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Weekly Shale Drilling Permits for PA, OH, WV: Sep 21-25
An unusual situation for permits to drill new wells for last week. Pennsylvania only had 5 new permits while West Virginia had 12 new permits. It’s typically the other way around. Could this be the beginning of the effects from PA raising the permit fee from $5,000 to $12,500 per well? Maybe! Ohio had no new Utica permits issued last week. Drilling seems to have slowed in the Buckeye State.
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Last week we brought you the bombshell news that Southwestern Energy is buying out and merging in Montage Resources in an all-stock deal worth roughly $857 million (see 
Last week, in one of the biggest news stories (for us) so far this year, Southwestern Energy announced it is buying out and merging in Montage Resources (see 
Holy smokes! We didn’t see this one coming. Just yesterday MDN brought you the second-quarter update from Montage Resources (see 
Southwestern Energy released its 2Q20 update on Friday. The company, with nearly a half-million acres under lease, drills solely in the Marcellus/Utica in two distinct regions: northeastern Pennsylvania and West Virginia. The NEPA operation targets dry gas. WV targets wet gas/NGLs. During 2Q, Southwestern drilled 80% of its new wells in the NEPA dry gas area. Southwestern drilled 30 new wells, completed/fracked 31 wells, and placed 31 wells online to sales last quarter. One of the eye-popping bits of news from the company update is that for one particular well they hit a super-low $505/lateral foot cost to drill the well–the lowest drilling cost we’ve seen by any M-U driller anywhere!
How does one make money in the natural gas market these days when the price of gas is at historic lows? One way is if an investor was fortunate enough to bet the price would go down. Those folks made money. The other way is to…invest in drillers? Yep. Even though low prices hurt drillers, investors still like the looks of what is on the horizon, especially for companies operating in the Marcellus/Utica. Example: The stock price for Range Resources and EQT is up over 30% each this year so far.
A word you will likely see a lot more of in quarterly updates by oil and gas drillers across the country is the word “impairment.” It’s an accounting term that means the value of an asset (leased acreage or wells) is adjusted, down, to reflect a company’s best guess as to how much revenue that asset can generate. We wrote about impairments back in 2015 (see 
Wow! What a difference three months can make. In January Moody’s Investors Service downgraded EQT Corporation’s bonds to “junk” status (see 
With yesterday’s historic crash in the price of West Texas Intermediate (WTI) oil comes a big boost in the stock price for a number of Marcellus/Utica drillers. As we’ve outlined multiple times, but will repeat here again, stock traders believe that with the crash in oil prices and U.S. shale oil drillers laying down rigs faster than we can count, the high volume of “associated gas” coming from the oilfields will vastly decrease. That means less supply in the market. With less supply and the same (or increasing) demand comes higher prices for natgas. And higher prices for natgas means more profits and likely more new drilling for Marcellus/Utica drillers. Hence, investors are snapping up stocks for M-U drilling companies.
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.
Southwestern Energy issued its 2019 update on Friday, with talk about what’s ahead for 2020. Southwestern is something of a unicorn. They made $891 million in profit for 2019! Even in a low price environment. Well done. Like every other Marcellus/Utica driller, Southwestern plans to spend less on drilling in 2020, yet they also say they will produce more gas, and sell it at favorable prices. What’s Southwestern’s magic?
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.
There is one court case in Pennsylvania that we’ve been concerned about since April 2018. The Briggs v Southwestern Energy case had the power to block most new Marcellus Shale drilling in the state. The case, revolving around the oil and gas “rule of capture” principle, was appealed by Southwestern all the way to the PA Supreme Court. We are elated to report that yesterday the Supremes ruled supreme and found in favor of Southwestern–retaining the rule of capture in the Keystone State. This is seriously good news for both drillers and leased landowners. Below we explain what the rule of capture is, the background of the case, and what the Supremes said in yesterday’s important ruling.