As gas plays go, the Haynesville has long played second fiddle to the Marcellus; the latter has historically yielded larger wells and contributed more to U.S. gas supply. This, in addition to gas ventures generally falling out of favor with public operators during the past five years, has placed the Haynesville squarely in a bucket of perceived Tier II opportunities.
But as 2016 drew to a close, the Haynesville was quietly clawing its way back as its rig count suddenly topped 20. This was an 80% increase from February lows and a stark contrast to trends across other gas plays that struggled to rebound amid stagnating prices. Rigs in the play have since doubled again to 40, striking distance from the 43 currently operating in the Marcellus. All of this occurred during a 12-month period when Henry Hub hovered near $3/ Mcf, demonstrating that wellhead economics have continued to improve across the ArkLaTex Basin’s premier shale play.
But will this resurgence last? Much of the progress in the Haynesville since 2014 has been driven by private-equity-backed operators. This matters because their development schedules are likely to change upon their next financing event. Multiple companies already have filed S-1 documents to qualify for an initial public offering. If they indeed go public, which now seems likely, it could mean a piece of the ramp-up in activity was in large part to set the stage for public sale by proving their competencies and showing the ability to aggressively grow organically.
The Haynesville’s inherent qualities are sufficiently attractive to sustain current rig activity in the near term. In fact, production in the play is expected to top its 2011 peak of 7.16 Bcfe next year, making it the first U.S. unconventional play to roll over in earnest and then peak again years later. This is attributable to its sizeable resource base, proximity to Gulf Coast markets, ample infrastructure, rising regional industrial and power demand, and relative safety compared to rival Northeast plays that have grappled with challenges in takeaway capacity. Moreover, as Permian acreage continues to price many out of the basin, operators with a bent toward natural gas may actively seek quality Tier II opportunities in which to allocate capital, placing the Haynesville in the spotlight.
Ultimately, however, the play faces some market headwinds as an onslaught of new pipeline capacity is set to come online in the Northeast through 2019, improving netbacks in the Marcellus. Further, enduring efficiency improvements are the Haynesville’s best shot at keeping pace with the Marcellus over the long term. The current season of well design experimentation now taking place across the Haynesville suggests technology can, in fact, drive the required progress. If service costs can be managed and midstream liabilities contained, wellhead breakevens may fall by another $0.15/Mcf.
The Spider area of the Haynesville is a popular target for Chesapeake. (Source: ESRI basemap; Wood Mackenzie North America Well Analysis Tool)
The Haynesville play leads the way in proppant loading increases. (Source: Wood Mackenzie North America Well Analysis Tool)
Vine Oil and Gas holds the most permits in the play, but many companies may seek quality Tier II opportunities. (Source: Wood Mackenzie North America Well Analysis Tool)
The Haynesville lags only the Marcellus in average EUR per lateral length. (Source: Wood Mackenzie North America Well Analysis Tool)