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Offbeat Side effect of rising oil drilling: Indigestion for gas frackers

20:15  13 june  2018
20:15  13 june  2018 Source:   online.wsj.com

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Companies are responding to rising prices by drilling for more oil , but the natural gas byproduct they often unearth is further weighing on already low gas prices and on shale frackers in That has further weighed on already low gas prices, pressuring shale frackers in regions that primarily produce gas .

Companies are responding to rising prices by drilling for more oil , but the natural gas byproduct they often unearth is further weighing on already low gas prices and on shale frackers in regions that

Higher oil prices are helping many American shale drillers. But they are hurting companies that frack for natural gas.

As companies respond to rising oil prices by drilling more for it, they often unearth gas as a byproduct. That has further weighed on already low gas prices, pressuring shale frackers in regions that primarily produce gas.

The average share price for the five top companies focused on the oil-rich Permian Basin in Texas and New Mexico are up more than 16% over the past year. Share prices for the top five producers focused on the Marcellus Shale in Appalachia, the country’s largest deposit of natural gas, are down more than 9%.

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As companies respond to rising oil prices by drilling more for it, they often unearth gas as a byproduct. That has further weighed on already low gas prices, pressuring shale frackers in regions that primarily produce gas . The average share price for the five top companies focused on the oil -rich

Higher oil prices are helping many American shale drillers . But they are hurting companies that frack for natural gas , The As companies respond to rising oil prices by drilling more, they often unearth gas as a byproduct, which has further weighed on already low gas prices, pressuring shale frackers

“It’s going to be tough for the Marcellus for a while,” said Brian Lidsky, managing director at oil-and-gas research firm PLS Inc. “There is just a tidal wave of gas coming out of the Permian.”

Like most shale drillers, those focused on natural gas in the Marcellus—a group that includes Cabot Oil & Gas Corp., EQT Corp., Range Resources Corp., Antero Resources Corp., and Southwestern Energy Co.—have been under investor pressure to live within their means, curtail excessive spending and improve returns. And they have come closer to doing that.

As a group, those companies spent about $106 million more than they made in the first quarter of 2018, according to a Wall Street Journal analysis of S&P Global Market Intelligence data. That is down from outspending cash flow by more than $274 million in the previous quarter and more than $735 million in first quarter of 2017.

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Companies are responding to rising prices by drilling for more oil , but the natural gas byproduct they often unearth is further weighing on already low gas prices and on shale frackers One side effect of higher oil prices: shale drillers that focus on producing natural gas are hurting, @cmatthews9 explains.

responding to rising prices by drilling for more oil , but the natural gas byproduct they often unearth is further weighing on already low gas prices and on Oil Drilling : Indigestion for Gas Frackers An operator works the controls of an EQT Corp. rig that was fracking natural gas on a site in Washington

Still, investors have been reluctant to put more money into gas drillers, and the reason is simple: Gas has been cheap for years and doesn’t look primed to go up soon.

Demand for natural gas is predicted to rise globally over the next decade as many countries switch from coal-fired power plants to gas-powered ones. However, that isn’t expected to solve gas drillers’ problems in the short term. U.S. gas production will outpace domestic consumption through 2019, according to the Energy Information Administration.

Natural-gas futures for July delivery closed at $2.939 a million British thermal units on Tuesday and have been below $4 since 2014. Prices passed $10 in 2008 and had stayed above the $4 mark before 2012. Many banks and analysts predict average prices will be below $3 for years. Meanwhile, U.S. oil prices have climbed to more than $65 a barrel for the first time since 2014.

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US world's biggest oil producer by the fall, says shale exec : Side effect of rising oil drilling : Indigestion Companies are responding to rising prices by drilling for more oil , but the natural gas byproduct they often unearth is further weighing on already low gas prices and on shale frackers in

Higher oil prices are hurting companies that frack for natural gas while American shale drillers benefit at the same time. As companies unearth gas as a byproduct, they respond to rising oil prices by drilling more of it. This has weighted on already low gas prices thus adding more pressure to shale

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“We are mostly a gas company, so it is fair that we are judged on the price of gas,” said William Way, the chief executive of Southwestern Energy, the third-largest gas producer in the contiguous U.S., after Exxon Mobil Corp. and Chesapeake Energy Corp.

Southwestern Energy’s strategy has been to cut costs and squeeze out efficiencies over the past two years while weathering the storm, according to Mr. Way. The road has been painful.

The company’s share price is about a 10th of what it was in 2010. The company was burdened with debt when Mr. Way became CEO in 2016—$4.6 billion in debt in December 2016—following an ill-timed acquisition of Marcellus acreage from Chesapeake in 2014 for nearly $5 billion, just before gas prices sank. That debt represented more than 83% of its total capital.

After he took the top role, Mr. Way quickly laid off 40% of the company’s staff and shut down all of its drilling rigs. “We had to reinvent ourselves as a $2.75 gas company instead of a $4.50 gas company,” he said.

Southwestern Energy is now seeking to sell all its assets in the Fayetteville shale in Arkansas, which analysts say could be worth more than $2 billion. The company will use a significant portion of that to pay down debt, now about $3.4 billion, and reinvest in the Marcellus, where it has begun drilling again, albeit with modest growth targets.

Some hold a measure of optimism.

Todd Heltman, a senior energy analyst at Neuberger Berman Group LLC, an asset-management firm that owns shares in shale producers, noted that prices for gas-focused shale companies have rebounded a bit since earlier this year, with investors having potentially seen a bottom for gas producers.

“They’re no longer growing for the sake of growing, and buying for the sake of buying,” Mr. Heltman said. “And I do think investors have gotten too bearish on natural gas.”

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