Officers anticipate stronger gas prices
Marcellus Dry boasts highest IRRs in US
Denver — While most oil-focused producers quickly cut back on spending and production outlooks for 2020 following the crude price collapse and coronavirus epidemic, gas-driven Southwestern Energy has pivoted from liquids-rich wells to dry wells to take advantage of rising natural gas prices.
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"The last few years of low natural gas prices have taught us the importance of resilience," he added during the company's first quarter 2020 earnings call May 1. "Natural gas comprises 80% of our current production portfolio. It shields us from the decline in oil prices ... We made a swift action to pivot from condensates to more natural gas than our original guidance."
Southwestern operates in the US Northeast, where it focuses on assets in Pennsylvania in the Marcellus Dry and in wet fields in West Virginia.
Due to the crude oil price crunch under the coronavirus pandemic, internal rates of return per well in some US dry gas plays now top oil-rich and liquids-rich fields, according to data compiled by S&P Global Platts Analytics.
National Fuel is another player in the Appalachia region that has noticed rising natural gas prices. "Interestingly, the recent collapse in oil prices has been a huge lift for natural gas moving into the next two years," said John McGinnis, president of National Fuel's exploration and production subsidiary Seneca Resources, during the company's earnings call on May 1. "And as a result, we have significantly increased our hedge position over the next couple of years."
In the current pricing environment, all US plays tracked by Platts Analytics have fallen below breakeven, or 10% internal rates of return per average well. Currently, the Marcellus Dry and Utica Dry are the top plays in the country, slightly edging out the Permian Midland, as all three plays hover around a 5% return. Platts Analytics IRRs are based on a half-cycle, post-federal corporate tax analysis, which excludes sunk costs such as acreage acquisition, seismic and appraisal drilling.
"Pivoting to natural gas is really trying to anticipate strength that is already beginning to show up," Way said. "We share the views out there that it will likely continue to improve."
Some of the bullishness for gas stems from the extreme pullback in drilling activity in oil fields, which is already leading to lower volumes of associated gas flowing out of plays in the Williston and Denver-Julesburg basins. The US rig count has fallen 48%, or by 403 rigs, since March 11 of this year due to the collapse in oil prices, according to Platts Analytics.
Henry Hub futures continue to strengthen with the prompt month nearing $2/MMBtu. The prompt-month contract has not closed above $2 since mid-January.
Thus far, US operators have decreased capital expenditures by $36 billion, or 32%, from original guidance. Also, a total of nearly 800 million b/d in production cuts have been announced, with the most recent announcement coming from ConocoPhillips, which is shutting-in approximately 320 million b/d in the Lower 48 and Alaska. The Bakken and DJ Basin lead US fields in recent gas declines at 300 MMcf/d and 150 MMcf/d, respectively, according to Platts Analytics.
"Natural gas prices have increased about 20% recently," said Julian Bott, Southwestern's chief financial officer. "We share views of bullish natural gas prices moving ahead in 2020."
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May 02, 2020 at 03:26AM
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Southwestern pivots to dry natural gas wells under oil price plunge - S&P Global
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