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Barclays Sees NatGas Prices 'Falling in Sympathy' With Oil

Most energy watchers are focused on declining oil prices, but natural gas forward prices are "falling in sympathy," and spending by gas-heavy operators should decline in 2015 as well, Barclays Capital is forecasting.

Barclays issued its 30th annual global exploration and production (E&P) spending survey on Friday, which took a measure of capital budget forecasts by more than than 225 oil and gas companies worldwide. The survey was conducted Dec. 1 through Jan. 5.

The latest survey is only a snapshot because of the volatility in oil prices, analyst Dave Anderson said Friday. He discussed the findings during a conference call.

North America's large-cap E&Ps are expected to cut their 2015 spending by about 16% from 2014, with small/mid-caps reducing their spend by almost 23%. The forecast is similar to ones issued by other analysts, including Tudor, Pickering, Holt & Co. and Cowan & Co.

Per Barclays, U.S. international oil companies (IOC), including the largest domestic natural gas producer, ExxonMobil Corp., should reduce capital spending by around 6.2%, "which may be a result of not wanting to slow down relatively new unconventional programs," Anderson said.

Privately held E&Ps expected in December to trim back their spending levels by about 15% this year, while the IOCs/national oil companies not based in the United States are set to reduce capital spending by about 10% for the year.

The survey results are based on $70.00/bbl Brent and $65 West Texas Intermediate (WTI), which indicates a "clear downside risk if current oil price levels hold or move lower," Anderson said. And those oil price levels will impact gas prices too, he added.

"With all the attention focused on falling oil prices, few are paying attention to the natural gas market, where forward prices are falling in sympathy," Anderson said. The near-term Henry Hub contract fell below $3.00/MMBtu as Barclays was putting final touches on its survey.

That $3.00 price is "below the $3.50-4.00/MMBtu range that almost 60% of those surveyed assumed in their budgets," he said.

However, analysts don't think the gas market is as elastic, "considering the natural gas rig count didn't move last year when gas prices rose above $4.00."

Perhaps, he said, "gas operators are just a more hardened group having seen the rig count fall from 1,585 rigs in late 2008 to under 700 in nine months, and then steadily falling from more than 900 rigs in late 2011 to just over 300 rigs currently."

The four largest independent U.S. natural gas producers, according to Barclays, are No. 1 Chesapeake Energy Corp., followed by Southwestern Energy Co., Cabot Oil & Gas Corp. and Range Resources Corp.

The four collectively have budgeted only a 1.5% decline in 2015 spending from 2014, Anderson said.

However, "we still expect the natural gas rig count to fall by 20% over the next 12 months as those with oil assets will be faced with lower cash flows and be forced to cut spending on less economic acreage," he said.

Raymond James & Associates is forecasting 2015 North American gas prices to average $3.00/Mcf, with WTI prices bottoming in the first half of the year (see Daily GPI, Jan. 5).

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