Ever since producers took some big financial beatings after prices plummeted a few years ago, the Haynesville Shale play has positioned itself for an economic resurgence. For those following natural gas production in the U.S., this should not come as a surprise. It has a lot going for it.
Haynesville’s Wells – Bigger, Faster, Stronger
Consider the following:
- It’s a behemoth of a gas field that produces enormous wells. It’s been known for some time that the Haynesville has potential, but that is being realized further as more experience is developed among operators. For example, long lateral wells (some now stretch nearly two miles each) can produce up to 24 bcf of natural gas. Compared to the nearby Eagle Ford Shale, whose wells produce 12-15 bcf of natural gas, the Haynesville wells are big. In today’s low gas price environment, this matters quite a bit.
- The formation is more naturally pressurized than many others. This means, among other things, that more gas is produced in the first year. This is important, considering how expensive it is to drill these wells, and in turn, it means higher rates of return for investors (since time can erode returns according to present value theory).
- Breakeven prices have fallen. According to Chesapeake, which has the largest acreage position in the Haynesville, breakeven prices are currently between $2.00–$2.25 mcf. Even with price differentials of about $0.60 to Henry Hub, this provides an opportunity for profitable wells. Two or three years ago, this was considered an improbability.
Investors have noticed. Amid the land rush for liquid plays such as the Permian Basin, some investors have quietly spent billions to reposition themselves in the Haynesville over the past few years at relatively low valuations. The most notable of which is Jerry Jones’ $620 million investment in Comstock Resources over the summer. Comstock has been one of the leading players in the basin for years and is confident that their experiences, amid a rough recent financial history, will propel them going forward. Lesser known private companies such as Aethon Energy and Indigo Natural Resources (which has contemplated going public) have also poured substantial investments into the play in the past few years.