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August 9, 2023--Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Natural gas prices plummeted in the second quarter, dragging down the financial performance of 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).
Natural gas spot prices for the just-completed quarter averaged about $2.16 per million British thermal units (MMBtu) at Henry Hub, Louisiana, according to the Energy Information Administration (EIA). By contrast, in the comparable year-earlier quarter, as the world was in the early stages of sorting out the energy implications of Russia's invasion of Ukraine, spot gas prices were more than three times higher--$7.48 per MMBtu.
Click on the image at right to see the recent history of spot gas prices at Henry Hub, Louisiana.
Not surprisingly, plunging gas prices led to plunging profitability at these four large independents--or even heavy losses. During the second quarter, demand for gas remained strong, notably for liquefied natural gas (LNG) exports, but it could not fully offset plunging prices. The current price environment favors low-cost producers, such as Range Resources. Overall, combined second-quarter profits for the four companies fell about 90% against year-earlier levels.
Click on the image at right to see three years of second-quarter profits for all four companies.
Details for the four companies are below.
Range Resources
The Fort Worth, Texas-based firm reported second-quarter net earnings of $30.2 million on revenue of $637 million. In the comparable year-earlier period, Range earned $453 million on $1.2 billion of revenue.
Commenting on second-quarter earnings, which were released July 24, Chief Executive Officer Dennis Degner said, "Second-quarter results reflect the resilience and durability of Range's business. Range's competitive cost structure, low relative capital intensity, liquids optionality and thoughtful hedging allowed us to generate healthy full-cycle margins and maintain our trajectory towards our target capital structure, despite what we expect is a cyclical low in commodity prices."
"The Range team remains focused on efficiently developing our Marcellus assets to create value for shareholders into what we believe is an improving macro outlook for natural gas and natural gas liquids," he added.
During the April-June 2023 quarter, Range redeemed about $62 million of 2025 senior notes at a discount. The company booked a $124 million mark-to-market derivative gain during the just-completed period.
The company, long a low-cost leader, lowered its overall costs 12% during the quarter, to $2.35 per thousand cubic feet of equivalent (Mcfe) from $2.68 in the comparable year-earlier period. Range officials said the company is targeting a maintenance program in 2023, resulting in approximately flat production at 2.12-2.16 billion cubic feet of equivalent per day (Bcfe/d), with about 30% attributed to liquids production. Range's 2023 all-in capital budget is $570 million-$615 million.
EQT
Pittsburgh, Pennsylvania-based EQT lost $67 million on $1 billion in revenue for the just-completed quarter. For the comparable year-earlier quarter, the company earned $894 million on $2.5 billion of revenue.
Industrial Info is tracking 44 capital projects valued at $9 billion involving an EQT unit.
Like other gas company leaders, President and Chief Executive Officer Toby Rice sought to accentuate the positive in announcing earnings on July 25.
"Our drilling and completions teams performed extremely well during the quarter, setting multiple internal and world records," Rice said. "These achievements underscore EQT's best-in-class execution capabilities and our continuous drive to push the envelope when it comes to achieving peak performance."
He continued: "On the capital returns front, we took another material step toward achieving our balance sheet goals by retiring $800 million of incremental debt during the quarter. We have now retired a total of $1.9 billion of debt since initiating our shareholder return framework in late 2021, which has driven a step-change improvement in our leverage profile."
EQT reiterated its expectation that full-year 2023 capital expenditures (Capex) will range between $1.7 billion and $1.9 billion, excluding noncontrolling interests. Capex estimates exclude the impact of EQT's pending acquisition of the upstream assets of THQ Appalachia I, LLC, also known as Tug Hill. That transaction has not yet closed.
EQT operates in the Marcellus and Utica shales in the Appalachian Basin.
Antero
Denver-based Antero lost $84 million on revenue of $953 million for this year's second quarter; by comparison, it earned $765 million on revenue of $2.2 billion for the second quarter of 2022.
An Antero midstream unit is building a natural gas gathering system in the Utica and Marcellus shales. Industrial Info is tracking nine capital projects associated with the umbrella project valued at about $210 million.
Discussing earnings on July 26, Paul Rady, chairman, president and chief executive, said, "Our second quarter results continue to build on the operational momentum that we achieved in the first quarter. During the quarter, we achieved a number of new company quarterly drilling and completion records, including footage drilled in a 24-hour period and completion stages pumped per day. These operational efficiencies are expected to result in lower maintenance capital expenditures going forward. Further, the continued strength in our well performance allows us to increase our 2023 production guidance by 3%, while maintaining the same capital budget."
