ShaleTech: Haynesville-Bossier shale
Sand has become an especially hot commodity in the elder Haynesville shale of late, as the few operators still active in the play bank on cyclopean stimulation programs to generate higher production and returns, just as the natural gas market is starting to show a pulse. Together, with the overlying Bossier shale, the predominately dry gas Haynesville, of northern Louisiana and far eastern Texas, has emerged as the poster play in the nationwide trend toward longer laterals and juiced-up completions, with proppant loadings of 3,000 lb/lateral ft or more.
That tide reached a high-water mark recently, when Chesapeake Energy Corp. pumped a purportedly record 25,000 tons of proppant across the 10,000-ft lateral of a Louisiana Haynesville well, at a concentration of 5,000 lb/lateral ft. “There’s 1,000 trucks full of sand that pull up there, but we did it our first try without a hitch,” said Jason M. Pigott, executive V.P. of operations and technical services. That record, however, is set to be surpassed as Chesapeake and Baker Hughes, in late November, were in the process of a 107-stage frac job on a nearby 10,000-ft lateral well.
While Chesapeake may be pushing the boundary, extended reaches with super-sized completions have come to define a once left-for-dead play that has been partly resurrected, thanks to impressive flowrates, lower well costs, higher margins, and brighter forecasts for gas prices. Despite measured depths (MD) pushing 20,000 ft, with associated abnormal temperature and pressures, total well costs have dropped—in some cases, to roughly $8 million with double-digit returns, even with gas prices around $2.53/MMbtu. Those margins promise to improve, as the U.S. Energy Information Administration (EIA) predicts that the combination of reduced production and higher domestic consumption will push the benchmark Henry Hub spot gas prices to a 2017 average of $3.12/MMbtu.
“Even if 3,000 lb of proppant per lateral foot doesn’t become the norm, lower break-even costs for many of the (Haynesville) basin’s largest operators, in combination with a constructive outlook for the gas market over the next few years, provides a meaningful opportunity that we expect select producers to jump on,” Kathryn Downey Miller, a partner and managing director of analytics and consulting services for BTU Analytics, LLC, wrote in an Oct. 28 report.
With a growing petrochemical and manufacturing base along the U.S. Gulf Coast, and a well-established interstate pipeline network that also connects to gas-hungry Mexico, the Haynesville-Bossier play is ideally positioned to capitalize on that constructive outlook. Cheniere Energy’s celebrated Sabine Pass LNG terminal in Cameron Parish, La., however, remains one of the most significant contributors to the improving demand scenario. Since its commissioning in February 2016—and with two trains now in full operation—the Sabine Pass facility, as of Nov. 3, had dispatched cumulative LNG exports estimated at 112 Bcf, in 36 international cargoes. A third train is expected to be near completion in mid-2017.
“On a macro level, there are signs that later this year, and into 2017, supply and demand will be more balanced and pricing could improve,” says Range Resources CEO Jeff Ventura. “We expect natural gas production in the U.S. to continue declining for the remainder of the year. This supply decline is happening while demand for natural gas is increasing, driven by Mexican exports, power generation and LNG exports.”
RECOVERY IN WAITING
As evidence, the EIA—in its Nov. 8 short-term energy outlook—says 2016 U.S. gas production is on pace to drop 1.4 Bcfgd from 2015, which would mark the first annual decline since 2005. The Haynesville-Bossier is no exception, with December gas production expected to decline, year-over-year, from 6.313 Bcfgd to an estimated 5.916 Bcfgd, Fig. 1. Norway’s Rystad Energy also documented a November inventory of roughly 200 horizontal drilled but uncompleted (DUC) wells, 160 of which were in the Louisiana sector.
Conversely, the weekly rig count has climbed sequentially since Sept. 30, rising from 13 to 23 active rigs the week of Nov. 18, according to Baker Hughes data, which show a 26-rig average for November 2015. The East Texas swath of the Haynesville-Bossier, however, slid to eight active rigs (Fig. 2) from an average 19 in November 2015.
