By Arunima Kumar and Scott DiSavino
BENGALURU/NEW YORK, Feb 11 (Reuters) - U.S. shale gas
producers are ripe for further spending cuts and write-downs,
investors and analysts said, with prices at four-year lows and
China's rejection of some gas imports weighing on earnings.
Natural gas production in the United States is at record
levels, outpacing domestic consumption and leading to global
supply glut. At the same time, China, the world's largest
importer of gas, has turned away shipments with its demand
forecast to rise at the slowest pace in four years amid the
coronavirus outbreak.
As a result, several large gas producers, have reduced the
value of their production assets.
EQT Corp, the largest U.S. gas producer, recently
said it would take a write-down of as much as $1.8 billion,
following CNX Resources Corp, Royal Dutch Shell Plc
and Chevron Corp in reducing the value of gas
properties.
U.S. shale gas producers' Antero Resources Corp,
Cabot Oil & Gas Corp and EQT kick off fourth-quarter
results in coming days. Antero has pledged to sell assets while
Cabot plans a 27% cut to its drilling budget.
U.S. gas futures fell 5% on Monday to $1.77 per
million British thermal units (mmBtu), a four-year low, far
below the $2.50 per mmBtu some producers need to profit. Average
prices are expected to fall to a two-decade low this year,
according to Reuters polling.
That is not stopping oil companies from new drilling,
however, as roughly half of the growth in U.S. gas output is
coming from oil drillers that produce it as a by-product of
crude output, according to S&P Global Ratings.
Gas production is forecast to rise 3% this year to 94.7
billion cubic feet per day (bcfd), according to U.S. Energy
Information Administration projections. Graphic on U.S. gas
production https://tmsnrt.rs/2Hgzxu1
"Even if it (gas price) goes to zero, it doesn't change our
business plans," said Matt Gallagher, chief executive of shale
producer Parsley Energy Inc, explaining why producers
that profit from selling natural gas liquids, like butane or
propane, will continue sending gas to market despite local
prices trading close to nothing.
Some gas companies have hedged, or locked in prices during
better days, said John Thieroff, vice president at Moody's
Investors Service, providing a bit of breathing room to this
quarter's results. Those with big debts due this year could face
reduced liquidity, he said.
"We think it'll be a soft market for a couple of years,"
said Thieroff. Moody's cut debt ratings on six U.S. gas
producers last November over weak pricing.
Graphic on U.S. oil and gas rig count https://tmsnrt.rs/2HgOL2q
Weak gas prices have also hit pipeline operators and
oilfield services companies operating in high-cost fields.
Patterson-UTI Energy Inc, a services firm, last week
warned investors its results for the quarter would be hit
because a customer dropped two of its fracking units.
With producers trying to unload gas fields, bargain-hunters
like Kalnin Ventures have popped up to buy properties from
Carrizo, Range Resources Corp and a forthcoming deal for
Devon Energy Corp wells in Texas.
Kalnin, a Denver, Colorado-based investment firm, will just
maintain the wells without new drilling unless prices recover to
$3.50 per mmBtu, said CEO Christopher Kalnin, whose firm is
backed by Thai coal and power firm Banpu PCL. The
properties Kalnin purchased have already been written down by
prior owners.
"We started buying these when prices were depressed so our
(cost) basis was already pretty low," Kalnin said.
(Reporting by Arunima Kumar in Bengaluru, Scott DiSavino in New
York; Additional reporting by Liz Hampton in Denver and Jennifer
Hiller in Houston; Writing by Arathy S Nair
Editing by Marguerita Choy)
