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New permits for Ohio Utica Shale wells plummet; Ascent laying down 2 rigs

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New permits for Ohio Utica Shale wells plummet; Ascent laying down 2 rigs

In reaction to cratering natural gas and liquids prices, Ohio drillers pulled half the number of permits for new wells in September as they did in August, a 28% drop when compared to September 2018, the latest state data said Oct. 8.

The state's largest producer, privately held Ascent Resources, pulled the same number of September permits in both years but is in the middle of laying down two of its six drilling rigs, a company spokeswoman said. "During Ascent's last earnings call [Aug. 13] they highlighted that they were beginning, and currently are now in the midst of, going from effectively six operated rigs to four effective rigs" by the end of the year, spokeswoman Lisa Elliott said. The company's earnings calls are limited to investors and not available to the public.

Elliott said Ascent hasn't determined what prices it would need to see in the markets before it resumed its previous brisk pace of Utica drilling. Ascent's leadership is stocked with former Chesapeake Energy Corp. executives who pioneered the Utica while working for the Oklahoma City producer 10 years ago.

Flying into the low-price headwinds in the Utica was Antero Resources Corp., which pulled its first new permits in nearly a year, all for wells near previous locations in dry gas Noble County's Seneca Township. The five new wells would be on three new pads in the largely rural southern Ohio County, according to the state's Department of Natural Resources.

Antero President and CFO Glen Warren told shareholders on the company's Aug. 1 earnings call that Utica wells had trouble competing for capital with Antero's liquids-heavy Marcellus wells in West Virginia but left enough room for a reentry into the dry gas Utica after more than 10 months' absence.

"We do have a number of Utica locations that are at the very low end of our cost curve. But at the end of the day, you're much better off completing pads in the same general area from an operating and a capital cost standpoint," Warren told analysts. "So right now, we're really massed to develop in the very much liquids-rich Marcellus. But we like the Utica as well, and we just brought on six dry gas wells ... and those look really strong."

Antero is one of the largest NGL producers in the U.S., but even those products are having trouble gaining any ground, which led MUFG Securities America Inc. analyst Michael McAllister to downgrade Antero from overweight to neutral Oct. 8. McAllister forecast 2020 NGL prices to slide 4% to $22 per barrel and stay flat through 2021. Previously, he forecast $23/bbl in 2020 and $25/bbl in 2021.

Smaller producer Montage Resources Corp. braked hard in September, pulling zero permits compared to seven a year ago when it was two different companies. Guggenheim Securities LLC's veteran shale oil and gas analyst Subash Chandra said the driller will cutting its 2020 spending by 40% to preserve liquidity.

"Markets will likely focus on liquidity improvements ahead of $511 million debt maturity in 2023 rather than growth rates or valuation," Chandra told clients on Oct. 8. "The drilling program will slow considerably in 2020 in order to be cash flow neutral and we expect the goal will be to maintain or increase [proved developed producing] reserves despite reduced activity in order to boost liquidity."

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