The Upper Jurassic Haynesville shale play, sited principally in North Louisiana, debuted as a screamer when Chesapeake Energy Corp. announced a natural gas discovery there in March 2008. The find followed the November 2007 announcement of a discovery in the shale by Cubic Energy Inc., Dallas.

Then, Petrohawk Energy Corp. announced huge Haynesville wells in 2008. Almost overnight, the area became a hotbed of activity as landmen arrived in droves to lease up practically any patch of dirt available in this very rural patch of the world. Today the play extends slightly into southwestern Arkansas and into East Texas.

North Louisiana’s hydrocarbon production history dates back to 1905. Formations such as the Hosston and Cotton Valley have yielded sufficient production to keep a lot of companies in business, especially the smaller ones that until now had this part of the state pretty much to themselves. Lease prices languished in the $150-per-acre range for years.

Enter the Haynesville shale, often called Bossier, depending on the locale and the nomenclature source. The frenzy immediately following Chesapeake’s discovery created a whole different world, one where some leases reportedly topped out at an astonishing $25,000 per acre.

Since its inception, Haynesville action has migrated beyond the core area in Louisiana.

Early on, Jim Welsh, commissioner of the Louisiana Office of Conservation, noted: “It’s not a big geological secret that this may be the source bed for the Cotton Valley and Hosston overlying the Haynesville; it’s economical to get now with gas about $11 (per thousand cubic feet)—all that is probably in the equation.”

The equation apparently needs some tweaking, given the almost dizzying plunge of natural gas prices to the level where the current $4-plus per thousand cubic feet (Mcf) looks good only when compared to the range of $3 the resource occasionally fetches now. It’s been reported that a break-even price for the dry-gas Haynes­ville wells is $4.50 per million Btu, although this can vary depending on the source. With oil prices hovering between the upper $80s and lower $90s per barrel, a number of Haynesville shale devotees, including Chesapeake and Petrohawk, have now also established a major presence in some of the shale-oil and so-called liquids-rich plays that have become the new darlings of the shale aficionados.

But don’t write off the Haynesville. The play is said to harbor about 251 trillion cubic feet (Tcf) of technically recoverable natural gas, and developing such a resource takes time. Remember, the legendary George Mitchell and his team of experts labored for about 20 years and tore through huge piles of cash to unlock the secret to economic production from the now-famous Barnett shale.

Seventy-five percent of permitting activity since 2007 has been in Louisiana, with DeSoto Parish holding the lead at 1,000 permits filed, notes Jason Simmons, senior research analyst at DI Energy Strategy Partners, a unit of Drillinginfo.

In October 2010, production from the Haynesville was close to 3.3 billion cubic feet per day, a half a billion drop since July (production figures lag by at least several months). The drop-off was mainly from Louisiana wells, as Texas production actually increased in the time period. The production split between the states now stands at 77% from Louisiana, and about 23% from Texas.

Challenges remain

The Haynesville still presents an array of challenges. The wells typically are about 11,000 to 13,000 feet vertical depth, with laterals that max out at about 5,000 feet or less. High pressures and temperatures that can exceed 350? F make for challenging drilling scenarios, requiring sensitive (read expensive) high-pressure/high-temperature measurement-while-drilling tools. With the proper tools and a bit of luck, drillers can build angle and run through the entire lateral using the same drill bit. Otherwise, an extra trip must be made, and the dreaded sound of ka-ching comes through loud and clear in company offices.

Analysts worry about rising costs, which can be higher than in some other shale plays. A typical well may tally a gross cost of $7.5 million, or considerably more, yet undergo high production-decline rates once placed online. Decline rates as high as 85% are reported to have occurred over the first year of production for some wells. Even so, certain wells have produced up to 2.7 billion cubic feet and are still going strong, according to Rick Sepulvado, vice president of exploration and production at Cubic, which has participated in 19 producing horizontal Haynesville wells thus far.

“The oldest wells in the play have been producing just a couple of years now, and we have several years to go before we have a complete understanding of the production capacity of the Haynesville,” says Sepulvado, who emphasizes that decline curves don’t work properly in shale reservoirs like these.

A technique now being applied in the Haynes­ville is restricted-rate production to try to improve well performance over the long term and to help maintain reservoir integrity.

“Producing at lower volumes looks to be a better way instead of opening these things up at very high volumes,” says Rick Sepulvado, vice president of exploration and production, Cubic Energy Inc.

“Producing at lower volumes looks to be a better way instead of opening these things up at very high volumes,” Sepulvado notes. “It looks like the reservoir will respond better if produced at a moderate rate—we’re still in a learning curve about this.”

There are some large-scale restricted-rate programs in progress, pioneered by Petrohawk. “In August 2009, we experimented with four wells, putting them on a 14/64-inch choke while most others were on a 24/64,” says Dick Stone­burner, executive vice president and chief operating officer at Petrohawk. “We wanted to compare performance and how we might project EURs of the two production practices.

“Following encouraging results, the pilot was expanded, and by the middle of first-quarter 2010, we were convinced we were onto something, so we’ve been on a consistent practice of producing our wells on anywhere from a 12/64 to 18/64 choke that optimizes that pressure drawdown,” says Stoneburner.

