Rig declines knock Haynesville production growth

HAYNESVILLE SLOWDOWN

As the upstream industry, and especially dry-gas producers, continue to beat the drum of capital efficiency with the investor community, many are hoping to do more with fewer rigs in an effort to keep production volumes growing this year.

In the Haynesville Shale, though, a nearly 24% decline in rig count since January now appears to be catching up with producers there.

Month to date, dry gas output from the basin has averaged just under 11.6 Bcf/d, which is down sharply from a record high at over 12.1 Bcf/d in early August, data from S&P Global Platts Analytics shows.

An abrupt pause in the Haynesville's recent and spectacular growth rate comes as gas prices at one of the basin's primary market locations, the Henry Hub, have trended near three-year lows this summer.

From June to August, prices at the benchmark hub averaged just $2.27/MMBtu, significantly below the breakeven cost for an average dry gas producer there.

In fact, according to Platts Well Economics Analyzer, even half-cycle breakeven cost in the Haynesville -- which excludes acreage, development and exploration expense -- averages about $2.52/MMBtu.

Sample production receipts from the Haynesville show that declines, concentrated in Louisiana, have been widespread at processing and gathering locations on multiple pipelines, suggesting that the recent drop in production is real and not the result of maintenance or temporary flow constraints.