He continued, "The industry has responded to lower commodity prices through meaningful reductions in rig and completion activity. Looking ahead, we expect natural gas demand to increase on higher LNG (liquefied natural gas) exports and natural gas-fired electric power burn, which in turn should further balance the market and support natural gas prices. We are uniquely positioned to benefit from increasing NYMEX prices with 75% of our natural gas being sold at Antero's premium delivery points in the LNG corridor."
Michael Kennedy, the company's chief financial officer, commented: "Antero's improved capital efficiency is expected to result in 2024 capital requirements that are 10% below our 2023 capital guidance. This capital program will target maintaining our increased 2023 production guidance. Further, the capital efficiency gains are expected to result in positive free cash flow in 2023, and when combined with a higher natural gas strip, generate substantial free cash flow in 2024. As a reminder, we target returning 50% of our free cash flow to our shareholders."
Antero's exploration & production business operates in the Appalachian Basin in West Virginia and Ohio. Its affiliate, Antero Midstream (NYSE:AM), operates a gas gathering and midstream business in the same basin.
Coterra Energy
On August 8, Coterra reported net earnings of $209 million on revenue of $1.2 billion for the April-June 2023 period. That compared to profits of $1.2 billion on revenue of $2.6 billion for the comparable year-earlier quarter. The just-completed quarter included a $96 million gain in mark-to-market derivatives; last year's second quarter included a $227 million loss in those hedging activities.
The company operates in the Permian Basin, Anadarko Basin in Oklahoma and Marcellus Shale. It extracts a significant amount of oil from the Permian but the Marcellus formation is "dry," producing virtually no oil. In the Anadarko basin, production is 47% liquids and 53% gas.
Thomas Jorden, chairman, president and chief executive, praised employees for their "outstanding operational execution," which helped production beat expectations.
Despite the plunge in commodity prices, the company said it would return 184% of its second-quarter free cash flow to shareholders, significantly above its pledge to return at least 50% of free cash flow to that group. "Our cash position has afforded us the luxury to transact counter-cyclically on share repurchases," Jordan said.
The company still has $1.7 billion authorized to repurchase shares. Its full-year 2023 capex is expected to be about $2.1 billion, split between the Permian ($930 million), the Marcellus ($835 million) and the Anadarko ($165 million). "Other" capex is expected to total about $170 million this year.
In its presentation to analysts, Coterra executives said they expect demand for gas for reach 126 billion cubic feet per day by 2030, a 20% increase over 2022 levels. The main drivers would be industrial demand and gas for liquefaction as LNG.
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) 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 over 200,000 current and future projects worth $17.8 Trillion (USD).
Natural gas spot prices for the just-completed quarter averaged about $2.16 per million British thermal units (MMBtu) at Henry Hub, Louisiana, according to the Energy Information Administration (EIA). By contrast, in the comparable year-earlier quarter, as the world was in the early stages of sorting out the energy implications of Russia's invasion of Ukraine, spot gas prices were more than three times higher--$7.48 per MMBtu.
Not surprisingly, plunging gas prices led to plunging profitability at these four large independents--or even heavy losses. During the second quarter, demand for gas remained strong, notably for liquefied natural gas (LNG) exports, but it could not fully offset plunging prices. The current price environment favors low-cost producers, such as Range Resources. Overall, combined second-quarter profits for the four companies fell about 90% against year-earlier levels.
Details for the four companies are below.
Range Resources
The Fort Worth, Texas-based firm reported second-quarter net earnings of $30.2 million on revenue of $637 million. In the comparable year-earlier period, Range earned $453 million on $1.2 billion of revenue.
Commenting on second-quarter earnings, which were released July 24, Chief Executive Officer Dennis Degner said, "Second-quarter results reflect the resilience and durability of Range's business. Range's competitive cost structure, low relative capital intensity, liquids optionality and thoughtful hedging allowed us to generate healthy full-cycle margins and maintain our trajectory towards our target capital structure, despite what we expect is a cyclical low in commodity prices."
"The Range team remains focused on efficiently developing our Marcellus assets to create value for shareholders into what we believe is an improving macro outlook for natural gas and natural gas liquids," he added.
During the April-June 2023 quarter, Range redeemed about $62 million of 2025 senior notes at a discount. The company booked a $124 million mark-to-market derivative gain during the just-completed period.
The company, long a low-cost leader, lowered its overall costs 12% during the quarter, to $2.35 per thousand cubic feet of equivalent (Mcfe) from $2.68 in the comparable year-earlier period. Range officials said the company is targeting a maintenance program in 2023, resulting in approximately flat production at 2.12-2.16 billion cubic feet of equivalent per day (Bcfe/d), with about 30% attributed to liquids production. Range's 2023 all-in capital budget is $570 million-$615 million.
