U.S. dry gas consumption will finish at an all-time high in 2019 and will continue to grow in early 2020. When one observes valuations for gas producers in Appalachia, they can quickly become dispirited. How can economics get this jilted in arguably the largest gas field in the world?
As the calendar turns to 2019, we turn our attention to the Appalachia region, and not by coincidence. Cooler temperatures in the winter months tend to lead to increased natural gas prices and consumption, and the Appalachia region is the largest natural gas producer in the country. Fourth quarter energy prices have moved in opposite directions, with crude prices declining steadily over the period while natural gas prices increased from about $3.0 to $3.5 per Mcf, peaking at over $4.8 in mid-November.
The domestic natural gas market has benefitted from large expansion in recent years, and this can be largely attributed to the growth experienced in Appalachia. Despite the continued growth, transaction activity in the Marcellus-Utica in 2018 was slower than in 2017. Some companies have been moving in to capitalize on the increased demand for natural gas while others are restructuring their balance sheets in order to focus primarily on higher margin assets, such as oil.
The oil industry is cruising. Producers are flocking to many oil rich plays, most notably the Permian Basin, Bakken, and Eagle Ford. Producers in these areas are all looking to exploit multi-zone payouts and gain significant efficiencies with new deep lateral and horizontal wells. While this strategy is working very well for oil producers, often lost in the oil excitement is the byproduct, additional dry and natural gas liquids. For producers targeting natural gas, this is not good news.
This week we look back at transaction activity and trends in the Marcellus & Utica plays in 2017. When we reflect about what happened, for whatever reason, images resembling something out of an episode of Desperate Housewives come to mind whereby the prying eyes of the marketplace peer out of their windows, surveilling old competitors that pack up and leave whilst new, and sometimes mysterious, neighbors move in. Read more about it here.
The economics of oil and gas production vary by region. The cost of producing oil and gas depends on the geological makeup of the reserve, depth of reserve, and cost to transport the raw crude to market. This post focuses on the economics in the Marcellus and Utica plays.
For the last two years we have been asking when will oil prices recover? But natural gas E&P companies have been asking this question for almost seven years. Analysts have worked to predict which companies will make a comeback once prices recover, but the road to recovery has been and will continue to be long and rocky.