With Natural Gas Prices Surging Private Equity Looking to Cash Out of Haynesville Assets

Haynesville is expected to produce a record 13.6 billion cubic feet per day (bcfd), about 15% of U.S. shale gas output next month. Private equity firms are looking to sell companies and land they own to take advantage of surging natural gas prices.

Haynesville Shale Map

 

The Haynesville spans northeast Texas and northwest Louisiana, is the second-largest shale gas producing region in the U.S. While the formation has smaller reserves than the Marcellus-Utica play in the Northeast, its proximity to the Henry Hub and export terminals on the Gulf Coast, as well as the lack of major infrastructure constraints, offer drillers in the basin a competitive advantage.

Gas Deals Booming

The Haynesville formation in Northwest Louisiana and East Texas has had four deals totaling $1.65 billion, according to Andrew Dittmar, director at Enverus in 2021. Smaller firms see the natural gas rally as a chance to divest assets they have held for three years or more which they may have been under water on before Natural gas surged to 12 year highs. The sellers also include private equity companies who have been holding off selling what were under water assets after prices plunged last year early in the coronavirus pandemic

“They were planning a 2020 exit three years before and then 2020 just didn’t materialize,” said Brock Hudson, managing director at Carl Marks Advisors, an investment bank that provides financial and operational advisory services.

There are several big transactions in the chatter, each estimated at over $1.5 to $3 billion. There are also buyers looking to purchase smaller assets from individual holders, according to advisors Reuters reported.

Bloomberg reported that Southwestern Energy Co. is in talks to buy closely held GeoSouthern for roughly $1.7 billion, less than two months after purchasing gas producer Indigo Natural Resources, according to people with knowledge of the matter. Discussions are at an advanced stage, though a deal could still fall through, said the people, who declined to be named because the talks are ongoing and private. GeoSouthern is a joint venture between Blackstone Credit and billionaire George Bishop’s GeoSouthern Energy Corporation. The entity picked up roughly 112,000 net acres in Louisiana’s Haynesville shale basin from Encana Corp for $850 million in 2015.

LNG Lure for Buyers

Pipelines from the Haynesville to export hubs on the Gulf Coast including Sabine Pass, Louisiana, and Freeport, Texas have space. Lines running from the Marcellus shale in Pennsylvania are near capacity. The United States now exports roughly 10 billion cubic feet of gas daily as LNG, with several companies expected to add more space in coming months and years. DT Midstream has proposed expanding its Haynesville gathering, boosting and transport system and creating a “carbon-neutral wellhead to water” service for certified gas to flow south to LNG exporters, according to a Sept. 30 presentation. The midstream operator’s LEAP pipeline already provides a potential route for Chesapeake Energy’s soon-to-be certified Haynesville production to flow directly toward the Cameron and Sabine Pass LNG export facilities. Under the proposal, electric compression would be provided by renewable generation and facilities would be paired with carbon capture and sequestration.

Reuters reports that deals out there include private-equity backed Haynesville producer Rockcliff Energy. The firm produces over 1 bcfd of production and is expected to go on the block by the end of this year, according to people familiar with the company.

Rockcliff offered high-yield debt last month, a move some companies have taken to improve balance sheets before pursuing strategic options, such as a sale of the company. Rockcliff did not respond to requests for comment.

Reuters previously reported that Haynesville producers such as GeoSouthern are already on the block.

Dollar-per-acre values have risen substantially

Dittmar at Enverus said this year, two deals were valued at nearly four times per acre what Comstock bought Haynesville producer Covey Park in 2019 at $3,000 per acre adjusted for production.

Companies eager to produce gas as a cleaner alternative to oil, like Chevron Corp, have also expressed interest in the Haynesville. Buyers have turned to the Haynesville as acreage deals became harder to come by in the Permian basin of Texas and New Mexico, said Ben Heinzelmann, president at Energy Domain, a marketplace for sellers to market their mineral, royalty, and non-operated working interests.

Gas exporters like Tellurian Inc say they are among the potential buyers for gas assets coming to market. The company is boosting gas production in the Haynesville ahead of plans to start construction on its Driftwood LNG export plant in Louisiana in March 2022.

“We are aggressively pursuing upstream acquisitions,” said Charif Souki, co-founder and executive chairman of U.S. LNG developer Tellurian. “There are plenty of targets in the Haynesville that make sense.”

Natural Gas Production Forecast

  • EIA expect that U.S. consumption of natural gas will average 82.5 (Bcf/d) in 2021, down 0.9% from 2020.
  • U.S. natural gas consumption declines in 2021, in part, because electric power generators switch to coal from natural gas as a result of higher natural gas prices.
  • In 2021, EIA expect residential and commercial natural gas consumption combined will rise by 1.2 Bcf/d from 2020
  • Expect industrial consumption will rise by 0.6 Bcf/d from 2020.
  • Rising natural gas consumption in sectors other than the electric power sector results from expanding economic activity and colder winter temperatures in 2021 compared with 2020.
  • EIA expect U.S. natural gas consumption will average 82.6 Bcf/d in 2022, mostly unchanged from 2021.

Source: Reuters, Bloomberg

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