trending Market Intelligence /marketintelligence/en/news-insights/trending/i0d7umopugkpvyqrwpmoca2 content esgSubNav
In This List

Wall Street dips its toe back into Appalachian shale after encouraging Q4

Podcast

Next in Tech | Episode 49: Carbon reduction in cloud

Blog

Using ESG Analysis to Support a Sustainable Future

Research

US utility commissioners: Who they are and how they impact regulation

Blog

Q&A: Datacenters: Energy Hogs or Sustainability Helpers?


Wall Street dips its toe back into Appalachian shale after encouraging Q4

Whether it was the demonstration of spending discipline or the use of share buybacks to start returning money to stockholders, investors decided to stop pummeling Appalachian shale gas stocks after the companies released fourth-quarter 2017 results, spiking share values for most of the group, an S&P Global Market Intelligence analysis found.

SNL Image

Range Resources Corp., which lost close to half its value over the past year, said it would cut capital spending 20% in 2018, resulting in positive cash flows, when it announced earnings Feb. 27. Range shares have increased more than 16% since the announcement, as of March 6.

CNX Resources Corp., a coal company turned pure-play gas producer, seemed to find investors' sweet spot: It would spend 32% more in 2018 while staying cash flow positive by using the proceeds from selling gathering and processing assets to its affiliate CNX Midstream Partners LP and continue to buy back its own shares. CNX was rewarded with a 25% bump in its stock price since announcing earnings.

Utica Shale driller Gulfport Energy Corp. also gained 25% after its earnings announcement, in which it said it will reduce drilling in the Utica Shale after seeing encouraging well results from new oil and liquids-rich wells in Oklahoma. Gulfport's cash burn will be reduced by 93% in 2018, according a survey of analysts by S&P Global Market Intelligence, and with a few asset sales, Gulfport might reach positive cash flows.

"We believe [Gulfport] may pull levers to further improve its liquidity," Williams Capital Group LP analyst Gabriele Sorbara told his clients in a Feb. 22 note. Gulfport is Sorbara's top natural gas pick. "First, [Gulfport] expects to start the process of selling down its 25.1% equity interest in [Mammoth Energy Services Inc.], which is currently valued at ~$224.5 million or $1.23/share. Second, a drop down of the Strike Force joint venture (75% EQT/25% [Gulfport]) may occur in 1H18."

Gulfport's board authorized a $100 million share buyback plan, with CEO Michael Moore assuring analysts on a Feb. 22 conference call that he was going to direct as much spare cash as he could to finance buybacks. "We plan to be aggressive at repurchasing our shares and expect to complete this trend before then if market conditions permit," Moore said.

An equally weighted index of the top 10 Appalachian shale gas producers has lost 24% of its value in the past 12 months but has gained 14% over the past 30 days, according to S&P Global Market Intelligence figures.

The top U.S. natural gas producer by volume, EQT Corp., has gained 7% since its Feb. 15 earnings release, with several analysts recommending the stock as a chance to profit from EQT's coming reorganization into separate midstream and upstream units.

EQT is still executing its plan to sell the midstream assets in its drilling unit to EQT Midstream Partners LP while rolling newly acquired Rice Midstream Partners LP into EQT Midstream and selling its incentive distribution rights — ever-increasing slices of the partnership's profits that go to the general partner that manages the system — to EQT GP Holdings LP, a holding company for EQT Midstream's general partner.

"At some point people will care ... we hope," SunTrust Robinson Humphrey analyst Welles Fitzpatrick told his clients Feb. 21. Fitzpatrick and other analysts believe EQT's exploration and production core will be worth more when the midstream assets are stripped out of the stock. EQT is trading at 4.9x earnings, while its peers are trading at 6.2x earnings, Fitzpatrick said.

SNL Image

"A deconsolidated structure remains a positive for the stock, as we believe the lack of individual investment vehicles is the primary rationale for EQT's discount," Fitzpatrick said.

The nation's top NGL producer, Antero Resources Corp., reported that gas liquids such as ethane and propane, linked to crude oil prices, are accounting for an increasing share of its revenue. Antero's shares gained 18% after its results were released Feb. 13, showing a 15% decrease in capital spending.

Aside from CNX, companies with positive cash flows and plans to increase spending did not get much encouragement from the market. Cabot Oil & Gas Corp. shares grew 5% after the company's earnings release, and National Fuel Gas Co. shares have declined 8% since its quarterly results came out.

The vertically integrated National Fuel plans to increase its capital spending 30% in 2018, with most of the cash going to its pipeline companies and its downstream gas utility in western New York.

Cabot is the only Appalachian driller to avoid a market beating over the past year, gaining 9% in the past 12 months as it kept increasing production while maintaining positive cash flows. In the first quarter, Cabot tripled the size of its share buyback program to $720 million while paying a 24-cent-per-share annual dividend.