Cowboys Owner Jerry Jones Doubles Down on Haynesville Shale, Drawn by Production Records, LNG Exports

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Before he owned the Dallas Cowboys National Football League team, Jerry Jones was an oilman. So risk-taking is in his blood. Shortly after he plunked down $1.1 billion last year to deepen his exposure to the Haynesville Shale, Jones' name came up again as a moneyman behind the possible purchase of Haynesville assets from beleaguered Chesapeake Energy Corporation (NYSE:CHK) (Oklahoma City, Oklahoma), which drilled that formation's first well in 2008.

Jones has a hit-and-miss approach to selecting NFL talent, and some are wondering which tendency will manifest itself in the Haynesville. Will Jones' deep dive into the Haynesville become the equivalent of his Hall of Fame draft picks like Troy Aikman and Emmitt Smith? Or will his Haynesville investments turn out to be duds like his draft picks of David LaFluer and Bobby Carpenter?

Only time will tell. What is not under debate, however, is that natural gas production from the Haynesville Shale, located in northwest Louisiana and eastern Texas, is burgeoning. It set a new monthly production record in 2018, and production has grown by 20% since then. Today, it is the third most-prolific unconventional formation in the country, with about 12 billion cubic feet per day (Bcf/d) of production. Only the Appalachian region (including the Marcellus and Utica shales) and the Permian Basin produce more gas.

But the Haynesville far outstrips the Permian in new well gas production per rig, at about 10.4 million cubic feet per day (MMcf/d), trailing only the Appalachian region in that category. On a month-over-month basis during the second half of 2019, Haynesville gas drilling permits rose at a 15-20% clip.

Click on the image at right to see the Haynesville's average new well gas production per rig.

It's not high gas prices but strong demand growth that is driving Jones' investment vehicle, Comstock Resources Incorporated (NYSE:CRK) (Frisco, Texas), to the Haynesville. In a presentation to investors this month, Comstock noted that exports of liquefied natural gas (LNG) are growing strongly, reaching about 9 Bcf/d at the end of 2019, and that the Gulf Coast is home to 12 of the 13 LNG export terminals that have won federal approval. The Gulf Coast is host to four of the nation's five operating LNG export terminals: Sabine Pass, Corpus Christi, Cameron and Freeport. Several more are under construction.

U.S. LNG exports, almost exclusively through Gulf Coast terminals, are expected to grow 13.3 Bcf/d between 2018 and 2025, according to an estimate from pipeline giant Williams Companies (NYSE:WMB) (Tulsa, Oklahoma). A longer-term projection from another pipeline heavy hitter, Kinder Morgan Incorporated (NYSE:KMI) (Houston, Texas), is that LNG exports will rise 15 Bcf/d between 2018 and 2030.

Click at the image at right to see pipeline companies' estimates of LNG export growth.

LNG exports are not the only thing that whetted Jones' appetite for investing in the Haynesville Shale. Increased demand for gas from power plants and industrial concerns, like petrochemical manufacturers, are expected to be significant drivers of future demand growth, though neither sector is expected to grow as much as LNG exports.

With Jones' $1.1 billion investment, Comstock purchased privately held Covey Park Energy (Dallas, Texas) last summer. As Comstock was doubling down on the Haynesville, others were abandoning it or cutting back. At the end of 2019, Shell sold its assets there to privately held Castleton Resources LLC (Houston, Texas). Goodrich Petroleum Corporation (NYSE:GDP) (Houston, Texas) reportedly cut its 2020 Haynesville capital budget 35%. News media reports from late 2019 said Chesapeake Energy was looking for a lifeline, and was in talks with Comstock to sell up to $1 billion in Haynesville assets.

Comstock is now the largest producer in the Haynesville, producing about 1.2 Bcf/d, roughly 10% of the formation's overall output. The company plans to spend about $475 million in drilling and completion costs this year, down slightly from 2019's $500 million.

The Haynesville, and the Bossier Shale that lies atop it, have as much as 4 billion barrels of oil, 304.4 trillion cubic feet (Tcf) of natural gas, and 1.9 billion barrels of natural gas liquids, according to an April 2017 survey update from the U.S. Geological Survey (Reston, Virginia). Because those deposits lie so deep--10,000 feet or more underground--operators in the past needed high gas prices to profitably operate there.

But strong projected demand, enhanced seismology, and improved drilling and completion techniques may have changed the game--the same way Troy Aikman and Emmitt Smith changed the game of football. But skeptics point out that some of Jones' other player picks flopped. The Cowboys are sitting out this Super Bowl, but Jones is betting he drafted well and will be in a position to dominate the Haynesville game in the future.

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