Economic Hope For The Haynesville & "Breakeven" Analysis (only 20% Drilled)
Summary
Haynesville production peaked at 7.0 Bcf/d and now averages 3.0 Bcf/d due to lower investment levels.
Analysis of well results indicate significant levels of acreage now economic below $3 natural gas at current service costs.
Pipeline constraints in the northeast combined with low oil prices could require a return to drilling in the Haynesville shale to satisfy gas demand.
"...current weakness in oil prices could provide hope for dry gas plays as pipeline constraints limit the ability of Northeast natural gas to come to the rescue should demand outpace supply. BTU Analytics has decided to revisit Haynesville economics to see if the play becomes a good option in this low price environment."
Using BTU Analytics' proprietary economics model that estimates well costs based on well characteristics such as lateral length, proppant usage, and operator as well as production reported to the state, we are able to create the map shown above which identifies the lowest cost core acreage of the play. What can be seen is that there are plenty of areas in Haynesville with breakeven wellhead prices that are well above $5.00/MMbtu, a price that would be over double the level at which Henry Hub currently trades.
On the flip side, there are plenty of regions that break even in the $1.50 to $3.00/MMbtu range (note that there are few regions that break even below $1.50/MMbtu). The best parts of Haynesville can compete with Northeast production from a wellhead breakeven basis. Of course, one must also consider how much inventory is actually left in Haynesville, as this region was heavily drilled during the early days of the shale revolution by Chesapeake (NYSE:CHK), EOG (NYSE:EOG), Petrohawk now BHP (NYSE:BHP), EXCO Resources (EXCO) and others.
However, our analysis indicates that only 20% of well locations that break even sub $2.00/MMbtu have been drilled to date (177 wells). As oil prices continue to stay low, and associated gas production falls, dry plays such as Haynesville may again become viable investment opportunities, especially if incremental supply from the Northeast is unavailable due to capacity constraints.
Read more:http://seekingalpha.com/article/3912426-economic-hope-haynesville-s...
Views: 1828
Replies to This Discussion
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Permalink Reply by Skip Peel - Mineral Consultant on -
I agree with the 20% estimate for the approximate number of proven economic locations drilled to date. There is still a lot of development to come. The question is, at what price? And what do royalty interests net after deductions, taxes? I do have a problem with the map shading and wonder about the BTU Analytics' proprietary economics model. The wells north of I-20 excepting a small area near the state line were not economic at $8 and the limiting factor north of I-20 is clay content for which there is no technological fix. I don't think that area will ever be drilled even at prices above $5. Since the model includes Cotton Valley Core areas it is quite surprising that the map does not include Lincoln Parish. Any study that purports to represent CV Core Areas in NW LA that leaves out Lincoln makes me wonder about the parameters used in the analysis.
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Permalink Reply by Steve P on
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any idea what the squares in the map represent? townships? The squares cross over into Texas.
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Permalink Reply by Skip Peel - Mineral Consultant on
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Sections in Louisiana, one mile squares in Texas. That's what it looks like to me.
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Permalink Reply by Two Dogs, Pirate on
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The squares look to me to be townships.
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Permalink Reply by Skip Peel - Mineral Consultant on
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You are correct, TD,P. I misspoke. So, 6 mile squares in Texas? Certainly not surveys.
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Permalink Reply by Steve P on
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I don't think the squares are townships.
I located the TX/LA state line at the point where it is no longer N/S and follows the middle of the Sabine River, which is around Logansport, and started counting squares, moving in an easterly direction. Along that line, DeSoto Parish has five full townships (10 - 15W) and two partial ones. Counting 5 squares from the TX line does not put one anywhere near the east boundary of DeSoto Parish on this map. The squares are larger than sections but much smaller than townships, or else the map is nowhere near to scale.
Many of you will have more information and better maps to look at than me, so I'm hoping that someone here will either confirm my five-minute measurements or offer up a better explanation.
Of course, I'm trying to figure out "what color" my land is.
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Permalink Reply by Skip Peel - Mineral Consultant on
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Dang, I knew someone would obsess over that darn map. So it is you, Steve P! LOL! The squares are 2 miles by my calculation using my best map. Use that metric and tell me what color is your land?
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Permalink Reply by Steve P on
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Light green on one parcel, dark yellow on another. I have a few acres of minerals only that is HBP with an old 1/8th lease that has never had a HA well drilled on it. It is a nice rich red color on the map. I'll leave that parcel out of my retirement income projections.
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Permalink Reply by Skip Peel - Mineral Consultant on
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While all the shades of green are good rock, green areas are where some companies are drilling multiple new alternate unit wells. Those mineral owners are about to see a big chunk of their total reserves depleted at very low net royalty income.
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Permalink Reply by Steve P on
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Agree. I'd prefer to have wells drilled at least 3 years from now, not 2016 or 17. Of course, we have no control over that (I'm not going to lay my body down in front of the bulldozer).
The flip side of this is that some sites, if not drilled in the next 10 years, may never be drilled. Low price is better than zero.
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Permalink Reply by Skip Peel - Mineral Consultant on
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I'm not that pessimistic long term. I see considerable natural gas demand building in the near future and continuing for a decade or two at least. The question is whether that demand will be sufficient to move the needle substantially on price. I think within three years the upstream segment of the industry will be reconfigured and more financially stable and that they will have some production discipline that will keep prices in a $3 to $4 range. That should be enough to keep demand growing incrementally but also sufficient to provide an acceptable return on investment. Another question will be, how many of the colors on this map will be developed at that price range?
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