the size of the Haynesville core and the concentrated holding of acreage in the core by a small number of companies.
Higher levels of drilling also mean that producers are stepping out of areas drilled since 2013. Interestingly, as more wells are drilled, average IP rates for 2017 are down as compared to the previous year, a phenomenon unseen over the last three years.
BTU Analytics does not expect to see the same gains in well productivity as measured by IP rate, as in previous years as more and more wells are drilled outside of core acreage. But even if the Haynesville doesn’t return to pre-2012 production levels, the potential to compete with Rockies and Appalachian gas is still strong. The Haynesville is geographically well positioned, close to LNG export terminals in both Texas and Louisiana, giving the basin a basis advantage in the near term. To the extent associated gas out of the Permian fails to appear, and Northeast volumes don’t keep pace with demand growth, the Haynesville is positioned to benefit.
To find out more about BTU Analytics’ view on Haynesville production and the future of the play request a sample of our monthly Upstream Outlook publication.