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PrintTwo of the region's most prominent energy firms Thursday reported their profits and revenues rose last year, but the record-low price of natural gas is forcing both to cut back on rapid-fire drilling.
Consol Energy became the latest company involved in tapping the Marcellus Shale to scale back that development, with the Cecil-based business announcing it had cut $130 million of its 2012 spending outlook from the Marcellus division and would hold off drilling 23 wells.
The reason: natural gas prices that can make it tough to turn any profit at all on a well that cost $7 million to build.
Downtown-based EQT Corp., Calgary-based Talisman Energy Corp. and Oklahoma City-based Chesapeake Energy have announced similar reductions in recent weeks as the industry takes a breath and moves its rigs to shale regions loaded with more lucrative resources.
The strategy shifts are influenced as much by cold economic rules as they are by the unseasonably warm winter felt across the region.
In recent years, hydraulic fracturing technology has opened gas reserves that were once inaccessible, causing gas supplies to balloon. And warmer weather patterns this year have kept demand for natural gas low.
Prices have hovered below $3 per thousand cubic feet for weeks -- the kind of bargain basement prices that can force multinational conglomerates to revise an entire year's plans.
In Consol's case, the company's per-well net income dips into the red once natural gas starts trading at $2.74 per thousand cubic feet, said Brandon Elliot, vice president of investor relations. Gas prices closed at $2.60 per thousand cubic feet Thursday.
Consol is shifting focus to extracting from liquids-rich regions of shale where "wet" gas comes out of the ground loaded with valuable elements such as ethane. Those liquids trade at higher prices than regular natural gas, and more closely follow oil prices that are currently hovering around $100 per barrel.
The Utica Shale in Ohio is rich with liquids, as are parts of southwestern Pennsylvania and West Virginia.
Consol Energy plans to return to resume drilling in its dry acreage once prices rise, the company announced Thursday.
Consol will not have to renegotiate a majority of the leases on the affected land since more than 85 percent of the firm's leased acreage is "held by production." That means leaseholders are locked into current agreements because drilling operations have begun on their property or in the unit that conjoins their land with other properties.
The sorry news for gas companies has been good news for consumers: The abundant supply and low prices are causing home energy bills to drop.
If gas trades at an average of $2.50 over the year, the average U.S. household will pay $323.50 per month -- a drop from last year's average of $468.80, calculated Mine Yucel, senior economist at the Federal Reserve Bank of Dallas.
Nationwide, American consumers could save $16.5 billion in 2012 on the lower costs.
As companies seek ways to turn profits on the low-priced gas, they may turn to joint ventures to help fund their development deals. Consol Energy already partners with Houston-based Noble Energy Inc. in the Marcellus Shale and New York-based Hess Energy in the Utica Shale, both of which helped boost Consol's proceeds by $841 million in 2011.
Those lucrative joint ventures in Consol's gas division and strong overseas sales in its coal division helped the company post a record fourth-quarter profit of $196 million, or 85 cents per diluted share, up from the $104 million and 46 cents per share seen a year ago. Revenue for the quarter was nearly $1.4 billion.
The company's 2011 profit of $632 million, or $2.76 per diluted share, was a substantial increase from 2010's profit of $347 million and $1.60.
Meanwhile, Chesapeake Energy announced Tuesday it would idle 24 gas rigs by the second quarter, and Talisman Energy, a Calgary-based driller with major Marcellus acreage, cut drilling expenses by $500 million to about $4 billion in 2012.
EQT Corp. has suspended new wells in the Huron Shale play in Kentucky because of the low gas prices, but will maintain 5,000 wells and more than 3,500 miles of gathering pipeline there.
EQT drilled 222 natural gas wells in 2011, with 105 targeting the Marcellus Shale.
The company announced Thursday a fourth-quarter income of $90.8 million, or $1.62 per diluted share, up from the $73 million and $1.31 seen a year ago. Revenue for the quarter ended Dec. 31 was $369 million, up $61 million from 2010.
The Downtown-based energy firm posted 2011 profit of $479 million, or $5.93 per share, more than double the $227 million earned in 2010. Total revenue for the year was $1.3 billion, up about $200 million.
The income includes an after-tax gain of $113.8 million on the sale of the company's Big Sandy Pipeline, which originates in Kentucky and was sold to Spectra Energy Partners LP for $390 million in July.
The industrywide focus on liquids is also fueling interest in midstream operations that process and transport gas.
Range Resources announced Thursday that it had signed an agreement to ship up to 20,000 barrels of ethane per day on a pipeline that runs from Appalachia to Texas, giving the company access to a majority of the country's ethylene processing plants.
Range holds substantial acreage in wet gas portions of Pennsylvania and West Virginia, and so far has no plans to follow suit and cut back production, the company said.
