It’s no secret, natural gas operators are chomping at the bit for an unexpected opportunity in 2021. As oil basin operators suffer through low oil prices and concentrate on checking off DUCs, natural gas basins such as Haynesville stand to benefit, particularly in light of the recent shut-ins in the Permian Basin and Eagle Ford.
With less associated gas produced, Haynesville operators are eyeing rising natural gas prices that some see touching $3.50 in 2021.
“You can’t help but notice the improvement in gas prices, the low service costs and the returns we’re generating in the field,” said Rob Turnham, president of Goodrich Petroleum Corp., in a Q&A session with Hart Energy’s Emily Patsy during the DUG Haynesville Virtual Conference streamed on-demand on Oct. 28.
The entire DUG Haynesville Virtual Conference can be streamed at https://bit.ly/35EYk6Z.
Will that lead to more investment for Haynesville operators in 2021? “I think it’s like we spend a little more money because of those returns,” Turnham added. Goodrich has not yet released its 2021 guidance.
But the name of the game will remain cash flow, he said.
“The focus for us, and any other company, really, is cash flow generation,” he continued. “I think if we can show that you can still grow and generate free cash flow, at the end of 2021, we think our debt metrics will be less than one turn on debt-to-EBITDA, which is going to be a very low-level metric, generate substantial free cash flow on a yield basis probably as good as anyone on enterprise value or market cap, and yet still grow volumes and EBITDA.”
Turnham expects all of that to generate higher enterprise value. He said the key is to look at not only prudent use of capital, but also growing the minimum value of PDP, which translate into knowing there’s the ability to sell those assets or the company at some point in the future and for a bigger value and return that capital to shareholders.
One of the questions surrounding the Haynesville is whether there is potential for it to ramp up production beyond the 12 Bcf/d currently producing. Craig Jarchow, president and CEO of Castleton Resources LLC, told Hart Energy’s Nissa Darbonne it will be a challenge to get there, but not out of the question.
“We’re fortunate that our basin is a very good basin … There’s a lot of gas coming from the Cotton Valley [and] the Haynesville as well,” he said. “We still have as an industry in this basin a number of good locations. If we have to ramp up production that much we’ll have to once again look at offtake and build additional pipeline capacity from Terryville South.”
A good problem to have, no doubt.
“We’ll be up to the challenge if indeed that day comes,” Jarchow continued.
However, he reiterated that Castleton isn’t assuming any of that. “the way we are running our business is we’re keeping our costs as low as possible,” he said. He added the company is averaging down its finding cost as it continues to acquire assets.
“If the demand for LNG isn’t there and keeping the prices low, we’re still making a very good living and maintaining a very good business,” he said.
“Unlike most other sources of LNG around the world, one of the unique things about the U.S. LNG is it typically offers very flexible terms,” said Jim Diemer, regional vice president of midstream commercial development at Sempra LNG. Diemer added this has changed the global LNG market.
This past summer demonstrated flexibility and resilience of the U.S. supply chain. “There were significant challenges,” he said. “We had an oil price war causing prices to collapse. We had a global pandemic with a significant reduction in demand. We had multiple hurricanes causing absolutely horrific destruction to the infrastructure in the Gulf Coast.”
Nonetheless, he believes the U.S. industry performed very well.
Consolidation and Innovation
One question on everyone’s minds these days is how deep will operator consolidation go and who will still be around. There’s also the question of whether consolidation might go too deep.
Alan Smith, president and CEO of Rockcliff Energy LLC, said it’s always a balancing act. “As you consolidate, you get more efficient with your G&A. You get more efficient with your scale and infrastructure. So, there’s a lot of positives,” he said.
On the other hand, he added, “The larger companies get it’s always a challenge to keep the innovation coming. That’s something, I think, as the consolidators execute and do what I think they want to do they are just going to have to stay on top of innovation. The good news is, I’m not saying we can’t get better but we have made tremendous strides pushing the envelope.”
Smith said technology will serve as the catalyst. ‘We’re applying more technology in the wellbores and seeing how we can better understand and place the fracs to get the best results and I think that’s where future efficiencies will come,” he said.
Phil Martin, CEO of New Century Exploration Inc., said there’s still an opportunity for operators to experiment with new technologies and they’d better take it. “Take that opportunity or you’re in the ditch,” he said. “I think everybody is trying to improve their performance.”
But there are obstacles.
“Unfortunately, the rig count has gone down quite a bit so being able to observe many different practices by different operators—that data pool has been reduced—so it’s not quite as easy to come up with the results,” he said.
Other presentations available for on-demand streaming include:
Deal-Maker: A Frac-Side Chat With John Jacobi
Featuring John D. Jacobi, Covey Park Energy LLC
Operator Spotlight: Entrance, Not Exit
Featuring Doug Krenek, Sabine Oil & Gas
Operator Spotlight: 6K Pounds Per Foot
Featuring Paul Sander, Aethon Energy
Operator Spotlight: Brown Dense
Featuring Manish Raj, Velandera Energy Partners LLC
NatGas Supply/Demand & The Haynesville’s Proximity To LNG
Featuring Welles Fitzpatrick, Truist Securities Inc.
The Build-Out to Market
Featuring Bernadette Johnson, Enverus
The M&A: Haynesville
Featuring Derek Detring, Detring Energy Advisors
Technical Roundtable: Frac, Repeat
Featuring Dr. Ghazal Izadi, Baker Hughes, Co. and Bill Anthony, GR Energy Services
Occidental Petroleum said adjusted loss attributable to common stockholders was $136 million, or 15 cents per share, for the March quarter, compared with a loss of $610 million, or 65 cents per share, in the fourth quarter.
BP, which plans to sharply cut its oil output and boost its renewable energy capacity over the next decade, said in a report that despite “uneven progress,” the API was “heading in the right direction.”
The combined company, to be named Civitas Resources, will be the largest pure-play energy producer in Colorado’s Denver-Julesburg Basin, with an aggregate enterprise value of approximately $2.6 billion.