National Fuel Gas Co. (NFG) exploration and production subsidiary Seneca Resources Corp. plans to cut spending next year and slow its operations in the Appalachian Basin as the natural gas outlook remains bleak.

“Given the weakness in natural gas prices, we plan to reduce Seneca’s drilling activity,” NFG CEO David Bauer said. “While I’m optimistic prices will return to more acceptable levels as the supply/demand balance normalizes, and as producer activity slows, our reduced activity...will preserve our economics and keep the balance sheet strong.”

For fiscal year (FY) 2020, which begins in October, NFG has issued a preliminary budget of $415-455 million for Seneca, a $50 million reduction from the midpoint of its FY 2019 budget. Across its upstream, midstream and downstream operations, NFG plans to keep year/year spending essentially flat at $725-820 million.

Seneca plans to drop one of three rigs it has working early next year, but production isn’t expected to suffer in the near-term. The company plans to bring online around 15 Marcellus Shale wells and up to 30 Utica Shale wells in FY 2020, most of which would be located in western Pennsylvania.

“Our reduced activity is not expected to significantly impact fiscal 2020 production growth, but will certainly impact our growth profile beyond 2020,” said Seneca President John McGinnis. “Thereafter, with a two-rig program, we expect average annual production growth in the mid- to high-single digits within the next few years.”

Seneca joins other Appalachian operators this earnings season that have announced plans to pare activity as natural as prices slump on oversupply and other factors, such as a slowing pipeline buildout.  

The company is currently guiding for FY 2020 production of 235-245 Bcfe, compared to its current FY 2019 forecast of 205-215 Bcfe. The company cut its FY 2019 guidance earlier this year by 10 Bcfe, mainly as a result of operational issues and ongoing Utica Shale tests in western Pennsylvania.

CFO Karen Camiolo said next year’s plans will be finalized in November and could again change if natural gas prices continue to fall. 

Seneca did increase the lower-end of its FY 2019 budget by about $15 million to account for a slight increase in activity in California, where the company has operations in Fresno and Kern counties. The company is ramping up operations there to take advantage of an enhanced oil recovery tax credit.

Fiscal third quarter production was 54.7 Bcfe, up 23% from the year-ago period and 12% from fiscal 2Q2019.

While Seneca has plans to slow down, NFG said it would continue to invest in pipeline expansion projects and utility system modernization next year.

The company’s Empire North project, which would move 205 MMcf/d of Appalachian volumes to New York and into Canada, received a notice to proceed from the Federal Energy Regulatory Commission in May. The project is still on track to enter service next year.

The company has also filed for a certificate for its FM100 project, which would modernize a portion of NFG’s existing pipeline system and create 330 MMcf/d of incremental firm transportation capacity. 

Transcontinental Gas Pipe Line Co. LLC has also filed a certificate for the companion Leidy South Project. Both are expected to enter service in 2021. FM100 would link up with Leidy South to get more gas out of western Pennsylvania.

Those projects would help fill a void left by the Northern Access expansion project, which was rejected by New York regulators in 2017 and remains in limbo.

NFG reported consolidated fiscal 3Q2019 earnings, which include its upstream, midstream and downstream business segments, of $63.8 million (73 cents/share), compared to net income of $63 million (73 cents) in the year-ago period. Revenue increased to $357.2 million from $342.9 million over the same time.