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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--It's long been said in the Oil Patch that the best rocks win. But because oil and gas producers sell into commodity markets, it helps to keep a small army of quantitative risk managers housed near the geologists, because the best rocks will only get you so far. Drillers still need to extract hydrocarbons profitably. Sometimes what a company gives up in the field can be won back through financial engineering. And vice versa.
This has been particularly true in recent years for independent natural gas-oriented producers: Sharply higher natural gas prices following Russia's invasion of Ukraine in February 2022 didn't always lead to higher earnings when some companies bet wrong on prices. Similarly, the current gas price dip has plumped the coffers of at least one independent gas-oriented driller who bet right on the commodity price comedown. For more on that, see March 27, 2023, article - U.S. Natural Gas Producers: Enjoy the Good Times While They Last and November 28, 2022, article - Third-Quarter Earnings: Price Gains Offset Derivatives Charges for Gas Producers.
Natural gas prices respond to supply-demand imbalances, severe storms, weather extremes and geopolitical events. The uptick in gas prices was particularly sharp in the months immediately after Russia invaded Ukraine, but the price collapse since September 2022 has some experts scratching their head. The Wall Street Journal reported that natural-gas prices are down 66% from a year ago and inventories have swelled 35%, yet producers are drilling more.
Click on the image at right to see prices for natural gas at Henry Hub, Louisiana over the last two years.
Four large, U.S.-based gas-oriented independent 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)--reported first-quarter earnings in recent weeks. Two of those firms produced less gas than they did in the comparable year-earlier period, and two held production essentially flat. The chart at right shows each companies' gas production only, not an equivalent that combines gas, oil and natural gas liquids (NGLs).
Click on the image at right to see first-quarter 2023 natural gas production compared to year-earlier quarterly production.
Quarterly earnings for all four companies improved compared to first-quarter 2022 results, according to generally accepted accounting principles (GAAP). Higher crude oil prices pushed up earnings for some companies. Lower operating costs, superior execution in the field and reduced debt keyed some companies' improved fortunes. Others benefitted from adroit, or timely, execution of hedges, swaps, options, collars and other financial risk-management tools. All companies emphasized the amount of cash they returned to shareholders during the quarter.
Below is a summary.
Click on the image at right to see a graphic of first-quarter 2023 net earnings compared to year-earlier results.
EQT
The Pittsburgh-based gas major, which operates in the Marcellus and Utica Shales in the Appalachian Basin, spent approximately $200 million in the just-completed period to repurchase shares from investors. Since its share repurchase program began in last year's first quarter, EQT has spent about $622 million to repurchase shares. Share repurchases increase a company's earnings per share because earnings are spread over a reduced number of shares of stock.
Industrial Info is tracking six capital projects involving EQT, most of which are part of the Mountain Valley Pipeline umbrella project. The value of these projects is about $1.9 billion.
In releasing earnings April 26, Chief Executive Officer Toby Rice said, "The year got off to a very strong start across the board at EQT, highlighted by solid operational efficiency, capital spending that came in below the low end of our guidance range and stronger-than-expected price realizations driven by our advantaged firm transportation portfolio."
"While the current natural gas macro environment does present challenges," he continued, "it also illuminates the relative advantages of EQT's corporate strategy, underpinned by large-scale combo-development, a disciplined M&A focus on low-cost assets, a risk-adjusted hedging strategy and opportunistic capital returns."
Last year, EQT announced its acquisition of upstream assets from Tug Hill and midstream assets from XcL for about $2.6 billion in cash and 55 million shares of EQT common stock. Those transactions have not yet closed.
The Tug Hill assets are anticipated to add approximately 800 million cubic feet of gas equivalent per day (MMcfe/d) of production and 11 years of inventory. The XcL Midstream assets are anticipated to add 95 miles of owned and operated midstream gathering systems that connect to every major long-haul interstate pipeline in southwest Appalachia.
EQT expects the acquisitions, when completed, will increase crude oil and NGL production and lower costs.
Coterra Energy
In reporting first-quarter earnings May 4, Coterra Energy Chief Executive Thomas Jorden said, "Coterra delivered strong first-quarter results, driven by solid execution, and is well positioned to meet or exceed 2023 guidance. Our operating teams continue to generate competitive returns across each of our three regions (Marcellus Shale, Permian Basin and Anadarko Basin)."
He added, "Coterra's portfolio, with its equal weighting to both liquids and natural gas, provides numerous benefits to our company and shareholders by delivering a more consistent cash flow profile through commodity price cycles."
Oil and gas production in the quarter exceeded the high end of the company's guidance.
Based on its first-quarter results, Coterra Energy plans to return about $420 million to shareholders, about 76% of its free cash flow. The haul comprises $152 million from the company's recently increased base dividend of $0.20 per quarter and $268 million via share buybacks. Coterra Energy has committed to return more than 50% of quarterly free cash flow to shareholders, with an emphasis on the base dividend and buybacks.
