031019 Louisiana gas drilling

Louisiana’s natural gas production has quietly rebounded to its highest point since 2012, as drillers return to north Louisiana with billions in capital investments and new drilling techniques that have made the Haynesville shale basin profitable again.

The height of production from the fracking boom in the Haynesville play in the Shreveport area in 2012 gave way to a bust as oversupply dragged down natural gas prices and drillers left for greener pastures.

But recently released figures from the Louisiana Department of Natural Resources show 2018 saw a sizable upswing in natural gas production, and an output rapidly approaching 2012's level of 2.9 trillion cubic feet. State production rose by 28 percent in 2018 to 2.6 trillion cubic feet, the figures show. The numbers do not include drilling in federal waters. In the northern part of the state, which comprises the vast majority of the state’s output, natural gas production rose by 33 percent last year, after rising by 28 percent the year before.

The resurgence also reflects a significant expansion of petrochemical plants and gas-fired power plants, major gas users that have popped up in recent years along the Mississippi River and elsewhere. The natural gas extracted from north Louisiana’s shale plays are also set to move by pipeline to southwest Louisiana, where companies are flocking to build huge plants that will liquefy and export the gas to places like Asia and Europe.

The resurgence is a stark turnaround. After 2012, production fell precipitously before leveling off about three years ago.

Companies developed newer drilling techniques used in places like the Marcellus Shale in the northeast U.S. and the Eagle Ford play in Texas. In recent years, they have taken those techniques and returned to the Haynesville, which spans parts of Louisiana and Texas, along with an injection of new capital.

The average count of rigs actively drilling in that play fell to a low of 20 in 2016. Since then, the rig count has risen to about 50 during 2018, according to the Energy Information Administration.

“The biggest problem you had a few years ago is the industry was a victim of its own success,” said Patrick Courreges, communications director at the Department of Natural Resources.

The shale revolution helped decouple oil and natural gas prices, and Courreges noted the U.S. began producing “all the gas it needed and then some.” That drove prices down and made the more expensive Louisiana shale plays unprofitable.

Now, new technologies have made drilling in the region dramatically more productive, and more profitable. The EIA estimates initial productivity rates in the Haynesville, calculated as the amount a well produces in the first three months of operating, nearly doubled from 2010 to 2017.

“A lot of that has to do with the ingenuity of drillers in the area … in what are pretty tough price points for a lot of operators,” said David Dismukes, head of the Center for Energy Studies at LSU. “With $3 (natural) gas, it’s a pretty tough market.”

A new gas king

Oklahoma-based Chesapeake Energy Corp. is widely considered the founder of the Haynesville fracking boom, led by then-CEO Aubrey McClendon, who was later indicted by federal prosecutors on charges of conspiring to rig bids for the purchase of oil and natural gas leases in northwest Oklahoma. Chesapeake led a wave of drillers in the Haynesville region when it announced its “discovery” of the play in 2008.

Data from the Department of Natural Resources show publicly traded Chesapeake was the top gas producer in Louisiana for years after beginning its play in the Haynesville.

Last year, a new top producer finally emerged.

Indigo Minerals LLC, a private gas company based in Houston, overtook Chesapeake as the No. 1 gas producer in Louisiana last year, according to state figures, after buying a position in the Haynesville play from Chesapeake for $450 million in 2016.

According to state data, Indigo’s gas production in Louisiana rocketed upward by 120 percent in 2018.

Fred Bakun, executive vice president of engineering and operations for Indigo, said new techniques like longer horizontal shale wells have made Louisiana’s shale plays, including the Cotton Valley and Bossier formations, more productive.

And some of oil and gas industry’s biggest players, including ExxonMobil and BP, have made moves in the Haynesville play, Bakun noted.

Just a few years ago, when prices languished, operators were selling their positions, cutting rigs and moving away from the Haynesville region, Bakun said. They later realized the longer lateral wells and other new technologies could rejuvenate drilling activity in the formation.

The Haynesville is also the closest high-volume, reliable supply of gas to the myriad Gulf Coast petrochemical complexes, he said, as well as a growing number of LNG export terminals.

“As those new projects come online, we have a transportation advantage,” he said. “Our transportation costs are lower to get to market, which all the producers in the basin realize — a higher netback, essentially more profitability.”

Indigo is one of several firms that have returned to Haynesville backed by private equity. The company announced in 2016, around the time it bought the Chesapeake position, that Trilantic Capital Management LP had invested $300 million into the firm.

The Wall Street Journal reported Vine Oil & Gas LP, Louisiana’s third-largest gas producer, and Covey Park, its fourth-largest, are backed by private equity groups and have collectively spent billions buying up property leases in the Haynesville area from Royal Dutch Shell, Exxon and others.

Environmental worries

The fracking boom in the region also has heightened environmental concerns.

In September, Louisiana Commissioner of Conservation Richard Ieyoub issued an emergency declaration after natural gas was detected in a DeSoto Parish aquifer, posing a risk to people and the environment in the area. Highly pressurized gas was causing blowouts in water wells in the area.

The agency doesn’t know the exact source of the gas but noted Comstock Oil & Gas, Cover Park Gas, Indigo and XTO Energy Inc., an ExxonMobil subsidiary, have permitted oil and gas wells in the area. The emergency order allowed the agency to spend certain funds and orders the operators in the area to provide certain information, Courreges said.

Some landowners have filed suit against the operators in the area.

The agency’s workers have been venting and working to find the source of the gas, Courreges added. Gas pressure in that part of the state does happen from time to time, he said, but this instance was “too much and too concentrated.” The investigation has been ongoing for months.

“When everything you’re doing is several thousand feet underground, it’s moving a lot slower than everyone wants it to,” Courreges said.

Even as the north Louisiana region sees a resurgence of gas production, the state is dealing with an increasing number of “orphan wells” that need to be plugged. Those wells pose the risk of a slow-moving environmental crisis if left unplugged, and the state Office of Conservation has struggled with limited funds.

The Sierra Club Delta Chapter has raised concerns about the production of gas in the Haynesville area because of the hydraulic fracturing, or “fracking,” techniques used to extract the gas. The group opposes the technique because the oil and gas extracted are major greenhouse gas contributors, said Sierra Club Delta Chapter Director Julie Rosenzweig.

Plus, fracking has “contaminated the drinking water of hundreds of thousands of Americans,” she said, and the waste disposal associated with it creates an unwanted burden for communities like St. Landry Parish, where Eagle Oil LLC is proposing an injection well that has been fought by members of the public. 

Wilma Subra, of the Louisiana Environmental Action Network, said threats to drinking water, along with air emissions from wells and processing plants, is a huge concern as the region sees continued drilling. 

In some cases, natural gas escapes and boils to the surface in the area because operators don’t properly plug their wells, Subra said. Plants that process the gas are posing air quality risks to nearby homes, which are sometimes right next door.

Follow Sam Karlin on Twitter, @samkarlin.