The head of Pennsylvania's largest shale gas producer concluded his quarterly earnings call Friday with a dark view of the situation confronting drillers in the Marcellus.
“I have been in this business over 30 years. I've seen a lot of cycles, and this is one of those draconian, down markets,” Dan O. Dinges, CEO of Houston-based Cabot Oil & Gas Corp., said after spending an hour answering analysts' questions, and talking about low natural gas prices and the promise of more pipelines.
Cabot swung to a $27 million loss for the quarter from a $118 million profit the year before despite a modest increase in production.
Expect to hear similar news from Appalachia's other shale producers as they discuss financial results in the next weeks, based on the prices they have been getting for their gas — less than $2 per million British thermal units — and early word from a few companies.
“The realized price they're getting, that's just ugly,” S&P Capital IQ energy analyst Stewart Glickman said after Downtown-based EQT Corp. released its earnings last week. Pennsylvania's fifth-largest shale gas producer eked out a $5.5 million profit in the quarter — down 95 percent from the year before — but only because of increased revenue from its midstream pipeline operations.
“It's a rough market to be in if you're trying to sell natural gas these days,” Glickman said, noting a 40 to 50 percent drop in the prices companies are reporting.
Cecil-based Consol Energy Inc. warned investors it would report an operational loss Tuesday, when fellow producers Range Resources and Southwestern Energy will share results from the quarter. Other Top 10 Marcellus producers including Chevron, Anadarko and Chesapeake report later in the week and into the first week of August.
Analysts expect losses at Consol, Anadarko and Chesapeake, and profits of less than 5 cents per share at Southwestern and Range, according to Bloomberg's consensus of estimates.
Continued low prices combined with high debt at many companies will become a problem for them soon, said Kent Moors, editor of Oil & Energy Investor.
“They need to be able to hedge their prices forward,” he said about the practice of locking in good prices now for later delivery.
“We just don't see that opportunity today,” Dinges said.
Executives should prepare to hear questions from analysts about maintaining high production in the face of an oversupply that is depressing prices, and about the potential for mergers and acquisitions.
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