In the face of a warm winter and near record-low winter natural gas prices, drilling activity in Pennsylvania's shale plays plunged 74% year over year in January, according to permitting data from the state's Department of Environmental Protection.
With gas futures prices at the benchmark Henry Hub submerged beneath $2/MMBtu until June and prices at local hubs such as West Virginia's TCO Pool and eastern Pennsylvania's TETCO M3 under $2/MMBtu until the start of next winter, according to S&P Global Market Intelligence price data, drillers are pulling back. Operators pulled 44% fewer permits than they were issued in December 2019, according to state data Feb. 7.
Large declines in permitting activity occurred in counties that are normally hotbeds of drilling: Washington and Greene in southwestern Pennsylvania and Susquehanna in the northeast corner. Susquehanna's leading driller, Cabot Oil & Gas Corp., pulled the only permit to drill in the county in January, compared to the 24 permits Cabot, Repsol SA and Chesapeake Energy Corp. pulled in January 2019.
The declines in the southwest can be traced directly to an 82% drop in activity by the nation's leading natural gas producer, EQT Corp., as well as Range Resources Corp.'s 86% reduction in planned drilling. Range pulled five permits to drill in January compared to 35 in the year-ago period, according to state data, while EQT pulled eight permits compared to 44 a year ago.
The receding activity among the state's top producers highlighted the persistent activity of integrated gas company National Fuel Gas Co.'s Seneca Resources Corp. drilling unit in the north-central part of the state, specifically Elk and Cameron counties. Seneca has focused its activity in those counties because it can use already-constructed well pads to tap the Marcellus and Utica shales.
Nonetheless, National Fuel will drop one of its two remaining rigs in June unless prices recover, executives said Jan. 31 on the company's earnings call for its fiscal first quarter. They resisted calling the new drilling plan "maintenance mode," saying they are ready to restart rigs if prices move above $2.50/MMBtu.
"I want to make sure or ensure that we're prepared when gas prices rebound, that we'll be able to react quickly," Seneca President John McGinnis told analysts. "So, I really wouldn't call this a maintenance mode per se, but it's more just a pullback and wait until we see gas prices improve."
