Henry Hub price rally stems retreat in Haynesville drilling and production

Highlights

Henry Hub cash price averages $2.01/MMBtu in August

Rigs stabilize at 33; drilled wells and completions flatten

Gas production finds floor above 11.5 Bcf/d in August

Author  J. Robinson  Editor  Joe Fisher  spglobal.com

New York — The outlook for Haynesville gas production appears to be turning around this month as Henry Hub prices continue to rally above the critical $2 threshold and recent declines in drilling activity level off.

In August, cash prices at the Henry Hub are averaging $2.01/MMBtu, up about 19% compared to $1.69/MMBtu average last month. On Aug. 11, the spot market was down just a penny to $2.14/MMBtu preliminary settlement data from S&P Global Platts showed.

Balance-2020 forwards prices are also up sharply in August, averaging $2.45/MMBtu. With winter gas prices now trading near, or even above $3 for some calendar months, many producers in the Haynesville could expect to see a return to profitable operating margins by the fourth quarter.

For an average Haynesville producer, the wellhead breakeven price is currently estimated around $2.50/MMBtu, according to data compiled by S&P Global Platts Analytics.

Drilling, production

As the US gas market continues to stabilize, declines in drilling activity across the Haynesville are easing.

On Aug. 5, rig count in the basin was tallied at 33 for the third consecutive week, data published by Enverus DrillingInfo shows. In late May, the Haynesville rig count bottomed out at a multiyear low of 31 and has since stabilized to an average 33 rigs.

Over the past two months, well drilling and completions are also holding steady. In May and June, Haynesville producers drilled 29 wells each month and completed 28, recent data from the US Energy Information Administration shows.

Production declines in the Haynesville are also leveling off recently. Month to date, output from the Louisiana-Texas play is down about 140 MMcf/d compared to July, but appears to have found a floor above 11.5 Bcf/d. According to a recent forecast from Platts Analytics, output from the Haynesville should rebound modestly in the months ahead amid stabilizing upstream fundamentals.

Commercial interest builds

Earlier this month, Castleton Resources announced a $245 million deal, along with a potential $90 million additional payment to Range Resources, to acquire the latter company's 220,000 net-acre holding in the Haynesville's Terryville field.

The northern Louisiana leases and wells were purchased by Range in 2016 at a cost of $4.2 billion. At the time of sale, the assets were producing about 160 MMcfe/d, according to Range.

Upon closing, the deal will give Tokyo Gas America, a subsidiary of Tokyo Gas Co., a majority stake in Castleton and the upstream Haynesville assets within strategic reach of multiple US Gulf Coast LNG export terminals.

Just prior to the acquisition news from Castleton, DTE Midstream announced the startup of its 1 Bcf/d LEAP gathering system – a midstream project that promises to boost gas transmission capacity from the Blue Union Gathering system in the Louisiana Haynesville to the Gillis Hub in the state's southwest corner, located just 50 miles from the US Gulf Coast.