For the first time in more than three years, Pennsylvania’s unconventional operators reported a quarter/quarter decline in natural gas production in 1Q2020, according to the state’s Independent Fiscal Office (IFO).
Based on data provided to the state Department of Environmental Protection, IFO said unconventional horizontal wells in the state produced 1.76 Tcf in the first quarter, up 6.8% from the year-ago period, but down from the 1.78 Tcf reported in 4Q2019.
Year/year production growth has decelerated over the last three quarters after a series of strong gains from 1Q2018 to 2Q2019. After reaching the lowest quarterly growth rate on record in 1Q2017 (2.3%), production growth accelerated in six consecutive quarters, reaching the strongest recorded year/year gain of 18.6% in 3Q2018. Since that peak, quarterly production growth has decelerated in five of the last six quarters.
Natural gas producers have faced their share of headwinds over that time, including a supply glut that has kept prices consistently low and restive investors looking for better returns. Operators were already in the process of cutting budgets and activity when the Covid-19 pandemic hit and destroyed demand.
Most of Appalachia’s leading operators curtailed production during the first quarter or plan to defer it until later in the year or earlier next when prices are expected to rise if associated gas production falls with oil well shut-ins and demand rises as lockdowns ease across the country.
The IFO noted that both Henry Hub and average spot prices at key points in Pennsylvania have fallen “dramatically” in recent quarters. From 4Q2018 to 1Q2020, the office said average prices in Pennsylvania declined by 53.6%.
Other metrics have declined along with the deteriorating market conditions. IFO said there were 153 new horizontal wells spud in the first quarter, a decrease of 45 wells from the same period last year. While new wells increased sequentially in 1Q2020, it was the fourth consecutive quarter in which there was a year/year decline in new wells spud.
There were also 9,941 total producing wells in the first quarter, an annual increase of 7.5%. The IFO tracks results from vertical wells drilled to unconventional formations, but they account for a marginal share of quarterly volumes.
Horizontal wells, which account for over 99% of unconventional production in the state, increased by 8% This is the smallest year/year increase in quarterly horizontal producing wells on record.
“Decelerating growth in producing wells is the result of less drilling activity and older wells being shut in or plugged,” the IFO said.