Between January and November, the Louisiana Department of Natural Resources (DNR) also issued 123 new drilling permits for the 10 Haynesville-specific parishes, of which 73 were authorized for wells in the DeSoto Parish core, compared to 137 permits approved for all of 2015. Haynesville drilling authorizations peaked in 2010 with 1,103 permits. Across the border, the latest data available have the Texas Railroad Commission (RRC), the state’s chief regulator, issuing a mere 28 drilling permits for Haynesville-Bossier wells between January and October, compared to 59 at year-end 2015 in the four applicable counties.
Once-active Anadarko Petroleum Corp. contributed in no small part to the East Texas contraction with a suspension of activity, culminating in the Nov. 18 divestiture of its tight gas Carthage field, and associated midstream holdings in Panola County. Anadarko’s lone remaining regional asset was sold to global commodities merchant Castleton Commodities International LLC (CCI) for more than $1 billion. “The company is well-positioned to enhance the value of these acquired assets through further development of the Haynesville shale, among other operational activities,” Craig Jarchow, president of CCI Oil and Gas, said in a statement. The acquisition gives CCI 160,000 net acres, with production of more than 320 MMcfged.
Meanwhile, Dallas-based Covey Park Energy has quietly emerged as a major Haynesville-Bossier leaseholder, bolstered by the November acquisition of an additional 90,000 net acres in East Texas and North Louisiana from an undisclosed seller. Earlier this year, the privately held independent picked up 34,167 net acres held by EP Energy Corp. in Louisiana’s DeSoto and Bossier parishes. Covey Park now controls a Haynesville-Bossier leasehold comprising some 218,000 net (321,000 gross) acres in East Texas and North Louisiana, with estimated fourth-quarter production of 325 MMcfgd. Covey Park provided no update on current activity.
INSIDE ‘PROPAGEDDON’
In an operation it described as “Propageddon,” Chesapeake said, based on an earlier field trial, that it expects the returns from its record-setting well to more than justify the formidable design and logistical challenges of pumping 50 million pounds of proppant in an 85-stage well. Halliburton, for one, credited its so-called “Sand War Room” with the multi-disciplinary coordination of massive volumes of sand from mine to wellhead. “The fact that we delivered nearly 220 rail cars into more than 1,000 loads to location without any material-related interruptions is a great testament to our people and commitment to execution,” said Completions Business Development Manager Bill Melton.
During the third-quarter earnings call, Chesapeake’s Pigott said an initial flowback comparison of a shorter-lateral well with 5,000 lb/ft loading, and an otherwise equal 3,000 lb/ft offset, showed appreciably higher flow and pressure. The former flowed back at 17 MMcfgd and 7,900 psi, while the 3,000-lb/ft well flowed at 14.5 MMcfgd and 7,500 psi. “So, we’ve definitely seen a big gain from going to 5,000 lb/ft and we’re excited about it.”
Extrapolated to the 10,000-ft lateral well, Pigott said the additional 2,000 lb/ft proppant loading increases total well cost by around $1.2 million. “So, it’s not a huge incremental investment, considering the gain that we see already on the side-to-side test,” he said. “We’ve got several other tests with 4,000-lb jobs that kind of split the difference coming up. We have a very dynamic program in the Haynesville, but one we’re very excited about and it seems that every little bit extra we do to these wells is producing a very positive return to us.”
Chesapeake pointed out, however, that similarly sized frac programs should not be considered a universal strategy for its U.S. unconventional portfolio. “We are designing our completions for the rock type and for the play,” said Frank Patterson, executive V.P. of E&P. “It’s working really, really well at high concentrations in the Haynesville. It might work in other plays, but in other plays we might have a different recipe. So we’re not talking about that type of sand (volumes) in every single play.”
Meanwhile, coinciding with its herculean frac jobs, Chesapeake laid out plans to sell roughly 126,000 net acres, comprising a mixture of Haynesville and Bossier assets. After the planned divestiture, Chesapeake will still control roughly 255,000 net acres. The Oklahoma City independent, which is running three rigs, delivered 139,000 boed from its Haynesville-Bossier assets in the third quarter, up from 126,000 boed produced in the second quarter, with a 20-well DUC inventory.
