Drillers and dealers have been returning to the Haynesville and Eagle Ford shales, which have seen rising rig counts and an increase in merger and acquisition (M&A) activity of late. Enterprise Products Partners LP management has been watching.
Jim Teague, CEO of Enterprise’s general partner, told analysts during an earnings conference call Tuesday that M&A activity in the Haynesville has been “significant” over the last 12-18 months.
“The [producer] buyers are applying new drilling and completion techniques, have very low breakevens, and are experiencing significantly improved initial production rates and reserves,” Teague said. “And they are committed to the basin and are moving quickly to maximize their returns. After bottoming at 12 rigs last year, Haynesville rig counts have improved considerably to around 40, and there were over 100 wells drilled in the play in the first quarter.”
Better economics and renegotiated natural gas transportation contracts have spurred the Haynesville resurgence, which is investigated in NGI’s newly released special report titled Haynesville 2.0: The Once and Future King.
Dallas-based Covey Park Energy LLC recently closed on its acquisition of additional Haynesville area assets from Chesapeake Exploration LLC and related companies for $465 million. Covey Park is now considering an initial public offering (IPO), according to Teague and press reports.
“...[I]t appears the capital markets understand the capabilities of these new producers and the capabilities of the Haynesville,” Teague said. “With this increased level of activity, volumes in our gathering systems are increasing rapidly. In fact, by year-end, we project that our State Line system in North Louisiana could exceed our peak volumes of one half of a Bcf set back in 2011.”
Enterprise hasn’t just been watching. Through an affiliate it recently agreed to acquire the midstream business and assets of Azure Midstream Partners LP and its operating subsidiaries in East Texas and North Louisiana. The agreement was the result of Azure’s bankruptcy auction proceedings, which Enterprise won with a bid price of $189 million.
“These assets access both rich and lean, Haynesville and Cotton Valley production and are an excellent fit with our systems in East Texas and Louisiana,” Teague said Tuesday. “In addition, these assets complement our supply footprint and will help us grow our Gulf Coast markets. We feel good about what we are seeing from this new type of Haynesville producer, and we like where the productionsitsrelative to growing demand.”
Similar factors also have been bringing a shine back to the Eagle Ford, he said. Acreage there is changing hands. Sanchez Energy Corp. recently bought Eagle Ford assets from Anadarko Petroleum Corp. Teague also cited recent acreage sales by Pioneer Natural Resources Corp., Newfield Exploration Co., SM Energy Co., and Rosetta Resources Inc..
“Obviously, the cost of entry is much lower in the Eagle Ford than the Permian, and the basin has technical upside, both in new drilling and completion techniques, and in stacked pays now being developed in the Upper Eagle Ford, Austin Chalk and the Buda [Limestone].”
The Eagle Ford rig count has been climbing from a low of about 30 rigs last fall to about 83 currently after adding five in the latest Baker Hughes Inc. count.
“While rig count increase won’t instantaneously bring incremental volumes, we project that Eagle Ford production is now stabilizing and will soon begin to grow,” Teague said. “As Eagle Ford production grows, we have the capacity in our existing assets, so increased production means cash flow upside.
“We also believe there isn't a better basin situated for the growth of the crude and NGL [natural gas liquids] gas markets, including exports.”
Enterprise reported net income attributable to limited partners of $761 million (36 cents/unit) for the first quarter compared to $661 million (32 cents/unit) for the year-ago quarter. Distributable cash flow (DCF) was $1.1 billion for the first quarter, which provided approximately 1.3 times coverage of the 41.5-cent/unit distribution. The partnership retained $238 million of DCF to fund growth projects, reduce debt and decrease the need to issue additional equity, it said.
“These results were driven by record liquid pipeline and marine terminal volumes…” Teague said. “Our results were also driven by contributions from our propylene fractionation business, new assets and the ramp up in commitments on assets such as our ATEX ethane pipeline and ethane export terminal. Higher NGL and crude oil prices led to higher margins in our commodity-sensitive businesses.”