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Goldman: Haynesville Shale Does a Lot More with Less

In the world of shale gas plays, the Haynesville is rather long in the tooth compared to the Eagle Ford, Marcellus and others. However, wells in the play are running "faster" for longer, enough so that production has continued to climb while the rig count has dropped. Analysts at Goldman Sachs said they've figured out how the Haynesville does it.

"Approximately 60% of current Haynesville production is attributable to well and rig productivity gains made over the past three years," the analysts said in a note Thursday. "Increased well productivity has been the largest driver of overall productivity gains, accounting for about two-thirds, led initially by higher initial production (IP) rates and more recently by improved decline rates."

Improvement in completion times is a good thing, too. But it's not nearly the big deal that productivity gains are. Goldman said completion time improvement in the Haynesville has largely resulted from the removal of bottlenecks.

Without the productivity gains seen since January 2009, production from the Haynesville likely would have peaked early this year at about 2.8 Bcf/d. "Instead, production has likely reached 8 Bcf/d and continues to grow," Goldman said.

Looking ahead, productivity and completion times are expected to continue improving, the firm said. However, production growth will slow as the temporary boost from reduced bottlenecks and a decline in inventory of uncompleted wells subsides and lower rig counts make for fewer well additions.

"On net, we expect Haynesville growth will slow in 2012 and 2013 to 1.1 Bcf/d and 0.3 Bcf/d year-on-year, respectively, making the Marcellus Shale the new main driver of U.S. production growth next year," they said. "However, the future production potential of the Haynesville remains important should we see rigs returning as prices turn higher in a few years' time."

Breaking the gains down by category, Goldman found that improved well productivity, driven by increased IP rates and reduced decline rates over the past three years contributed 40% of current production from the Haynesville, 3 Bcf/d or two-thirds of the total productivity gain.

Rig productivity increases over the last three years account for 20% of current production, 1.8 Bcf/d or one-third of the total productivity gain, they said. This is due to faster drilling times and reduced downtime between the drilling of wells, thanks to pad drilling techniques.

Faster well completions also are a factor, but a small one, as they currently account for 5% of current production from the play, or 0.5 Bcf/d, Goldman said.

"Recent productivity gains have been increasingly driven by reduced decline rates. In other words, the higher initial production rates are now being maintained for longer," the analysts wrote. To figure out whether the change in IP and decline rates has been due to an active choice by drillers or advances in technology the Goldman analysts looked to other dry gas plays: the Woodford, Fayetteville and Barnett shales.

"Comparing these three other shales to the Haynesville suggests that while there are important differences across the plays, the two shale plays with the highest IP rates, the Haynesville and the Woodford, seem to show the largest response to the [gas] price decline [of 2008-2009] through a trade-off between IP and decline rates," the analysts said.

"When IP rates peaked in these two plays, average decline rates in the second quarter of production versus the first quarter of production also peaked at pretty alarming levels of 35-40%. This compares to a decline rate of 20% more recently, suggesting that even if drillers can boost IP rates by fracking more, they cannot maintain those production rates for long."

The Haynesville Shale rig count currently exhibits the steepest year-on-year drop of all the shale plays tracked by NGI's Shale Daily Unconventional Rig Count. The Haynesville rig count is down 36% from a year ago at 100 rigs as of Friday, dropping 4% from a week ago.

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