"HAYNESVILLE SHALE NEEDS $6.50 GAS TO BREAK EVEN": ART BERMAN

Haynesville Shale Needs $6.50 Gas To Break Even: The Business Model Is Broken

Art Berman  Nov 22, 2015 @ 07:15 PM

Opinions expressed by Forbes Contributors are their own.

Lynn Pittinger is co-author on this post. He is a consultant in petroleum engineering, economic evaluation, and decision analysis.

The Haynesville Shale play needs $6.50 gas prices to break even. With natural gas prices just above $2/Mcf (thousand cubic feet), we question the shale gas business model that has 31 rigs drilling wells that cost $8-10 million apiece to sell gas at a loss into a over-supplied market.

We first evaluated the Haynesville Shale in 2009 and the conclusion then was the same as it is today: the average well by top operators will produce about 4 Bcf and is not commercial at gas prices below $6 or $7 per Mcf. The play has two insurmountable geological problems. First, the shale is not brittle and, therefore, does not respond well to hydraulic fracturing. Second, the reservoir is over-pressured and compacts when gas is produced.

We have heard fairy tales from operators over the years about how they will improve the miserable performance of Haynesville Shale wells. These included choking back production, re-fracking old wells and, recently, drilling 10,000 foot laterals. None of these approaches worked because bad geology cannot be improved with expensive technology.

Link to full article:

http://www.forbes.com/sites/arthurberman/2015/11/22/haynesville-sha...

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Replies to This Discussion

Permalink Reply by James L. Williams on November 25, 2015 at 12:04

It would be interesting to get Berman's comment on the XTO Banana Slugs well (API 405-30519) that has a lateral running parallel to the Attoyac River in East Texas and has produced 9.6 Bcf in 29 months. 

Permalink Reply by olddog573 on November 26, 2015 at 4:00

what makes this area so special?  its not the first time it's been discussed on this site?

Permalink Reply by Skip Peel - Mineral Consultant on November 26, 2015 at 4:04

Choosing a specific well or limited area isn't the way to define the economics of the play, for good or bad.  The question for the majority of Haynesville mineral owners is, will advancements in well designs make their rock economic for some company to drill?  There is a lot of rock outside the relatively limited core areas that will need increased EUR and/or improved prices.

Permalink Reply by olddog573 on November 26, 2015 at 4:05

what makes this well/area so prolific and are there other wells in this area that is just as good?

Sorry is this is a double post but i couldn't see my other comment and I wanted to add the other wells comment to it.

Permalink Reply by CB on November 24, 2015 at 7:12
Severance at 6% is probably fair. Rate changes every year. Right now 16 cents is more than 6%. Also, severance tax exemption is likely to be ended due to state budget deficit and fact that we now have a Democrat governor.
Permalink Reply by Bradley McWilliams on November 29, 2015 at 11:15

I've always been kind of skeptical of the "sayers of 'nay'" that have been around nipping at the heels of shale producers.  Their has certainly been some to go belly up, and will be more as "lower for longer" turns out to be too stinking long. But I seem to recall that in the mid 80's there were a lot of conventional production companies that went under. The O&G business has always been a haven for promoters, and promoters promote, which leads to over valued goat pasture having a lot of folks money tied up in it.

However, that being said, I have wondered why the HS seems to have a large number of rigs still running. Here in the Fayetteville we're down to four, Baker Hughes shows two in the Barnett.  Why so much in the Haynesville?

Permalink Reply by Bradley McWilliams on November 29, 2015 at 12:06

I think it's insane as well.  But I do have bills to pay, so I hope some of the insanity keeps coming...

Permalink Reply by john goodday on November 29, 2015 at 13:17

Fayetteville has recently unveiled the Moorefield formation (300' deeper than Fayetteville) along with the Upper Fayetteville formation - both of which are very productive.  Well cost are @ $3 million - SWN doing the lion share of the drilling .  BHP & XTO maintain leases.

Permalink Reply by Bradley McWilliams on November 29, 2015 at 14:09

The Moorefield is a good thing, for sure.  The Arkansas Oil and Gas Commission permit list had several Moorefield wells listed a couple of weeks ago.  All we have to do now is hope conditions allow the few rigs running now to keep running...

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