Low gas prices crater Utica driller Ascent's hope for another breakout year

Despite driving its well costs down below $600 per lateral foot and cutting capital spending in half, low natural gas prices in 2020 prevented privately held Utica Shale producer Ascent Resources from repeating the breakout year it had in 2019.

Ascent, which rose from a staff with many ex-Chesapeake Energy executives to become the Utica Shale and Ohio's top gas producer by volume, reported March 10 that its Ascent Resources Utica Holdings LLC operating unit had adjusted income of $6.2 million in 2020 compared to $327.7 million in the year prior.

The fall-off came largely because of a 24% drop in realized prices for its natural gas, oil and NGLs to $2.08/Mcfe versus $2.75/Mcfe. The comparison of 2020 to 2019 was made starker because the company booked a $441 million gain on the value of its hedging contracts in 2019.

The drop in realized pricing slashed 2020 revenues from oil, gas and liquids to $1.5 billion, a drop of 38% from the $2.4 billion seen in 2019.

With drilling expenses halved, Ascent reported positive adjusted cash flows of $114 million for 2020, compared to $235 million in negative free cash flow in 2019, after adjustments.

Ascent plans to cut spending even further to $575 million at midpoint in 2021 while holding production volumes to 2 Bcfe/d, with 90%-92% of that being gas, and to generate roughly $125 million in positive free cash flow.

"The operator claims the majority of its 31% year-over-year cost savings are due to sustainable drilling and completion efficiency gains," Enverus analyst Matt Clenchy said. "Based on guidance, Ascent will run three to four rigs to maintain production flat at 2 Bcfe/d with a total development capex of $575 million next year, which is expected to generate ~$125 million of free cash flow."

Backed by an initial $1.35 billion investment from private equity firms Energy & Minerals Group Fund II LP and First Reserve Corp., Ascent issues regular financial reports to its investors and lenders.