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Tellurian expands gas production assets with Haynesville acquisition

Highlights

Increases Tellurian's Haynesville acreage to 20,000 net acres

Deal fits with Tellurian's integrated business model

Expanded drilling program planned for 2023

Tellurian's production unit agreed July 13 to buy Haynesville Shale natural gas producing assets from Ensight IV Energy Partners and EnSight Haynesville Partners for $125 million, growing its upstream footprint in support of its proposed Driftwood LNG export terminal.

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The assets include around 5,000 net acres in DeSoto, Bossier, Caddo, and Webster Parishes in Louisiana, which will bring Tellurian's total acreage in the Haynesville up to 20,000 net acres at close, Tellurian said in a a statement.

Currently, the EnSight acreage produces around 45 MMcf/d, holds around 108 Bcf in proven reserves, and will have 44 producing wells and five wells in progress at transaction close, which is expected in the third quarter of 2022.

Tellurian plans to sharply increase production in the acreage, executives said.

The developer estimates that proforma production will reach 140 MMcf/d of gas in 2022, up dramatically from 39 MMcf/d in 2021, according to a July 13 statement. A major growth initiative is planned for Tellurian's production arm in 2023, with a two-rig program raising annual production to 350 MMcf/d.

"We have been diligently growing our natural gas production and reserves in the Haynesville," Tellurian Production President John Howie said in the statement. "These assets provide Tellurian with both cash flow and a physical hedge for Driftwood LNG. The EnSight asset is a great fit with Tellurian's existing position in the Haynesville Shale and allows us to step into an ongoing development program and bring on-line significant additional natural gas volumes in the fourth quarter of 2022."

Integrated business model

The EnSight acquisition fits within Tellurian's strategic focus on building an integrated business model, in which owning upstream production is seen as providing both protection against rising costs and a way to diversify potential revenue streams in a famously volatile business.

"If we were in a situation where, for whatever reason, we cannot export, our integrated model would say that we can still generate significant revenues by selling the gas domestically," Tellurian Executive Chairman Charif Souki said in a video posted June 28. "We wouldn't be dependent on a single source of potential customers, meaning the international markets."

While US LNG exporters have enjoyed boom times in recent months, with a surge of overseas interest in securing US gas imports, the industry has weathered some sharp shifts in fortune over the last 20 years.

Most recently, the economic fallout from the start of the pandemic in 2020 led to a wave of LNG cargo cancellations, as lockdowns eroded industrial gas demand in Asia. Total US feedgas demand dropped to average 4.4 Bcf/d in the third quarter of 2020, down from 6.4 Bcf/d in the second quarter and 8.6 Bcf/d in the first quarter.

Souki was quick to assert in the June 28 recording that the outlook for international demand will be "extremely strong for a long time."

Construction on the first phase of Driftwood LNG began in April, ahead of the company taking a final investment decision. Souki said in July 12 remarks that the project is on schedule.

Tellurian has secured 10-year offtake agreements for Driftwood with Gunvor, Vitoland Shell.

Haynesville popularity

Tellurian's decision to invest in Haynesville gas production comes at a time of resurgence for the Louisiana-Texas basin. Year-to-date gas production has averaged around 14.5 Bcf/d – up 1.3 Bcf/d, or 9%, from the same time in 2021.

Close geographic proximity to Gulf Coast export facilities and a naturally lower emissions profile have made the Haynesville a choice location for growth for producers.

Increased mergers and acquisition activity in the basin reflects the increased interest, with large gas-weighted E&P companies like Southwestern Energy and Chesapeake acquiring smaller Haynesville producers in recent years.