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Despite $4 gas, Pa. shale permits drop 52% YOY in July

Shale gas permits issued to Pennsylvania producers in July declined 52% year over year, as the state's largest producers continued to hoard capital, planning fewer wells despite natural gas futures prices rising to $4/MMBtu, the highest in 2.5 years.

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Four counties, three in the dry gas window of the northeast part of the state, dominated the new permits list, according to the Department of Environmental Protection's database on Aug. 13.

All the state's top five producers — EQT Corp., Cabot Oil & Gas Corp. Chesapeake Energy Corp., Range Resources Corp. and Southwestern Energy Co. — had double-digit percentage drops in new permits pulled compared to July 2020, with cuts as large as 85% in EQT's case.

One company is breaking with the pack and has roughly doubled the pace of its Pennsylvania shale gas activity: New York's integrated National Fuel Gas Co.

National Fuel's faster pace is not a surprise. As far back as November 2020, the New York producer had been telling investors it planned to increase spending and production to capture higher prices and capitalize on new wells and leases acquired from Royal Dutch Shell PLC last year.

National Fuel's drilling unit, Seneca Resources Corp., pulled six permits to drill in July in Tioga County where the Utica Shale is stacked underneath the Marcellus Shale. In July, 2020 the company pulled no permits to drill in the state.

According to DEP records, National Fuel pulled 33 permits to drill through July of this year, nearly double the 18 permits it pulled in the first half of 2020.

"We have begun the process of accelerating our completion pace and now have two active completion crews, which is a level of activity we expect to continue throughout the first half of fiscal '22," Seneca President and COO Justin Loweth told analysts on an Aug. 6 call to discuss National Fuel's fiscal third-quarter results. Loweth said Seneca will keep two crews and two rigs operating through next year and will spend $45 million more this year than last to increase production.

"The setup remains very constructive for natural gas prices," if everybody else in the basin curbs their spending, Loweth said. "I'm cautiously optimistic the newfound discipline will hold."

EQT President and CEO Toby Rice reiterated that he needs to see futures prices move higher before he unleashes more rigs and drills more wells. "It would require a strip that's got some length to it, probably two to three years out at a gas price that's north of $3," Rice said on a July 29 call to discuss second-quarter earnings.

The head of the company that has been drilling Appalachian shale gas wells the longest, Marcellus pioneer Range Resources, is resisting the siren song of higher prices. "You could have used that argument many times over the last six or seven years, and that didn't work out so well for the industry," President and CEO Jeffrey Ventura told analysts on a July 27 earning conference call.

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