“That’s key to our goal to have very consistent and nominal pressure decline at the surface on the order of 15 pounds a day. We think that type of very low pressure decline really helps maintain permeability in the reservoir.”

Other companies, such as Forest Oil Corp. and Exco Resources, have announced similar results from their restricted-rate programs, according to Jason Simmons, senior research analyst at DI Energy Strategy Partners, a unit of Drillinginfo. Exco reported its proved EURs across its Haynesville acreage averaged 6.6 billion cubic feet per well.

Petrohawk added about 973 billion cubic feet equivalent of proved reserves in the Haynesville in 2010, with 351 wells drilled (101 operated and 250 nonoperated) to reach total proved reserves from the play of 2.35 trillion cubic feet equivalent. It is currently operating 16 rigs in the Haynesville, with 57 wells scheduled to be drilled by midyear 2011. Then it will cut the rig count to seven, drilling 31 wells in the second half of the year.

Haynesville leasing activity has dropped off significantly since the heady days of 2008. ?Haynesville leasing activity has dropped off significantly since the heady days of 2008.

Petrohawk’s net production from the Haynes­ville and Bossier shales averaged 426 million cubic feet equivalent per day during 2010, a 100% increase year-over-year. At year-end the net production was some 557 million cubic feet equivalent, aided by a lesser decline rate driven by the company’s reservoir-optimization program.

Pressure to drill

Because the majority of the Haynesville leases were acquired in 2008 and were encumbered with a 36-month primary term, many operators have been drilling at full tilt on much of their remaining open acreage blocks so as to hold by production their promising leaseholdings, given that the primary term for the bulk of these properties is drawing to a close. The companies have a major investment here, and vast quantities of gas remain in the shale awaiting the drill bit.

On the other hand, those entities having leases in a number of other shale plays may opt to let some Haynesville holdings expire—either because of budget constraints or the lure of bigger-bucks potential in the liquids-rich plays. The upside to any so-called “bailouts” that may occur in the Haynesville is the opportunity for new investors to enter via joint ventures or acquisitions.

As the drilling pace ramped up to hold leases, permitting escalated significantly, with 1,000 permits filed through the first three quarters of 2010, according to Simmons. Petrohawk, Encana, and Exco each filed more than 100 permits in 2010. Despite the high level of leasing activity in Texas, Simmons notes that 75% of the permitting activity since 2007 has been in Louisiana, with DeSoto Parish holding the lead at 1,000 permits filed.

Hydraulic fracturing is a big part of the completion picture in the Haynesville, as in most other shales. As this technology advances, it no doubt will favorably impact the economics of these wells where completion costs currently are about $3 million. Simmons reports that Exco is experimenting with frac designs. This includes the use of different base fluids, tighter perf cluster spacing, more stages, higher volumes of proppant, testing of Ottawa (white) sand and resin-coated sands, and lower treating rates.

Dick Stoneburner, executive vice president and chief operating officer of Petrohawk Energy Corp., says a pilot program indicates very low pressure decline helps maintain permeability in the reservoir.

Despite the current low price for dry gas, the lure of the liquids-rich shales, and the coming expiration of undrilled leases, there appears to be no expectation of a wholesale decline in Haynesville drilling. Some of the decline that will occur will be related to a backlog of completion services. Comstock Resources, for example, has said some of the wells it drilled in 2010 will not be completed until this year.

Infrastructure for growth

Currently, there’s a focus on building needed infrastructure to accommodate ongoing and anticipated production. Pipelines and underground storage already exist in the Haynesville region, with pipeline capacity reportedly sufficient for production to date. However, any sustained growth in production will require additional capacity. Also, the high CO2 content of the gas and the high-pressure Haynesville reservoirs require facilities not previously needed here.

Among other activity announcements, Enterprise Products Partners LP is said to be extending its Acadian gas pipeline northward to latch onto Haynesville gas and transport it to the southeast, where it will access pipelines serving eastern markets and also interconnect with Enterprise’s Acadian system, which supplies markets along the Mississippi River corridor. In May 2010, Petrohawk and Kinder Morgan entered into a 50-50 joint venture dubbed KinderHawk, which participates in the gas midstream business in northwest Louisiana, focusing on the Haynesville shale.

Perhaps the most telling aspect of what the future holds for the Haynesville is the presence of some of the major companies, including ExxonMobil and Shell, which continue to pick up acreage in various shale plays, for the most part via acquisitions. These industry behemoths clearly aren’t swayed by the current ugly price for natural gas and can afford to wait it out while sitting on major reserves to tap when the price is right. The good news is that these folks think the future for natural gas looks bright. Also, they can be depended on to initiate technology advancements to develop the play more efficiently and economically.

The Haynesville has attracted international joint ventures as well. In 2009, BG Group entered into such a venture with Exco Resources in a deal pegged at $1.3 billion.

Regarding future productivity of the Haynes­ville and other shales, little has been said regarding the potential for enhanced recovery applications once an original well burps its last molecule of economically recoverable gas. For example, the opportunity no doubt will exist to reenter the same borehole, re-frac and possibly begin a whole new production cycle. Says Sepulvado, “Who knows what the ultimate recovery of these wells might be?”

Budget constraints and bigger-bucks potential in the liquids-rich
plays have accompanied some fall-offs in Haynesville production.