Appalachian gas drilling companies continued to spill red ink during the second quarter of 2020 despite cutting spending on new wells, a new report determined.
The natural gas industry has been hit hard by low prices and oversupply that began before the pandemic, but the situation was exacerbated by a drop in demand due to COVID-19.
“Appalachian shale producers are in extremis,” said Kathy Hipple, lead author of the Institute for Energy Economics and Financial Analysis report. “The ongoing global gas glut and persistently low gas prices have been punishing these companies. Their outlook remains extremely weak.”
The report determined that nine of the top gas producers in the Appalachian region collectively spent $134 million more on drilling and other capital expenditures than they generated from sales. Together, they have lost $1.1 billion in the past 12 months.
The nine companies, including EQT, Range Resources, CNX and Antero, also spent about 35 percent less on capital expenditures than at this point last year, the study determined. A total of $1.9 billion was spent compared to the average of $2.7 million per quarter.
Many producers began curtailing or “shutting in” gas production to wait for prices to rebound, which they have slightly since June, raising stock prices for some companies. EQT, for example, shut in about 25 percent of its production until July.
However, the study noted a long-term downward trend in the market valuation of Appalachian gas producers, as they continue to report negative free cash flow, which is considered a crucial gauge of financial health because it allows firms to pay down debt and pay dividends to stockholders.
Several local gas companies, including EQT, CNX, and Range, have indicated that they will continue to drill enough wells only to keep production at current levels as older wells fade while prices remain low.
The IEEFA report noted that there have been a number of bankruptcy filings over the past five years, most recently Chesapeake Energy, and said it believes that the financial issues are not yet over.
The reduced amount of drilling in the Appalachian region will affect not only those who work for gas producers and related companies, but will also mean smaller Act 13 payments to municipalities and smaller royalty checks for property owners.