Moody's lowered the natural gas price it uses to assess shale companies' credit risk, citing associated production in the Permian Basin that shows no signs of slowing even after additional transportation pipelines come online.
The rating agency reduced its medium-term price band for the Henry Hub benchmark from a range of between $2.50/MMBtu and $3.50/MMBtu to between $2.25/MMBtu and $3.25/MMBtu, according to a Sept. 17 report, reflecting what the agency described as oil drillers' "low sensitivity" to the consequences of oversupply.
"Oil-oriented producers in the Permian Basin of western Texas delivered 17% of the U.S. natural gas produced in August 2019, and have continued to increase their natural gas production as a byproduct of oil, despite weak natural gas prices and large regional price discounts," Moody's analysts wrote.

Gas production across the country hit a new monthly record at 91 Bcf/d in August, according to the U.S. Energy Information Administration. While the startup of pipelines, including Kinder Morgan Inc.'s Gulf Coast Express in October, will help decrease the amount of gas companies burn off at the wellhead, the additional infrastructure will still encourage oil companies to sell more associated gas, a dynamic that effectively "keeps the lid on Henry Hub ... prices," Moody's said.
In July, S&P Global Ratings cut its Henry Hub price assumption by 18% to $2.25/MMBtu for 2019 and by 9% to $2.50/MMBtu for 2020, indicating tightening credit across the sector. Appalachia's pure-play gas producers, in particular, are feeling the heat because cheap Permian gas caps the price that Marcellus and Utica producers receive for their output, and the rating agency has already downgraded Range Resources Corp., Antero Resources Corp. and Gulfport Energy Corp. while shifting EQT Corp.'s outlook from stable to negative.
Industry research firm IHS Markit also recently forecast that Henry Hub prices will average under $2/MMBtu in 2020 for the first time since 1995.
Beyond 2020, however, Moody's expects the construction of more LNG export capacity to correct those "structural stresses" and strengthen regional gas prices. The rating agency said that in the meantime, "high levels of hedging will add to the ... producers' resilience to low commodity prices."
This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.
