Chesapeake 3Q – Continues to Love Marcellus, Loves Haynesville More
Love is a verb–an action. And actions speak loudly–more loudly than words. Chesapeake Energy issued its third quarter update yesterday. The company is big and getting bigger with each quarter. Chessy produced 4.1 Bcfe/d in 3Q. The company operated an average of 16 rigs in 3Q, drilling 58 wells and placing 50 wells online to production. Chesapeake is currently operating 13 rigs, including five in the Marcellus, two in the Eagle Ford, and six in the Haynesville. The company plans to add a seventh Haynesville rig by the end of November. Actions speak louder than words. The company drills more in the Haynesville, indicating it loves that play more.
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Gulfport Energy, the third-largest driller in the Ohio Utica Shale (by the number of wells drilled), emerged from bankruptcy in May 2021 with a new board and new top management. By September of last year, rumors began circulating that the company was shopping itself for sale (see 
Spanish-owed Repsol owns 214,000 net acres of leases in the Marcellus Shale, primarily located in northeastern Pennsylvania in Bradford, Susquehanna, and Tioga counties. Earlier this year, Repsol said it was working with certification authority MiQ to have all of its Marcellus production certified as “responsibly produced” (see 
Unfortunately, EQT, the largest natural gas producer in the U.S., has succumbed to the siren song of seeking approval from the United Nations (U.N.), an organization dedicated to destroying fossil energy on the planet in the name of saving the planet. Yesterday EQT announced it has received the UN’s Oil & Gas Methane Partnership 2.0 (OGMP 2.0) “Gold Standard” rating, the highest reporting level under the initiative. Support for OGMP 2.0 is growing in the natgas marketplace in the U.S. We previously told you that Cheniere Energy’s LNG export plants are seeking certification under OGMP 2.0 (see 
Being a “pure-play” or “single play” (as the Brits call it) shale driller has its advantages. It also, in a changing world, can have its risks, or disadvantages. That is the point made in a new analysis by global research and consultancy Wood Mackenzie. Wood specializes in doling out advice on oil, gas, LNG, power, renewables, chemicals, and metals & mining. In an excellent article delving into the advantages and disadvantages of being a pure-play driller, Wood makes the following observation: “Five US operators – EQT, Pioneer, Antero, Diamondback and Range – have amassed single-basin positions on a global scale.” Yeah, three of the five are M-U pure-play drillers, and the assets they have “amassed” rival (produce more) than many of the Majors’ non-shale assets. It is a truly amazing feat.
CNX Resources released its third quarter 2022 update late last week. The company lost $427 million in profit for the quarter versus losing $873 million in 3Q21. It generated $135 million in free cash flow. Total 3Q revenues of $476 million improved slightly year over year from the previous year’s $455 million. CNX sold its gas for an average of $3.25 per thousand cubic feet equivalent (Mcfe), up 10% from the year-ago figure of $2.96/Mcfe. Production costs were $1.64/Mcfe, up 6% from one year ago–due to inflation.
Southwestern Energy, which along with EQT and Chesapeake Energy, is one of the three leading producers of natural gas in the U.S., issued its third quarter update last Friday. The company reported total net production of 443 Bcfe (billion cubic feet equivalent), or 4.8 Bcfe/d, including 4.2 Bcf/d of natural gas and 97,000 barrels per day (Bbls/d) of liquids. Southwestern invested $543 million of capital during 3Q and placed 31 wells online to sales, including 14 in the Marcellus/Utica and 17 in Haynesville. The company made $450 million in profit during 3Q22, versus losing $1.86 billion in the same quarter a year ago.
The Pennsylvania Dept. of Environmental Protection (DEP) has, for a second time, served a notice of violation (NOV) of the PA Clean Streams Law to Pennsylvania General Energy (PGE) for causing sediment pollution in the Loyalsock Creek north of Montoursville (Lycoming County). PGE is constructing a natural gas pipeline, a freshwater pipeline, and it withdraws fresh water for Marcellus Shale-related activities at the site.
EQT faced some strong headwinds during the third quarter of 2022, but the company still came out on top. The headwinds included third-party (mainly pipeline) outages beyond EQT’s control, as well as droughts that decreased the volume of water the company could lay hands on for fracking. As a result, the company brought online to sales just 16 new wells instead of the 22 to 32 forecasted. Production slipped too, to 488 Bcfe (billion cubic feet equivalent), down 7% from last year’s 3Q. That 488 Bcfe calculates out to be 5.30 Bcfe/d. On the plus side, the company generated net income of $684 million in 3Q22 vs. losing $1.98 billion in 3Q21, and it generated free cash flow of $591 million.
Antero Resources is one of the largest drillers in the Marcellus/Utica (with major assets in West Virginia). The company is the fifth largest natgas producer in the country and the second largest LNG exporter. Antero provided its third quarter 2022 update yesterday. Like other major M-U drillers, Antero had a great quarter financially. Antero’s 3Q22 net income was $560 million (adjusted net Income was $531 million), versus losing $549 million in 3Q21. Free cash flow was a whopping $797 million in 3Q. Antero produced an average of 3.2 billion cubic feet equivalent per day (Bcfe/d), including 171,000 barrels per day (Bbl/d) of liquids. That’s down just a hair from 3.247 Bcfe/d produced in 3Q21.
Yesterday, the Ohio Chamber of Commerce held its “Energy Supply Chain: Present & Future” conference at the Ohio Statehouse Atrium in Columbus. Participants and speakers included oil and natural gas producers, pipeline operators, policymakers, renewable companies, and more. Questions largely centered on the energy transition and how various resources fit into a so-called sustainable future. The upshot was that Ohio’s natural gas (mostly Utica, some Marcellus) is front and center as a driving force for Ohio energy, and the Ohio economy.
Another weak and pathetic number of new shale drilling permits were issued for the week of Oct. 17-23 in the Marcellus/Utica. Pennsylvania had only 10 new permits, with six of them going to Range Resources in Beaver County. Ohio had just one new permit, for Southwestern Energy in Monroe County. And West Virginia had a big, fat, goose egg. No new permits. Bummer.
Two days ago, Range Resources issued its third quarter 2022 update, and yesterday the company held a conference call for upper management to brief analysts. By all accounts, Range had a great 3Q. Range produced an average of 2.13 billion cubic feet equivalent per day (Bcfe/d), with approximately 70% of it as natural gas and the rest in NGLs. Range only spent $138 million to drill, but cash flow from operations was a staggering $550 million–the highest in company history. The company drilled 7 wells and completed 22 wells during 3Q. Range brought 12 wells online to sales in the southwestern part of PA, and it brought 6 wells online to sales in northeastern PA.
A court case decided in late April in Pennsylvania Superior Court appears (to us) to have significant ramifications for landowners and drillers with respect to deducting post-production expenses. The case is Dressler Family, LP v. PennEnergy Resources, LLC (copy of the decision below), and it addresses “market enhancement” royalty clauses found in many PA leases. Market enhancement clauses typically prohibit the deduction of post-production costs that are incurred when transforming gas into a marketable form. Some drillers ignore such clauses and deduct all “post-production costs” from the landowner’s royalty based on the drillers’ incorrect assumption that gas is “marketable” at the wellhead. This case and decision helped clear up definitions of what is and is not marketable gas.