Haynesville: Natural Gas Comeback in Texas & Louisiana

Texas and Louisiana are both well known for their rich oil and natural gas history. The Permian and Eagle Ford have already been featured in the Declaration of Independents, but there is a unique natural gas play that may be the sleeping giant of shale plays. The productive melding of horizontal drilling and hydraulic fracturing began with natural gas, and the Haynesville shale, lying beneath 9,000 square miles of northwestern Louisiana and eastern Texas, is one of the major plays that helped bring shale’s share of U.S. natural gas production to nearly 40 percent. (Shale gas, tight gas, and coalbed methane together account for two-thirds of domestic natural gas production, according to the Energy Information Administration.)

While lower natural gas prices in recent years have slowed activity in this deeper and more expensive to drill natural gas play, as recently as 2012 it was the country’s largest single unconventional play in terms of marketed natural gas production. In that year it was surpassed by the East Coast’s Marcellus, yet it still accounted for about nine percent of marketed U.S. production of natural gas in 2013.  The Haynesville’s ongoing contributions and its underlying potential continue to merit an examination of its history, geology, and current significance.

Geology

The Haynesville formation’s origins go back roughly 150 to 170 million years to the bottom of a shallow, coastal water body where sediments accumulated along with sea creatures’ carbonate remains. It is thought that a bottlenecked passageway to the sea at times deprived the waters of oxygen, preventing organic material from decomposing and thus preserving organic accumulations that would later become oil and natural gas. These muddy, finer-grained deposits were buried under additional sediments, and with heat, pressure, and geologic time, were transformed into shale – a non-porous, relatively impermeable rock through which oil and natural gas do not flow easily on their own.

In the present day, the formation is buried at about 10,000 to 13,000 feet and is deepest towards the south. The Haynesville is deeper than the Marcellus and Barnett (both generally ranging from 5,000 to 10,000 feet), thus tending to require larger drilling equipment, greater hydraulic fracturing horsepower, and more drilling time to develop. Above the formation is the sandstone Cotton Valley Group, and below, the limestone Smackover formation. Like the Barnett shale, experts have known about the Haynesville for decades, but without the technology of horizontal drilling and hydraulic fracturing, it was just another obstacle to drill through to reach more conventional plays.  “Haynesville” and “Bossier” are sometimes mentioned in the same breath, partly reflecting differing terminology used on the Texas side (“Bossier Shale”) versus Louisiana (“Haynesville Shale”), and partly reflecting a formation above the Haynesville that may be called the “mid-Bossier.” Thus the phrase “Haynesville/Bossier” attempts to avoid the terminological nuance.

One measure of the impact of horizontal drilling and hydraulic fracturing on the Haynesville can be found in the U.S. Geological Survey’s 2010 assessment of the technically recoverable natural gas of the Haynesville and related formations. For conventional natural gas, the USGS put technically recoverable reserves at four trillion cubic feet. However, for unconventional natural gas in the play, the agency’s figure rises to a mean of 66 trillion cubic feet. Other assessments vary and some are even larger. A study for the EIA puts technically recoverable natural gas in the Haynesville at 75 trillion cubic feet. The Haynesville’s proved reserves of natural gas alone amounted to 17.7 trillion cubic feet at the end of 2012, according to EIA’s latest data. Although that was substantially lower than for 2011 because of revisions, it still accounted for nearly 15 percent of all U.S. shale gas proved reserves.

Past & Present

The Haynesville formation got its name from the small town of Haynesville, Louisiana, which back in the 1920s experienced a boom in conventional oil activity. As with the town of Eagle Ford, having a namesake link to a geologic formation is sometimes more of a historical artifact and does not necessarily mean that the town itself is in the active play area. In this case, the town lies a bit to the east of the major activity. Conventional drilling in the current play area has been ongoing since the early twentieth century, with the strongest pre-shale level of well-permitting experienced in the 1980s.

In fact, while the existence of the Haynesville formation had been known for decades, the shale was typically too “tight” to be commercially productive with conventional upstream approaches. Since the 1930s, conventional natural gas had been produced from the Cotton Valley Group just above the Haynesville, and there was also significant activity in conventional fields producing from the Smackover, just below it. However, in the 1990s, the combined technology of horizontal drilling and hydraulic fracturing was cutting its teeth next door in the Barnett in Texas. The technology gradually spread to the Fayetteville in Arkansas, the Woodford in Oklahoma, and eventually to the Haynesville. With the announcement of major successful horizontal natural gas wells in the Haynesville in 2008, interest soared and drilling activity accelerated quickly.

