Utica shale is deeper still, below the Marcellus shale

From a Summary by Sara Welch, Shale Gas Reporter, March 3, 2020

Despite implementing a plan to cut year-over-year spending by 20% in 2020, Southwestern Energy Co. expects annual production to climb by 10%. The increase in production is driven by the company’s investment in the Appalachian Basin.

The company forecasts capital expenditures of $860-940 million and anticipates overall production of 830-865 Bcfe. Although it expects to bring up to 110 wells to sales this year, mostly in West Virginia, the company’s oil and natural gas production is forecast to increase by 25% and 10%, respectively.

In its continued effort to cut costs, Southwestern managed to cut well costs to $824 per lateral foot last year — a 27% drop. This year, it expects well costs to average $730 per foot — a 10% reduction.

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EQT reacts to low natural gas prices, selling assets and cutting costs

From a Summary by Sara Welch, Shale Gas Reporter, March 3, 2020

Last week EQT announced it renegotiated its gas transportation rates and sold half its stake in pipeline company Equitrans Midstream Corp.

These moves are the company’s response to low natural gas prices.

In the fourth quarter, EQT recorded a $1.6 billion non-cash impairment charge. With U.S. natural gas prices trading at its lowest in nearly two decades, the country’s largest natural gas producer has been forced to find ways to mitigate prices.

In addition to selling its stake in the pipeline operator and renegotiating gas transportation rates, EQT has refined its hedging strategy and cut annual capital expenditure. The company expects 2020 capital expenditure between $1.15 billion and $1.25 billion, compared with a prior outlook of between $1.25 billion and $1.35 billion.

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CHEVRON to cut 320 jobs in Pennsylvania, markets assets

From a Summary by Sara Welch, Shale Gas Reporter, March 3, 2020

The next step in Chevron’s plan to liquidate its Appalachian Basin assets and close its Appalachian Mountain Business is to eliminate 320 jobs.

“We are taking active steps to reduce job loss and will facilitate the placement of as many impacted employees as we can with other Chevron business units,” said a Feb. 6 letter Chevron company officials sent to state Department of Labor & Industry.

In addition to attempting to reduce job loss, the company said it’s providing advance notice of layoffs to government stakeholders and employees.

The first round of layoffs is scheduled for April 6, although some employees will be offered temporary assignments with extended layoff dates, potentially through Dec. 31. Chevron’s office locations in Moon and Mount Braddock in Penna. will be affected as 320 workers combined will be laid off.

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Range Resources hit by $2.3 Billion in Fourth Quarter impairments

From an Article by Kallanish Energy News, March 2, 2020

Texas-based Range Resources reported a fourth quarter 2019 net loss of $1.81 billion, or $7.27 per share on revenue of $605.6 million. That compares to profit of $1.76 billion, or $7.15 per share in Q4 2018.

Fourth quarter earnings include $2.3 billion in impairments, including unproven properties in North Louisiana.

For full-year 2019, Range reported a net loss of $1.72 billion, or $6.92 per share, on revenue of $2.82 billion. That compares to a $1.74 billion net loss, or $7.10 per share, in full-year 2018.

“Range made solid progress on key strategic objectives in 2019,” said CEO Jeff Ventura, in a statement. “For the year, we reduced absolute debt, lowered well costs, improved our cost structure and delivered our operational plan for $28 million less than budgeted.”

The company, a major player in the Appalachian Basin, expects to spend $520 million in its 2020 capital budget and that will maintain production at about 2.3 billion cubic feet-equivalent per day (Bcfe/d). That includes $490 million on drilling and recompletions and $30 million on leases. About 30% of that production will be liquids.

The company expects to turn to sales 72 Marcellus Shale wells in 2020, with an expected average lateral length of 11,200 feet. Range anticipates drilling about 810,000 feet of lateral in 2020 while turning to sales about 806,400 feet of lateral in the year. That will keep in-progress well inventory nearly unchanged going into 2021.

It expects 2020 well costs to average less than $610 per lateral foot, the lowest rate in the Appalachian Basin.

In 2019, the company spent $728 million on capital spending, about $28 million less than its original budget. The company also sold assets worth $785 million in 2019 to reduce debt.

Range reported Q4 2019 production was 2.35 Bcfe/d. The company’s average realized price after hedges was $2.76 per thousand cubic feet-equivalent (Mcfe), with roughly 60% of gas production hedged.

Production in southwest Appalachia averaged 2.06 net Bcfe/d, a 16% increase from Q4 2018. The assets in northeast Pennsylvania averaged 98 net million cubic feet-equivalent per day (Mmcfe/d) in the quarter, including 10 net Mmcf/d of legacy acreage production.

