With NatGas Prices This High, Why Aren’t Producers Drilling More?

In recent weeks we've been asked the same question by MDN subscribers several times: "With the price of natural gas through the roof, why aren't Marcellus/Utica drillers drilling more?" In a word, it's because of hedging. Most drillers have hedged, or pre-sold under contract, most of the output they plan to produce for the balance of this year--at prices MUCH lower than those we're seeing right now. There is no incentive to drill more. "Fine, but couldn't they just drill more and sell the new output that's not hedged at the higher spot prices we see now?" They could, except to drill more means they need more capital (money) to do the drilling, violating their announced budgets (their "guidance") and violating the expectations of touchy investors and stockholders. Public companies are boxed in. Their hands are tied.

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