A new study by BTU Analytics, “A Firm Dilemma,” exposes how Marcellus and Utica producers’ infrastructure commitments set up a race to the bottom in a low commodity-priced environment where only the lowest-cost producers will survive.
“A Firm Dilemma,” reveals how weak realized well-head prices in 2015 forced the end of the Marcellus and Utica shale E&P ‘growth at any cost’ era starting a new era of ‘costs limit growth.’ The legacy of investments and commitments made by E&Ps during the previous era now have to stand the test of time in a low-price environment including firm pipeline commitments.
This paper ranks Northeast E&P-specific fundamental analysis such as acreage quality, producer breakevens, pipeline commitments and hedging positions to highlight who is best positioned to enter into this new low-cost market era.
- Producers’ firm transport pipeline commitments will shift from being an asset to a liability as natural gas basis spreads and capital budgets tighten.
- The best positioned Northeast producers already have the best rock under lease, inventory that provides room to run, capital to continue activity and, through high-grading, are in the process of forcing the market price to levels where 2nd tier producers cannot compete.
- Enough low cost drilling locations remain in the Marcellus and Utica to only drill wells that breakeven at realizations of $2.50/Mcf and below through 2020.
- Northeast basis will strengthen at the expense of Henry Hub, implying Northeast prices have limited upside to current levels.
This study includes five-year Henry Hub and basis forecasts; fundamental analysis on Cabot Oil & Gas, Range Resources, Southwestern Energy, Antero Resources, Rice Energy, EQT; hedging program analysis; infrastructure timing expectations and implications; and the impacts of LNG exports.
Based in Denver, Colorado, BTU Analytics provides independent fundamentals-based consulting and analytical reports on the North American oil, NGL, and natural gas markets.