Commodities 2021: Strong Haynesville well economics buoy outlook for drilling, production
24 Dec 2020 | 16:43 UTC New York spglobal.com/platts
Henry Hub Calendar-21 curve trading in $2.70s/MMBtu
Haynesville half-cycle IRRs average 13% in November
Drilling returns to pre-pandemic level as rig count hits 47
With Henry Hub gas priced in the upper $2s/MMBtu through 2021, strong drilling economics in the Haynesville play are making it the shale gas industry's most likely candidate for production growth in 2021.
As of late December, the Calendar-year 2021 forward curve at the Henry Hub continued to trade in the mid-$2.70s/MMBtu – down about 40 cents from an annual high in late October at $3.15/MMBtu, S&P Global Platts' M2MS data showed.
Despite the recent decline, data from S&P Global Platts Analytics suggested that even modestly lower gas prices at the Henry Hub could support robust drilling economics in the Haynesville.
In November, the rolling 12-month forward curve at Henry Hub averaged just $2.69/MMBtu. Over the same 30-day period, though, half-cycle internal rates of return in the Haynesville averaged about 13%, making the Texas-Louisiana play the third-most profitable drilling location in North America behind the Permian Delaware and the Permian Midland.
Assuming benchmark gas prices remain roughly around that level next year, a continued ramp-up in Haynesville drilling would spur significant in-basin production growth, likely outpacing gains in associated gas production from the Permian Basin.
In late November, rig count in the Haynesville climbed to 47, its highest since Jan. 1, data published by Enverus DrillingInfo showed. That month alone, producers in the Haynesville added seven drilling rigs, making the it the only North American shale basin to fully restore drilling activity to pre-pandemic levels.
After bottoming out at just 31 rigs in May, the slow but steady ramp-up in Haynesville drilling activity over the summer has already begun lifting production there. In November, output averaged over 12.5 Bcf/d – up about 700 MMcf/d from an annual low in August, when producers turned out just 11.8 Bcf/d on average, Platts Analytics data showed.
Following November's steep build in drilling activity, the Haynesville now appears poised for growth in 2021.
A recent forecast from Platts Analytics showed Haynesville production growing by nearly 30% from December 2020 to December 2021. Over that same period, dry and associated gas production from most other North American shale basins is expected to contract. In fact, only the Marcellus and the Permian are expected to see net gains in gas production over the next 12 months, with significantly smaller volumetric gains that amount to growth rates of around 5% to 10%, annually.
In addition to the Haynesville's comparatively strong well economics, recent and upcoming pipeline expansion projects there should also allow production to grow unconstrained in 2021. According to Platts Analytics, the ongoing midstream buildout will preemptively debottleneck producer access to the premium Gulf Coast market, improving optionality and end-market price outcomes
Most recently, Gulf South initiated service on its Index 99 Expansion project in August, helping to address potential takeaway constraints linked to Haynesville production growth. The 22-mile pipeline provides up to 750 MMcf/d in firm transportation service from the East-Texas Haynesville to existing interconnects with Transcontinental Gas Pipe Line's Station 85 in Alabama and Sabine Pipeline's Henry Hub interconnect in Louisiana.
The Gulf South project joined the already operational 1 Bcf/d Louisiana Energy Access Project, or LEAP, which earlier in 2020 began offering producers serviced by the Blue Union Gathering System access to a new 150-mile, 36-inch pipeline corridor to the Gulf Coast.
A third project under development by Midcoast Energy, the 1 Bcf/d CJ Express, will also expand market access from the Haynesville with its own separate startup coming potentially by the first quarter of 2021.
Merry Christmas to all of us Haynesville Shalers!
And a healthy, happy and prosperous 2021! Keep taking precautions, Santa is bringing the vaccine. Hold on a little longer.
Thanks, Bud. Interesting since Ensight IV has been looking for a buyer. I don't recall the assets offered for sale specifically so they may exclude the specific part of Greenwood-Waskom Field wherever that may be. Ensight IV does not maintain an aggressive development schedule and occasionally partners with Blue Dome. I'd guess the alternate unit wells are for 33 - 17N -16W & 4 - 16N -16W and 6&7 - 16N - 16W. The alternate unit well application can be considered a "spacing request" for horizontal laterals and when approved is effective in perpetuity unless dissolved by a subsequent order. There is no requirement to drill any of the wells but it is easier and cheaper to apply for all the lateral locations in a single application. The application will be available in the public record after the pre-application period expires. Then you can begin looking for well permits that match those spacing slots but there is no notice required for that. The permits to drill may be by Ensight IV or by Blue Dome.