The Haynesville Shale – An Old Fracking Hot Spot Makes a Comeback

One of the early centers of American shale drilling is roaring back to life, boosted by a building boom of petrochemical plants, fertilizer factories and gas-export terminals along the Gulf Coast.

The Haynesville Shale, a giant natural-gas field in northwest Louisiana, was one of fracking’s hottest spots a decade ago. But it fizzled out about five years ago as gas prices plunged and drillers focused on finding oil next door in Texas. Now, the Haynesville is being reborn as companies with longstanding positions in the area, such as Chesapeake Energy Corp. CHK -0.26% , and newcomers seeking opportunity rush back in and drill again.

Gas production from the Haynesville has risen more than 20% so far this year, to more than 7 billion cubic feet a day from less than 6 billion in January, according to the U.S. Energy Department. The number of rigs active in northern Louisiana parishes and the Texas portion of the field has more than tripled in the past year to 44, according to oil field services company Baker Hughes Inc.

“The Haynesville is where it began,” said Frank Patterson, Chesapeake Energy’s vice president of exploration and production.

The company has been learning how to get more out of the ground by drilling and fracking longer wells, Mr. Patterson told investors earlier this month. Chesapeake, which now produces more than 1.2 billion cubic feet of gas each day in the Haynesville, plans to ramp up efforts to re-frack old wells where production is starting to peter out to squeeze more out of them, using newer technology.

QEP Resources Inc. QEP -2.55% is also re-fracking 30 Haynesville wells this year.

“The payouts on these wells are extremely attractive at $3 gas,” said Charles Stanley , QEP’s chairman and chief executive. Gas this year has averaged roughly $3 per thousand cubic feet at Louisiana’s Henry Hub, a benchmark for U.S. prices.

Comstock Resources Inc. CRK -2.16% sold off some Texas oil properties in 2015 to fund new gas wells in the Haynesville, and it now has three rigs running in the area. The company recently expanded a Haynesville deal with USG Properties and plans to drill another 34 wells as part of that joint venture in East Texas.

A new report by the U.S. Geological Survey estimates the Haynesville and nearby Bossier shales contain more than 300 trillion cubic feet of natural gas, up from roughly 70 trillion cubic feet in its last survey in 2010.

Private companies have piled into the Haynesville over the past 15 to 18 months, thanks to backing from private-equity firms. Dallas-based Covey Park, backed by Denham Capital, and Vine Oil & Gas LP, backed by Blackstone Group BX 0.81% LP, have collectively spent billions buying property in the area from Royal Dutch Shell PLC, Exxon Mobil Corp. and others.

“If you have Haynesville acreage, it’s a good time to drill,” said Clay Lightfoot, an analyst with energy consulting firm Wood Mackenzie.

Driving the trend is a dramatic reduction in costs. Three years ago, the Haynesville had the most expensive well costs in the Lower 48 States, in part because its fuel-bearing rocks are the deepest in the U.S., some more than 15,000 feet underground. But in 2014, when oil prices started to plunge from over $100 to less than $50, some companies refocused on natural gas and began experimenting with technology such as long lateral wells that has helped improve the economics of extraction.

Rising demand for gas has boosted the area’s prospects. The U.S. Energy Department forecasts that between now and 2040, consumption of natural gas will increase more than that of any other fuel source, as demand from big industrial users rises and power plants rapidly replace coal-fired facilities.

Regional producers can now also export their liquefied natural gas. Cheniere Energy Inc . LNG -1.23% ’s Sabine Pass LNG plant, a major exporting facility that opened in Louisiana last year, is sending cargoes of liquefied natural gas to Asia, Europe and South America. A dozen other LNG projects are under construction or are permitted and planned in Texas, Louisiana, Mississippi and Maryland.

That’s a potential drawback for industrial users in the area, such as petrochemical plants, of which there are almost 80 under construction along the Gulf Coast. They fear the price of gas—their main feedstock—could rise as America ships more to foreign buyers.

But the flexibility of domestic as well as foreign customers is making gas production in the area more attractive to investors.

