Pennsylvania producers switch gears to dry gas plays from wet in Q2 to offset losses

Denver — US Northeast producer Southwestern Energy saw its second quarter earnings offset by lower commodity prices, including a 35% decrease to NYMEX Henry Hub and 53% decrease at WTI, as the company experienced an $880 million loss compared with a $138 million gain in the same quarter for the year prior.

In an effort to prevent further losses, the company quickly relocated rigs from liquids-rich plays to dry gas fields in Pennsylvania, executives reported during an earnings call on July 31. Although NGLs, crude and natural gas prices all took hits during Q2, the blow to gas prices proved less severe.

"We took measures early to move an active rig within one week to a dry gas location in Pennsylvania," said Southwestern CEO Bill Way. "We moved two other rigs to dry gas locations as well during the quarter."

"We mitigated many of the far-reaching impacts of COVID-19 on the industry with operational agility and commercial flexibility to achieve results at or above our commitments," he added. "These actions support our return to a self-funded capital program in 2021."

While liquids-rich fields across the Northeastern US showed declines during Q2, with continued dips on the forecast, gains were recorded in some dry fields, particularly in Pennsylvania, according to data by S&P Global Platts Analytics.

For example, in the wet pocket in northwest Pennsylvania, total production averaged 4.5 Bcf/d during the first several months of the year. It has since declined to 4.2 Bcf/d and is likely to hit near 4 Bcf/d by year end due to lower drilling and completions activity. In contrast, Pennsylvania's northeast dry fields averaged a total of 10.7 Bcf/d of production at the start of the year, and are expected to eclipse 12 Bcf/d by year end.

Several northeast operators have already indicated that they will be raising output late in 2020 to capture a sharp rise in gas prices on the forward curve, locking in more supply.

In its Q2 results on July 30, producer CNX Resources Corp. announced plans to ramp up production by as much as 500 MMcf/d for the winter heating season starting Nov. 1. The operator was one of at least two key producers in Appalachia to have voluntarily shut-in some of their existing production earlier in the year in response to weak prices. CNX announced in June that it was putting some 375 MMcf/d, or 27%, of its output temporarily onto the sidelines.

In July, those curtailed volumes were reduced to around 300 MMcf/d, and the company has throughout held to its original 2020 production guidance, showing that it will have to produce more in the later months to meet the same daily average.

EQT Energy also said it may instate another production cut in the late summer, while affirming its full-year 2020 guidance, suggesting that it too will have to ramp up sharply later in the year to meet the target.