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Top shale producers remain bullish on NGL prices as revenues climb again in Q3

Highlights

Some sticking with current production levels

'Huge surge' in petrochemical, industrial demand

Top shale producers said they remain positive that NGL prices will continue to rise, after the commodity significantly boosted their financial results in the third quarter.

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During the quarter, Mont Belvieu NGL spot prices averaged $1.14/gal, a nearly 131% increase from the average in the same period a year earlier. In the last month of the quarter, NGL prices started to outpace the Brent crude oil futures prompt month contract, which averaged $73.21/b, representing a 69% boost from the prior year's average.

"Natural gas liquids have left [West Texas Intermediate crude] and major petroleum products like jet fuel and diesel in the dust during the pandemic, with propane prices rising 220% or $1/gal compared to a run-up of just 33% in WTI crude oil since January 2020," analysts with BofA Securities said in a Nov. 12 note to clients. "The very strong performance of NGLs can be easily explained by the huge surge in petrochemical and industrial consumption in the past 18 months, as well as by the spike in global natural gas prices."

The analysts forecast that solid growth in petrochemical production capacity, especially from China and North America, will continue to boost NGL prices.

Most of the 10 biggest oil and gas producers covered by S&P Global Market Intelligence reported financial benefits in the third quarter from the ongoing strength in commodity prices. All the companies' NGL revenues surged from the same quarter a year earlier, continuing a trend from the two previous quarters, as their realized NGL prices again posted triple-digit gains year over year.

Despite improved oil, gas and NGL prices, several shale producers said they remain committed to maintaining production at current levels and generating cash flow to reach their targeted debt levels and accelerate shareholder returns.

In Antero Resources' quarterly earnings call, executives said they remain bullish on the outlook for natural gas and NGLs and have decided to lower the company's hedged position on natural gas to 50% in January 2022, when the company will also be completely unhedged on all its NGL and oil volumes. "This positions [Antero] with tremendous exposure to NGL prices and free cash flow generation, given both the near- and longer-term fundamentals that we see for these markets," said David Cannelongo, Antero vice president of liquids marketing and transportation.

Antero, the second-largest NGL producer in the country and the biggest in the Appalachian Basin, said in its third-quarter earnings announcement that its results benefited from its NGL exposure. The producer recorded an 83% and 139% year-over-year boost in NGL revenues and prices, respectively.

Analysts with Truist Securities applauded Antero's decision not to hedge in an Oct. 28 note to clients and said it left the company "in a much better position than it was just a year ago." CreditSights analysts said Nov. 2 that they anticipate Antero will be able to generate $1.4 billion of cash flow through 2022 due to its "significant leverage to NGL prices."

Fellow Appalachian natural gas and NGL producer Range Resources, which posted a 107% and 109% yearly gain in NGL revenues and prices, respectively, hit a similar note during its quarterly earnings call.

"As we enter the winter months, we see continued strengthening NGL price realizations supporting our updated 2021 NGL guidance range of $1 to $2 per barrel premium relative to the Mont Belvieu index," said Dennis Degner, Range senior vice president and COO. The company's updated guidance range represents a 25 cents/b increase at the midpoint.

Meanwhile, Devon Energy, which is producing more than 130,000 b/d of NGLs, said it plans to slightly grow that amount in 2022. Devon recorded the second-highest yearly percentage increase in NGL revenues among the 10 companies at 355% for the third quarter, while its realized NGL prices went up 155% from the year-ago period.

"It's been a real high point for us throughout this year, obviously, with the tailwind that we've seen on NGL prices," Clay Gaspar, Devon's executive vice president and COO, said during the company's earnings call. "It's not an insignificant portion of the cash flow that we're delivering and the free cash flow that we're delivering this year."