BACK TO WORK
Elsewhere, Comstock Resources restarted its on-again, off-again Haynesville-Bossier drilling program in September, with plans to definitely make up for lost time. During the fourth quarter, the Frisco, Texas, independent expects to run two rigs and drill five (3.7 net) Haynesville-Bossier wells within its 67,000-net-acre leasehold, with 22 gross (17.1 net) wells already on tap for 2017. “We’re going to be quite busy during the fourth quarter, that’s for sure,” said COO Mack Good.
After returning to active status in March, Comstock suspended operations in July—having drilled three wells—before resuming activity in the third quarter, following the successful completion of a debt exchange. Third-quarter Haynesville production came in at 121 MMcfgd, compared to an average of 116 MMcfgd for the first half of the year.
The rebooted campaign includes the first well completed with Comstock’s new, enhanced stimulation strategy. The well in DeSoto Parish, La., was drilled to 19,452 ft, MD, with a 7,500-ft lateral, and completed with 3,800 lb of proppant/lateral ft, with 150-ft stage lengths. Comstock says its once-standard completion design comprised 2,800 lb/ft proppant loading with 250-ft stages, which, at flat gas prices of $2.50-$3/Mcfg, helped generate 50%-to-80% rates of return (ROR), depending on the lateral length. “We think we can increase these rates of return by around 20% across the board, by changing our future well completion design to include more proppant and smaller frac stages,” Good said.
He pointed to a comparative analysis showing that, at total costs of $8.5 million, a 7,500-ft lateral well, with the enhanced completion, delivered average estimated ultimate recovery (EUR) of 18.6 Bcf/well. Total cost for the same well completed with the standard design was roughly $8.1 million, with an EUR estimated at 15.5 Bcf/well. “So by pumping about 36% more proppant per ft, our correlations indicate that we will get a 20% greater EUR, and around a 20% greater ROR for an additional investment ranging from $200,000 to $500,000 [per well] depending on the lateral length,” Good said.
Following an extended sabbatical and a recently successful hedging pilot, BHP Billiton, likewise, returned to the active rolls in October, with a single rig now at work within its 239,000 net acres in the heart of the play. No production or well-count guidance has been made available.
“We, of course, have a long-term plan for Haynesville,” CFO Peter Beaven told analysts on Aug. 16, during the FY16 earnings call. “We would expect to put rigs back into action there and start to harvest some of the fantastic returns and value that we see in the core Haynesville.”
With cumulative third-quarter production of 228 MMcfged, EXCO Resources remains in a drilling suspension mode on its 97,800-net-acre leasehold in the Shelby and Holly areas of Texas and Louisiana, respectively, but plans to eventually follow the lead of its peers.
“We are not currently drilling in this area, but when we do re-engage, we expect to pump larger completions and change the well spacing to four wells per section,” the company said in a statement. The firm added that it is “currently evaluating further development of the Bossier shale in North Louisiana, with enhanced completion methods that have proven to be successful in the Haynesville shale, including longer laterals and increased proppant use.”
In the meantime, EXCO says third-quarter North Louisiana production of 159 MMcfgd was up 9% over the previous quarter, but down 19% from third-quarter 2015. The three operated Haynesville wells featured longer laterals and higher proppant loading, with better-than-expected initial production (IP) rates of 21 MMcfgd “on restricted chokes and shallow pressure declines,” EXCO says.
“The six wells in North Louisiana, completed during 2016 with our larger design, have an average pressure decline of only 14 psi/day. This is through our restricted rate and choke management process,” said President and CEO Harold L. Hickey. “Our North Louisiana completion program utilized an average of 2,650 lb of proppant per lateral ft during the quarter, and we’re currently evaluating additional proppant volumes for future completions.”
Third-quarter production from EXCO’s 45,800-net-acre East Texas position declined to 69 MMcfged from 76 MMcfged in the previous quarter. The company planned to participate in one non-operated well by year’s end to hold acreage.
With its 48,000 net acres, wholly held by production, QEP Resources likewise is taking a drilling hiatus with no operated rigs. Net third-quarter production, however, jumped 31% over the quarter prior, with an average of 133 MMcfged. 
