Commodities 2022: Developers eye Haynesville supply growth, RSG innovation

Highlights

Drilling, completions surge; production hits new highs

Southwestern Energy, Chesapeake Energy lead M&A

Certified gas producers tout proximity to LNG terminals

Kelsey Hallahan    J Robinson 29 Dec 2021 spglobal.com/platts

A surge in drilling activity, mergers and acquisitions, and new investments in the Haynesville, are promising a renaissance in the Texas-Louisiana shale next year as savvy producers and developers eyeing the export markets look to leverage the basin's proximity to the US Gulf Coast.

In the past 18 months, the number of drilling rigs in the Haynesville has surged, rising to over 60 recently, up from a pandemic-fueled decline to just 31 rigs in May 2020, data from Enverus shows.

Over the same period, other upstream indicators point to a dramatic turnaround in activity.

In late 2021, the pace of new well drilling is up sharply, averaging about 48 per month from June through November – the fastest pace since the pre-pandemic days of late 2019. Operators are moving even more quickly to bring the new inventory to market with an average 55 wells completed per month over the same period, data from the US Energy Information Administration shows.

Gas production in the Haynesville has surged in response to the recent activity. As of late December 2021, output is averaging about 13.5 Bcf/d, having grown over 8%, or about 1 Bcf/d, since the start of this year, data from S&P Global Platts Analytics shows.

While the growth in upstream activity this year looks bullish for production in 2022, recent acreage acquisitions and investments in responsibly sourced gas production and transport – also known as RSG or certified gas – along with other midstream projects promise to take the Haynesville to the next level, propelling the basin's growth trajectory well into the mid-2020s.

Mergers & acquisitions

One clear sign of the Haynesville's attractiveness has been the rush of consolidation activity over the past year, with major dry gas producers acquiring smaller operators in the Haynesville.

Southwestern Energy, historically an Appalachia gas producer, branched out to the Haynesville in a big way in 2021. The company completed its acquisition of Haynesville pure-play producer Indigo Natural Resources in September, followed closely by the company's pending acquisition of GEP Haynesville, which was announced Nov. 4. Together, the two acquisitions represented approximately 1.7 Bcf/d of existing Haynesville production.

In August, Chesapeake announced its own acquisition of Vine Energy, a pure-play Haynesville producer with around 227,000 acres and 1 Bcf/d of existing production. While Chesapeake already held some Haynesville acreage prior to the Vine acquisition, which closed Nov. 1, the move effectively tripled the company's production in the basin.

Vine Energy was itself the product of M&A activity last year, formed in early 2021 as a combination of three privately held Haynesville operators.

Certified gas

Over the past year, the Haynesville has also emerged as a second frontier for third-party RSG certification, second only to Appalachia. As of late December, approximately 1.2 Bcf/d of Haynesville gas production had been certified, with producers publicly committing to a further 3 Bcf/d by mid-2022.

This summer, Chesapeake Energy became an early mover on certified gas in the Haynesville, saying in July that it would certify 100% of the company's production in the basin by year-end 2021 in accordance with MiQ and Equitable Origin standards. The deal was preceded by a small pilot program with Project Canary in April to deploy continuous monitoring sensors and certify an undisclosed number of well pads in northwest Louisiana according to the TrustWell standard. Just prior to its acquisition, Vine Energy had announced that it had entered into its own partnership with Project Canary to certify the entirety of its production.

Most recently, BPX Energy – BP's US onshore oil and gas business – announced on Dec. 8 that it had completed MiQ certification for 200 MMcf/d of South Haynesville production.

Recent upstream RSG investments, while still in initial stages, reflect at least several producers' early commitment to the Haynesville as frontier for the development and marketing of low-carbon gas.

Outlook

Given the Haynesville's proximity to existing and proposed LNG terminals along the Gulf Coast, and the recent growth in demand for low-carbon gas in Europe and Asia, the future looks bright for the development of designated RSG pipelines linking the Haynesville directly to coastal export infrastructure.

In September, DT Midstream proposed expanding its Haynesville gathering, boosting and transport system and creating a designated "carbon-neutral wellhead to water" service for certified gas to flow south to LNG exporters. The midstream operator's LEAP pipeline already provides a potential route for Chesapeake Energy's soon-to-be certified Haynesville production to flow directly toward the Cameron and Sabine Pass LNG export facilities.

The buoyancy of global gas prices during the latter half of 2021 has lent a refreshed vitality to the prospects of proposed US LNG export projects, with Platts Analytics projecting that up to five proposed LNG export terminals could take final investment decision next year. Most of the proposed projects are located along the Gulf Coast, representing an attractive potential source of demand growth for nearby Haynesville producers.