Substantial Haynesville Resource Awaits Higher NatGas Prices, NGI's Shale Daily Reports
April 26, 2011 11:48 AM Eastern Daylight Time
DULLES, Va.--(BUSINESS WIRE)--The dry gas of the Haynesville Shale hasn't been winning any popularity contests lately, as evidenced by a dramatic drop over the past year in the shale rig count standings, but proponents think it's just a matter of time until higher natural gas prices spur increased activity in the Haynesville/Bossier Sands, according to a report in NGI's Shale Daily.
“one rig doesn't necessarily equal one rig anymore.”
The line-up of companies maintaining a stake in the Haynesville is impressive, with Chesapeake Energy leading the top five acreage holders with 530,000 acres, followed by Petrohawk Energy (375,000), Encana (350,000), ExxonMobil (240,000) and EOG Resources (183,000), according to a tally by NGI's Shale Daily.
And while the Haynesville has been eclipsed "temporarily" by oilier plays such as the Eagle Ford and parts of the Marcellus, it is still is a huge resource that only requires demand to pick up and natural gas prices to move closer to oil prices for drilling to take off again, according to the consensus view.
There's no denying that Haynesville drilling experienced one of the biggest slides in rig counts over the last year while most other plays have seen substantive percentage increases (albeit on much smaller starting numbers in some instances). According to NGI's Shale Daily Unconventional Rig Count, for the week ending April 22 Haynesville/Bossier Sands activity was down to 138 rigs, or 28% fewer than the 192 active rigs a year earlier.
With high oil prices, the drilling and completion equipment is heading for wetter plays where producers can stand the increasing costs. For instance, Encana and Comstock Resources have cut production expectations based on a lack of oilfield services availability.
Devon Energy, the seventh largest acreage holder in the Haynesville, still considers it a "very good asset" in its portfolio despite having shifted all of its activity there to more lucrative oily plays.
Basically, it will take a big jump in prices to rebound Haynesville rig activity and entice Devon to resume drilling there, spokesman Chip Minty told NGI's Shale Daily. Over the long term of four to five years Devon is "very optimistic about gas prices," especially with soaring power generation demand, but in the interim through about 2013 it expects prices to remain relatively soft.
The long-term outlook is key, according to CenterPoint Energy, which is seeing no letup in Haynesville operations, said Greg Harper, group president of midstream pipelines and field services. CenterPoint connected 183 wells to its gathering lines in 2010, which it considered a pretty active year. One mitigating factor he sees is the development of drilling multiple (four to eight) wells from one pad, so "one rig doesn't necessarily equal one rig anymore." He suggested that a "well count" is a better indicator of drilling levels than the rig count.
And even a well count isn't the last word. Charles Stanley, CEO of QEP Resources, noted last month the big gain in drilling efficiency his company had achieved in Haynesville. "When we started in [the Haynesville Shale] several years ago it took us over 66 days to drill a well from the surface down to about 17,400 feet. During 2010 we averaged a little under 40 days to drill the same well to the same total depth." Not only did this benefit well construction but also completion efficiency, he said, "and as a result our completed well costs have come down from over $10 million in 2009 to $8.5 million in the latter half of 2010."
On Monday Haynesville-North Louisiana and Haynesville-East Texas prices averaged $4.19 and $4.22, respectively, according to NGI's Shale Price Indices (SPI). Haynesville-East Texas pricing was a close match to that in the Barnett ($4.24) and Eagle Ford ($4.24) but trailed Fayetteville ($4.26) and Marcellus ($4.44-$4.58). Haynesville-North Louisiana numbers topped those in the Midcontinent's two Woodford plays along with the Granite Wash and all three of the plays in the Rockies.
http://www.businesswire.com/news/home/20110426006591/en/Substantial...
Tags: Bossier, East, Haynesville, Louisiana, North, Texas
Views: 186
Replies to This Discussion
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Permalink Reply by R B on -
Hello-
Would appreciate some opinions on what Natural Gas prices would need to be before the companies mentioned in the article come back for more drilling in the Haynesville. $7 ? $8 ?
many thanks,
R B
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Permalink Reply by Les Bamburg on -
RB, the price required various significantly by company as it depends upon alternative investment opportunities and the quality of the Haynesville Shale acreage position. So some companies may increase activity at a $7/MMBtu price while others may require prices closer to $10/MMBtu to increase rig count.
Current oil prices equate to ~ $19/MMBtu.