During the quarter, the company repurchased 11 million shares of stock for $268 million, leaving about $1.7 billion of authorization remaining in its share buyback program.
Range Resources
Range, a longtime low-cost producer operating exclusively in the Appalachian Basin, swung to a net profit of $481 million in the just-completed period from a year-earlier quarterly net loss of $457 million. Results were boosted by a $368 million mark-to-market derivative gain in the just-completed quarter.
In releasing earnings April 24, Chief Executive Officer Jeff Ventura said, "Today, Range is in the best operational and financial shape in company history and the future of the Marcellus is bright as we sit at the very low end of the global cost curve with one of the lowest emissions intensities of any play."
He said the company's multi-decade inventory of acreage, efficient operations and access to diversified markets puts Range Resources "in a desirable position to deliver significant long-term value and competitive returns to shareholders."
During the quarter, the company repurchased about 400,000 shares of stock. Range also spent $152 million on capital projects in the quarter, about 26% of its full-year capital spending plan.
Antero
Denver-based Antero Resources swung to a profit in the just-completed quarter, earning $213 million compared to a loss of $156 million in the year-earlier quarter. The company has a larger exposure to natural gas liquids (NGLs) than many of its peers, so stronger prices for NGLs helped boost earnings.
Antero operates in the Marcellus and Utica shales, located in the Appalachian basin. The company said it has more than 20 years of core NGL drilling inventory. Antero has a midstream affiliate, Antero Midstream (NYSE:AM) (Denver), which provides an additional source of earnings.
Commenting on results April 26, Chief Executive Paul Rady praised the "outstanding execution by our employees and the strength of our asset base. ... Our development program remains focused on our liquids-rich acreage, which provided an attractive pricing uplift in the quarter through the strength in NGL prices."
He added that declining costs for services and raw materials, such as tubular steel, fuel and sand, coupled with efficiency gains, point to "lower overall maintenance capital requirements in 2024."
The company's chief financial officer, Michael Kennedy, said the company's efforts to repay debt put it in the "strongest financial position in company history." Antero returned about 50% of its free cash flow to shareholders in the first quarter in the form of share repurchases, which have totaled approximately $1 billion since the first quarter of 2022.
He added, "we used the pullback in natural gas prices to opportunistically execute an early termination of our 2024 natural gas hedges, which gives us greater exposure to higher (gas) prices in 2024. The company also completed an early buyout of a firm transportation commitment it said was "unutilized," which lowered costs. "Looking ahead, we are well positioned with nearly half our projected revenue in 2023 being generated from liquids sales while maintaining significant exposure to U.S. LNG growth."
Industrial Info is tracking 10 capital projects involving Antero, most of which are part of the Antero Midstream Utica/Marcellus Gathering System. The total value of these projects is about $211 million.
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).
This has been particularly true in recent years for independent natural gas-oriented producers: Sharply higher natural gas prices following Russia's invasion of Ukraine in February 2022 didn't always lead to higher earnings when some companies bet wrong on prices. Similarly, the current gas price dip has plumped the coffers of at least one independent gas-oriented driller who bet right on the commodity price comedown. For more on that, see March 27, 2023, article - U.S. Natural Gas Producers: Enjoy the Good Times While They Last and November 28, 2022, article - Third-Quarter Earnings: Price Gains Offset Derivatives Charges for Gas Producers.
Natural gas prices respond to supply-demand imbalances, severe storms, weather extremes and geopolitical events. The uptick in gas prices was particularly sharp in the months immediately after Russia invaded Ukraine, but the price collapse since September 2022 has some experts scratching their head. The Wall Street Journal reported that natural-gas prices are down 66% from a year ago and inventories have swelled 35%, yet producers are drilling more.
Four large, U.S.-based gas-oriented independent 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)--reported first-quarter earnings in recent weeks. Two of those firms produced less gas than they did in the comparable year-earlier period, and two held production essentially flat. The chart at right shows each companies' gas production only, not an equivalent that combines gas, oil and natural gas liquids (NGLs).
Quarterly earnings for all four companies improved compared to first-quarter 2022 results, according to generally accepted accounting principles (GAAP). Higher crude oil prices pushed up earnings for some companies. Lower operating costs, superior execution in the field and reduced debt keyed some companies' improved fortunes. Others benefitted from adroit, or timely, execution of hedges, swaps, options, collars and other financial risk-management tools. All companies emphasized the amount of cash they returned to shareholders during the quarter.
Below is a summary.
EQT
The Pittsburgh-based gas major, which operates in the Marcellus and Utica Shales in the Appalachian Basin, spent approximately $200 million in the just-completed period to repurchase shares from investors. Since its share repurchase program began in last year's first quarter, EQT has spent about $622 million to repurchase shares. Share repurchases increase a company's earnings per share because earnings are spread over a reduced number of shares of stock.
Industrial Info is tracking six capital projects involving EQT, most of which are part of the Mountain Valley Pipeline umbrella project. The value of these projects is about $1.9 billion.
