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Appalachian shale stocks get battered on low gas prices, easing of Iran tension

With a feeble 44 Bcf of natural gas withdrawn from storage in the middle of a warm winter and prices for natural gas futures contracts crumbling below $2.15/MMBtu, Appalachia's shale gas producers braced for another beating in the stock market Jan. 9 as the new year gets off to a rough start.

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Shares in EQT Corp., the largest U.S. natural gas producer by volume, sank 11% in heavy trading Jan. 8, as it became clearer that commodities traders do not expect winter weather to salvage commodity gas prices, which are at their lowest level since the winter of 2016. The negative news for current and future gas prices, coupled with a broader market retreat from oil and gas as tensions with Iran eased, hurt America's pure-play gas producers concentrated in Appalachia, analysts said. EQT shares dropped another 1% on heavy volume after Jan. 9's opening bell.

"Gas price [is] certainly impactful, but [I] think it's more of a fund flow impact following the Trump/Iran news today which has taken down oil -5% causing weakness across the spectrum," Tudor Pickering Holt & Co. shale oil and gas analyst Sameer Panjwani said in an email after Jan. 8's market close.

"As tensions eased yesterday, the perceived likelihood of physical oil supply disruptions took a large step lower," Raymond James oil and gas analyst John Freeman said in a note before the Jan. 9 market open. "Traders took the chance to unwind bullish bets on oil prices ... Energy equities followed the trend: E&Ps were down 3.9%."

Year-to-date, an equally weighted index of Appalachia's top 10 publicly traded gas producers was off 7% at Jan. 8's market close, with EQT shares suffering the worst, off 16% since the new year began. Utica shale driller Gulfport Energy Corp. and Marcellus Shale producers CNX Resources Corp., Antero Resources Corp., Montage Resources Corp. and Southwestern Energy Co. were all down by double-digit percentage points for the new year when the market opened Jan. 9.

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Day-ahead cash prices at the benchmark Henry Hub in Louisiana started Jan. 9 at $2.092/MMBtu after losing 3.6% Jan. 8, while NYMEX Henry Hub futures contracts for February and March deliveries both lost ground Jan. 8 to $2.141/MMBtu and $2.134/MMBtu, respectively, according to S&P Global Market Intelligence.

The 44 Bcf inventory pull for the week ended Jan. 3, and the previous week's weak withdrawal of 58 Bcf, were well below the five-year averages. S&P Global Platts Analytics, which examines pipeline flow data, said demand has been down 3.1 Bcf/d for the last days of 2019 and the first days of 2020, likely due to warmer weather in high-demand regions like the Midwest and Northeast.

The atmosphere has not been helped by news of producers writing down parts of their shale gas investments, as reserves acquired when gas was $4/MMBtu are worth half that today. Appalachian driller Range Resources Corp. said in a Jan. 8 SEC filing that it would take a second write-down of its Terryville, La., investment, originally valued at $4.2 billion, due to low gas prices. Range's news came on the heels of supermajor Chevron's Dec. 10 announcement that it was writing off $5 billion to $6 billion of the value of its Appalachian shale holdings and hinted it would be leaving the play.

Tudor Pickering Holt & Co. and others are gloomy about the prospects of significant increases in commodity gas prices in 2020. "We continue to expect prices to weaken further in Q1'20 towards $2/Mcf, absent a weather event," the energy investment bank told its clients Jan. 3. "Investors will be looking for further cuts to capital plans and growth to be announced during upcoming conference calls. Both economics and cash flow do not support drilling at current levels."

S&P Global Platts and S&P Global Market Intelligence are both owned by S&P Global Inc.