The 5 Companies Dominating the Haynesville Shale Play

Image source: Getty Images.

The Haynesville might not be the hot shale play it once was. Slumping gas prices took the wind out of its sails, while oil discoveries in the Eagle Ford and more economical gas discoveries in the Marcellusand Uticaput it on the back burner. However, it is the third-largest shale gas producer in the country, making it one of the top shale plays. Furthermore, improving drilling returns and rising natural gas demand from liquefied natural gas (LNG) export facilities have the potential to revive this dormant drilling region.

The Haynesville shale 101

The Haynesville shale encompasses over 9,000 square miles of eastern Texas and western Louisiana:

Image source: EIA.

The play was initially discovered by Chesapeake Energy (NYSE: CHK) in 2008, leading its rivals to descend upon the area tolease land. That said, while the Haynesville was the draw, there are several producing formations in the region, including the Bossier and Terryville. However, while natural gas saturates these rock formations, drilling activity died down due to the oil market downturn.

In the future, activity could revive thanks to the Haynesville's proximity to several LNG export terminals that are under construction along the Gulf Coast.Cheniere Energy, for example, is just starting to ramp up its Sabine Pass facility in Lousiana. In July, Cheniere Energy commissioned the second export train at that facility, and it has several additional trains under development at Sabine Pass and its Corpus Christi location in Texas. Meanwhile, several other LNG export facilities are currently under development. Once complete, these facilities could drive incremental natural gas demand from the Haynesville.

That bodes well for the play's dominant producers and acreage holders, which are poised to cash in on that future. In fact, according to projections, between 35,000 to 50,000 future wells could be drilled in the play.

The leading Haynesville shale producers

Data source: Company investor presentations.

Chesapeake Energy used its first-mover advantage in the Haynesville to build up a strong position, which it maintains to this day. While most of its rivals have pulled back from the region to focus on higher-return plays like the Marcellus shale or the Permian Basin, Chesapeake stuck around to hone its craft. Its patience is starting to pay off, with the company recently touting transformation changes in economics and well productivity due to optimized completions and longer laterals. That said, while Chesapeake Energy is one of the dominate drillers in the Haynesville, it is planning to cut back on its position to raise cash to pay down debt. However, it intends to retain enough acreage to run a development program for the next eight to 10 years.

Memorial Resource Development (NASDAQ: MRD), which is set to be acquired by Range Resources (NYSE: RRC), is a leading developer of the Terryville complex. The field has been producing since 1954 and is one of the country's most prolific gas fields. However, what drew Memorial Resource Development to the region, and Range Resources to Memorial, was the multizone natural gas and oil reservoirs and the significant horizontal redevelopment potential. Overall, Memorial Resource Development believes that it is sitting on 5 trillion cubic feet equivalent of resource potential, which is enough to meet the energy needs of 5 million homes for 15 years. By combining with Range Resources, it will have greater scale and financial resources to develop that resource potential.

At the moment, EXCO Resources (NYSE: XCO) is just trying to survive the energy market downturn and get its balance sheet back on solid ground. Because of that, it is only running one rig in the Haynesville, which is nowhere near enough to keep its production from declining. In fact, EXCO Resources' production during the second quarter was down 3% sequentially and 37% year over year. That said, the company is transforming into a low-cost producer, which puts it in the position to return to growth mode when conditions improve.

Mining giant BHP Billiton (NYSE: BHP) is currently deferring its dry gas development drilling in the U.S., including the Haynesville, which is causing its production to decline. That said, its acreage is in the core of the play, which should support strong production growth once conditions improve. Overall, BHP Billiton projects that it can drill more than 1,800 wells in the future, which should deliver 20%-plus returns once gas is above $3 per Mcf.

Investor takeaway

Early on in the shale boom, the Haynesville was a major growth driver for the industry. While low gas prices put an end to that initial enthusiasm, improving drilling returns and LNG export demand have the potential to put the Haynesville back on the map.

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Matt DiLallo owns shares of BHP Billiton. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.