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Not All Swingers can Score in the ArkLaTex

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The Daley Note: December 1, 2022

In a natural gas market likely headed toward imbalance, East Daley expects the ArkLaTex Basin to be a key source of swing supply over the next 2-5 years. Our outlook points to a volatile market ahead for Haynesville producers and midstream companies riding the highs and lows.   

At the end of November, East Daley presented our natural gas market forecast at the Bank of Americas Energy Conference with a focus on the ArkLaTex, where Haynesville shale development is powering production growth. We laid out a case for an oversupplied gas market in 2023 and 2024, and which producers are likely to take the hit amid a downturn. But for those that can weather the swing, we see a long-term rebound as demand ramps for LNG exports. 

East Daley's natural gas outlook is updated each month in our US Macro Supply and Demand Forecast. We've been bullish on the Haynesville this year due to high gas prices and rising rigs. But that same drilling surge will carry over as supply momentum in 2023, according to our basin model, making it more challenging for E&Ps to tap the brakes on growth if gas prices fall. 

Top 6 ArkLaTex Producers

The conundrum is illustrated in the figure. East Daley modeled supply growth from the six most active producers in the ArkLaTex, assuming they held rigs flat or reduced drilling activity in 2023. Based on these relatively conservative assumptions, we project 1.8 Bcf/d of exit-to-exit growth in 2023. But in our US Macro Supply and Demand Forecast, East Daley forecasts the Haynesville to grow 1.1 Bcf/d exit to exit. In other words, the conservative rig outlook needs to come down further to avoid an oversupplied market.

With the top six producers alone capable of exceeding our basin forecast, the question is, who will take the hit in the ArkLaTex? We believe smaller private producers are the most vulnerable and will be the first to start dropping rigs, followed by larger privates that might be unhedged. Due to the severity of the expected oversupply, we believe a few of the public producers may drop rigs as well; in its initial 2023 guidance, Chesapeake Energy (CHK) said it would flex from 7 to 5 rigs if needed. As this likely won’t be enough, we also expect inventories of drilled but uncompleted wells (DUCs) to build once prices decline, likely by mid-2023. After 2024, our Macro model sees the tables turning in natural gas, and we assume Haynesville rigs start to increase once again.

East Daley will discuss the near- and long-term outlook for natural gas and the ArkLaTex Basin in the upcoming 2023 Dirty Little Secrets, our annual market report summarizing trends we expect to shape the US midstream energy sector during the year ahead.  For updates on the 2023 Dirty Little Secrets report, please click here. – Zack Van Everen Tickers: CHK, DTM, ET, WMB.

 Dirty Little Secrets 2023 – Is Another Infrastructure Wave Ahead?
Is Midstream on the cusp of another infrastructure wave? East Daley will explore the potential in our annual Dirty Little Secrets market report on December 14 at 12:30 EST.

Sign up to view the 2023 Dirty Little Secrets Webinar
The Russia-Ukraine conflict has pushed commodity prices higher and spurred greater global demand for US energy products. Meanwhile, more disciplined growth from the upstream has infrastructure finally filling up across commodities. Will exports power the next infrastructure boom?

Dirty Little Secrets is East Daley’s annual report on energy markets and the road ahead for Midstream. We share our macroeconomic outlooks for US oil, natural gas and NGLs, highlight key infrastructure opportunities, update on the state of the Energy Transition, and share our view on Midstream’s future role in energy.

For updates on the 2023 Dirty Little Secrets report, please click here.


3Q22 Earnings Previews Now Available 

East Daley has published a complete group of 3Q22 Earnings Previews and Blueprint Financial Models for midstream companies within our coverage. Quarterly Earnings Previews and Blueprints are now available for Antero Midstream (AM), Crestwood Equity (CEQP), Enbridge (ENB), EnLink Midstream (ENLC), Enterprise Products (EPD), Energy Transfer (ET), Equitrans Midstream (ETRN), Kinder Morgan (KMI), Kinetik Holdings (KNTK), Magellan Midstream (MMP), MPLX (MPLX), ONEOK (OKE), Plains All American (PAA), Summit Midstream (SMLP), Targa Resources (TRGP), TC Pipelines (TRP), Western Midstream (WES) and Williams (WMB).

Our Earnings Previews include quarterly earnings forecasts compared to Street consensus, a detailed list of the top assets that will impact the quarter, analysis of near- and long-term risks to future earnings, along with forecasts for Adj. EBITDA by segments. Please log in to access these reports

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