Some call it a sleeping giant.

And indeed, the Haynesville shale—an enormous natural gas resource covering 3 million acres—appears to be in the middle of an unpleasant nap. It started strong when it was developed in 2008. Less than two years ago, in early 2011, the Haynesville surpassed Texas’ Barnett shale as the nation’s highest-producing shale gas play, according to figures from the U.S. Department of Energy.

Now, however, it is experiencing a slowdown of epic proportions, largely due to high drilling costs and slumping natural gas prices.

“To date, the play has a split personality of sorts,” says Nolan Shaw, exploration manager of J-W Energy Company (J-W). “Initially, the Haynesville’s personality was ‘fast and furious.’ Now, it’s become more of a sleeping giant.”

J-W owns more than 15,000 net acres of land in northern Louisiana’s Haynesville shale region. Most of its assets lie in the Elm Grove, Caspiana, Woodardville and northern Bull Bayou Field areas.

Its recent developments aside, J-W has deep roots in the region. It began operating in north Louisiana in the 1970s. This became a core area for the company with the acquisition of Tenneco (formerly Tennessee Gas Transmission Company) producing properties in the Caspiana Gas Field in 1988. “When the play began to develop, we happened to be well positioned in the center of the activity,” says Shaw.

Decades later, in early 2000, J-W began horizontally developing its north Texas Barnett shale properties, which gave the company invaluable insight into shale gas resource plays. J-W soon learned there was a lot more to the area than initially appeared.

“We were very aware that one or more Jurassic resource sequences existed deeper under much of the area,” says Shaw. Hoping to tap into those additional resources, J-W generated a multi-objective prospect north of Shreveport, Louisiana, and created its first Haynesville shale test in late 2006. Several months after drilling the Rumbaugh well, the frenzy began. Leases were signed, and hundreds of wells were created at a rapid pace.

J-W has since participated in more than 70 Haynesville shale wells in an area south of Shreveport, where it conducted its initial test. As other companies jumped into the game and development in the Haynesville took that “fast and furious” approach, the Haynesville learning curve became steep. The reservoir is complex and changes as it spreads through northern Louisiana and east Texas.

“A rock solid multidisciplinary approach is necessary to understand and be successful in any resource play, but it is even more critical in this case due to the large amount of risk capital involved with Haynesville,” says Shaw.

“Our plan from the start entailed establishing Haynesville units covering our operated leasehold, followed by drilling vertical pilot holes complete with cores and appropriate log suites in each of our leasehold areas before going horizontal.” J-W’s team zoomed in on key reservoir attributes and pinpointed the play’s economic boundaries, using that knowledge to its advantage as it began drilling one well per section. They plan to follow up with a high density development program in the future.

Slowing pace

Almost as fast as developers hit the gas on the Haynesville plans, they hit the brakes. The Haynesville play has dropped from 135 rigs in 2011 to about 40 rigs at press time.

With commodity prices lagging, J-W was forced to push back its own high-density development plans. Low natural gas prices aren’t the only thing hurting the Haynesville. It’s a capital-demanding resource play, with horizontal wells costing upward of $8 million to drill and complete. Even though the Haynesville is in a slump, drilling costs have been slow to fall since brisk drilling activity in liquid-rich resource plays in south Texas and the Permian Basin have allowed the service companies to maintain capacity through transfers of their equipment and people from the Haynesville.

J-W has no plans to drill more wells until the natural gas market improves and until drilling and completion costs are reduced. Costs may ultimately lower with continued technological advancements, which could help down-hole tools and mud systems cope with the harsh environment in the Haynesville. For now, though, companies are playing the waiting game.

“It’s certainly not a hot spot at the current time,” says Shaw. “The present pricing environment is just not conducive to large scale economic development of the play. That being said, J-W being a privately held company is committed to creating long-term sustainable value, not necessarily chasing the current hot spots.”

Despite current challenges, Shaw still sees lots of positives in the Haynesville. He says the undeveloped reserve potential for the play is enormous and will be long-lasting. “The industry will be developing this play for decades to come,” he says. “Within the core area, the high reservoir pressures combined with above average shale permeability yields high production rates leading to shorter well payouts.”

Name game

In this quiet time, one of the main players in the Haynesville has switched things up a bit. Chesapeake Midstream Partners recently unveiled its new name: Access Midstream Partners. The name change was made for clarity’s sake after Global Infrastructure Partners (GIP) purchased Chesapeake Energy Corp.’s ownership share in the master limited partnership at the end of June. The company now trades on the New York Stock Exchange under the ticker ACMP.

