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Haynesville renaissance arrives amid M&A, drilling, production and RSG push

Highlights

Half-cycle IRRs hit 29% in July: Platts Analytics

Rig count at 57, now highest since October 2019

Production at 12.8 Bcf/d, poised for new record

Strong wellhead economics and a strategic location along the US Gulf Coast are fueling new investments in the Haynesville Shale where operators are gearing up for the basin's next wave of production growth.

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Earlier in August, Chesapeake Energy was the latest to grab industry headlines in the Haynesville with its $2.2 billion acquisition of private producer Vine Energy. The basin's most recent M&A activity comes just two months after Southwestern Energy announced its own similarly sized $2.7 billion acquisition of Haynesville producer Indigo Natural Resources.

LNG developer Tellurian, midstream operator Williams and private producer GEP Haynesville have also announced smaller investments in the basin this year that figure prominently in their future growth.

A blossoming renaissance in the Haynesville should come as no surprise.

In the years after the basin's mid-shale-era decline, a devoted few remained developing new drilling techniques that slashed breakeven costs and unlocked new resources from the basin's shale rock.

In recent years, the buildout of additional pipeline capacity by DTE Midstream, Gulf South Pipeline and Midcoast Energy has opened a runway for new production to grow unconstrained.

In the late 2010s, the startup of LNG exports from Louisiana and Texas gave producers another gem with untold access to new demand. Now, amid a global push for responsibly sourced gas production, or RSG, the basin's strategic proximity to coastal LNG terminals has given Haynesville producers an opportunity to certify physical molecules that could credibly reach export terminals before blending with uncertified gas.

Haynesville gas production vs. rig count

Drilling, production

As spot and forward gas prices across the US hit the low- to mid-$4/MMBtu range, the Haynesville's pull on producers has only grown stronger. In July, internal rates of return in the basin were estimated at a multiyear high of 29%, according to a half-cycle post-tax analysis by S&P Global Platts Analytics.

While producers in Appalachia and other dry basins hold the line on drilling, operators in the Haynesville are ramping up for growth. In the week ending Aug. 12, rig count there edged up to 57 marking its highest since October 2019, data published by Enverus shows.

In June and again in July, operators in the Haynesville drilled 49 wells per month – also the quickest pace for drilling since October 2019. Over the same two-month period, frack crews completed an estimated 51 wells per month, making for the highest number of monthly well completions in over seven years, data from the US Energy Information Administration shows.

In August, gas production from the Haynesville has hovered close to 12.8 Bcf/d – down modestly from record highs at over 13.1 Bcf/d recorded from late March to early April.

Already, the Haynesville ranks among only a handful of US shale basins to achieve new, post-pandemic production records. According to a forecast from Platts Analytics, recent upstream activity has prepared the Haynesville for its next wave of robust growth in the months ahead – potentially as much as 1 Bcf/d by year-end 2021.