HIGHER THAN EXPECTED HAYNESVILLE PRODUCTION

Our recent webinar singled out Haynesville as the greatest threat to our production forecast, with the assumption being that Haynesville producers would reduce their fracking activity. As of now, this assumption has not played out. Since mid-March 2023, predictions based upon the long-term production model have routinely underestimated natural gas production in the Haynesville Basin.

The long-term production model is based on public producer guidance forecasts, making adjustments for private relative to public fracking activity. In February 2023, most public producers operating in the Haynesville Basin announced that, as of March, they would significantly reduce fracking activity, causing production to grow by a small margin or stay level. The announced intended reduction in fracking activity was a result of natural gas prices falling below $3.00 per MMbtu. Between January 2023 and the end of April 2023 frac crew numbers have instead simply crabbed sideways.

Earnings reports have started to come in from public producers in the Haynesville Basin for the 1st quarter of 2023, and it is clear that as of now all public producers, including Chesapeake Energy, Southwestern Energy, and Comstock Resources, have reported production above their published guidance for the time period. With natural gas prices persisting well below $3 per MMbtu, as of now, we have not witnessed a reduction in Haynesville producers’ fracking activity. Producers have cut back somewhat on rig numbers, but with healthy DUC inventories in Haynesville, the reduced rig count has had little effect on production.

It is not yet impossible that the declining Haynesville long-term production model may be found to be correct, with production declines in the 3rd and 4th quarters still on the table. Chesapeake Energy has announced that it plans to reduce frack crew numbers during the 2nd quarter of 2023, and it remains likely that other producers in the Haynesville basin will follow suit.  Short-Term Production ModelGood news! Our short-term production model, which derives near-term production values from ground truth satellite observations, accurately predicted Haynesville production from March-2023 until the end of April-2023. Forecasting 2-3 months into the future, the short-term production model incorporates all new wells coming online, the decline rates and initial production rates of new wells, the decline rates of all existing wells, frack crew numbers, and timing assumptions associated with new wells coming online. The short-term production model was also successful in forecasting a strengthening uptrend in production from March-2023 until the end of April-2023.  Going forward and depending on regional availability, the long-term production model will incorporate the short-term production model.