Gas Producers Cope with Low Prices by Increasing Liquids Production

---

Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Natural gas supply exceeded demand for the second quarter, which kept prices low and pressured profits for independent, gas-oriented producers. Some companies were able to offset low gas prices by increasing their production of crude oil and natural gas liquids (NGLs), where prices and margins were stronger than a year ago. But others operating exclusively in "dry" regions like the Marcellus Shale, lacked that option.

An oversupplied domestic gas market is a familiar problem for domestic producers, whose use of advanced technology to extract ever-greater amounts of natural gas has tended to hurt their profitability and stock prices. Strong exports of liquefied natural gas (LNG), and robust demand from electric generators and chemical processors, have not been enough to overcome an oversupplied market.

Spot gas prices at Henry Hub started the second quarter at about $1.83 per million British thermal units (MMBtu), briefly rose above $3, but then fell to about $2.60 per MMBtu to close out the quarter. The just-concluded quarter's price swings were nowhere near as dramatic as two years ago, after Russia's invasion of Ukraine sent prices sharply upward for several weeks. But the supply-demand fundamentals have not changed meaningfully for independent drillers: Too much supply, not enough demand, low prices and, for most, weak profitability.

Click on the image at right to see a chart of spot natural gas prices at Henry Hub.

The results are summarized below for four large, U.S. independent gas-oriented drillers: EQT Corporation (NYSE:EQT) (Pittsburgh, Pennsylvania), Range Resources Corporation (NYSE:RRC) (Fort Worth, Texas), Coterra Energy Incorporated (NYSE:CTRA) (Houston, Texas) and Antero Resources Corporation (NYSE:AR) (Denver, Colorado).

EQT
The driller's stock has under-performed its three peers through the first half of 2024, falling about 4%, compared with increases of about 5% for Coterra, 10% for Range Resources and 44% for Antero.

On July 23, EQT reported net earnings of about $10 million on a GAAP (Generally Accepted Accounting Principles) basis for the April-June period on revenue of $852 million, far better than its comparable year-earlier loss of $67 million on slightly more than $1 billion of sales.

Click on the image at right to see four years of second-quarter GAAP net earnings for these four large, independent gas-oriented producers.

For the April-June period, production was up about 8%, to approximately 508 billion cubic feet of gas equivalent (Bcfe) from year-earlier production of about 471 Bcfe, the company said.

During the quarter, EQT closed what it said was a "transformational" acquisition of Equitrans Midstream Corporation one quarter earlier than planned. The earlier close will shave costs about $150 million compared to initial expectations, delivering earlier financial and operational synergies, including the start of a debt repayment plan.

Commenting on quarterly results, Chief Executive Officer Toby Z. Rice said closing the Equitrans acquisition "marked a significant milestone in the history of our company. It transformed EQT into America's only large-scale, vertically integrated natural gas business. This combination creates a truly differentiated business model among the energy investment landscape, as EQT is now at the low end of the North American natural gas cost curve."

He added that EQT had another quarter where it outperformed operational expectations: "Recent enhancements we've made to supply chain logistics have driven materially faster completion times on our latest wells, which are outpacing our 2023 average completion speed by more than 35%. We see the potential for these gains to drive structurally lower well costs and future maintenance capital requirements."

Judging from EQT's first-half stock performance, it seems investors haven't fully bought into the strategy yet. Stay tuned.

Range Resources
Range Resources on July 24 reported net earnings of $29 million on revenue of $530 million, slightly lower than comparable year-earlier earnings of $30 million on $637 million of revenue.

Range is a longtime low-cost producer operating exclusively in the Appalachian Basin and Marcellus Shale. Chief Executive Officer Dennis Degner said the company's performance in a soft pricing environment "demonstrated the resilience of Range's business through cycles. Safe and efficient operations, strong well performance, diversified marketing and thoughtful hedging allowed Range to deliver another quarter of free cash flow, despite low natural gas prices."

