Low Prices Drag Down Earnings at Four Large Gas-Oriented Drillers

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Low first-quarter natural gas prices punished profits at four large U.S. gas-oriented independent oil and gas producers: EQT Corporation (NYSE:EQT) (Pittsburgh, Pennsylvania), Range Resources Corporation (NYSE:RRC) (Fort Worth, Texas), Antero Resources Corporation (NYSE:AR) (Denver, Colorado) and Coterra Energy Incorporated (NYSE:CTRA) (Houston, Texas).

During the just-completed quarter, spot natural gas prices at Henry Hub, Louisiana, fell about 20%, or 52 cents per million British thermal units (MMBtu), from the comparable year-earlier quarter to an average of $2.13 per MMBtu from $2.65. During the first quarter of 2022, after Russia's invasion of Ukraine, spot prices averaged about $4.65 per MMBtu.

Results for the four companies are summarized below:

EQT
First-quarter earnings plummeted 91% for EQT, the country's largest independent gas driller, falling to $103.5 million in the just-completed quarter, compared with $1.2 billion in the comparable year-earlier period. Last year's revenue was boosted by an $825 million gain in derivatives; this year, by comparison, the gain was about $106.5 million.

EQT received about $1.02 less for its gas during the first quarter of 2024 than it did in last year's first quarter: $3.08 per thousand cubic feet (Mcf), compared with $4.10 last year.

During the first quarter, EQT announced the acquisition of gas processor Equitrans Midstream (NYSE:ETRN) (Pittsburgh). That transaction reversed a 2018 deal that separated the companies. For more on that, see March 12, 2024, article - Gas Player EQT Reunited with Equitrans in $5.5 Billion Deal.

In announcing earnings April 23, President and CEO Toby Rice was enthused about that transaction: "The combination of EQT and Equitrans Midstream will create America's first large-scale integrated natural gas business, with assets uniquely positioned to create a well-to-watt solution that will power growing baseload demand associated with the data center and artificial intelligence booms that are burgeoning at the doorstep of our asset base."

During the just-completed quarter, EQT said low gas prices, a warmer-than-average winter and elevated gas storage levels caused it to curtail about 1 billion cubic feet of gas production per day (Bcf/d). The production cuts ran from late February through the end of March. As yet, it has not announced a lifting of that decision to shut-in production.

Lease operating expenses (LOE) increased due to the acquisitions of Tug Hill and XcL Midstream, which closed last year. Though higher than last year, the company said its LOE was lower than projected.

Shortly after the quarter ended, EQT announced an asset swap with Norwegian energy company Equinor (NYSE:EQNR) (Stavanger) that included a $500 million cash payment. EQT said it intends to use the cash to reduce debt, which stood at about $5.5 billion at the end of the quarter. For more on that asset sale, see April 19, 2024, article - Equinor Ends U.S. Onshore Operatorship with EQT Asset Swap.

EQT chief Rice has this to say about first-quarter results: "The strong operational momentum we achieved last year has carried over into 2024, with our drilling team continuing to perform at exceptional levels, and our completions team again setting a new company record for pumping hours in the month of March. We also saw lease operating expenses come in below our forecast, as the benefits of our strategic water infrastructure investments are becoming increasingly tangible to shareholders."

Range Resources
First-quarter net profits fell about 81% for Range, to about $92 million on $645 million of revenue compared to $481 million on $1.2 billion of revenue in the year-earlier quarter. The company operates exclusively in the Appalachian Basin, where a shortage of outbound gas pipeline capacity has limited some companies' options.

Gas production dipped slightly compared with last year's first quarter, but it was higher than the first quarter of 2022.

Range received about $1.83 per Mcf for its gas in the first quarter, after transportation and derivative settlement costs. That was a 25% decline from year-earlier levels. Gas accounts for about 68% of the company's hydrocarbon production.

In reporting earnings April 23, Chief Executive Dennis Degner looked past current low gas prices to focus on the long term and the company's operational performance: "Range had a successful first quarter with efficient operations, consistent well performance and opportunistic NGL marketing allowing (it) to generate strong free cash flow in a price environment that we believe is well below mid-cycle prices."

"With the strongest balance sheet in company history and a low required reinvestment rate," Degner said. "Range is generating free cash flow while positioning for continued success in the years ahead. As global energy demand continues to increase, we believe Range is well-positioned on the low-end of the natural gas cost curve with a competitive emissions intensity and a high-return, long-life inventory of de-risked wells, measured in decades."

Antero Resources
Antero is the rare gas driller with a significant exposure to crude oil and natural gas liquids (NGL), which helped offset the effect of low gas prices on Antero's income.

Still, earnings fell to $36 million on $1.1 billion of revenue, compared with profits of $213 million on revenue of $1.4 billion in the first three months of 2023 for the Denver-based driller. The company operates in the Appalachian Basin in West Virginia and Ohio.

In an earnings release April 24, Paul Rady, the chief executive officer of Antero, also looked beyond a grim first quarter to better days ahead: "The industry is responding to lower natural gas prices through sharp reductions in rigs and completion crews. As a result of this decreased activity, U.S. natural gas supply has fallen by approximately 6 Bcf/d from the peak in December 2023 to under 100 Bcf/d today. This supply moderation combined with the significant expected demand growth from LNG exports and increasing power demand is expected to balance the market as we enter 2025."

Coterra Energy
Coterra, which operates in the Permian Basin, Marcellus Shale and Anadarko Basin, also saw earnings slump in the just completed period: Profits fell to $352 million on $1.4 billion in revenue, versus earnings of $677 million on sales of $1.8 billion in the first three months of 2023.

Gas production grew to slightly less than 3 Bcf/d from about 2.5 Bcf/d in the comparable year-earlier period.

Financial results were boosted by higher production of oil and NGLs, compared with first-quarter 2023 levels. Year-over-year prices rose slightly for oil and fell for NGLs. Coterra reported earnings May 2.

During the quarter, Cotera repurchased about $150 million of shares, leaving about $1.4 billion of remaining authority under its $2 billion buyback share-program.

In its earnings release, Coterra reiterated 2024 capex at between $1.75 billion and $1.95 billion.

Tom Jorden, chairman, president and chief executive, said: "Coterra continues to fire on all cylinders, and shifting our near-term capital program to focus on oil and liquids-rich plays remains prudent. However, the company maintains optionality to take advantage of a structural change in the natural gas macro as LNG exports grow and electricity demand increases."

"One of our core principles at Coterra is maintaining flexibility and our low-cost, diversified asset portfolio provides ample opportunity to generate consistent, profitable growth through the cycles," he added.

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