By David Conti
The for-sale sign WPX Energy Inc. recently put on its Marcellus shale wells and land could signal more moves among natural gas producers struggling with low prices, observers say.
“I do know a couple of companies that are interested in getting out of the basin,” Lou D’Amico, president of the Marshall-based Pennsylvania Independent Oil & Gas Association, said Tuesday. He would not name those companies.
Don’t expect a wide-scale abandonment of the country’s most productive gas region, though, despite lower prices here, analysts said. Established companies can power through the tough market by increasing production until a glut eases or rely on production of liquids such as ethane or propane.
“I don’t see a mad rush of (companies) trying to sell off their assets,” said Matt Henderson, shale asset manager at Penn State’s Marcellus Center for Outreach and Research.
“Some consolidation is likely,” said Matt Woodson, an upstream research analyst at Houston-based Wood Mackenzie. “You can still make money in the Marcellus.”
Tulsa-based WPX, which entered the shale play later than other companies when it was formed by Williams Co. and has a smaller footprint of land for drilling, put its 121 producing Marcellus wells and related equipment on the market to focus on oil and gas drilling in Colorado, North Dakota and New Mexico.
Management led by new CEO Richard Muncrief “decided to focus on three basin areas where we’re making more money,” said Susan Oliver, a spokeswoman at WPX’s Cecil office.
Because of a huge supply of gas in Appalachia but insufficient pipelines to get it to good markets, producers in Pennsylvania get up to $2 less per million British thermal units than the national benchmark of about $4. Oliver cited that price difference as one reason WPX hasn’t drilled any wells in the state this year and wants to sell what it has.
WPX was the 18th largest producer in the state during the first six months of the year and has leases to drill beneath about 114,000 acres. Its production dropped from last year.
The majority of its wells — which Oliver said WPX will maintain until they’re sold — are in Susquehanna and Westmoreland counties. None produce liquids such as propane or ethane that other companies have used to prop up sagging gas prices.
Executives at most major gas producers working in the Marcellus and Utica shales talked about the low prices during recent quarterly earnings calls but few signaled changes were coming. Downtown-based EQT Corp. said it would drill fewer wells but get more gas from them using better technology.
Companies will focus on such techniques and more efficiencies to cut costs, Henderson said. They can drill more wells from a pad or save money by using gas from wells to power equipment instead of diesel, he noted.
The pipelines needed to reduce the glut won’t come online until 2016 or 2017. D’Amico thinks more companies will sell if prices remain below $4 until then, especially if incoming Gov. Tom Wolf gets the tax increase he promised on gas production.
“The question is, ‘Who is interested in picking up their position?’ ” he said.
WPX is not the first company to sell. Chesapeake Energy has sold large chunks of land and wells in the Marcellus and Utica as it cuts costs from a fast expansion, Henderson and Woodson said. Royal Dutch Shell sold $120 million worth of land this year to State College-based Rex Energy.