As it moves forward with its new moniker, Access Midstream will maintain the Springridge gathering system that Chesapeake sold to Chesapeake Midstream Partners for $500 million in December 2010. The system includes 260 miles of pipe and 24,000 horsepower. As well, GIP signed a letter of agreement to acquire certain midstream assets from Chesapeake Midstream Development, Chesapeake’s wholly owned midstream subsidiary, though the acquisition wasn’t official by press time.

Back in the Haynesville’s glory days, the volume of the Springridge gathering system would run up to 600 million cubic feet (MMcf) per day. More recently, throughput has been between 325 and 400 MMcf per day. “The volumes have come up, and then they’ve gone back down again as drilling has started to slow down,” says Bob Purgason, chief operating officer of Access Midstream.

“We have plenty of capacity to support any of the drilling that we would expect to occur. We’re really just waiting for gas prices to pick back up so they can start drilling again in the Haynesville.”

As another symptom of low gas prices, rig counts for Access Midstream’s customers are down. At the peak of the Haynesville boom, six to eight rigs were connected to the Springridge system. Today, there is just one connected to this system in the Haynesville area. Access Midstream’s construction activity is much lower, too, as it waits on a signal that the gas market is set to pick up. “We’re kind of running in place,” says Purgason.

“When the gas demand picks up, the Haynesville is the swing supply for the U.S. We have all the well pads connected already in our gathering system. The infrastructure is in place to increase volume without requiring a lot of construction.”

Waiting game

By Purgason’s estimates, the industry will be waiting a few years for prices to improve. He doesn’t think gas will have fully rebounded until 2014 or 2015. In the interim, low gas prices are prompting creative solutions, with some new markets unfolding that are building long-term, sustained demand for natural gas. And there’s plenty of it to go around. In the Haynesville alone, there is more than 50 years’, worth of gas in reserves that can meet the country’s demands.

“If you put this in the context of the past 35 years I’ve been in the business—or you put it in the past 75-year timeframe—we’re going through a historic event,” says Purgason. “It’s good, but it’s a little bit of tough medicine while it works through the supply-demand balance to react to such a large change.”

Indeed, it appears the once-hot Haynesville has temporarily turned lukewarm, says Greg Harper, senior vice president and group president of CenterPoint Energy’s Pipeline and Field Services group.

To keep pace with lagging gas prices, CenterPoint has slowed its gas movement to below contracted capacity. The company strengthened its presence in the Haynesville in late 2009, when the play was still hot. At that time, it entered into a longterm agreement with Shell and Encana Corp. Under the contract, CenterPoint began providing gathering and treating services for Shell and Encana’s gas production in the play. Since then, CenterPoint has deployed nearly $900 million of capital into its Olympia and Magnolia gathering systems. It spent about two years constructing the assets, which became operational in 2011.

Together, the systems are capable of gathering nearly 1.8 billion cubic feet (Bcf) per day of gas, with CenterPoint contracted to gather 1.5 Bcf for the Shell and Encana joint venture. However, just 1 Bcf per day is being moved as gas prices lull area movement.

“It’s slowed their drilling activity,” says Harper. “I’d have to say, from what we’ve seen in other operators, Shell and Encana are very efficient operators. They’re trying to get their costs down per well, and they’ve done a pretty good job.”

When gas prices are low, producers tend to move activity toward liquid-rich plays, which aren’t as prolific with associated gas. Of course, Haynesville players hope to see overall gas supply production decrease, which should cause prices to rebound. However, many believe gas prices will remain in the current range for some time.

Besides, low gas prices aren’t just bad news in Harper’s eyes. “The U.S. has seen a resurgence in industrial production and petrochemical refining with the lower prices, which is good,” he says. “There are also new technologies that will rely on natural gas.” He points to Encana, which is using natural gas for its drilling equipment.

While other plays are more profitable at low gas prices because of their associated liquids, Harper believes Haynesville will be quick to reignite once gas prices rise, since it is among the lower-priced production zones, in CenterPoint’s experience.

Waking up

That’s not the only thing the Haynesville has going for it. It is also a concentrated play, especially compared to the Marcellus. Each has about 250 trillion cubic feet (Tcf) of gas supply in reserves. While the Marcellus’ portion is spread across four states, the Haynesville’s 250 Tsf is laid out over five parishes. “For us, that meant construction risk was a lot less in the Haynesville,” he says. “From a constructability perspective, I don’t think you can get a better play. It’s concentrated and prolific.”

And eventually, J-W’s Shaw believes the giant will awaken.

“It’s just a matter of getting the pricing to a point where the economics work,” he says.

“Once they do, the rigs will most certainly find their way back to the Haynesville, and the boom will be on again.”