NGL price plunge may add to pain of oil, gas companies

Tue Jun 16, 2015 4:24pm EDT
 
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HOUSTON, June 16 (Reuters) - Crude oil's price collapse has strained finances at U.S. exploration and production shale companies. Now that pain may be compounded by a steep drop in prices for natural gas liquids (NGLs) caused by oversupply.

NGLs, which include propane and butane, are hydrocarbons widely found in U.S. shale fields. They typically fetch a much higher price than the natural gas itself, but the NGL market is currently over-supplied, partly due to infrastructure constraints, according to companies and analysts.

SM Energy Co, which drills in places including the Eagle Ford formation in south Texas, said on Monday that recent NGL price declines would reduce its 2015 total budgeted revenue by about $25 million, but lower NGL prices will not affect its drilling or production.

In its latest investor presentation, SM said the price it is receiving for NGLs at the delivery point Mont Belvieu fell 36 percent to $16.67 per barrel on a sequential basis in the first quarter.

Analysts at Barclays said in a recent note to clients that Chesapeake Energy Corp could see 2016 cash flow reduced by up to 3 percent if NGL price weakness persists, while Range Resources Corp may see its cash flow cut by up to 5 percent.

Others that may experience reduced cash flow related to NGL pricing are Anadarko Petroleum Corp, Devon Energy Corp , Pioneer Natural Resources Corp, QEP Resources Inc, Southwestern Energy Co, Encana Corp and EOG Resources Inc, according to Barclays.

Analysts at Houston-based Tudor Pickering Holt & Co have a more optimistic view and expect an NGL pricing recovery in 2016.

Weak NGL realizations have hit 2015 earnings hard, but cresting U.S. natural gas and crude production looks to be flat-to-declining as we move through 2016, giving U.S. infrastructure time to catch up, the Tudor Pickering analysts said in a note on Tuesday.

They see a recovery for NGL prices early next year, the note said. (Reporting by Anna Driver; Editing by Terry Wade and Paul Simao)