Haynesville production surge looms as drilling, well completions accelerate

Haynesville production surge looms as drilling, well completions accelerate

26 Jul 2021 spglobal.com/platts

Highlights

Rig count hits 21-month high at 55: Enverus

Wells drilled, completed surge in May, June

Haynesville IRRs top 20%: Platts Analytics

Drilling activity in the Haynesville Shale has picked up recently to levels not seen since late 2019 as producers there prepare for growth supported by strong gas prices and improving rates of return.

As of late July, rig count in the Texas-Louisiana basin has grown to 55 – up sharply from last year's pandemic-fueled drop to just 31 rigs in May 2020, recent data published by Enverus shows.

The growth in rig count has been accompanied by a ramp up in well completions and wells drilled.

In both May and June, well completions in the Haynesville totaled 50, marking the highest monthly completion rate in nearly seven years. Over the same two-month period, producers bored almost as many new wells with 49 drilled in May and 50 drilled in June, data from the US Energy Information Administration's Drilling Productivity Report shows.

The turnaround in Haynesville upstream activity this summer comes as US spot and forward gas prices approach the $4 level, even at supply hubs like Carthage where much of the basin's output is delivered.

In July, cash prices at Carthage Hub have averaged $3.52/MMBtu. Over the balance of this year, forwards traders are betting Carthage will move even higher, pricing the calendar months through December at an average $3.95/MMBtu, S&P Global Platts' most recently published M2MS data shows.

Market dynamics

As of June, the internal rate of return for an average Haynesville producer has climbed to an estimated 21%, based on a half-cycle, post-tax analysis – a gain that comes largely on the back of higher spot and forward gas prices in 2021. Compared with year-ago levels, IRRs are up sharply from estimates below 10% in June 2020, S&P Global Platts Analytics data shows.

Improved wellhead economics in the Haynesville have been accompanied by recent demand growth for the basin's supply, most notably from the nearby LNG liquefaction terminals along the Gulf Coast.

From June 1 to date, feedgas demand from the four operational Gulf Coast terminals – Sabine Pass, Corpus Christi, Cameron and Freeport – has averaged 9.35 Bcf/d. That's also up sharply from last summer's June-to-date average at just over 3 Bcf/d when a wave of LNG cargo cancelations cut exports at most US terminals.

Production, midstream growth

This summer, producers in the Haynesville are taking notice of the increase in regional demand. In July, gas production appears to have regained momentum seen earlier this year with output recently testing highs above 13 Bcf/d – a level not seen since early April.

The recent expansion of midstream capacity from the Haynesville to the more premium markets at Gillis, Houston Ship Channel and Henry Hub, also means there should be plenty of running room to grow output by as much as 1.3 Bcf/d, according to Platts Analytics.

Specifically, the addition of DTE Midstream's Louisiana Energy Access Project, or LEAP, Gulf South Pipeline's Index 99 expansion project and Midcoast Energy's CJ Express project should allow Haynesville production to grow unconstrained to about 14.3 Bcf/d – a production level the basin's expected to reach, potentially, by late-2021 or early 2022, according to Platts Analytics.

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Natural gas settlement price for August:  $4.044

Was hoping it would hit $4, been a long time!

The August settlement price will the "basis" price for production appearing on most royalty statements in October or November.  I'm curious to see what the price is on those statements.

Skip:  what was the settlement price for July?

$3.62

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