The company brought on line 23 wells in southwest Appalachia in Q4 2019: six in the super-rich area, 10 in the wet area and seven in the dry area, Range said. Half of the wells turned to production in 2020 are from well pads with existing production.

In full-year 2019, the company turned to sales 84 Marcellus wells with an average lateral length of 10,550 feet and seven wells in Louisiana.

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See also: Energy Companies Face Looming Debt Burden – Wall Street Journal, February 19, 2020

The fortunes of exploration and production companies depend on oil and gas prices, which determine the value of their reserves and how much money they are able to borrow.

U.S. natural-gas producers face the highest hurdle, according to Moody’s. Antero Resources Corp. and EQT Corp. have the largest looming debt maturities by 2024, with $2.6 billion and $2.5 billion due, respectively.

EQT merged with Rice Energy but the debt problems remain

From an Article by Nick Cunningham, Oil-Price.com, January 14, 2020

The largest natural gas driller in the United States just announced a massive write-down for its assets, offering more evidence that the shale sector faces fundamental problems with profitability.

In a regulatory filing on Monday, Pittsburgh-based EQT took a $1.8 billion impairment for the fourth quarter, as the natural gas market continues to sour. EQT said that the write down comes as a result of the “changes to our development strategy and renewed focus on a refined core operating footprint,” which is a jargon-y way of saying that some of its assets are now worth much less.

EQT also slashed spending for 2020 to between $1.25 and $1.35 billion, down by another $50 million compared to the guidance the company provided in the third quarter of last year.

Although not a household name, EQT is the largest gas producer in the country, and is a giant in the Marcellus shale. EQT purchased Rice Energy in 2017, growing into a huge gas producer and pipeline company, but it has posted disappointing results in the last few years. The poor performance led to an internal battle for control of the company. Toby Rice, who co-founded Rice Energy and maintained small ownership stakes in EQT after the tie up, wrestled control from management, convincing the company’s board that he could right the ship. He became CEO last year.

So far, the company’s problems continue. Natural gas prices slid sharply in 2019, and are at rock-bottom levels, particularly for the time of year. According to the FT, while Henry Hub natural gas prices for February delivery trade at $2.24/MMBtu, they are only trading at around $1.83/MMBtu at the Dominion South hub in Pennsylvania.

EQT itself admits that it can’t succeed in this environment. “Gas prices are down. It has a big impact, the difference between $2.75 gas and $2.50 gas,” Toby Rice said in December “A lot of this development doesn’t work as well at $2.50 gas.”

EQT hopes to cut $1.5 billion in debt by selling assets and boosting cash flow. However, the cash flow part will be hard to pull off with prices stuck in the doldrums.

Moody’s cut EQT’s credit rating on Monday to Ba1 with a negative outlook, moving it into junk territory after the gas giant said it would issue new bonds to refinance debt. “EQT’s significantly weakening cash flow metrics in light of the persistent weak natural gas price environment and the company’s intent to refinance its 2020 maturities in lieu of debt reduction through repayment drives the ratings downgrade,” Moody’s senior analyst Sreedhar Kona said.

The agency also noted the “volatility associated with the cash flow of pure-play natural gas producers necessitate a higher retained cash flow to debt ratio threshold than EQT can deliver over the medium term even with significant debt reduction.”

“Additionally, EQT’s cash flow metrics compare poorly to other Baa3 rated oil producing companies, despite EQT’s size and scale,” Moody’s concluded. EQT’s share price is down by more than half since last spring, and it is also down by more than 75 percent since 2017.

These problems are obviously much larger than EQT. Range Resources recently slashed its dividend in order to pay off debt, while also taking out another $550 million in new debt in order to pay off maturing debt this year. Meanwhile, Chesapeake Energy, the second largest gas producer, is now trading at pennies on the dollar and faces the prospect of being delisted from the New York Stock Exchange.

EQT’s predicament reflects the broader financial questions that have long plagued the shale industry. Fracking can produce lots of oil and gas, but steep decline rates make profits elusive. If the largest gas producer in the country is struggling, and has a credit rating in junk territory, then something is wrong with the business model.

The problems endemic to the shale gas industry are starting to affect production. The decade-long boom in gas production from Appalachia may have finally come to a halt.

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See also: BlackRock makes climate change central to its investment strategy – The Washington Post, January 14, 2020

Over the past year, Pope Francis met with chief executives and board chairs of leading oil and gas companies and financial firms, including CEO Fink of BlackRock, and urged them to take steps to curb climate change. Activists have launched a campaign called “Stop the Money Pipeline.” And investors have flocked increasingly to mutual funds or money managers who screen out shareholdings in fossil fuel companies.

