Chesapeake-Williams deal brings hope to Haynesville Shale

Drilling rig in the desert
Source: DollarPhotoClub

There has been some upbeat news coming from the Haynesville Shale region, where Chesapeake plans to bring 140 wells online by the end of 2017.

Chesapeake Energy – the second-largest natural gas producer in the United States – is one of the companies seriously affected by the low oil price environment, which forced the company to reduce costs, maximise profits, and divest swathes of land it acquired during the shale bonanza, when it was still lead by Aubrey MacClendon.

Now under different leadership – Doug Lawler, the CEO, has been at the helm of the company since 2013 – the company takes a much more cautious route. One of the manifestations of this measured approach was the announcement the company made last month about its plans to sell some of its vast U.S. portfolio, which includes 1 million acres in eastern Ohio.

When asked about the progress of its asset sales at a New York energy conference this week, Lawler indicated at an interest in purchasing some of Chesapeake’s assets from (unnamed) Asian companies.

“We’ve had significant interest from Asian companies as well as significant interest from Asian utilities that are looking to secure an upstream position,” Lawler said.

So where does the optimism when it comes to the Haynesville Shale come from?

The expected increase in production in the region is to be the result of a gas gathering agreement between Chesapeake Energy and the Williams Companies that was signed early this month.

In the Haynesville Shale Chesapeake said it will move to a fixed-fee agreement beginning in January 2016. Gas gathering fees in the Haynesville will be reduced on a unit basis, and the existing minimum volume obligations are expected to be met with the consolidation of two gathering systems and a projected increase in Haynesville area volumes.

As a result, the company’s gas production is expected to see improved gathering rates of nearly $0.20 per thousand cubic feet (mcf) in 2016 and 2017 and approximately $0.30 per mcf in 2018 and beyond.

The resulting commitment of drilling 140 wells before the end of 2017 is projected to result in noteworthy production growth in the Haynesville Shale asset over the next two years, thus also increasing Williams’ revenue from the area.

The move instilled new hope into some of the observers on the ground. Speaking to ArkLaTex News, Skip Peel, an Independent Landman in Shreveport said that the Haynesville is in an upswing and it’s starting to make sense for companies to return, even with low natural gas prices.

“The fact that companies have a lot of different place they can drill, are running rigs here in the Haynesville Shale, is a real good sign,” says Peel.

He believes that new improvements in exploration technology will deliver more efficient production, with pad-drilling and with ‘super size’ lateral wells recently introduced to the area by Comstock Resources, while a new liquid natural gas export facility opening along the Louisiana coast, and electrical generation are likely to grow the demand.

This belief is cautiously seconded by The Louisiana Oil and Gas Association (LOGA). “What we’re hearing form most of our operators is the price is still fairly unprofitable at this point, we’re still looking at demand,” says North Louisiana LOGA director, Ragan Dickens, while admitting that he expects the Haynesville production to pick up, albeit slowly. Over a longer period of time, Dickens still believes oil and gas exploration in the area to be a good source of employment for years to come.

His advice to students is: “I would say get the necessary certificates, get the necessary degrees, get your instrumentation license or whatever direction you want to head with your career because the activity will increase in this area.”

UPDATE: In the previous version of the article we have stated that the Haynesville Shale extends from northwest Louisiana all the way through southern Arkansas. In fact this is not correct. There is no Haynesville Shale production in southern Arkansas. This is a mistake made in the early days of the play which has been repeated and passed down through numerous articles. We extend our thanks to Skip Peel for pointing this out.

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