Page 5 - NorthAmOil Week 40

NorthAmOil COMMENTARY NorthAmOil
cut back spending and drilling in response to these low prices, as well as to investor pressure to prioritise returns over growth. In the Marcellus, there were 48 active rigs last week according to the latest data from Baker Hughes, down from an April high of 68. In the Utica, rig counts have declined from a recent peak of 20 in May to 12 in the week up to October 4.
A number of producers in the region said they would be scaling back operations in order to maximise returns in a low-price environ- ment. Among these is EQT, the largest natural gas producer in the US, which is in the process of overhauling its operations following a change in leadership earlier this year.
It has not all been plain sailing for pipeline operators in the Appalachian Basin either. A number of pipeline projects have been held up in litigation, and this trend persists. Recently, the District Attorney for Pennsylvania’s Chester County announced his office was preparing a public nuisance lawsuit against pipeline opera- tor Sunoco for ongoing problems related to the construction of the Mariner East 2 pipeline.
Meanwhile, the US Supreme Court agreed last week to hear an appeal by Dominion Energy and the government of US President Donald Trump against a lower court ruling that halted construction on the $7.5bn Atlantic Coast pipe- line. A ruling is anticipated during the court’s current term, which ends in June 2020.
“The Supreme Court’s acceptance of our petition is a very encouraging sign and provides a clear path forward to resolve this important issue,” said a Dominion spokesman, Aaron Ruby.
Another project, the Mountain Valley pipeline, received a boost this week when the Supreme Court declined to hear landowners’ appeal of a US Court of Appeals for the 4th
Circuit ruling relating to property acquisition. A similar appeal relating to the Atlantic Sunrise project was also turned away by the Supreme Court earlier this year.
As things currently stand, pipeline operators are allowed access to private land before com- pensation and acquisition of title, and this is expected to result in further opposition – and likely more court appeals – from landowners.
What next?
The challenges – for both upstream and mid- stream operators – mean that tapping the grow- ing volumes of recoverable reserves in the region could take longer than previously anticipated. Nonetheless, Appalachian producers are still drilling, albeit at a slower place. And efficiency gains continue to be made, allowing these drill- ers to produce more with fewer rigs and less cap- ital outlay.
A number of companies in the region have already scaled back their drilling programmes this year, and this trend is anticipated to play out further in third-quarter results as they are announced in the coming weeks. Expectations that natural gas prices will remain low, despite booming demand from new US LNG export ter- minals, mean that the cautious approach drillers are now taking could last some time.
The EIA recently cut its Henry Hub price forecast for 2020 to an average of $2.55 per million British thermal units ($70.53 per 1,000 cubic metres), down $0.20 per mmBtu ($5.53 per 1,000 cubic metres) from its previous pro- jection. The growing consensus is that prices will indeed remain lower for longer, and thus driller restraint is expected to play a major role in how the industry will perform over the near and medium term.™
Rig counts in both the Utica and Marcellus have fallen in recent months as producers have cut back spending and drilling.
Source: US Geological Service, US Department of the Interior National Park Service
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