July 25, 2016
by David Conti
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A nearly 50 percent jump in natural gas prices during the second quarter could inject some joy into what has been a dour discussion around finances in the Marcellus shale.
Demand is clearly rising, as more power plants switch from coal to gas and warm weather is pushing those plants to run more often to keep up with the hum of air conditioners.
And the oversupply in storage has shown signs of leveling off. Weekly deposits into the inventory have generally come in below estimates, analyst David Holt of S&P Capital IQ wrote in a research note last week.
Such news might brighten the forecasts we will hear this week from executives at publicly held Marcellus and Utica gas producers as they start reporting financial results from that second quarter. Among major Western Pennsylvania companies, Consol Energy and Range Resources will report on Tuesday and EQT Corp. will release its figures on Thursday.
Holt identified EQT, Range and Cabot Oil & Gas as companies to watch as the longer-term outlook for prices and demand improves.
“We think low cost producers that exhibit financial flexibility in 2017 … remain well positioned to navigate through the current commodity cycle,” Holt wrote.
Don’t expect another gas boom to move through the Marcellus anytime soon, though, analysts warn. Although a short rally in crude oil prices in the past few months resulted in an uptick in drilling in some areas such as the Permian Basin of Texas, the Marcellus remains a very quiet place.
A few numbers tell the tale.
The number of drilling rigs working in the Marcellus remained under two dozen this month, down from 59 a year ago and a peak of 140 at the end of 2011.
Companies drilled only 73 shale wells in Pennsylvania during the second quarter, down from 201 during the same period last year.
That big jump in the national benchmark price to nearly $3 per million British thermal units between April 1 and June 30 was coming off a winter of 17-year lows. The price had nowhere to go but up, and has since fallen back to about $2.75.
Companies are likely to report dismal results from the second quarter. The Associated Press predicted the worst corporate performances for the quarter to come from energy producers. Natural Gas Intelligence predicts companies in the S&P oil and gas exploration and production fund will post a combined loss of $2.34 per share, compared to a profit of $20.67 during the same quarter last year.
Look for executives to accentuate potentially positive moves over the next few months, since the past few have provided mostly negative news.
Southwestern Energy said it will boost drilling in the Marcellus region despite posting a big loss during the second quarter.
The Houston-based company, which is among the top five producers in this region, said it would put five drilling rigs back into service, four of which will be in Appalachia.
Southwestern reported a net loss of $620 million during the quarter, but that was an improvement over a loss of $815 million in the same period last year.