Houston — Amid continued tepid natural gas prices, producers in the Appalachian Basin region have begun reducing their drilling, although the lower activity has not yet slowed the pace of continued strong production from the basin.
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But this trend could change, as operators facing the prospect not only of "lower for longer" gas prices, but possibly weaker oil prices as well in 2020, could begin to plan for even more dramatic decreases in drilling activity in coming months.
As far as production, both the Marcellus and Utica are showing somewhat similar growth trends, S&P Global Platts Analytics data shows. The Marcellus Shale has seen its production grow by about 1 Bcf/d from the start of 2019, from 23.56 Bcf/d in January to 24.54 Bcf/d October 9.
In the Utica Shale play, production is just about back up to levels seen in late August before output fell off in early September. The play saw 7.12 Bcf/d of production October 9, up from 6.57 Bcf/d in early January, according to Platts Analytics.
The production gains in the basin have continued even as natural gas prices in the region have tanked over the same period, with no signs of a rally occurring anytime soon. Spot prices at two of the region's most important pricing points, Columbia Gas Appalachia and Dominion South, have declined from around $2.50/MMBtu to a little more than $1.00/MMBtu currently.
The number of rigs operating in the Marcellus and Utica plays has begun to decline, although the Utica rig count decline has flattened out a bit, with the basin having the same number of rigs, 15, as in early September, Platts Analytics data shows.
However, the rig count decline isn't expected to have any meaningful impact on production trends in the near term, partially because of the ability of producers to bring into production the backlog of drilled but uncompleted wells, or DUCs, in the basin. Improved initial production rates for those wells that are brought online also appears to be driving the sustained production gains, Platts Analytics found.
The continued strong production coming out of the Appalachian Basin, coupled with robust gas production in the Permian Basin, where most of the gas is produced in association with oil production, is leading to an abundant supply of gas across the continent, which in turn is helping to continue to suppress gas prices.
GAS IN STORAGE RISES TO 3.317 TCF
Last week, the US Energy Information Administration reported that US working gas volumes in underground storage increased to 3.317 Tcf after a weekly addition of 112 Bcf last week, the second straight weekly triple-digit build.
Yet there are signs that the continued production growth in the Appalachian Basin is nearing its zenith, as earlier this year producers in the region announced they would begin to cut back on their drilling activities in the second half of the year. In announcing its Q2 results, Southwestern Energy said it planned to lower its average rig count from six rigs in the first half of the year to two rigs by the end of the third quarter.
EQT, which underwent a leadership change when former Rice Energy leader Toby Rice assumed the role of CEO in July after a successful proxy fight, was expected to trim its drilling in the second half of the year, although at the time the company declined to say how severe the pullback would be.
Last month, EQT announced it was laying off almost a quarter of its workforce, eliminating 196 positions and reducing the number of departments within the company from 58 to 15. The producer has not announced the date for its release of its Q3 results.
Gas producers in the basin could announce even more dramatic drilling cutbacks for 2020 when they begin to announce their Q3 results.
-- Jim Magill, Michael van Duinen, firstname.lastname@example.org
-- Edited by Bill Montgomery, email@example.com
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