It is said that low prices are the cure for low prices but we haven't seen any big bankruptcies yet.
And until we do the highly indebted playas—Chesapeake is the poster child—are going to produce as much gas as they can just to make interest payments.
From OilPrice, January 14:
The largest natural gas driller in the United States just announced a massive write-down for its assets, offering more evidence that the shale sector faces fundamental problems with profitability.EQT is changing hands at $8.26, down 0.29 (-3.39%) while for the numerologists among our readership Chesapeake (CHK) is at 0.6661, down 0.0238 (3.4498%)
In a regulatory filing on Monday, Pittsburgh-based EQT took a $1.8 billion impairment for the fourth quarter, as the natural gas market continues to sour. EQT said that the write down comes as a result of the “changes to our development strategy and renewed focus on a refined core operating footprint,” which is a jargon-y way of saying that some of its assets are now worth much less.
EQT also slashed spending for 2020 to between $1.25 and $1.35 billion, down by another $50 million compared to the guidance the company provided in the third quarter of last year.
Although not a household name, EQT is the largest gas producer in the country, and is a giant in the Marcellus shale. EQT purchased Rice Energy in 2017, growing into a huge gas producer and pipeline company, but it has posted disappointing results in the last few years. The poor performance led to an internal battle for control of the company. Toby Rice, who co-founded Rice Energy and maintained small ownership stakes in EQT after the tie up, wrestled control from management, convincing the company’s board that he could right the ship. He became CEO last year.
So far, the company’s problems continue. Natural gas prices slid sharply in 2019, and are at rock-bottom levels, particularly for the time of year. According to the FT, while Henry Hub natural gas prices for February delivery trade at $2.24/MMBtu, they are only trading at around $1.83/MMBtu at the Dominion South hub in Pennsylvania.
EQT itself admits that it can’t succeed in this environment. “Gas prices are down. It has a big impact, the difference between $2.75 gas and $2.50 gas,” Toby Rice said in December “A lot of this development doesn’t work as well at $2.50 gas.”
EQT hopes to cut $1.5 billion in debt by selling assets and boosting cash flow. However, the cash flow part will be hard to pull off with prices stuck in the doldrums.
Moody’s cut EQT’s credit rating on Monday to Ba1 with a negative outlook, moving it into junk territory after the gas giant said it would issue new bonds to refinance debt. “EQT's significantly weakening cash flow metrics in light of the persistent weak natural gas price environment and the company's intent to refinance its 2020 maturities in lieu of debt reduction through repayment drives the ratings downgrade,” Moody’s senior analyst Sreedhar Kona said....MORE
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