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Permalink Reply by R B on
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$10, yikes! Any thoughts on how long it will be before that could happen? Years? Decades?
Thanks as always Les.
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Permalink Reply by Les Bamburg on
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RB, still too many variables to hazard a guess but I am thinking sometime closer to 2020 at the earliest. This is primarily a function of displacing more coal in power generation to create an incremental 5-10 Bcfd of demand above normal growth. It is unclear how high natural gas prices must move up to meet that demand level. At that level you could also see some increase in LNG imports in the summer market.
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Permalink Reply by Robert Duke on
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Aren't dry gas companies (thinking Encana; I expect there are others) in a bit of a bind on this one? Don't they have to keep drilling new wells to even maintain a constant gas production, given the decline curves? I suppose they could decide to expand their efforts and go after liquids, but everything I have read indicates they are staking their future on the longterm potential of natural gas, instead of trying to reap larger shortterm profits associated with harvesting the last of the liquids. Any estimates out there about just how much additional oil or liquids equivalent to oil are going to come out of the wet gas plays?
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Permalink Reply by essay on
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i can't speak to much beyond the fact that i believe an outfit like encana wouldn't be mass-producing gas out of certain sections of the haynesville at a loss. why would they, one and done is all that's required to essentially store the rest of the reserves until they are profitable.
further, i believe les has basically got the time frame for anything approaching $10 gas correct (i'm sure he's relieved) and in the shorter term (5 years, maybe) foreign LNG essentially puts a cap of somewhere between $6 and $7 on domestic supplies.
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Permalink Reply by Les Bamburg on
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Robert, most companies (including EnCana) have multiple investment options and will optimize their level of capital spending and earnings growth rate based on commodity pricing. Clearly some companies have more "liquids" exposure but several of the dry gas plays are still economic at today's prices. Even those companies moving some investment into "oilier" plays will still have much of their future earnings tied to the price of natural gas since that will continue to be the majority of their production.
It is too early to assess the magnitude of incremental oil & condensate production related to these new plays because most are in the very early stages of development. Also beware of the term "liquids" because this includes NGL's which cannot directly meet for oil/condensate demand.
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Permalink Reply by Robert Duke on
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Hi Les, Essay,
I basically understand what you are saying (thanks). I would presume what Encana will do is develop their lower cost assets to the extent required to keep a revenue stream coming for investors, and that these lower cost assets are profitable. So that has to mean some continued drilling, but certainly at a reduced level, and certainly selective. I would not be surprised if income to royalty owners is very uneven for the next 10-20 years; not the best situation, but unless the price goes up more dramatically, it is what it is. I would be thrilled to see them at least doing some exploratory work in the Bossier Shale so they better understand where to extend their leasehold when the time comes; could be they already have a pretty good idea without additional drilling though.
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Permalink Reply by Parkdota on
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I'm wondering if the new venture completed and described below will change things going forward for natgas. I read it as a way for utility companies to ensure long term price fixes while the operators can ensure up front capital and long term end users.
CALGARY, Alberta--(BUSINESS WIRE)-- Encana Oil & Gas (USA) Inc., a subsidiary of Encana Corporation (TSX, NYSE: ECA), has completed a benchmark upstream joint-venture development agreement with Northwest Natural Gas Company (NYSE:NWN - News), a Portland, Oregon-based natural gas distributor. The Public Utility Commission of Oregon recently approved the agreement that will see Northwest Natural invest about US$250 million over the next five years to earn a working interest in certain sections of Encana’s Jonah field in Wyoming. The arrangement provides NW Natural with secure, reliable and economic supplies of natural gas for a portion of the needs of its 674,000 customers.
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Permalink Reply by jffree1 on
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This article had a tiny bit of additional info (that needs Les B to translate into $$/mcf so I can relate):
Regulators approve unusual deal as Northwest Natural seeks to lock ...
"The cost of the gas will flow through to customers this fall when regulators make their annual adjustment to reflect changes in the wholesale price of natural gas. The exact price customers will vary because a portion of the gas costs fluctuate, but will be in the neighborhood of $5.15 a decatherm. That's more expensive than NW Natural could buy today with a five-year contract, but the advantage for ratepayers is that the price on that portion of NW Natural's supply will stay in the same range for three decades."
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Permalink Reply by Les Bamburg on
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Jffree, one decatherm (Dth) is the same as one million BTU's (MMBtu). For natural gas with a gross heating value of 1000 Btu/Scf, a Dth is equivalent to an Mcf.
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