• LNG exports have boosted interest in ArkLaTex natural gas.
  • Monster fractures are generating favorable arbitrage for Haynesville shale operators.
  • Service costs are increasing in a flat commodity-price environment.

Enhanced completions, in concert with an artillery barrage of large-scale property transactions, have revived the formerly somnambulant natural gas play in the ArkLaTex.

That said, a slow-motion collision is underway as rising oil service costs, especially on the completion side, collide with flat commodity prices. Activity levels are not likely to give back any gains, but the impressive rate of change in regional activity could flatten as first-half 2017 draws closer.

Drilling activity tripled off the second-quarter 2016 bottom in the Haynesville Shale—the largest relative increase among domestic tight formation markets. Nominally, the gain was fewer than three dozen rigs, although the relative size of the increase illustrates rising interest in the region’s gas assets as LNG exports factor into the play’s revitalization.

Mergers and acquisitions (M&A) do as well. The industry racked up $7.4 billion in ArkLaTex M&A over the last 18 months led by Range Resources Corp.’s $4.2 billion acquisition of Memorial Resource Development’s Red River play. Significant divestures include Chesapeake Energy Corp. and Anadarko Petroleum Corp., both of which sold large regional legacy assets to private equity-backed independents. Chesapeake and Anadarko divested nearly $2 billion in aggregate.

Still, the actionable headline story remains the switch to enhanced completions, which allowed oil and gas operators to boost production in deeper gas projects while keeping well costs flat in the $9 million range. Monster fracture stimulation jobs in the Haynesville Shale and other regional Jurassicaged targets have been the major contributors to increased regional activity. Several jobs consumed between 30 million and 50 million pounds of sand on 3,048-m (10,000-ft) laterals in recent months.

Monster fractures are also the major reason the size of the well stimulation spread onsite in the Haynesville rose from 43,000 hydraulic horsepower (hhp) six months ago to 49,000 hhp during first-quarter 2017 (although spread size increased only marginally in non-Haynesville operations).

Well stimulation providers are booked 60 days into the future in the ArkLaTex, consistent with wait times in regional markets across the U.S. While monster fracture stimulation jobs generated trade press headlines, the average horizontal lateral length in all non-Haynesville Shale wells (Cotton Valley, Red River) remains at roughly 2,316 m (7,600 ft), identical to the current national average.

As elsewhere, efforts to decrease the distance between stages in Haynesville horizontals has increased the total number of stages significantly. The average distance between stages in the ArkLaTex fell to 61 m (200 ft) in first-quarter 2017 vs. 71 m (234 ft) six months ago.

But the cost-benefit ratio is still evolving in the ArkLaTex. Monster fractures— more equipment, more proppant, longer laterals and closer spacing—resulted in a sharp increase in per-stage pricing to $93,000, up nearly 50% off the bottom.

Meanwhile, the Haynesville remains the most promising domestic market for refractures. Remedial work, including refracturing, represents about 8% of activity in the Haynesville vs. well under 4% in all other domestic markets. Refractures run from $1.5 million to $2 million per job and pay out quickly.

Elsewhere, the volume of drilled but uncompleted wells fell 8% in the ArkLaTex during first-quarter 2017 as oil and gas operators expressed urgency in converting well inventory into revenue before completion costs rise further.

Not to rain on the regional parade, but “go, go, go” in the high-flying ArkLaTex might yet evolve into “let’s wait and see” depending upon direction in commodity price.

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