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$8 Billion in Free Cash Flow for Shale Gas Drillers “Off the Table”
Free cash flow (FCF) refers to a company’s available cash repaid to creditors and as dividends and interest to investors. Companies typically use FCF to buy back shares of stock, pay fatter dividends, or pay off creditors. When the price of natural gas went through the roof last year, natural gas drillers were rolling in the FCF. Now with natgas commodity prices in the basement, FCF money has been wiped off the table. How much? For six large natural gas-focused drillers (five of them focused on the Marcellus/Utica, one on the Haynesville), some $8 billion of FCF is “now off the table” according to an article by Bloomberg.
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New shale permits issued for Mar. 27-Apr. 2 in the Marcellus/Utica dropped quite a bit from the prior week. There were 21 new permits issued in total last week, down from 32 in the prior week. Last week’s tally included 15 new permits for Pennsylvania, 6 new permits for Ohio, and no new permits in West Virginia. Last week the top receiver of new permits was Ascent Resources with 6 new permits, 5 in Jefferson County, OH, and 1 in Harrison County, OH. Chesapeake Energy took the #2 slot with 5 new permits in Bradford County, PA.
The sharp analysts at RBN Energy have sifted through the announcements and “guidance” statements from 42 of the country’s major publicly-traded oil and natural gas drillers for 2023. Among them are 11 gas-focused drillers, nine of which have operations in the Marcellus/Utica region. Looking at the list of 11 gas-focused drillers, RBN finds production will be just about the same in 2023 as it was in 2022–projecting a dip of 1% this year. The analysis also finds collectively that the 11 gas-focused drillers will spend around 9% more on drilling this year due to Bidenflation. Spending more to produce the same–not a winning formula for a politician to run on.
Range Resources Corporation, the very first driller to sink a Marcellus shale well back in 2004 in western Pennsylvania, issued its fourth quarter and full-year 2022 update yesterday. During 2022, Range generated record cash flow from operations of $1.9 billion and produced an average of 2.1 billion cubic feet equivalent per day (Bcf/d) of natural gas. The company spent $492 million on drilling in 2022. Of keen interest to us was a response by Range’s CEO about the rumors that Pioneer Natural Resources is interested in buying or merging with Range.
The rumor mill kicked into overdrive on Friday when Bloomberg published an article saying Pioneer Natural Resources Co., one the largest independent oil producers in the U.S., is considering (negotiating for) an acquisition of Marcellus driller Range Resources Corp., according to “people familiar with the matter.” Range was the very first company to drill a Marcellus shale well back in 2004 in western Pennsylvania. By the end of Friday, Pioneer issued an abrupt statement saying it “is not contemplating a significant business combination or other acquisition transaction.” It wasn’t an outright denial that such talks are taking place. Range could not be reached for comment.
Anti-drillers, with the assistance of biased “news” publications like the Pittsburgh Post-Gazette, continually make false accusations against the shale industry in the southwestern Pennsylvania area, alleging that fracking is the cause of rare forms of cancer in children (see 
What a difference three years can make! Three years ago, Henry Hub prices were hovering around $2 per thousand cubic feet (Mcf). Stock valuations for Marcellus/Utica drillers were majorly depressed (down 80-90% from previous highs), and gas producers were struggling. Fast forward to today. Balance sheets and earnings statements are through the roof. Most experts believe $4-$5/Mcf gas is sustainable–at least for the next X years. What does the future look like for M-U drillers? What are the risks? And can we keep the current bright outlook going?