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Pa. shale gas permitting slows in December as prices stay low

Pennsylvania's shale gas drillers pulled nearly one-third fewer drilling permits in December 2019 compared to the year prior as activity shifted from the dry gas northeast counties of the state to the liquids-rich wet gas counties around Pittsburgh in the southwest.

The state Department of Environmental Protection said Jan. 10 that Pennsylvania drillers pulled 101 shale gas permits in December, 27% less than they did in December 2018, as 2020 begins to shape up as a year of subdued "maintenance" drilling with natural gas futures below $2.50/MMBtu for most of 2020.

EQT Corp., the state and the country's largest gas producer, pulled 23% fewer permits for new wells compared to the year prior, while a second big southwest operator, Range Resources Corp., chopped its permitting by 69% year over year in December. Range said Jan. 7 that it would cut capital spending 29% in 2020 and hold production flat at 2.3 Bcfe/d.

Among the state's largest five producers, who account for 64% of the state's gas production, only northeast operators Cabot Oil & Gas Corp. and Chesapeake Energy Corp. increased their permitting activity over December 2018 levels. The shift in activity to the southwest was driven by private drillers such as family-owned Snyder Brothers Inc., which pulled nine permits to drill in its home county of Armstrong, northeast of Pittsburgh, and ArcLight Capital Partners LLC-backed Greylock Energy, which received five permits for new wells in Greene County south of Pittsburgh.

Sanford C. Bernstein & Co. gas analyst Jean Ann Salisbury told her clients Jan. 9 to expect Appalachian production, of which Pennsylvania accounts for nearly 60%, to be nearly flat in 2020 with activity picking up toward the end of the year as operators complete their inventory of drilled but uncompleted wells and start seeing a possible 3.5 Bcf/d fall-off in volumes in 2021.

"At current Appalachia rig count, we forecast that Northeast production would decline by 0.5 Bcf/d in 2020 (year on year), beginning in earnest around April," she said. "However, this obscures that it falls ~3.5 Bcf/d exit to exit [in 2021]. ... But will gassy [exploration and production companies, or E&Ps] like Range, [Antero Resources Corp.], Cabot, EQT, Chesapeake, and [Southwestern Energy Co.] really let that happen, or will they add rigs to stay flat longer-term, even if [free cash flow] negative at the $2.30 forward strip? Our belief is that the rigs will come back, even without a higher gas price signal."

The increase in drilling and production will come because drillers have already made their largest cash commitments in leases, well pads and pipeline capacity and the marginal cost of adding volumes is low. "The 'sunk cost curse' keeps decline off the table even at prices below $2.75/MMBtu, our estimate of the true stay-flat cost," Bernstein said.

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