Hopeful Signs for Turnaround in the Marcellus/Utica Industry
One of our favorite M-U reporters, Paul Gough of the Pittsburgh Business Times, went in search of news about Appalachian shale drilling and its future. He found some rays of light. Gough talked with several of our favorite M-U people–CNX CEO Nick DeIuliis, Deep Well Services CEO Mark Marmo, and Range Resources COO Dennis Degner. Those three (and others) are certainly not Polyanna about what the future holds. There will be bumps. But they do offer hope that on the other side of this pandemic the M-U will actually emerge stronger and better.
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Wow! What a difference three months can make. In January Moody’s Investors Service downgraded EQT Corporation’s bonds to “junk” status (see 
Have Marcellus/Utica drillers learned their lesson about growth at any cost? It seems the answer to that is, YES! The price of natural gas has been low for a long time due to overproduction. You’ve often read here on MDN that gas prices will be “lower for longer.” And yet with the coronavirus pandemic and the crash in oil prices, the price of natgas has been (mostly) inching up–getting close to $2/Mcf (although it was down again yesterday, to $1.62/Mcf). Estimates for gas prices next year are trending to the $2.50-$2.75 range. Everyone is watching–will M-U and other gas-focused drillers restart big spending and more drilling?
Range Resources issued its first-quarter 2020 financial and operational update late last week. The company reported net income significantly increased to $145 million in 1Q20, up a staggering 10,117% from $1.4 million in 1Q19. Production averaged 2.3 billion cubic feet equivalent (Bcfe) per day, approximately 70% natural gas (the rest NGLs). Range says production in 2020 will stay about the same as 2019, yet they will only operate one drilling rig and one fracking crew in 2020 to maintain that level of production.
Before the COVID-19 coronavirus pandemic hit, causing lockdowns and stay-at-home orders throughout much of the U.S. (and world), natural gas drillers in places like the Marcellus/Utica were hurting (due to low gas prices) but holding their own financially. Maybe not all, but a majority were doing OK. And then the bottom dropped out of everything with the virus causing demand “destruction” because people are not traveling. Right now there’s less of everything–less electricity being used (a major customer for natgas), less natgas used for heating big office buildings and factories, etc. Of course, that means less production, with shale gas drillers choosing to scale back new drilling and even shut-in some wells.
The Pennsylvania Dept. of Environmental Protection (DEP) has reached an agreement with Range Resources that forces Range to pay $198,920 in fines for violations of state regulations and the Air Pollution Control Act–violations that happened in 2013, 2014, and 2015. Our reading is that most of the violations revolve around Range not filing the right paperwork.
Companies in the Marcellus/Utica shale industry have stepped up and given money, and in some cases retooled manufacturing operations, in order to help communities, first responders and medical professionals respond to the COVID-19 coronavirus pandemic. Companies like ExxonMobil, Range Resources, Cabot Oil & Gas, EQT, Alta Resources, Chevron, Greylock Energy, Olympus Energy, Penn E&R, Southwestern Energy and others. We are gratified and proud of the industry where we hang our hat.
Yesterday Range Resources announced it is hacking off another $90 million from its 2020 budget. In January the company announced it would reduce its 2020 budget by 29%, from spending $728 million last year to $520 million this year (see 
We always take it as a good sign when board members and upper management decide to buy up shares of the companies they operate. One might colloquially say they “eat their own dog food.” That’s what’s happening with at least some shale oil companies. Board members and upper management are buying shares of company stock because those shares are currently at super low prices, given the Saudi-Russia oil war and COVID-19 coronavirus pandemic scare. These people know that sooner or later the economy will straighten out and their company’s share prices will zoom skyward again–making them wealthy.
Range Resources turned in its fourth-quarter and full-year 2019 update on Friday. The company lost $1.72 billion last year, after losing $1.74 billion the year before. Ouch. The company is actively shopping its northern Louisiana shale assets hoping a sale will help reduce debt. You may recall Range bought out Memorial Resource Development Corp. (MRD) in a stock swap/debt assumption deal worth $4.4 billion back in 2016 (see 
The value of a company’s stock price is important, for a variety of reasons. The stock price reflects investor confidence in whether the company can earn its keep and grow profits in the future. A higher stock price wards off takeovers. Upper management gets a raise. And the company can borrow money when it needs to at reasonable interest rates. All sorts of reasons why the stock price is important. Unfortunately for top drillers in the Marcellus/Utica, their stock prices have tanked. As a group, and individually, the stock price is either near or even at the lowest it’s *ever been.* Let that sink in.
A longtime dispute between the Pennsylvania Dept. of Environmental Protection (DEP) and Range Resources reemerged in January when the DEP ordered Range to fix a well in Lycoming County the DEP alleges is leaking methane into the surrounding ground and water supplies. The DEP says faulty cement casing allows methane to leak. Range maintains the methane was already in the ground/water supply long before it drilled the well. Range is appealing the DEP’s order to “fix it” to a special environmental court.
Last November MDN told you that Range Resources was testing an all-electric fracking fleet at the Ziolkowski Pad in Allegheny County (see 
A number of Marcellus/Utica drillers recycle most, if not all of, the flowback and produced water from the wells they drill. Produced water (from the depths) continues to pour out of wells for years after they’re drilled. Produced water is super salty, filled with minerals. If a driller can’t reuse the water, they must dispose of it–typically via an injection well (in Ohio). Range Resources not only recycles all of its own produced water but also accepts and reuses produced water from 14 other drillers!