"When does the gas pain train stop?" was the most common question in Oklahoma City, analysts at Tudor Pickering Holt said in a note to clients about their visit last week.
"Nothing we heard last week changed out view," TPH said. E&Ps have ability to fund growth through 2011 with continued access to capital (foreign investment and cheap debt) and can grow production with fewer rigs."
TPH offered only two slim reeds of hope to producers -- the need to drill to hold acreage by production will end next year and gas producers are still improving their profit margins by cutting costs.
TPH said it expects companies to start dropping rigs late next year and early 2012 if gas prices remain low as hedges and the need to hold acreage roll off. The analysts added that Chesapeake Energy told them it would drop 70 to 80 rigs (of 135 rigs) right now if it didn't need them to hold land by drilling.
"Overwhelming bearishness with regard to the outlook for natural gas prices was clearly evident," FBR Capital Markets gas analyst Rehan Rashid said of last week's Enercom Oil and Gas Conference in Denver. "Investors and the industry have concluded that gas markets will remain weak for an extended period of time."
"A second half of 2011 conclusion of held-by-production drilling-driven price stability was the only glimmer of hope offered," Rashid said.
"Petrohawk, Comstock, and other Haynesville players confirmed that drilling to hold acreage will continue until the middle of next year, after which most of the prospective Haynesville will be held by production," Rashid said. "In the second half of 2011 we could see a meaningful drop in drilling
rig count and Haynesville gas production growth rate."
The pain of low prices for producers could be just the start of their ordeal, energy stock analyst Tom Driscoll at Barclay's Capital said in a note Tuesday, as low prices reduce the value of major pure-play gas producers and investors flee.
If prices keep sliding, Driscoll said four of the large-cap pure play gas stocks he covers -- Encana, Range Resources, Southwestern, and Ultra Petroleum -- could see share price declines of 20% to 60%.
Stock in all four of those companies, as well as most pure-play gas producers were trading near their 52-week lows Tuesday. Gas producers that aren't trading in that trough, such as Houston-based EOG Resources, have all announced significant oil finds or plans to push into wetter, liquids-rich gas plays.
While Barclay's Driscoll lined up with other analysts in predicting a production fall-off, unlike the others he sees production cuts coming sooner, rather than later.
"Production curtailments are likely over the next several months," Driscoll said. "We expect investors to focus on deferred production including deferred completions, reduced compression and outright shut-ins over the next couple of months. In addition, we expect producers to be forced to slow
drilling."
Driscoll believes the drilling cuts will start in the Haynesville Shale and in those areas outside the fairway in the Barnett and Marcellus Shales. "We expect that as much as 75% of the activity in shales such as the Barnett, Cana, Fayetteville, Eagle Ford and Marcellus could be maintained in a
$4.50-$5 price environment," Driscoll said. "In addition, we expect that drilling in the Pinedale, Wattenberg, Granite Wash, and Bossier would remain reasonable active."
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