Since 2016, Castleton Commodities International LLC spent more than a $1 billion to buy 160,000 acres of Anadarko Petroleum Corp.’s Haynesville land in East Texas, where it operates nearly 2,000 wells. It recently got an equity investment from Tokyo Gas America Ltd., the biggest utility in Japan and one of the largest LNG players in Asia.

Tellurian Inc., TELL -1.75% whose founder Charif Souki started Cheniere, recently bought Haynesville acreage. The company says the cost of producing gas there and moving it to an export terminal will be $2.25 per million Btu—a big discount to the daily LNG price for the Gulf of Mexico, which was $7.66 per million Btu last week, according to S&P Global Platts.

Albert Huddleston, founder and managing partner of Aethon Energy, a private company based in Dallas, began buying into the Haynesville three years ago, taking over Noble Energy Inc . NBL 0.50% ’s position. Then, he kept buying. It was a contrarian strategy at the time, said Mr. Huddleston.

“I’m a big believer once you find an area that meets your objectives, you continue to buy in that neighborhood,” he said.

Corrections & Amplifications
Natural gas prices so far this year have averaged around $3 per thousand cubic feet. An earlier version of this article incorrectly said that gas prices have averaged $3 per million cubic feet. QEP Resources Inc. is re-fracking 30 Haynesville wells this year. An earlier version of this story incorrectly said the company was re-fracking 30 wells this quarter and planned to drill more in the Bossier shale. (Oct. 17, 2017)

Source: https://www.wsj.com/article_email/an-old-fracking-hot-spot-makes-a-comeback

Natural Gas, LNG Exports And Benefits To The U.S.

The export of U.S. liquefied natural gas (LNG) continues to yield economic and other benefits locally, regionally and to our country as a whole. Two recent news items illustrate – a report detailing the boost LNG exports is giving the Texas economy, and an agreement by Poland to buy American LNG, further expanding opportunities for a valuable U.S. commodity.

A report by North Texans for Natural Gas quantifies the economic benefits of LNG export activity – in direct investment and jobs and generated tax revenue – for the state and the country as well. Expansion of the Freeport LNG export terminal is expected to employ more than 3,500 workers during the four- to five-year construction phase, the report says. It’s estimated the project will generate between $5.1 billion and $7.4 billion in economic benefits per year. That’s just one project. Texas has seven facilities under construction or proposed. At the same time these projects generate tax revenues that help build local infrastructure, support education and emergency services.

Nationally, the report points out, Texas LNG export facilities could create more than 136,000 jobs, with an economic impact of more than $145 billion. All attributable to domestic natural gas output, thanks largely to safe hydraulic fracturing and horizontal drilling. The report:

Just a little over a decade ago, many believed that the United States would need to import increasing amounts of liquefied natural gas (LNG) in order to make up for declining domestic production, from the areas available for exploration and production. Fracking turned this belief on its head, as U.S. production soared in places such as the Barnett Shale in North Texas and the Marcellus Shale in Pennsylvania.

Overseas markets continue to develop for U.S. natural gas. The United States is on track to send its first shale LNG to Poland next month, Bloomberg reports. It’s the first such contract for Central and Eastern Europe and reflects Poland’s effort to diversify its supply of natural gas. Bloomberg:

Poland may offer a new outlet for Cheniere, which said it’s targeting emerging markets as new production facilities from Australia to the U.S. lead to a glut of the fuel. Poland’s Law & Justice government has sought to cut the nation’s dependence on Russia’s Gazprom PJSC for more than two-thirds of gas supplies, stating it has no plan to extend a long-term supply contract beyond 2022 and plans new infrastructure including a pipeline to Norway.

Meanwhile, the U.S. and China have reached an agreement to promote U.S. LNG shipments. U.S. Commerce Secretary Wilbur Ross told reporters at a White House briefing: Bloomberg reports:

“This will let China diversify, somewhat, their sources of supply and will provide a huge export market for American LNG producers.”

Indeed it could. All of the above points to a cycle of benefits for the U.S. from its natural gas wealth. Domestic abundance helps consumers in terms of their heating and electricity costs. Abundance means opportunity to export – trade that brings oversea wealth into this country while stimulating more output here at home. Abundance and exports also provide safe, secure energy to America’s friends abroad.

Call it a win-win-win scenario for American energy.

By Mark Green

https://breakingenergy.com