SHREVEPORT, Louisiana – Operators in the gassy Haynesville Shale region are slowing production and hedging their price risk after a sharp drop in commodity prices.

“We’re going to try to keep our production flat, maybe go down a little less than what we’ve got,” said Meg Molleston, president of GeoSouthern Energy GP LLC during a March 28 session at a DUG Haynesville Conference panel.

GeoSouthern, which has inventory in the Haynesville and Mid-Bossier, plans to reduce drilling rig activity and is “reluctantly hedging” in the current price environment, Molleston said.

Rob Turnham, former president of Goodrich Petroleum Corp. and a board director at New ASEAN Energy, said hedging via costless collars gives operators protection against downside risk while allowing them to participate in upside potential.

Gas producers are adjusting as natural gas prices have tumbled significantly since late last year. After averaging $6.42/MMBtu during 2022, Henry Hub gas prices are expected to average around $3/MMBtu this year, according to the latest forecasts by the U.S. Energy Information Administration.

U.S. gas futures for delivery in April were trading down over 1% at roughly $2/MMBtu on March 29.

Less than a year ago, U.S. natural gas prices topped over $9/MMbtu, per EIA data. But the current commodity price environment has E&Ps in gas-heavy basins, like the Haynesville in Louisiana and East Texas and the Marcellus in Appalachia, thinking differently about operating, executives said at DUG Haynesville.

Service cost inflation also a drag

Apart from plummeting prices, E&Ps are facing sky-high drilling and completion costs due to service cost inflation.

Upstream operators, both in gas and oil basins, have been willing to pay inflated service costs more in line with $80 oil and $5 gas, analysts at Tudor, Pickering, Holt & Co. wrote in a recent research note.

Molleston said GeoSouthern has seen service costs to drill and complete wells increase by between 25% and 35% in the last year.

“You might not complete wells and spend the capital on wells, so you build a [drilled but uncompleted wells] inventory,” Turnham said. “That allows you to hook those wells up at the appropriate time.”

Market moves vs. Permian associated gas

Analysts and executives are generally bearish on U.S. natural gas prices in the near-term.

Bernadette Johnson, general manager of power and renewables at energy analytics firm Enverus, said at the conference that the firm sees gas prices staying low until about 2026, when demand from new liquefied natural gas export projects on the U.S. Gulf Coast start to come online.

“At the macro picture, we certainly see a lot of the incremental gas production growth will come from the Permian associated gas, but also the Haynesville and the Eagle Ford,” Johnson said. “It’s really a collective story of the whole region in what feeds LNG.”

However, hiccups in the development process for those Gulf Coast LNG export terminals could cause future issues for upstream gas producers, Molleston said.

For some amount of time – whether it’s six months, nine months or even 18 months – E&Ps will face depressed gas prices until the global supply-demand dynamics are sorted out, said Dick Stoneburner, chairman at Tamboran Resources and formerly COO for Petrohawk Energy Corp.

“Even with [Freeport LNG] back online, I think we're maybe balanced or still a little bit oversupplied,” Stoneburner said.

While dealmaking in gassy basins has effectively been turned off this year due to the low price environment, there’s still room for consolidation in the Haynesville as operators search for attractive inventory, Johnson said.