Why the Marcellus Shale Is Both Boon and Bane for Cabot Oil & Gas



Marcellus differentials

The single most important factor severely affecting producers in the Marcellus Shale has been insufficient takeaway capacity. As a result of infrastructure growth’s not keeping up with production growth, the region has had inadequate capacity to transport natural gas to demand centers and export locations. This has resulted in Marcellus gas’s trading at a discount to the NYMEX benchmark price.

However, a study at the beginning of the year by the EIA (U.S. Energy Information Administration) showed that the price differential between the two had narrowed.

According to the EIA’s weekly natural gas update released on November 16, 2016, Tennessee Zone 4 Marcellus spot prices were trading at $1.98 per million British thermal unit (MMBtu) on November 16, 2016, a discount of $0.55 compared to the Henry Hub spot price on November 16.

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New projects

While the above was possible through new pipeline projects placed into service in late 2015 and early 2016, several projects remain under the review of the FERC (Federal Energy Regulatory Commission). These projects include Energy Transfer Partners’ (ETP) Rover Pipeline project, EQT Midstream Partners’ (EQM) Mountain Valley Pipeline project, and Spectra Energy’s (SE) Nexus Gas Transmission project.

Realized prices

Inadequate pipeline capacity is one of the major reasons that several Marcellus producers, including Cabot Oil & Gas (COG), have continued to see lower realized prices. COG’s natural gas price (UGAZ) realizations, including hedges, were $1.75 per thousand cubic feet in 3Q16, a fall of 13% compared to 3Q15. Its Marcellus peer EQT Corporation’s (EQT) average realized price for natural gas fell 16% to $2.16 per thousand cubic feet in 3Q16.

Cabot’s other prominent Marcellus peers include Range Resources (RRC), Chevron (CVX), and Rice Energy (RICE).

In the following article, we’ll discuss a key setback COG recently faced.


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