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Louisiana gas output shows new signs of life

09 Nov 2015 20:40 GMT
Louisiana gas output shows new signs of life

Houston, 9 November (Argus) — August natural gas production in Louisiana surged to the biggest month-over-month gain in seven years, a sign that output from new wells and improvements in drilling and well design are overtaking the declines associated with aging wells.

Louisiana has long been a stalwart of US gas production. The state is home to a large portion of the Haynesville shale, once the top-producing gas field in the country, and other lesser-known gas fields. But producers largely abandoned Louisiana when gas prices dropped to 10-year lows below $2/mmBtu in spring 2012 to explore opportunities in oil-rich areas, including the Permian basin of west Texas and southeastern New Mexico and the south Texas' Eagle Ford shale.

Louisiana gross gas output, which includes volumes that do not reach market, has steadily declined, falling in July to near 5.1 Bcf/d (144mn m³/d), down by nearly 4 Bcf/d from its peak in November 2011, according to the US Energy Information Administration (EIA). But Louisiana production boomed in August, rising by 11pc to 5.7 Bcf/d, its highest in about two years as producers restored production from shut-in wells and brought new wells on line, the EIA told Argus.

That flood of new production underscores the resiliency of US gas production and highlights the ability of producers to boost output even as gas prices languish near three-year lows near $2/mmBtu. Unexpected increases, especially ahead of peak winter demand, could keep prices low, making the going tougher for producers while providing price incentives to gas consumers.

US independents have showed a renewed interest in Louisiana because the state is close to emerging demand from LNG export terminals and industrial consumers on the Gulf coast.

Prices at the Henry Hub in Texas and at the nearby Carthage hub in east Texas have also increased relative to some northeast markets because of the flood of output from the Marcellus and Utica shales, two fields that have remained lucrative at low prices.

"It is likely a matter of time before efficiencies from other basins translate to the Haynesville, providing downside pressure to longer-term gas prices," analysts with Tudor Pickering Holt said in a research report.

Chesapeake Energy had been drilling new wells in the Haynesville, finding that gas production there is as profitable as opportunities in some otherf fields. Companies are cutting downtime by drilling more wells from a single location and drilling longer laterals to coax more gas out of underground formations.

Efforts by producers have helped stem declines in the Haynesville. But it was other fields "that drove the majority of the July to August production jump," said Erika Coombs, an analyst with the energy consultancy BTU Analytics.

Memorial Resource Development, an independent focused on northwestern Louisiana, has been drilling big wells. The company in the third quarter put 22 new wells on line that initially produced 19.8mn-36.6mn cf/d, Coombs said. Memorial's quarterly production more than doubled from a year earlier, reaching 406mn cf/d of natural gas equivalent.

Some producers are tightening their belts heading into 2016. Companies are evaluating asset sales and seeking joint venture partners to cope with low prices.

Memorial has been undeterred by low prices. The company said last week that it will continue to develop the Cotton Valley next year because drilling there remains profitable.

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