Low gas prices reshape Haynesville 2024 production outlook
Feb 27, 2024

Sub-$2 gas prices at the US benchmark Henry Hub are putting operators in the Haynesville Shale under the gun recently, raising questions about the potential for a slowdown in drilling and production there.


In 2024, NYMEX prompt-month gas futures have averaged just $2.35/MMBtu to trend at their lowest year-to-date price since 2020. Over the past four weeks, mild US temperatures, flagging gas demand and bearish weather forecasts have sent futures prices even lower. On the NYMEX, the prompt-month gas contract is down more than 45% from the upper-$2 area in late January, testing a new low recently at just over $1.50/MMBtu, data from S&P Global Commodity Insights showed.


In the Haynesville Shale, many, if not most, producers are already feeling the price pain this year.


Even for highly efficient operators with the highest-quality acreage, the Henry Hub breakeven price for Haynesville gas is currently estimated at $2.67/MMBtu. For producers looking to return 30% free cash flow -- a reasonable metric for Wall Street investors these days -- that wellhead clearing price rises to $3.21/MMBtu for class-1 and $3.57/MMBtu for class-2 acreage, S&P Global Commodity Insights estimate show.

Supply outlook


According to a first-quarter supply outlook published in January by S&P Global, gas production in the Haynesville is expected to remain roughly flat this year at just over 15 Bcf/d. Producers there are expected to run an average of 47 rigs, which would amount to a more than 10% drop from the current year-to-date average of 53 rigs. In the week to Feb. 14, the Haynesville rig count dropped by three to 49, hitting its lowest since mid-November, data from S&P Global showed.


With Henry Hub futures pricing below $2 through March, April and May, however, there could be a downside risk, even to the roughly flat production outlook for 2024.


"I think below $2 price outlook will change the way operators manage new drilling activities and backlog DUC well completions for the upcoming LNG growth," said Narmadha Navaneethan, senior lead of equity research and fixed income for S&P Global. "With squeeze in cash flows, we will see rigs drop, especially by the privates," she said.


Producer guidance


On recent fourth-quarter earnings calls, a number of public Haynesville operators have said they intend to pare capital spending, drilling and completion activity this year in response to oversupplied market conditions.


Chesapeake Energy plans to drop one rig in March to four total within the Haynesville, and the company has already let one frack crew go in the basin, leaving one operating.


To drive production declines, Chesapeake said it will effectively pause turn-in-lines while still building its inventory of drilled but uncompleted wells throughout the year. Full-year Haynesville production is expected to average just shy of 1.2 Bcf/d, down about 400 MMcf/d from its 2023 in-basin average.


The market is "pretty clearly telling us that it doesn't need our gas today," Chesapeake CEO Nick Dell'Osso told investors and analysts on a Feb. 21 conference call.


Competitor Comstock Resources recently released one of the seven rigs it brought into the new year and will drop another in the first quarter, according to full-year guidance detailed Feb. 15. After exiting Q4 2023 producing 1.5 Bcf/d, Comstock expects output to keep flat through the first half of the year before declining in the second half.


2025 outlook


The decision to dial back activity this year could be expected to impair Haynesville producers in 2025, according to Siebert analyst Gabriele Sorbara.


"It's going to be a headwind for a few companies that are slowing down this year, managing and staying within free cash flow, but that will be obviously positive for the macro next year in prices," Sorbara said.


Outside of the Haynesville, producers including EQT and Range Resources have held off on materially cutting capital and rigs, hoping to position themselves for the upside associated with new LNG capacity that's projected to begin coming online later this year and throughout 2025.


With the addition of Golden Pass LNG and Plaquemines LNG, close to 8 Bcf/d in new feedgas demand is expected to arrive between September 2024 and January 2026, according to S&P Global gas market analysts.


Tom Jorden, CEO of Marcellus producer Coterra Energy, acknowledged that the company's decision to slash 2024 spending in the basin by more than $400 million could set the company back once gas prices rerate but that capital would be put to better use on its operations in the Permian and Anadarko for now.


"Missing a few months of the recovery is much better than fully participating in the downside," Jorden told analysts on a Feb. 23 conference call.


