The long-term production forecast model is based on producer guidance forecasts from public producers. Producer guidance forecasting is accurate about 90% of the time because public producers want to give as accurate of a production forecast as possible to Wall Street analysts since production is one of the major components for producer earnings per share and free cash flow. Producer guidance forecasting is not accurate 10% of the time. What causes producer forecast guidance to not be accurate is when there is a black swan event (Covid-19, 2008 crash, 9/11, etc.), which occurs once every 10 years on average.
Methodology
The long-term production forecast model compiles public producer guidance forecast estimates from their earnings reports, presentations, and analyst conference calls. The sample size of the producer forecast guidance is about 49% of total NG production volume in the US Lower 48. There are 45 producers in the sample.
All 45 producer guidance forecasts are compiled and summed up into one number for 2022 and 2023. Actualized 2021 production numbers are also summed up into one number for each producer. 2022 production forecast guidance also includes the year-to-date actualized quarterly production numbers from producers. YOY comparisons are made for 2022 and 2023 to estimate the YOY average change based on producer guidance.
The long-term production forecast model is monthly and is roughly a year out into the future since the great majority of producers give forecast production guidance no more than a year out from now. The long-term production forecast model includes forecasts for the US Lower 48 and for 10 major producing states and sub-regions within 5 of those states. It is updated on a quarterly basis.
Time series-based regressions are made to the EIA dry gas production data in order to capture monthly seasonal tendencies in the long-term production forecast model. The YOY change from the producer guidance forecast is then used to calculate the forecast for natural gas production a year from now. Next quarter’s producer guidance forecast (whenever producers provide it) is also factored into account for quarter-on-quarter changes. The average YOY change for the long-term production forecast model is then made to match to the producer forecast guidance.
US Lower 48 Performance
How did the long-term production forecast model for the US lower 48 perform in 2022? Producer forecast guidance originally called for a 3.5% YOY increase in natural gas production for 2022 in February-2022 when full year guidance forecasts were being released in earnings calls, presentations, and analyst conference calls. It looks like it will actualize at around 3.8% YOY growth. So, it was off by 0.3%, or about 300 MMcf/d on average for 2022.
State and Sub-Regional
The long-term production forecast model is also done on a state and sub-regional level in the same methodology. Producer forecast guidance is used from producers who have production in states and sub-regions. Regressions are used to capture seasonal and monthly tendencies of production and the YOY change in the long-term production forecast model is made to match the producer forecast guidance by state and sub-region. The 10 states in the long-term production forecast model are PA, TX, LA, OH, OK, NM, CO, VA, ND, and WY. The sub-regions in the long-term production forecast model are West TX, Central TX, North TX, South TX, Haynesville TX, Haynesville LA, North LA, South LA, Southwest PA, Northeast PA, Non-Permian NM, Permian NM, San Juan CO, and Colorado without San Juan.
Sub-regional production forecast estimates from the short-term natural gas production model (wellhead, TILs, decline rates, etc.) are utilized 1-3 months out from where we have sub-regional forecast estimates. For now, we have forecasts in the Haynesville, Texas sub-region and we will eventually have sub-regional forecasts for most sub-regions in the US Lower 48.
How did the long-term production forecast model by state and sub-region perform in 2022? We are still waiting on updated state production data and EIA production data for 2022 to estimate the accuracy. Haynesville Louisiana and Haynesville Texas production forecasts in 2022 are probably within 1-2% of each other.
Summary
The long-term production forecast model is a forecast for monthly production going a year out into the future based on producer forecast guidance from public producers. The long-term production forecast model includes forecasts for the US Lower 48, 10 states, and various sub-regions within 5 of those 10 states.
Hyperion Update
EQT’s fracking crews are still at 1, which means they are probably still having difficulties with 3rd party midstream operators. EQT mentioned that their water shortage issues have been resolved. Their guidance in fracking crews was supposed to be at 5 for 2022. EQT will likely underperform again on their production numbers when they report earnings in January-2023 or February-2023.
The results of the well and the fact that Comstock Resources has started 3 other wells all within a few miles of each other accessing the same formation indicates that there is a large potential basin play in Robertson County, Texas. Expect Comstock Resources to quietly increase activity and initiate more land leases in Robertson County, Texas before announcing the discovery.
