Low Gas Prices Pressure Results at Four Large U.S. Gas-Oriented Drillers

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Low prices for natural gas in the third quarter pressured profitability at three large, U.S. independent gas-oriented drillers: EQT Corporation (NYSE:EQT) (Pittsburgh, Pennsylvania), Range Resources Corporation (NYSE:RRC) (Fort Worth, Texas), and Antero Resources Corporation (NYSE:AR) (Denver, Colorado). But a fourth gas-prone driller, Coterra Energy Incorporated (NYSE:CTRA) (Houston, Texas), continued its string of third-quarter profitability.

Where they had the option, drillers increased their production of oil and natural gas liquids (NGLs), which generally carried lower year-over-year prices but still allowed for profits.

Spot gas prices at Henry Hub, Louisiana, averaged about $2.11 per thousand cubic feet (Mcf) in the just-completed quarter, down from approximately $2.59 per Mcf for the comparable year-earlier period, according to the U.S. Energy Information Administration (EIA). But prices were even lower for many producers in the Appalachian Basin, where an imbalance between production capacity and outbound pipeline capacity has imposed hefty price penalties.

Click on the image at right to see recent spot price trends for gas at Henry Hub.

That imbalance started to be lessened in the third quarter when the Mountain Valey Pipeline began transporting gas. The opening of new liquefied natural gas (LNG) export terminals could further bolster prices. The EIA expects LNG exports to rise nearly 2 billion cubic feet per day (Bcf/d) in 2025, according to the October "Short-Term Energy Outlook."

In recent years, U.S. gas production has grown faster than demand, which has kept a lid on prices. Across the U.S., gas producers continued to cope with low prices by reducing production and deferring the completion of drilled wells. During the third quarter, prices were low in the Appalachian Basin, but turned negative at various times in Waha, Texas.

Results for the four companies are summarized below.

Range Resources
Third-quarter earnings for Range Resources rose 2%, to $50.7 million on $615 million of revenue, with both measures up slightly over comparable year-earlier results.

Click on the image at right to see four years of third-quarter financial results for four large gas-oriented independent producers.

Gas production ticked up in the third quarter to approximately 1.5 Bcf/d, up 4% from year-earlier production of 1.4 Bcf/d, the company said in announcing earnings October 22.

Like other producers in the Appalachian Basin, Range has been penalized by a shortage of outbound pipeline capacity, which imposed a price penalty compared to spot prices at Henry Hub, Louisiana, and futures prices at the New York Mercantile Exchange (NYMEX). Including derivative settlements and after third-party transportation costs, Range received about $1.37 per thousand cubic feet (Mcf) for its gas in the third quarter, down slightly from last year's July-September period. By contrast, spot gas prices at Henry Hub were about $2.11 per Mcf for the third quarter.

But Range received significantly more for its NGLs compared to prices at NGL hub Mont Belvieu in the just-completed period.

Overall, about 53% of Range's revenue for the just-completed period came from gas sales while NGL sales accounted for about 41% of revenue. As Range operates in a "dry" part of the Appalachian Basin, oil sales accounted for only about 5% of revenue in the just-completed period.

Chief Executive Officer Dennis Degner noted that Range drilled the first commercial well in the Marcellus Shale 20 years ago. "The Marcellus and Utica now produce nearly one-third of U.S. natural gas, and the U.S. has become the leading global supplier of safe, clean, affordable natural gas," he said in an October 22 statement. "We are tremendously proud of the role Range has played in this hugely impactful achievement and we are even more excited about what the future holds as global energy demand increases, improving the quality of life for billions of people living in energy poverty."

"Despite cyclically low natural gas prices in the third quarter, Range once again returned capital to shareholders, invested in the business and further strengthened our financial position," he continued. "We believe Range is well-positioned to grow its presence as a reliable energy provider while consistently delivering value to shareholders."

EQT
The third quarter was a busy one for this Pittsburgh-based gas major: It integrated one acquisition, agreed to sell the remaining non-operated natural gas assets in Northeast Pennsylvania for $1.25 billion in cash; and became the first traditional energy producer of scale in the world to achieve net-zero Scope 1 and 2 greenhouse gas emissions. All of these strategic actions came as the company, North America's largest gas producer, continued its curtailment of production due to low costs. In its earnings statement, released October 29, EQT said it curtailed about 35 billion cubic of gas equivalent (Bcfe) during the July-September period. Overall, the company produced about 581 Bcfe for the quarter, 11% more than in the comparable year period. Operating costs fell roughly 15 cents per Mcfe, to $1.14 per Mcfe $1.29 in the year-earlier quarter.