Degner added that he "remains constructive on the long-term outlook for natural gas and NGLs" because the company has the strongest balance sheet in its history, a low required reinvestment rate, and a durable high-quality inventory: "Range is well positioned to generate competitive free cash flow and returns for decades."

Range produced an average of 2.15 Bcfe per day, approximately 69% of which was natural gas. It redeemed some debt and repurchased about 600,000 shares of common stock during the quarter. Companies repurchase stock when they feel it is undervalued in the market.

Looking forward, the company said in a statement it "is targeting a maintenance production program in 2024, resulting in approximately flat production at 2.12 to 2.16 Bcfe per day, with more than 30% attributed to liquids production."

Cash flow from operations increased about $22 million in the quarter, to about $149 million from $127 million in the prior April-June period.

Antero Resources
On August 1, Antero reported a net loss of $65.7 million on $978.7 million of revenue, an improvement over the comparable year-earlier period when net losses totaled $83.1 million on sales of $953.3 million. Investors initially responded negatively, knocking about $1 per share off the company's stock price, but by the end of the day the stock recovered much of its early decline.

In its earnings call with investors, company officials emphasized operational improvements over the prior two years, such as a 33% gain in completed average lateral lengths and a 49% increase in completion stages per day.

The driller, which operates exclusively in the Appalachian Basin, also highlighted what it claimed was higher capital efficiency compared to peers. It emphasized positive macro trends, such as increased use of gas in power generation, increased exports of LNG, and increased exports of ethane--all of which could benefit Antero down the road.

The company produced 3.4 Bcfe/d during the just-completed three-month period, a slight increase from year-earlier production. Gas production fell 4%, while liquids production rose 10% compared with year-earlier levels. Liquids, including NGLs, accounted for about 37% of overall production. The company recently had its debt upgraded to investment grade by one of the major credit-rating agencies.

Commenting on the results, Paul Rady, chairman, chief executive and president, said, "During the second quarter we continued to deliver strong capital efficiency results. We set a new quarterly completion record ... which reduced our cycle times by a dramatic 67% from just five years ago. Looking ahead, we plan to defer turning in line a drilled but uncompleted pad until the end of the year given current natural gas pricing. Despite this activity deferral, we increased our full year 2024 production guidance."

Michael Kennedy, Antero's chief financial officer, added, "Our quarterly financial results continue to benefit from our significant exposure to liquids prices." Although natural gas production was down from year-earlier levels, increased liquids production represented a record 56% of revenue.

The company made a "strategic" decision this year to increase production of propane and isopropanes, where spot international prices carry spreads that are near-record levels, Kennedy said. "Antero's unconstrained access to international markets allows us to capture premiums to Mont Belvieu and leads us to an additional increase in C3+ NGL pricing guidance for this year."

Coterra Energy
Net earnings rose to $220 million for the just-concluded quarter on sales of approximately $1.3 billion. Revenue and earnings exceeded last year's second quarter. The company released earnings August 2.

Coterra produced more oil and NGLs in the quarter, taking advantage of higher year-over-year prices. Gas production fell slightly and low prices pushed revenue from gas sales down about 27%.

The independent driller operates in the Permian Basin, Marcellus Shale and Delaware Basin, with the Marcellus being the dominant producing region.

It said second quarter total barrels of oil equivalent (BOE) production exceeded the high end of guidance made during the quarter. Capital expenditures (capex) came in near the low end of guidance.

Coterra said it was Increasing its full-year 2024 BOE production guidance by 1%. Oil production is expected to be about 2.4% higher than the guidance it provided analysts in May. The gain will be due to faster cycle times and strong well performance. It maintained its full-year capex guidance.

Commenting on the company's performance, Tom Jorden, chairman, chief executive and president said: "As we move into the second half of 2024, we remain focused on executing our plan while maintaining significant investment optionality between oil and gas in 2025."

He added: "Coterra's investment thesis remains strong. Operational excellence, efficient development of our diversified, low-cost, long-life assets, our fortress balance sheet, and an unwavering commitment to shareholder returns underpin our value proposition."

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking more than 200,000 current and future projects worth $17.8 trillion (USD).