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Infrastructure constraints and capital discipline are expected
to cap the Marcellus in the near-term. Key highlights from our
recent report include:
Marcellus activity, and thus spending, has remained
relatively flat in 2021 as producers prioritize cash flow rather
than growth. Horizontal rig activity in the play has been
range bound between 17 and 25 rigs since 2021, with the average for
2021 at 22 active horizontal rigs. The most active operators in
2021 have been Cabot (now merged with Cimarex to be Coterra) and
Southwestern, both averaging ~2.5 rigs. The consistent activity
level, particularly despite an impressive rally in natural gas
prices, confirms operator commitment to investor demands for
returns.
Chesapeake's acquisition of Chief represents the last
large private company acquisition opportunity with prime acreage
available in the play. Future gas-focused mergers
involving Marcellus operators would likely be a merger of equals
among the larger players, or perhaps a foray into the nearby Utica
to pick up privates, such as Ascent or Encino Partners. Both
Chesapeake and Southwestern acquired significant Haynesville assets
over the past year, and as a result may expend capital in the
Haynesville at an increasing rate given its proximity to LNG
facilities.
The productivity landscape changed in the past year as
well. Supercore productivity, long the leader in
Marcellus, stalled out in 2020 and 2021, while Southwest Core
productivity continued to rise. As a result, EQT's breakeven in the
SW Core subplay pulled in line with Supercore operator results near
$2.00/MMBtu to Henry Hub, after years of trailing by 10-20
cents.
Oil price of $70/bbl WTI and NGL price strength place
the Liquid Rich breakevens in a leading position in
Marcellus. The major operators achieve wellhead liquids
EURs of 50,000 to 300,000 barrels on Liquids Rich wells, so gas
breakevens have plunged below $2.00/MMBtu. Marcellus served as a
microcosm of the greater US system with liquids driven economics
pushing small operators into ramping rigs during January in West
Virginia-increasing from 7 to 10 rigs. Independents left rigs at
previous months levels during the private company run-up.
Figure 1: Marcellus dry and wet gas market investment
signal