View on the S&P Global Website

Oil eases on higher US crude output, hopes of Israel-Hamas ceasefire

By Emalee Springfield • 02 May, 2024
HOUSTON, April 30 (Reuters) - Oil prices fell 1% on Tuesday, extending losses from Monday, on the back of rising U.S. crude production, as well as hopes of an Israel-Hamas ceasefire. Brent crude futures for June, which expired on Tuesday, settled down 54 cents, or 0.6%, at $87.86 a barrel. The more active July contract fell 87 cents to $86.33. U.S. West Texas Intermediate crude futures were down 70 cents, or 0.9%, at $81.93. The front-month contract for both benchmarks lost more than 1% on Monday. U.S. crude production rose to 13.15 million barrels per day (bpd) in February from 12.58 million bpd in January in its biggest monthly increase since October 2021, the Energy Information Administration said. Meanwhile, exports climbed to 4.66 million bpd from 4.05 million bpd in the same period. U.S. crude oil inventories rose by 4.91 million barrels in the week ended April 26, according to market sources citing American Petroleum Institute figures on Tuesday. Stocks were expected to have fallen by about 1.1 million barrels last week, an extended Reuters poll showed on Tuesday. Official data from the EIA is due on Wednesday morning. Gasoline inventories fell by 1.483 million barrels, and distillates fell by 2.187 million barrels. Expectations that a ceasefire agreement between Israel and Hamas could be in sight have grown in recent days following a renewed push led by Egypt to revive stalled negotiations between the two. However, Israeli Prime Minister Benjamin Netanyahu vowed on Tuesday to go ahead with a long-promised assault on the southern Gaza city of Rafah. "Traders believe some of the geopolitical risk is being taken out of the market," said Dennis Kissler, senior vice president of trading at BOK Financial. "We're not seeing any global supply being taken off the market." Continued attacks by Yemen's Houthis on maritime traffic south of the Suez Canal - an important trading route - have provided a floor for oil prices and could prompt higher risk premiums if the market expects crude supply disruptions. Investors also eyed a two-day monetary policy meeting by the Federal Reserve Open Market Committee (FOMC), which gathers on Tuesday. According to the CME's FedWatch Tool, it is a virtual certainty that the FOMC will leave rates unchanged at the conclusion of the meeting on Wednesday. "The upcoming Fed meeting also drives some near-term reservations," said Yeap Jun Rong, market strategist at IG, adding that a longer period of elevated interest rates could trigger a further rise in the dollar while also threatening the oil demand outlook. Some investors are cautiously pricing in a higher probability that the Fed could raise interest rates by a quarter of a percentage point this year and next as inflation and the labor market remain resilient. U.S. product supplies of crude oil and petroleum products, EIA's measure of consumption, rose 1.9% to 19.95 million bpd in Feb. However, concerns over demand have crept up as diesel prices weakened . Balancing the market, output from the Organization of the Petroleum Exporting Countries has fallen in April, a Reuters survey found, reflecting lower exports from Iran, Iraq, and Nigeria against a backdrop of ongoing voluntary supply cuts by some members agreed with the wider OPEC+ alliance. A Reuters poll found that oil prices could hold above $80 a barrel this year, with analysts revising forecasts higher on expectations that supply will lag demand in the face of Middle East conflict and output cuts by the OPEC+ producer group. View on the Reuters Website

Oil and gas industry’s “strong” free cash flow to support increasing production targets

By Emalee Springfield • 01 May, 2024
Last year, the demand for loans from oil and gas companies fell 6% year-on-year, and that followed a decline of 1% in 2022. Oil and gas companies don’t need a lot of loans because they’re generating so much money these days from their underlying businesses, said Andrew John Stevenson, senior analyst at Bloomberg Intelligence. And that trend is likely to continue through the end of the decade, he said. “The oil and gas industry has experienced a number of booms and busts over the past few decades, but for now, it appears to be flush with cash,” he said. The healthy balance sheets reflect the boost that companies have received from rising oil prices, buoyed by robust demand and OPEC+ production cuts. The sector’s free cash flow is so strong that the group’s leverage ratio, which measures a company’s net debt relative to earnings before interest, taxes, depreciation and amortization, fell to 0.8 in 2023 from 2.4 in 2020, Stevenson said. The ratio will likely slide below zero by the end of the decade, he said.
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