Page 4 - NorthAmOil Week 09 2023

NorthAmOil COMMENTARY NorthAmOil

Low US natural gas prices affect

acquisitions, drilling strategies

US producers are rethinking their acquisition and drilling plans as a result of recent

natural gas price volatility

US THE US may have seen a sudden uptick in nat- acquisition would have been in line with such
ural gas prices since the third week of February, expectations.
WHAT: when Henry Hub benchmark prices had fallen Range’s shares rose 12% on the day of Bloomb-
Deals and drilling plans around 78% since August of 2022. But despite erg’s report, but other gas producers focused on
are being complicated the considerable uptick, the six-month decrease gas production in the Marcellus shale also saw
by volatile natural gas in prices has been stymying deal-making. Some their share prices increase. Antero Resources’
prices. gas producers are also reducing the number of share price was up 8.1%, Coterra Energy’s rose
rigs, although others are more focused on the by 3.6% and EQT’s increased by 6.9%.
WHY: long-term prospects of the US gas market, with Pioneer soon denied the rumour, however.
Gas prices have fallen the country set to overtake Australia and become “The company is not contemplating a signifi-
again after hitting a 14- the world’s largest exporter of LNG. cant business combination or other acquisition
year high in August 2022. In mid-February, gas prices were $2.07 per transaction,” it said.
million British thermal units ($57.26 per 1,000
WHAT NEXT: cubic metres), down from $9.71 per mmBtu Headwinds
Gas prices are expected ($268.58 per 1,000 cubic metres) in August. Deal-making in the US gas industry has been
to stabilise in the This was in part because of unusually warm US in a slump, which is a far cry from the situa-
remainder of 2023, winter weather and ample gas supply, much of tion early last year, when demand rose rapidly
paving the way for it as a by-product of oil drilling. There was also following Russia’s invasion of Ukraine. Russia
increased deal-making a prolonged decrease in LNG export capacity previously supplied 40% of the EU’s gas, but sup-
activity. at Freeport LNG following an accident in June plies have since been cut considerably and in the
2022 that took the plant offline until February longer-term, European countries are looking for
this year. As of the start of March, the Henry alternatives to Russian gas. On the other side of
Hub spot price was $2.77 per mmBtu ($76.62 the Atlantic, US prices were buoyed by unusually
per 1,000 cubic metres). hot summer weather.
“With gas prices falling and without a clear
Deal speculation understanding of where they’re going to end up,
Amid the gas price fluctuations, a rumour it doesn’t give people confidence when they’re
emerged in late February that leading US inde- trying to buy,” a Shearman & Sterling M&A and
pendent oil producer Pioneer Natural Resources private equity partner, Sarah McLean, told the
would buy a smaller rival, Appalachian gas Wall Street Journal. They spoke around the time
producer Range Resources. Bloomberg cited when gas prices had reached a 52-week low in
unnamed sources familiar with the matter, say- the third week of February.
ing that talks were ongoing, although there was “I am well aware of multiple transactions
no certainty that a deal would be struck. that were in the works and stalled because gas
Pioneer was apparently seeking further con- prices have gone down. There were a lot of
solidation in the shale industry with a strategic exits planned for this year and I think many of
purchase, reported the news service. Most of the those may get delayed,” Guggenheim Securi-
gas that Pioneer produces is a by-product of oil ties’ Muhammad Laghari told the Wall Street
drilling in the Permian Basin. Journal. Laghari, a senior managing director in
McKinsey & Co. said in a recent report that the energy investment banking practice of the
the upstream sector in the US was set for a financial services firm, said that oil-oriented
boost in mergers and acquisitions in 2023 fol- deals, in contrast, were likely to proceed.
lowing a period of capital discipline and cash In addition to low gas prices, Laghari pointed
generation. to supply chain inflation and rising interest
“With the industry on the precipice of his- rates, which inflate operating costs and financ-
torically high cash flows, we expect another ing and dent profit. “While buyers may take a
wave of M&A to dominate near-term actions,” certain strategic view and see through the short-
said McKinsey. A move by Pioneer to make an term volatility of gas prices, a bigger issue is

P4 www. NEWSBASE .com Week 09 02•March•2023