'Smart' Appalachian Operators Can Handle Sub $2 Natural Gas
The Appalachian Basin is one U.S. hydrocarbon prospection patch that just keeps on giving natural gas – be it via conventional or unconventional means. It’s what the U.S. Energy Information Administration (EIA) describes as the ‘Appalachia Effect.’
For the number crunchers in the market that effect has translated into an uptick in production from 7.8 Bcf/day in 2012 to 23.8 Bcf/day in 2017. That’s a higher natural gas yield than any other OPEC producer, and the primary reason the U.S. has been propelled up the market leaders’ board, with the Appalachian Basin accounting for nearly 50 percent of headline American production.
And there’s more on the way, for the EIA’s latest outlook projects the region’s production to rise to 50 Bcf/day by 2050, with a veritable who’s who of the industry wanting in on the act. Conventional production aside, rising shale gas output from the basin’s Marcellus and Utica shales combined is already lending credence to the projection.
Everyone from Range Resources to Chesapeake, EQT Production to CNX Gas Co., is vying for hydrocarbon molecules in the basin that stretches from Ohio to Pennsylvania.
But while reference cases and projections are one thing, operating reality is quite another. Anecdotal and empirical evidence suggests many players are worried about possible sub-$2 MMBtu Henry Hub prices, thus cutting production and divesting assets; a pricing prospect the region faced back in 2012 for broadly similar reasons – oversupply and difficulty in moving the product to market courtesy of pipeline access and capacity issues.
What’s more, natural gas power burn demand across the U.S. Northeast is expected to dip by around 10 percent over the coming months, going by S&P Global Platts’ projections. This could add further seasonal pressure to already existing headwinds.
According to Moody’s, many regional players will cut growth investment and manage their businesses within operating cash flow. This has only become visible in recent months after slower activity in the fourth quarter of 2018 meant the likes of CNX built a backlog of inventory that kept investment up in the first quarter of 2019.
Despite ~$2.5 MMBtu Henry Hub prices, not every regional player is spooked. The current market permutations demand “smart operations,” says Rusty Hutson, Chief Executive Officer of Diversified Gas & Oil (DGO), a London-listed owner, operator and acquirer of conventional mature wells spread across the Appalachian basin.
Speaking to Rigzone, Hutson explained his modus operandi: “We leverage economies of scale to reduce costs. We go for assets many of the major regional players have given up with zero to declining production and turn them around.”
Often overlapping assets shortens well tenders routes and decreases equipment overhead giving players such as DGO the kind of purchasing power that ultimately reduces costs.
Hutson says he’s “completely sold” on the potential of the Appalachian basin and has made acquisitions all around the region from those very players curtailing investment, including multimillion dollar buys via divestment drives initiated by CNX and Anadarko Petroleum.
View Full Article
WHAT DO YOU THINK?
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
- USA EIA Hikes Up 2023 and 2024 Brent Oil Price Forecasts
- Macquarie Group Reveals Oil Market Outlook
- Chevron Starts Up Gorgon Extension Project
- Biden Urged to Demand Climate Emergency as Smoke Chokes Washington
- Eni Inks Deal to Build Hybrid Renewables-Gas Plant in Kazakhstan
- Enagas Opens Logistics Bidding for Mothballed Asturias Terminal
- ADNOC Chief: Shift from Fossil Fuel Unavoidable
- Oil Down as Demand Concerns Supercede Saudi Cuts
- Improved Wage Offer Ends North Sea Dispute
- Global Oil Demand for Road Transport to Peak in 2027: BNEF
- Saudis Remind Global Oil Market Who is King
- Saudi to Cut Output by 1MM BPD in Solo OPEC+ Move
- Data Science is the Future of Oil and Gas
- Debt Ceiling Deal Becomes Law
- Two Main Forces Have Come Together to Pull Down Commodity Prices
- What Do Latest OPEC+ Moves Mean?
- Fatality At North Rankin Complex
- USA Shale Seen Holding Firm on Returns
- Par Pacific Completes Buy of ExxonMobil Refinery
- North America Loses More Rigs
- Which Generation Is Most in Demand in Oil, Gas Right Now?
- Who Is the Most Prolific Private Oil and Gas Producer in the USA?
- BMI Reveals Latest Brent Oil Price Forecasts
- Is There a Danger That Oil and Gas Runs out of Financing?
- BMI Projects Gasoline Price Through to 2026
- What Will World Oil Demand Be in 2023?
- North America Rig Count Reduction Rumbles On
- What New Oil and Gas Jobs Will Exist in the Future?
- What Does a 2023 USA Recession Mean for Oil and Gas in the Country?
- USA Oil and Gas Supported Nearly 11MM Jobs