Tellurian to stop Haynesville drilling until US gas prices recover

Tellurian will halt its natural gas drilling operations in the Haynesville region until persistently low prices recover, the Texas-based company said May 3, in a move that comes amid a broader slowdown in gas-directed drilling activity in the US.

Tellurian, which aims to eventually source its own feedgas for its proposed Driftwood LNG terminal in Louisiana, reported it produced 19.3 Bcf in the first quarter, or more than triple the 6.1 Bcf that Tellurian reported during the first three months of 2022. The company has grown its footprint in the shale province to nearly 31,000 net acres and 152 producing wells by the end of March 2023, having added 3,000 acres in the first quarter.

"Given that prices have come down very dramatically, we have decided to discontinue the drilling for the time being," Tellurian Executive Chairman Charif Souki said in a company video address May 3 accompanying Tellurian's earnings report for the first quarter. "We are not going to drill for now going forward until prices recover."

The company, which was bringing some wells online and could bring other inventory online quickly when justified by prices, would keep production roughly flat at about 200 MMcf/d in 2023, Souki said.

Benchmark US Henry Hub future prices have averaged about $2.35/MMBtu since dropping below $3/MMBtu in late January, according to S&P Global Commodity Insights data. Those price levels are below what many producers need to justify drilling. Cost inflation over the past 12 to 18 months has lifted the breakeven price for the average Haynesville operator to nearly $3/MMBtu, according to a recent S&P Global analysis.

The number of active drilling rigs in the Haynesville has fallen to just 61 in the week ended April 19, down from 86 rigs this winter, which had marked the highest level of drilling activity in the shale province in more than a decade, S&P Global data shows.

Tellurian is still looking to add 10,000 acres to its production footprint in 2023 and again in 2024, "so that we are in a position by the time we need it for Driftwood in 2027 to have 100% of our production needed for our share of Driftwood produced organically by our own company," Souki said.

Tellurian is working to secure the financing it needs to build the Driftwood terminal, which could produce about 11 million mt/year before expanding up to 27.6 million mt/year. Tellurian started early construction of Driftwood in March 2022, but it has given its contractor only a limited notice to proceed with work while it works to arrange financing to complete the terminal.

The company announced in April the signing of a $1 billion land deal that it touted as a major step forward toward securing the remaining financing it needs. Tellurian has also reported talks with banks and potential equity partners in Driftwood, emphasizing its pursuit of large international companies with exposure to oil and gas prices.

Tellurian reported on May 3 an operating loss of $2.9 million in the first quarter of 2023, compared to a profit of $4.6 million in the same period of 2022.