Meanwhile, natural gas spot prices averaged nearly $9 per thousand cubic feet (MCF) in 2008 and reached a high of $12.69 in June 2008. The Haynesville active rig count fluctuated between 150 and 250 rigs for three years, even as natural gas spot prices were dropping closer to the $4 per MCF range by 2010 and 2011. Natural gas spot prices then sank to an average $2.75 per MCF in 2012 and $3.75 per MCF in 2013. The Haynesville rig count slipped during 2011 and 2012 to settle down to about 40 to 50 rigs more recently. That trend was likely reflecting competition from other natural gas plays such as the Marcellus, which are less deep, sometimes closer to large consumer markets, and generally less costly to drill. The slowdown also reflected a trend towards plays that could take advantage of the more favorable economics of liquids vs. natural gas, such as the Eagle Ford. According to EIA data, Eagle Ford liquids production accounted for a little over 50 percent of the play’s oil-equivalent production in 2012, contrasting with three percent for the Barnett and four percent for the Haynesville. The latest proved reserves data from EIA show a pattern of proved reserve declines in plays that primarily produce dry, non-associated natural gas such as the Barnett, Fayetteville, and Haynesville –reflecting downward revisions likely due to the effects of weaker economics. The largest decline was for the Haynesville, down 40 percent from the year-end 2011 level. On the other hand, the Marcellus, because it’s less expensive to drill and closer to major East Coast markets, saw a 34 percent increase in proved reserves.

Nevertheless, according to data cited by EIA, daily Haynesville production still averaged nearly eight billion cubic feet per day in 2013. That was down from about ten billion cubic feet per day in 2011 and 2012, but still accounting for a hefty nine percent of all U.S. domestic natural gas production. Current drilling activity in the play is partly aimed at holding onto leases held by production in order for operators to maintain the potential of future production should the economics of market prices, technology, and operational efficiency improvements become more favorable. The relative economics of liquids versus dry gas has increased interest in locations that may have more of a liquids component.

According to a study by the Dallas Federal Reserve Bank, mining employment in the Haynesville region (including oil and natural gas) roughly doubled between 2001 and 2012. Wages in mining/extraction in the Haynesville region rose an average of six percent per year over that period. We’ve charted what data is available from the Bureau of Labor Statistics  on industry-related employment in the Haynesville area. Data is not disclosed by BLS for about half the industry/county/year combinations, but what data is available gives a strong qualitative indicator of the positive employment trend, even if lacking precision. Comparable data for 2013 is not yet available, but as IHS notes in a recent study, “…drilling in the play has cooled amid a drop in natural gas prices as producers have moved operations to wet gas plays outside the state that have a higher amount [of] associated liquids.” Beyond local trends, a broader study by IHS indicates that the national employment impact of unconventional oil and gas development, including indirect and induced effects, has substantial potential.

IHS analysis shows that Texas and Louisiana are among the top four states benefiting from the economic contributions of unconventional oil and gas from royalty owners to state and local governments. The local and national impacts on jobs and the economy include those spurred by the manufacturing renaissance made possible by the rising availability and affordability of natural gas. According to the American Chemistry Council, in the chemical industry alone, “Potential U.S. chemical industry investment linked to plentiful and affordable natural gas has topped $100 billion. These projects—new factories, expansions, and process changes to increase capacity—could lead to $81 billion per year in new chemical industry output and 637,000 permanent new jobs across the economy by 2023.” The Haynesville also sits in close proximity to the Gulf Coast liquefied natural gas (LNG) export nexus – another potential factor in the evolution of natural gas markets.

Conclusion

Even with recent slackening rig activity and production, the Haynesville shale continues to be a major source of U.S. natural gas production and a large source of known natural gas resources. Current economics has favored plays with greater liquids potential in the form of crude oil and/or natural gas liquids, and plays somewhat more economic to drill. Yet the Haynesville’s vast geological reserve base remains substantial, a potential that may depend in part on future market price trends, LNG export developments, and technological advances.

Special thanks to Robert Turnham, Paul Pratt, Ragan Dickens and Jimmy Anthony for reviewing this piece.

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