Aethon president: Natural gas needs to top $5 to spur Haynesville investment
Aethon president: Natural gas needs to top $5 to spur Haynesville investment
Jan. 8, 2025 Geert De Lombaerde www.ogj.com
Executives speaking at a Goldman Sachs conference said there’s no price incentive yet to lift production.
Gordon Huddleston, president and partner at Aethon Energy Management LLC, told attendees of the Goldman Sachs Energy, Cleantech & Utilities Conference that firms such as Aethon have little incentive to bring more product to market this year after they curtailed production last year in the face of weakening prices and a glut of supply. But he and other executives said the completion of several LNG export plants should begin to lift prices.
Still, Huddleston added, it will take a lot of upward movement to get companies such as Dallas-based Aethon—which produces about 3 billion cu ft per day (bcfd) and has most of its assets in the Haynesville—to commit to new development.
“You’re talking about a lot of potential demand coming on and we know that’s going to necessitate higher pricing,” Huddleston said as part of a panel discussion on the natural gas market. “It probably starts with a 5 [USD] to bring significant development on.”
The Henry Hub price of natural gas for February delivery closed trading Jan. 7 around $3.45/MMbtu.
Nick Dell’Osso, president and chief executive officer of Expand Energy Corp., echoed Huddleston’s assessment of what it will take to reignite capex in the Haynesville region. Around $3.50/MMbtu, Dell’Osso said, marginal production in the area begins to break even—but prices need to climb “materially higher” to justify new volumes.
“The curve is telling you it’s really not concerned about growth much beyond where we are today,” Dell’Osso said.
Last year, Expand executives (then still operating as Chesapeake Energy Corp. before buying Southwestern Energy Co.) helped set the tone among companies by pulling back on spending and deferring the turning in line of dozens of wells (OGJ Online, Feb. 21, 2024). They added to those cutbacks in the spring with the aims of managing production declines and preserving the flexibility to bring back volume when wanted or needed to offset lost production elsewhere (OGJ Online, May 1, 2024).
Dell’Osso told the Goldman audience his team is now following that plan and sticking to its target of leveling out Expand’s production around 7 bcfed. The current cold snap gripping much of the country these days won’t affect that, he added.
“Nothing has changed for us. The strip is largely in line with where we saw it to be at the time that we made [that] decision,” he said.
Contributing to longer-term investment discipline is uncertainty about the interplay in coming years between the US LNG export plants that have come online (see sidebar) along with others being built, broader domestic gas demand and corresponding international activity.
Dell’Osso said the market is likely to remain tight for another two and a half years but added that that timeframe isn’t enough for Expand to commit to a host of new wells in the near future.
“You don’t want to grow for a season,” he said. “You want to grow for something that is durable over several years.”
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Replies to This Discussion
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Permalink Reply by Quattro on
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Things like this make me really think about considering offers to sell.
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Permalink Reply by Skip Peel - Mineral Consultant on
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I think Aethon is in a different situation than EXE and CRK. Aethon has no undrilled well permits. They are in a position to hold what they've got and stagger the completions on the wells they have waiting for completion or waiting to be TIL. The total LA DUCs and non-TIL wells are only 32 total. Aethon can maintain leases, meet minimum volume commitments and cover cash flow for a number of months into 2025 by Turning those wells In Line. The nat gas forward strip doesn't show a month with $5 gas through April 2026. I doubt Aethon will not drill any new wells in 2025. It is however a good time for them to drop their remaining rig contract should they chose to do so. The last rig report I saw showed only three rigs drilling the LA side of the HA fairway. Those three are enough to drill to TD all 32 of those wells. I expect the other major LA HA operators to continue to permit and spud wells in 2025 but at a reduced rate. Aethon is likely still pursuing a buyer for their HA stake.
As much as it may seem counterintuitive, mineral buyers are surprisingly aggressive with offers so far in the new year. Minerals meeting certain specific requirements are seeing some of the highest offers I've seen in the entire history of the HA play.
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Permalink Reply by The Shadow
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Skip, I hope this site is OK to add my latest information. I was informed that there is some active leasing close or around Fairview Alpha by different companies. Also in the Natchitoches Times, today, there is information about Chesapeake applying for drilling with three additional drillings. The only location given is Alpha Map. Please let me know as well as others what, when and where leasing and activity is happening.
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Permalink Reply by Skip Peel - Mineral Consultant
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I responded to your earlier reply and included a link to the unit application. It is always okay and appreciated to know where leasing is occurring. The application for the three new units, once approved becomes a Field Order which should be considered spacing approval. All horizontal wells must have spacing approval to meet set back requirements before they can qualify to get drilling permits. When Chesapeake wants to drill wells, they will have to make another application that shows the wellbore lateral locations. After that they can apply for the drilling permits. The unit application and the follow up application for wellbore locations are effective indefinitely and come with no time requirement to be drilled. Both applications require notice letters to be sent to "Interested Parties" within each unit boundary and those immediately adjacent to a distance of 1000' even though they are not included in the application. The last step for drilling, the permit, does not require notice to the Interested Party list.
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