EQT
Pittsburgh, Pennsylvania-based EQT lost $67 million on $1 billion in revenue for the just-completed quarter. For the comparable year-earlier quarter, the company earned $894 million on $2.5 billion of revenue.
Industrial Info is tracking 44 capital projects valued at $9 billion involving an EQT unit.
Like other gas company leaders, President and Chief Executive Officer Toby Rice sought to accentuate the positive in announcing earnings on July 25.
"Our drilling and completions teams performed extremely well during the quarter, setting multiple internal and world records," Rice said. "These achievements underscore EQT's best-in-class execution capabilities and our continuous drive to push the envelope when it comes to achieving peak performance."
He continued: "On the capital returns front, we took another material step toward achieving our balance sheet goals by retiring $800 million of incremental debt during the quarter. We have now retired a total of $1.9 billion of debt since initiating our shareholder return framework in late 2021, which has driven a step-change improvement in our leverage profile."
EQT reiterated its expectation that full-year 2023 capital expenditures (Capex) will range between $1.7 billion and $1.9 billion, excluding noncontrolling interests. Capex estimates exclude the impact of EQT's pending acquisition of the upstream assets of THQ Appalachia I, LLC, also known as Tug Hill. That transaction has not yet closed.
EQT operates in the Marcellus and Utica shales in the Appalachian Basin.
Antero
Denver-based Antero lost $84 million on revenue of $953 million for this year's second quarter; by comparison, it earned $765 million on revenue of $2.2 billion for the second quarter of 2022.
An Antero midstream unit is building a natural gas gathering system in the Utica and Marcellus shales. Industrial Info is tracking nine capital projects associated with the umbrella project valued at about $210 million.
Discussing earnings on July 26, Paul Rady, chairman, president and chief executive, said, "Our second quarter results continue to build on the operational momentum that we achieved in the first quarter. During the quarter, we achieved a number of new company quarterly drilling and completion records, including footage drilled in a 24-hour period and completion stages pumped per day. These operational efficiencies are expected to result in lower maintenance capital expenditures going forward. Further, the continued strength in our well performance allows us to increase our 2023 production guidance by 3%, while maintaining the same capital budget."
He continued, "The industry has responded to lower commodity prices through meaningful reductions in rig and completion activity. Looking ahead, we expect natural gas demand to increase on higher LNG (liquefied natural gas) exports and natural gas-fired electric power burn, which in turn should further balance the market and support natural gas prices. We are uniquely positioned to benefit from increasing NYMEX prices with 75% of our natural gas being sold at Antero's premium delivery points in the LNG corridor."
Michael Kennedy, the company's chief financial officer, commented: "Antero's improved capital efficiency is expected to result in 2024 capital requirements that are 10% below our 2023 capital guidance. This capital program will target maintaining our increased 2023 production guidance. Further, the capital efficiency gains are expected to result in positive free cash flow in 2023, and when combined with a higher natural gas strip, generate substantial free cash flow in 2024. As a reminder, we target returning 50% of our free cash flow to our shareholders."
Antero's exploration & production business operates in the Appalachian Basin in West Virginia and Ohio. Its affiliate, Antero Midstream (NYSE:AM), operates a gas gathering and midstream business in the same basin.
Coterra Energy
On August 8, Coterra reported net earnings of $209 million on revenue of $1.2 billion for the April-June 2023 period. That compared to profits of $1.2 billion on revenue of $2.6 billion for the comparable year-earlier quarter. The just-completed quarter included a $96 million gain in mark-to-market derivatives; last year's second quarter included a $227 million loss in those hedging activities.
The company operates in the Permian Basin, Anadarko Basin in Oklahoma and Marcellus Shale. It extracts a significant amount of oil from the Permian but the Marcellus formation is "dry," producing virtually no oil. In the Anadarko basin, production is 47% liquids and 53% gas.
Thomas Jorden, chairman, president and chief executive, praised employees for their "outstanding operational execution," which helped production beat expectations.
Despite the plunge in commodity prices, the company said it would return 184% of its second-quarter free cash flow to shareholders, significantly above its pledge to return at least 50% of free cash flow to that group. "Our cash position has afforded us the luxury to transact counter-cyclically on share repurchases," Jordan said.
The company still has $1.7 billion authorized to repurchase shares. Its full-year 2023 capex is expected to be about $2.1 billion, split between the Permian ($930 million), the Marcellus ($835 million) and the Anadarko ($165 million). "Other" capex is expected to total about $170 million this year.
In its presentation to analysts, Coterra executives said they expect demand for gas for reach 126 billion cubic feet per day by 2030, a 20% increase over 2022 levels. The main drivers would be industrial demand and gas for liquefaction as LNG.
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) 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 over 200,000 current and future projects worth $17.8 Trillion (USD).
