Of course, eventually a reduced level of drilling will slow production growth, then flatten output and likely even bring it down. But even if crude oil prices stay dirt cheap for a long time, the fall in production will stretch out over months. And at some point, the decline will flatten out. That’s because of the innate production curve — or type curve — for shale wells. Steep in the front. Flat in the back. So wells drilled in the recent past will be on the steep part of the decline, and producers won’t be drilling enough new wells to offset the decline of those existing wells. But over time, the preponderance of wells will reach the flat part of the curve, and the pace of the decline will slow. That’s what we saw in the Eagle Ford and the Bakken back in 2015-16. But an even better example is what happened to Haynesville gas in 2011-14. Haynesville, located in Northwest Louisiana and Northeast Texas, is a gas play, but the way it played out is a classic. In fact, the Haynesville experience makes a great case study in which we can segment the rise, decline and recovery of a shale basin into five distinct stages.

Before we describe those stages, we should first go through a brief tutorial on type curves, focusing on a typical well in the Haynesville. Figure 1 shows the type curve (dark-blue area), which indicates how the volume of gas the well produces changes dramatically over time. The vertical scale on the left is daily production in MMcf/d while the horizontal scale is months since well completion. In the first two years of the well’s productive life (dashed red box), production is declining rapidly. The initial production rate starts off at a very healthy 14 MMcf/d, but after a year or so, the well will be producing “only” about 6 MMcf/d, and after another year its output will be down to ~3.5 MMcf/d and starting to flatten out. But the “estimated ultimate recovery” or EUR curve (purple line, right axis) makes it clear that one-third of the well’s production is recovered in the first two years of production while the type curve is declining rapidly, but the remaining two-thirds of production (dashed light-blue box) happens over the next couple of decades while the curve has a very shallow decline profile. (For this example, we are going to keep it simple and not go into the prospects of recompletion and enhanced recovery techniques.)

The main takeaway is that production from new wells starts high, declines quickly but then flattens out.  So the fewer the number of new wells drilled, the greater the proportion of older wells are in the total well population, and those older wells are already out on the flat part of the curve.

Figure 1. Type and EUR Curves for a Typical Haynesville Gas Well. Source: RBN (Click to Enlarge)

With that type-curve information in mind, you can start to wrap your head around the notion that, in a highly productive shale play, a ramp-up in drilling-and-completion activity can result in a relatively quick rise in production, and a ramp-down in drilling will drive a relatively swift change in the short-term trajectory of production growth, but that it takes time for a true decline in production to set in. The Haynesville’s experience over a roughly 10-year period — from 2007 to 2017 — helps to demonstrate that point. The play went through five stages, which are shown graphically in Figure 2 and outlined here:

1. Good Times – 2007 to early 2011. Spurred by Chesapeake Corp.’s discovery of extensive shale-gas reserves in the Haynesville in 2007-08, the rig count in the play (brown line, left axis) took a choppy rise from 110 to 160. During that time, Haynesville gas production (green line, right axis) was increasing fast, eventually skyrocketing from 5 Bcf/d in 2009 to 10.6 Bcf/d in 2011. Nothing like that had ever been seen before. But by 2011, the flood of incremental gas supply was overwhelming the U.S. market and natural gas prices plummeted from the $4.30/MMBtu level in the first half of 2011, sliding over the next 18 months to average $2.80/MMBtu during 2012. The Haynesville was hit hard; production there was strictly dry gas, with very little NGLs to supplement producers’ bottom lines. So the focus of U.S. drilling activity quickly shifted to shale plays that produced either crude oil (like the Bakken); “wet,” NGL- and condensate-rich streams (like the Eagle Ford); or the emerging, highly prolific Marcellus natural gas play, all of which offered higher returns.

2. Rig-Cutting Time – Mid-2011 to mid-2012. Producers abandoned the Haynesville in droves. The working rig count fell from 160 to 40 by mid-2012. But check out what happened to production. As the rig count fell, production continued to rise. And even after the rig count hit rock bottom, Haynesville production was still relatively flat. As we demonstrated above, shale’s decline curve math has a built-in inertia factor. Fewer wells were being drilled, but the wells that were being completed after the drilling cuts started focused on the best locations using technological upgrades, thus were so productive that they offset the drilling slowdown. But there is a limit to how long that can go on.

Figure 2. The Five Stages of Haynesville Natural Gas. Sources: EIA, Baker Hughes, RBN (Click to Enlarge)

3. Production Cuts – Mid-2012 to early 2014. By mid-2012, that limit had been reached, and Haynesville production declined from 10.6 Bcf/d down to 6.5 Bcf/d in 2014, even with only 40 or so rigs running. But then, all those wells that had been drilled two, three or four years before had reached the flat spot in their type curves.

4. The Zombie Phase – Mid-2014 to late 2016. And then production flattened out. The production decline was minimal. A low price hardly makes any difference in this phase. Output from the wells in place is no longer declining rapidly. The wells are just rocking along, generating cash, and incurring only modest operating costs. Most of the capital has been invested years before. No production gets shut in. Producers need the cash to stay alive.

5. The Recovery Phase – Early 2017 on. A whole new slate of players entered the Haynesville fray, primarily private equity-backed management firms (as opposed to the publicly held producers of the early days). When they came in, they did so armed with new methods and technologies that could achieve much higher output per well (see Don’t Call It a Comeback). The rig count rebounded and so did production.

In fact, after 2017, the Haynesville went on to surpass its old 10.6-Bcf/d peak production in early 2019, and the play’s output now tops 12.4 Bcf/d. While natural gas prices remain sub-$2/MMBtu and the LNG export market may face COVID-19-related challenges in the months ahead, the Haynesville ironically stands to benefit from the collapse in crude oil prices. Super-cheap crude is sure to drag down the rig count — and, eventually production — in the Permian and other crude-focused shale plays that produce a lot of associated gas with their oil. When those associated gas volumes come down, natural gas prices could rise, potentially spurring a new round of drilling in East Texas and Northwest Louisiana.

The most relevant lesson from the Haynesville’s roller coaster, though, may be that while the oil price crash will result in a big decline in the rig count in the near term, it will take many months for U.S. crude oil production to drop into a significant decline phase. In fact, it is likely that Permian crude production turns out to have more inertia than did the Haynesville, due to the significant number of legacy producing wells in the basin that have been on the flat part of their type curve for decades. That, combined with Saudi Arabia and Russia’s plans to flood the global market with their crude, suggests that a lingering worldwide glut of oil is on the horizon.