On Friday, December 22nd, 2023, Black Stone Minerals announced it had received notice that Aethon Energy was going to exercise the “time-out” provision under its joint exploration agreement with Black Stone Minerals in Angelina and San Augustine counties in East Texas. When natural gas prices fall below specified thresholds, the provision allows Aethon Energy to temporarily cease its drilling obligations for up to 9 months and a maximum of 18 total months in any 48-month period. Aethon has not exercised the time-out provision under their agreement with Black Stone Minerals until now. Aethon has also not indicated how long it will suspend its obligations under the current agreement.
Black Stone Minerals does not expect the exercise of the time-out drilling provision to affect the approximately 30 Aethon wells currently under development and completion. Additionally, Black Stone Minerals does not expect the time-out exercise to have any significant financial impact on their operating results.
In summary, natural gas prices at the Henry Hub have now reached a low enough level for Haynesville Texas producers like Aethon Energy to begin cutting back on drilling activity. Aethon Energy is one of the largest Haynesville producers of natural gas. They produce well over 1.0 Bcf/d of natural gas in the basin. Prompt month Henry Hub natural gas futures prices have averaged around $2.50 / MMBtu over the last 2 weeks.
The $2.50 / MMBtu price level for Henry Hub natural gas is now indicative of a floor price where some producers in the nearly 100% natural gas Haynesville basin will begin to cut back on drilling activity. This will very likely slow down natural gas production growth in the Haynesville basin several months from now. It is still uncertain if this will cause natural gas production to decline in the Haynesville basin as there are still significant year-on-year completions and drilling efficiency gains to be realized throughout 2024.
