Drilling Into Oblivion: Can Any Haynesville Operators Make a Decent Return at Sub-$2 Gas?
Henry Hub gas prices have witnessed a significant decline from their November peak of approximately $3.50 per Mcf, reaching near-record lows of around $1.60 per Mcf. This drastic shift has prompted operators in major gas basins to respond by reducing rigs and, in some instances, voluntarily shutting down production. For instance, EQT announced in early March its decision to shut in 30-40 Bcf of production during the first quarter of 2024.
Given the persistently low gas prices, there is widespread concern within the industry about the ability of Haynesville operators to generate attractive returns. Many question whether any operators in this basin can achieve profitability in such a challenging environment.
To shed light on this issue, we have compiled a list of the top ten operators in the Haynesville basin based on their breakeven points. Breakeven is defined as the flat Henry Hub price required to generate a two-year payout period, which is colloquially considered the benchmark for achieving a good return on capital for shale wells.
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Need Freeport back online. I read when it comes back they plan to increase their exports. I hope it happens.
Any help to boost demand would be welcome. As more takeaway capacity is added in the Permian, increased associated gas could add additional downward price pressure on the supply/demand gap. Major end users of gas benefit from the depressed price. It's good for the chemical industry and LNG exporters.
At first it looked like the depressed prices would abate in late 2024. Now it looks as if they may persist through 2025. Currently the average strip price for 2025 is $3.42. An improvement for royalty interests but still below breakeven for the majority of Haynesville production.
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