This excerpt is from a report that is available to subscribers of Stratas Advisors’ North America and North American Shale services.

In 2013 and 2014, Goodrich Petroleum (NYSE: GDP) was an emerging small cap exploration company making a name for itself in the Tuscaloosa Marine Shale (TMS) along the borders of Louisiana and Mississippi. The company held one of the largest positions in the play (307,000 net acres) and was seeing successful well results throughout the years.

Goodrich also held acreage positions in the Eagle Ford and Haynesville, but the majority of its capex was directed toward the TMS.

In its year-end 2014 presentation, the economics of the TMS looked to have real potential. With a WTI price of $85/bbl, Goodrich estimated internal rates of returns (IRRs) on a 600 Mboe well to range between 23% and 46%, depending on well costs. Breakeven oil prices for these wells ranged between $50/bbl and $64/bbl, which was well below the price of WTI.

In addition to its growing debt, Goodrich completed several public offerings of preferred and common stock to fund TMS acquisitions and to accelerate its drilling program.

But during fourth-quarter 2014, OPEC announced its decision to increase its world oil supply in an effort to retain market share. The result of its decision was a plummet in the price of oil, due to over-supply. This drastically affected Goodrich as its core acreage in the TMS was not economical with oil prices averaging about $48/bbl in 2015 and $43/bbl in 2016.

Goodrich’s heavy debt burden crippled the company. Interest expense as a percentage of revenues reached 71% in 2015 and 133% in first-quarter 2016. In April 2016 the company filed for Chapter 11 in an effort to reach an agreement with its debt holders, and restructured its balance sheet.

With most industry activity revolving around the Permian and its main competitor, the Marcellus, which has been deemed the most prolific gas basin in the U.S., the Haynesville has been flying under the radar. Since emerging from bankruptcy in October 2016, Goodrich holds a much healthier balance sheet and has decided to direct its drilling capital toward the gassier assets in its portfolio.

In its first-quarter 2017 presentation, Goodrich announced substantial plans to invest in the Haynesville in northern Louisiana. Companies like Exco Resources (NYSE: XCO) have viewpoints aligned with Goodrich and recently announced it had reached an agreement to divest all of its South Texas assets in an effort to boost capital for the company’s core Haynesville assets.

Looking at the economics in Goodrich’s presentation, a single 10,000-ft lateral well in the Haynesville is able to generate 25.0 Bcf (2.5 Bcf/1,000 ft) of hydrocarbons and IRRs of about 76% based on a flat $3.0/Mcf gas price. These economics are similar in nature to what companies like Exco and Chesapeake Energy (NYSE: CHK) are reporting in the Haynesville.

Since the summer months of 2016, activity has been on the mend in the Haynesville as rigs consistently picked up (over 100% year-over-year) and are expected to remain steady throughout 2017-2018.

Production is also expected to pick back up, increasing by approximately 300 MMcfe/d on average in 2018 with steady increases in completions due to improving natural gas prices, which is the primary driver of hydrocarbon production in the area. Moving forward, activity in the region is expected to be driven by Goodrich, Exco, and Chesapeake, which has a joint venture in the area with GDP.

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