Drilling Into Oblivion: Can Any Haynesville Operators Make a Decent Return at Sub-$2 Gas?

Highlights

• GEP Haynesville II (GEP II) takes the top spot: Among the top ten operators, GEP II ranks the best with a two-year average HH breakeven of ~ $2.70/Mcf, followed by EXCO (~ $3.20/Mcf), C6 Operating ($3.28/Mcf), and Southwestern ($3.53/Mcf). We highlight that none of the operators come close to generating average two-year payouts at sub-$2 gas.
• Sub $2 breakevens are rare: In the last three years, GEP II, Southwestern, Chesapeake, and Comstock drilled only one well each, which we estimate broke even at sub $2/Mcf gas. 
• Louisiana outranks Texas on a half-cycle basis: Operators with a more Louisiana-focused asset base tend to have better breakevens and payout periods than peers on the Texas side of the border.
• Implications for Tellurian: Tellurian screens poorly on a 2-year breakeven metric, and we estimate it ranks 18th in the basin. This, coupled with historically low gas prices, will make a successful sale of Tellurian’s upstream assets difficult. 

Figure 1. Two-Year HH Breakeven by Operator ($/Mcf) (2021-2024)

(This represents the flat HH price needed for a well to break even in two years. Each dot represents a well)

Source: Novi Insights, Novi Intelligence. Note: All wells with breakevens over $10/Mcf were removed. Only the 2021-2024 vintages were used in this analysis.

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Key Takeaways

• Henry Hub gas prices fell from about $3.50/Mcf in November to around $1.60/Mcf, driving rig reductions and voluntary shut-ins.
• EQT announced it would shut in 30–40 Bcf of production during first-quarter 2024.
• GEP Haynesville II ranked best among the top ten Haynesville operators with an estimated two-year average Henry Hub breakeven of about $2.70/Mcf.
• EXCO, C6 Operating, and Southwestern followed GEP II with estimated two-year average Henry Hub breakevens of about $3.20/Mcf, $3.28/Mcf, and $3.53/Mcf.
• No top-ten Haynesville operator generated average two-year payouts at sub-$2 Henry Hub gas prices based on 2021–2024 well vintages.
• GEP II, Southwestern, Chesapeake, and Comstock each drilled only one well in the last three years estimated to break even below $2/Mcf.
• Louisiana-focused Haynesville asset positions showed better breakevens and payout periods than peers on the Texas side of the border.
• Tellurian ranked an estimated 18th in the Haynesville on the two-year breakeven metric, complicating upstream asset sale prospects amid low gas prices.