“This is a major, major crack in the dam,” said Bill McKibben, a writer and climate activist who was arrested last week at a protest at a Chase bank in the District. “The financial powers in New York have tried to ignore climate risk, but that’s now impossible; the pressure from activists, and from the climate chaos in the real world, is simply too great.”

CHEVRON premier assets after purchase of Atlas Energy in 2012

From an Article of the Pittsburgh Post Gazette, December 11, 2019

California-based energy company Chevron Corp. is putting its Appalachian oil and gas business up for sale, the company reported this week.

It has about 400 employees in the unit and a regional office in Coraopolis. Chevron controls about 890,000 acres in the Marcellus and Utica shales across Pennsylvania, West Virginia and Ohio.

The Appalachian shale operations contributed to more than half of a massive impairment charge that the company revealed for the fourth quarter. That charge, which writes down the value of assets on Chevron’s books, will be between $10 billion and $11 billion, the company disclosed Tuesday.

Chevron burst onto the scene in Appalachia in 2011 with a $4.3 billion acquisition of shale gas firm Atlas Energy Inc. Two years later, it paid $17 million for a stretch of land in Moon Township where the company planned to build a new regional headquarters.

In 2014, those plans were put on indefinite hold and never materialized. The following year, the energy giant cut more than 150 positions from its Appalachian division as natural gas prices slumped.

In leaving the region, Chevron follows in the footsteps of other multinationals that tried out the Marcellus and Utica shale regions but moved on in favor of other projects around the globe.

Indian conglomerate Reliance Industries Ltd bought Pennsylvania Marcellus assets in 2010 only to sell them off for a third of the price in 2017.

Noble Energy Inc., a Texas-based firm that also has projects in West Africa and Israel, made a bet on Appalachia with its $3.4 billion joint venture with CNX Resources in 2011. Six years later, it sold its stake in the venture and left this region.

Royal Dutch Shell, the Dutch giant whose chemicals subsidiary is building a massive ethane cracker plant in Beaver County, shelled out $4.7 billion for Warrendale-based East Resources in 2010. For years now, its drilling activity in Pennsylvania has been pared down significantly after underwhelming results and asset sales.

Yet smaller oil and gas firms are instead going all in on Appalachian shales.

Southwestern Energy Co., which began as an oil and gas driller in Arkansas, sold the last of its assets there last year to focus on its Appalachian portfolio in Pennsylvania and West Virginia.

Texas-based Range Resources Corp., too, pulled back on its operations in Louisiana after its ill-fated 2016 acquisition and rededicated itself to its program in Appalachia.

As did Downtown-based EQT Corp. when its dalliance with geographic diversification resulted in a $2.3 billion impairment charge — meaning the Permian Basin assets in Texas that EQT bought in 2014 and its holdings in Kentucky’s Huron Shale were actually determined to be worth that much less than what the company had on the books.

The Marcellus Shale, in particular, has taken the mantle as the most productive natural gas play in the U.S., and one of the most cost-efficient. Even so, the current price slump is a result of all that productivity — there is too much supply and not enough demand to soak it up.

Oil and gas price slump hanging around

So, with gas coming out of the ground faster than the U.S. can use it, gas producers are rushing to export their product abroad. Those closest to export terminals — most are on the Gulf Coast — have an advantage, according to Bloomberg Intelligence. Last month, Bloomberg analyst Vincent Piazza predicted that the Haynesville Shale in Oklahoma would see a resurgence because of that dynamic.

The low price of oil and gas — both global commodities at this point — means companies are looking to other aspects of their portfolios to set them apart, and those with more options can get picky.

“Good isn’t good enough,” Chevron’s CEO Michael Wirth said in an interview on CNBC’s show Squawk Box this week, explaining the massive write-down of the company’s Appalachian assets. “The assets in the Northeastern U.S. simply don’t compete as well for our investment dollar as others do,” he said, adding, “some of our assets may work better for others.”

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See also: Chevron’s $11 billion write-down could hit the entire market, CNBC, December 11, 2019

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See also the court challenge for farm damages:

Legal Case of Six Counts Seeing Jury Trial ….
Fayette County Court of Common Pleas
Docket # 2176 of 2019 GD, October 4, 2019
Brent G. and Wanda Y. Broadwater v. Chevron Appalachia, LLC et al
https://www.faymarwatch.org/documents/Brent_Broadwater_Chevron_lawsuit.pdf