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Shale gas bond recovery continues as futures prices stay above $3/MMBtu

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Shale gas bond recovery continues as futures prices stay above $3/MMBtu

Bond prices for pure-play U.S. shale gas producers continue to recover after they were hammered during the March oil crisis, as commodity prices for this winter stay above $3/MMBtu and producers continue to restrain their spending and drilling.

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Investors and lenders are gaining faith in the overall sector as the prospect of significantly better natural gas prices this winter and throughout 2021 drives up stock and bond prices.

"Higher gas prices have allowed gassy [exploration and production companies] to access the credit markets earlier this week," Goldman Sachs upstream analyst Brian Singer told clients Aug. 21. "Investors see room for further improvement in gas prices from lower associated gas supply due to lower oil activity, a focus on pay-down of debt among gas producers and improving demand heading into next year."

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The high-yield credit window that slammed closed in March opened a crack in August, and three Appalachian exploration and production companies squeezed through Aug. 18 with new bond issues to refinance lines of credit or bonds soon to come due.

Antero Resources Corp. placed a $250 million convertible bond to pay down its bank line of credit, Range Resources Corp. sold an upsized $300 million bond to refinance older loans, and Southwestern Energy Co. was able to place a $350 million bond as part of its package to finance the takeover of neighboring shale gas Montage Resources Corp.

After losing 40% or more of their value in March, select 2025 bonds for Range and Southwestern are trading almost at par or better, according to S&P Global Market Intelligence data, while the price of Antero's $600 million bond due in March 2025 has more than doubled from its 30 cents-on-the-dollar price in March.

Antero is not out of the woods yet. Ratings removed a negative CreditWatch Aug. 27 because the producer was able to privately place $250 million of convertible bonds in August but noted concerns surrounding Antero's long-term liquidity. "The outlook is negative because of the company's upcoming debt maturities over the next three years," Ratings said. "It has almost $1.6 billion of debt due by June 2023, and it needs to address the maturity of its revolving credit facility due October 2022. ... This debt profile remains onerous in our view, despite the company's improving liquidity profile."

The three major credit rating agencies, which handed out sweeping credit downgrades across the sector in February and March, have been stingy with upgrades because the gas price hike has not happened yet and shale drillers do not have a track record of conserving cash in the face of higher prices, preferring to spending cash to put more rigs in play and capture any price gains. The only investment-grade firm in the sector, integrated New York gas company National Fuel Gas Co., had its outlook revised up to "stable" by Ratings on June 3 as part of a debt and equity package it issued to buy Royal Dutch Shell PLC's north-central Pennsylvania shale gas operations. Ratings upgraded Comstock Resources Inc. to B- in June after the company used the proceeds from a $500 million bond issue to pay down its bank revolver.

The one bond with little hope for recovery is a $2.2 billion issue by Chesapeake Energy Corp. due in 2025. Chesapeake filed for Chapter 11 bankruptcy protection June 28.

This S&P Global Market Intelligence news article contains information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.