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Big shale drillers enjoy cash flow, earnings boost from high gas prices

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Big shale drillers enjoy cash flow, earnings boost from high gas prices

  • Author Bill Holland
  • Theme Energy

Four major shale oil and gas drillers reported hefty gains in free cash flows from high natural gas prices in the third quarter, and they vowed not to spend it to increase production.

"What we don't want to do is get back to this cycle where capital is destroyed by the industry putting the pedal to the floor when times are high and then suffering when times are low," Coterra Energy Inc. President and CEO Thomas Jorden told analysts on a Nov. 3 conference call on the quarter's results. "We're going to be disciplined. We're going to move prudently."

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Jorden could have speaking for the group of shale producers — Coterra, the new name for the combination of oil producer Cimarex Energy Co. and shale gas giant Cabot Oil & Gas Corp.; Haynesville Shale driller Comstock Resources Inc.; and Appalachian drillers Gulfport Energy Corp. and Chesapeake Energy Corp.. All four pledged not to chase higher prices indicated by the futures markets and instead reap the extra cash.

The companies reported double-digit percentage gains in the average realized price for their gas, including hedges. Gulfport had the smallest increase, 22% to $2.74/Mcf when compared to last year. Coterra had the biggest change, up 69% to $2.65/Mcf compared to the third quarter last year.

The producers reported solid cash flows, with three of the four Comstock, Gulfport and Coterra turning last year's third-quarter cash flows from negative to positive this year. Chesapeake's cash flows shrunk 22% because of higher spending last year for bankruptcy-related items.

Three of the companies — Coterra, Chesapeake and Comstock — met or beat the profit expectations of analysts surveyed by S&P Global Market Intelligence.

Coterra used extra free cash of $125 million to bring the payment of a 17.5 cents per share variable dividend ahead by one quarter. Coterra will be paying a base plus variable dividend of 30 cents per share in November instead of the first quarter of 2022.

Chesapeake said it would use the extra cash to fund a 27% increase in the size of its base dividend to 43.75 cents per share, payable in December, while investigating the addition of an extra variable dividend starting next year.

Gulfport said it would use its cash to buy back $100 million worth of shares, while Comstock said its cash would go to retiring debt early. Comstock is insulated from general investor pressure by the nearly 60% stake held by Dallas Cowboys football team owner Jerry Jones.

Only two of the companies reported an increase in gas production year over year: Chesapeake and Comstock. Both noted that their production increases are being driven by increased demand from Louisiana's Haynesville Shale, which is right next to the Gulf Coast's LNG terminals.

"Now, all of a sudden, you can see the demand for the gas in U.S. and others worldwide," Comstock Chairman and CEO Jay Allison said on his call. "This global demand for gas ... they need it in Europe; they need it in Asia; they need it here. I think those [final investment decisions] are looking positive to add some more export facilities within the next several years."

The increase in sales of gas for export is driving companies to beef up their environmental and emissions monitoring capabilities as overseas customers want lower-carbon products. Chesapeake said in its third-quarter earnings release that it started retrofitting the 19,000 pneumatic controllers in its operations to reduce their methane emissions and make more of the company's gas ready to be certified as "responsible natural gas," or RNG.

"We remain on track to fully certify 100% of our Gulf Coast production as responsibly sourced gas this year and Appalachia production by the middle of 2022," Chesapeake President and CEO Domenic Dell'Osso told analysts. "We expect the gas coming out of these two plays to have methane intensity of 0.02% to 0.03%. Once complete, Chesapeake will be positioned to directly deliver approximately 3 Bcf/day of certified responsibly sourced gas to end-users around the globe."

Dell'Osso said Chesapeake supports the latest U.S. Environmental Protection Agency rulemaking on methane emissions, as well as a proposed fee for methane leaks. "We believe responsible production from unconventional resources in the U.S. has a critical role to play in helping meet these goals," he said.

Haynesville driller Comstock announced that it was starting the certification process for its gas using a standard developed by MiQ, an independent, not-for-profit partnership between RMI and SYSTEMIQ. Responsible Energy Solutions LLC will be the auditor.