Analysts are chopping their outlook for gas prices this year,
and for production and earnings. The drop has also put a cloud over merger and
acquisition activity, analysts said.
Such moves were unfathomable six months ago as Russia reduced
its gas flows to Europe and US gas became a hot commodity. The number of active
gas-drilling rigs jumped about 48% to 157 in the first six months of 2022,
according to data from oilfield services firm Baker Hughes.
Analysts expect gas drilling rigs to fall beginning this
month. Two services firms - Liberty Energy and Helmerich & Payne -
recently warned they may need to relocate equipment as operators pull
back in gassy areas.
US gas futures were trading on Wednesday at US$2.42 per
million British thermal units (mmBtu) amid warmer weather and a prolonged LNG
export plant outage, down from over US$9 per mmBtu in August 2022. They
averaged US$5.46 per mmBtu last year, the highest price in over a decade.
The outlook is for more of the same. Prices will remain
around US$2.50 per mmBtu this summer, down from an earlier US$3.50 per mmBtu
outlook, predicts energy technology firm Enverus. It also sees exit-to-exit
2023 production growing by 1.7 billion cubic feet per day (bcfd), from 3 bcfd
in 2022.
The company says well completions activity in the
Haynesville gas region will need to fall by about 8% to prevent storage from
exceeding a limit of 4.3 trillion cubic feet (tcf).
"If we don't see a decline in activity in the Haynesville,
we'll blow through" the US storage maximum of 4.3 tcf, said Jonathan
Snyder, an Enverus vice president.
The gas-price drop has slowed deal-making and threatens some
proposed acquisitions that have not closed, said Andrew Dittmar, who tracks mergers
and acquisitions for Enverus.
Prices further out should stave off any collapse in drilling
and deal-making. Gas delivered in January and February 2024 is trading above US$4
per mmBtu, well above where those contracts traded in recent years.
"Is someone buying the assets for more than the next 10
months? If it is more than for the next 10 months, current pricing shouldn't
drive the deal value," said Thomas McNulty, who advises on mergers and
acquisitions and runs his own firm.