EQT lost $301 million on about $1.3 billion of revenue for the just-completed quarter, a reversal of year-earlier results when it earned $81.3 million on approximately $1.2 billion of revenue.

Commenting on strategic moves during the quarter, EQT President and Chief Executive Officer Toby Z. Rice said, "The third quarter was hallmarked by the closing of our strategic acquisition of Equitrans, which transformed EQT into America's only large scale, vertically integrated natural gas business. Since closing the Equitrans acquisition, our integration team has been firing on all cylinders, with more than 60% of integration tasks completed and more than 50% of base synergies achieved in just three months. Alongside rapid integration and synergy capture, we are also seeing operational efficiency gains that are being unlocked as a direct consequence of the Equitrans acquisition, which could drive even greater value capture over time."

He continued, "Between asset-level cash flows since acquiring (Equitrans), and the two divestitures announced this year, we expect to realize approximately $3.6 billion of total value, implying 3.3x the original value allocation. This transaction, along with the positive momentum we are seeing in our regulated midstream asset sale process, gives us tremendous confidence in being able to achieve our year-end 2025 debt target."

Coterra
Amid a turbulent gas market, characterized by wide swings in companies' profits and losses, this Houston driller was the only one of the four that reported profits for each third quarter since 2021.

Under generally accepted accounting principles (GAAP), Coterra earned $252 million on revenue of $1.3 billion for the just-completed period. Compared to the third quarter of 2023, revenue was flat but earnings fell 12%.

Gas production fell during the just-completed period, but that was offset by gains in production of oil and NGLs during the July-September period. Overall, on a daily oil equivalent basis, production fell slightly to 669,000 barrels of oil equivalent per day (Boe/d) from 670,000 Boe/d in last year's third quarter.

Including hedges, prices fell for all three of Coterra's products compared to year-earlier prices: gas prices fell about 30% while oil prices were down about 8% and NGL prices declined about 6%.

"Coterra continues to exceed its 2024 plan and has strong momentum with significant optionality heading into 2025," Tom Jorden, chairman, president and chief executive said October 31 in releasing results. "Our teams continue to deliver strong and improving capital efficiency through operational execution, all of which is guided by our relentless focus on economic returns. The company's strong positioning is underpinned by its advantaged balance sheet, operational aptitude, diversified commodity mix and its durable, high-quality inventory.

Jorden said he was pleased to announce Coterra's three new LNG agreements. "As part of Coterra's ongoing strategy, these agreements further diversify our natural gas marketing portfolio with the addition of international LNG pricing exposure to European and Asian markets."

Antero
This Denver-based independent driller reported a quarterly net loss of $20 million on revenue of slightly over $1 billion, a reversal from year-earlier results of $18 million profit on $1.1 billion of revenue.

On a gas-equivalent basis, production fell 2% to about 3.4 Bcfe/d for the just-completed period.

The company said efficiency gains, reduced drilling and deferring the completion of one drilling pad will lower full-year 2024 capital outlays to a range of $640 million to $660 million. Paul Rady, chairman, president and chief executive, said the company plans to defer a second drilled but uncompleted (DUC) pad scheduled for completion in early 2025 to later in that year due to low natural gas prices.

Michael Kennedy, Antero's chief financial officer, added that third-quarter results "benefited from our significant exposure to international liquids prices as we realized the highest C3+ NGL price premium in company history. Constrained Gulf Coast export capacity combined with strong international demand increased spot international premiums over Mont Belvieu at Marcus Hook, Pennsylvania, to record levels. Antero's access to international markets via the Marcus Hook liquids terminal, as well as our strategic decision early this year to increase our exposure to spot international prices, allows us to fully capture these premiums. We expect these premiums will remain in place for the next several quarters providing an attractive uplift to our realized prices."

Looking ahead
Better days may be ahead for gas producers if the EIA's forecast of gas prices comes true. In its October Short-Term Energy Outlook (STEO), the agency forecast gas prices averaging about $3.50 per million British thermal units (MMBtu) in the first and third quarters of 2025.

Click on the image at right to see a graphic of recent gas prices and forecast prices for the first three quarters of 2025.

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