07 April 2016, News Wires – Natural gas producers are finally realising that the age-old adage is true: If you find yourself in a hole, stop digging.
Explorers have idled drilling equipment at historic rates – a drop in prices has resulted in the fewest rigs in at least three decades searching for new output, according to Bloomberg.
Southwestern Energy Co, the third-largest US gas producer, has stopped drilling altogether, while Chesapeake Energy Corp. has no rigs in the gas-rich US East, down from an average of about 13 in 2014.
It’s part of a broader cost-cutting effort as companies aim to weather the downswing, betting that a price recovery will begin this year.
While some unfinished wells can be used to keep up output, the industry is facing a sharp drop in future production without new drilling investment. The lack of exploration is particularly troublesome given that output from gas wells tends to decline sharply from initial production rates.
“Companies that do absolutely nothing are going to lose a quarter of their production this year,” said Neal Dingmann, managing director for equity research at SunTrust Robinson Humphrey Inc. in Houston. “How is that going to look for them in 2017?”
Rigless drillers are the companies hardest-hit by the crash in oil and gas prices. They borrowed heavily at the height of the shale boom to snap up assets, only to see futures tumble.
Since October 2014, when Southwestern agreed to buy wells and drilling rights from Chesapeake for $5.4 billion, gas prices have dropped almost 50 percent to below $2 per million British thermal units. Oil is down 54 percent.