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Haynesville M&A Activity Gives Way to Evolution in Operators

Touted in the last decade as the gas resource of the future, the Haynesville Shale instead became a prominent victim of the well-known Appalachian gas tsunami, resulting in falling production and activity levels in the East Texas-Northwest Louisiana play. In 2015, though, rig counts increased despite deteriorating commodity prices as operators began to drill and complete wells in a more efficient and cost-effective manner. In general, Haynesville M&A transactions reflect the increasing economic marginality of the basin, with diversified companies exiting to pure-play operators. 

The Haynesville Shale benefits from an abundance of resource, ample midstream capability and sits close to Gulf Coast storage and export hubs. Operators, most notably private companies, have taken advantage of a low commodity price environment to consolidate their positions across the play targeting opportunities in the Haynesville, Bossier and Cotton Valley formations. Figure 1 summarizes the major transactions that have occurred in the play since August 2014.

FIGURE 1 | Notable M&A Transactions in the Haynesville from 2014 onwards

The high-water mark in the play was Covey Park’s acquisition of one of two CHK packages available at the end of 2016. We calculate an undeveloped acreage value for this northern Haynesville package of $11,500/acre. Similar transactions in the prolific Louisiana core have averaged ~$8,200/acre compared to the less delineated, more variable Texas side of the play, which has averaged ~$2,300/acre. Figure 2 highlights these transaction packages relative to RSEG’s Haynesville regions.

FIGURE 2 | Notable Acreage Acquisitions in the Haynesville Since 2014

As the market watched operators move in and out of the Haynesville Shale, well service providers went with them. Figure 3 shows that, at the expense of smaller service providers, Halliburton (HAL), privately owned FTS International, Schlumberger (SLB) and Baker Hughes (BHGE) have increased their market share to nearly 100% in 2017.

FIGURE 3 | Haynesville Well Service Providers Through Time

To combat the clay-rich source rock of the Haynesville, operators worked with service providers to optimize their completion technique with higher proppant intensity. Blasting the rock with larger amounts of sand allowed companies to keep these previously-difficult clay rock pores open to extract as much resource as possible and flatten out already-steep decline rates. This shift has brought the total monthly tonnage of sand used in the basin back to 2012 levels, when twice as many rigs were running.

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