Released February 13, 2020 | SUGAR LAND
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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--U.S. natural gas producers had a brutal 2019, but nowhere was the pain as pronounced as in the Appalachian region, which includes the Marcellus and Utica shales.
Across the nation, natural gas prices across the U.S. fell about 25% compared with 2018, and the carnage has continued into 2020, as gas futures prices fell below $2 per million British thermal units (MMBtu) in mid-January and have stayed there for three weeks.
Producers in the Appalachian region have fared worse than producers operating in other basins, as prices there typically are 25-75 cents per MMBtu lower than the national average.
Click on the image at right to see a chart of the price of natural gas in the Appalachian region.
As earnings shrivel for some, and losses pile up for most, companies are employing a variety of means to stay alive during the current price dive, including:
Click on the image at right to see a chart of rising gas production in the Appalachian region.
"Gas prices are down. It has a big impact, the difference between $2.75 gas and $2.50 gas," Toby Rice, EQT's new president and chief executive officer, reportedly told the West Virginian legislature in December "A lot of this development doesn't work as well at $2.50 gas."
Last November, the Institute for Energy Economics and Financial Analysis (IEEFA) (Cleveland, Ohio) found that seven of the largest producers in Appalachia spent nearly a half billion dollars more than they generated in the third quarter. With natural gas prices falling since then, a bad situation is expected to get worse.
"It's hard to see where the bottom could be for producers in the Appalachian, as increased exports of liquefied natural gas and rising demand from petrochemical companies are already baked into company forecasts," said Jesus Davis, Industrial Info's research specialist for the Oil & Gas Production, Pipelines and Terminals industries. "At this point, it's like trying to catch a falling knife, which is an easy way to get hurt."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
Across the nation, natural gas prices across the U.S. fell about 25% compared with 2018, and the carnage has continued into 2020, as gas futures prices fell below $2 per million British thermal units (MMBtu) in mid-January and have stayed there for three weeks.
Producers in the Appalachian region have fared worse than producers operating in other basins, as prices there typically are 25-75 cents per MMBtu lower than the national average.
Click on the image at right to see a chart of the price of natural gas in the Appalachian region.As earnings shrivel for some, and losses pile up for most, companies are employing a variety of means to stay alive during the current price dive, including:
- Suspending dividends: Range Resources Corporation (NYSE:RRC) (Fort Worth, Texas) suspended its dividend January 6.
- Selling assets: Chevron (NYSE:CVX) (San Ramon, California) put its Appalachian assets on the market in late 2019. Range has sold about $1.1 billion of assets over the last 18 months.
- Cutting capital spending: Range cut its planned 2020 capital expenditures (capex) by about $200 million, the second year in a row that outlays have fallen by that amount. Montage Resources (NYSE:MR) (Irving, Texas) plans to cut its 2020 capital spending in the Appalachian Corporation Basin by 44%, to about $200 million from $357 million in 2019. Southwestern Energy (NYSE:SWN) (Spring, Texas) cut its Appalachian region capex 19%, to $240 million in last year's third quarter, compared with $298 million in the third quarter of 2018.
- Taking asset-impairment charges: EQT Corporation (NYSE:EQT) (Pittsburgh, Pennsylvania) told investors last month it would take a non-cash charge of between $1.4 billion and $1.8 billion against fourth-quarter 2019 earnings to reflect a decline in the value of its assets. As part of its announced sale of Appalachian assets last December, Chevron took a $10 billion to $11 billion asset-impairment charge, more than half of which stemmed from assets in that area.
- Furloughing staff: EQT is one of several firms operating in the Appalachian region that cut staff last year.
- Idling Rigs: There has been a 38% decline in gas-oriented rig counts in the Appalachian Basin over the last six months, falling to 51 from 71 last August, according to Baker Hughes. "We are hopeful that market forces will continue to move natural gas supply and demand toward a more sustainable balance; however, we will continue to evaluate the potential for additional capital reductions if prices erode further," Dan O. Dinges, Cabot's (NYSE:COG) chairman, president and chief executive officer, said in a February 4 operational update.
Click on the image at right to see a chart of rising gas production in the Appalachian region."Gas prices are down. It has a big impact, the difference between $2.75 gas and $2.50 gas," Toby Rice, EQT's new president and chief executive officer, reportedly told the West Virginian legislature in December "A lot of this development doesn't work as well at $2.50 gas."
Last November, the Institute for Energy Economics and Financial Analysis (IEEFA) (Cleveland, Ohio) found that seven of the largest producers in Appalachia spent nearly a half billion dollars more than they generated in the third quarter. With natural gas prices falling since then, a bad situation is expected to get worse.
"It's hard to see where the bottom could be for producers in the Appalachian, as increased exports of liquefied natural gas and rising demand from petrochemical companies are already baked into company forecasts," said Jesus Davis, Industrial Info's research specialist for the Oil & Gas Production, Pipelines and Terminals industries. "At this point, it's like trying to catch a falling knife, which is an easy way to get hurt."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