In releasing earnings April 26, Chief Executive Officer Toby Rice said, "The year got off to a very strong start across the board at EQT, highlighted by solid operational efficiency, capital spending that came in below the low end of our guidance range and stronger-than-expected price realizations driven by our advantaged firm transportation portfolio."
"While the current natural gas macro environment does present challenges," he continued, "it also illuminates the relative advantages of EQT's corporate strategy, underpinned by large-scale combo-development, a disciplined M&A focus on low-cost assets, a risk-adjusted hedging strategy and opportunistic capital returns."
Last year, EQT announced its acquisition of upstream assets from Tug Hill and midstream assets from XcL for about $2.6 billion in cash and 55 million shares of EQT common stock. Those transactions have not yet closed.
The Tug Hill assets are anticipated to add approximately 800 million cubic feet of gas equivalent per day (MMcfe/d) of production and 11 years of inventory. The XcL Midstream assets are anticipated to add 95 miles of owned and operated midstream gathering systems that connect to every major long-haul interstate pipeline in southwest Appalachia.
EQT expects the acquisitions, when completed, will increase crude oil and NGL production and lower costs.
Coterra Energy
In reporting first-quarter earnings May 4, Coterra Energy Chief Executive Thomas Jorden said, "Coterra delivered strong first-quarter results, driven by solid execution, and is well positioned to meet or exceed 2023 guidance. Our operating teams continue to generate competitive returns across each of our three regions (Marcellus Shale, Permian Basin and Anadarko Basin)."
He added, "Coterra's portfolio, with its equal weighting to both liquids and natural gas, provides numerous benefits to our company and shareholders by delivering a more consistent cash flow profile through commodity price cycles."
Oil and gas production in the quarter exceeded the high end of the company's guidance.
Based on its first-quarter results, Coterra Energy plans to return about $420 million to shareholders, about 76% of its free cash flow. The haul comprises $152 million from the company's recently increased base dividend of $0.20 per quarter and $268 million via share buybacks. Coterra Energy has committed to return more than 50% of quarterly free cash flow to shareholders, with an emphasis on the base dividend and buybacks.
During the quarter, the company repurchased 11 million shares of stock for $268 million, leaving about $1.7 billion of authorization remaining in its share buyback program.
Range Resources
Range, a longtime low-cost producer operating exclusively in the Appalachian Basin, swung to a net profit of $481 million in the just-completed period from a year-earlier quarterly net loss of $457 million. Results were boosted by a $368 million mark-to-market derivative gain in the just-completed quarter.
In releasing earnings April 24, Chief Executive Officer Jeff Ventura said, "Today, Range is in the best operational and financial shape in company history and the future of the Marcellus is bright as we sit at the very low end of the global cost curve with one of the lowest emissions intensities of any play."
He said the company's multi-decade inventory of acreage, efficient operations and access to diversified markets puts Range Resources "in a desirable position to deliver significant long-term value and competitive returns to shareholders."
During the quarter, the company repurchased about 400,000 shares of stock. Range also spent $152 million on capital projects in the quarter, about 26% of its full-year capital spending plan.
Antero
Denver-based Antero Resources swung to a profit in the just-completed quarter, earning $213 million compared to a loss of $156 million in the year-earlier quarter. The company has a larger exposure to natural gas liquids (NGLs) than many of its peers, so stronger prices for NGLs helped boost earnings.
Antero operates in the Marcellus and Utica shales, located in the Appalachian basin. The company said it has more than 20 years of core NGL drilling inventory. Antero has a midstream affiliate, Antero Midstream (NYSE:AM) (Denver), which provides an additional source of earnings.
Commenting on results April 26, Chief Executive Paul Rady praised the "outstanding execution by our employees and the strength of our asset base. ... Our development program remains focused on our liquids-rich acreage, which provided an attractive pricing uplift in the quarter through the strength in NGL prices."
He added that declining costs for services and raw materials, such as tubular steel, fuel and sand, coupled with efficiency gains, point to "lower overall maintenance capital requirements in 2024."
The company's chief financial officer, Michael Kennedy, said the company's efforts to repay debt put it in the "strongest financial position in company history." Antero returned about 50% of its free cash flow to shareholders in the first quarter in the form of share repurchases, which have totaled approximately $1 billion since the first quarter of 2022.
He added, "we used the pullback in natural gas prices to opportunistically execute an early termination of our 2024 natural gas hedges, which gives us greater exposure to higher (gas) prices in 2024. The company also completed an early buyout of a firm transportation commitment it said was "unutilized," which lowered costs. "Looking ahead, we are well positioned with nearly half our projected revenue in 2023 being generated from liquids sales while maintaining significant exposure to U.S. LNG growth."
Industrial Info is tracking 10 capital projects involving Antero, most of which are part of the Antero Midstream Utica/Marcellus Gathering System. The total value of these projects is about $211 million.
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).
