Haynesville drilling activity, production rebound amid improving market outlook

Denver — Haynesville gas production edged up to a four-month high over the past week as rising rig counts and recent pipeline expansion projects allowed operators there to resume growth unconstrained.

Over the past seven days, Haynesville production has averaged about 12.4 Bcf/d, including single-day highs at more 12.5 Bcf/d, data compiled by S&P Global Platts Analytics shows.

Earlier this year, producer cuts in capital spending and drilling activity in the Haynesville led to output declining to as low as 11.4 Bcf/d in August and again in September. In May, Haynesville production had climbed to a record-high average of 13.1 Bcf/d with single-day highs at more than 13.5 Bcf/d.

A steady uptick in drilling activity is likely responsible, at least in part, for the recent production gains.

On Oct. 14, Haynesville rig count climbed to its highest since late March at 39, up from a 42-month low at just 31 rigs in May, according to the most recent weekly rig data from Enverus DrillingInfo.

Prices

Recent bullishness in the forward gas curve, particularly for the winter 2020-21 season, could be a motivating factor for some Haynesville producers beginning to ramp up drilling activity and production.

On Oct. 19, Henry Hub calendar-month prices for this winter's peak-demand months of December, January and February settled at $3.28, $3.41 and $3.37/MMBtu, respectively – less than 10 cents below annual highs in late September, S&P Global Platts' most recently published M2MS forward data shows.

At the Haynesville's nearby Carthage hub, where in-basin producers are most likely to sell upstream supply, the December-January-February basis discount is currently averaging about 14 cents, meaning that producers there should still see strong realized prices around $3.20/MMBtu this winter.

Expansions

Recent and upcoming pipeline expansion projects in the Haynesville should give producers improved market access and delivery optionality, potentially boosting prices while allowing output to continue growing unconstrained into the mid-2020s.

Most recently, Gulf South initiated service on its Index 99 Expansion project in August. The 22-mile pipeline is designed to provide 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 project is designed to help address potential takeaway constraints caused by prospective production growth in the East Texas Haynesville, according to Platts Analytics.

The Index 99 project joined the already operational 1 Bcf/d Louisiana Energy Access Project, or LEAP, which earlier this year began offering producers serviced by the Haynesville's existing Blue Union Gathering System access to a new 150-mile, 36-inch diameter pipeline corridor to Gulf Coast markets.

A third project being developed by Midcoast Energy, the 1 Bcf/d CJ Express, will also expand Haynesville producers' market access with its own separate startup, potentially as early as first-quarter 2021.