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Strong points

Recent rating actions downgrade six of Appalachia’s largest producers

Outlook revised to negative for eight of nine Appalachian producers reviewed


New York –
Deteriorating conditions in U.S. natural gas markets this year pose increasing credit risk to industry producers and even midstream developers, S&P Global Ratings said Wednesday.

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In an industry outlook webcast, S&P ratings analysts said recent supply gains, weaker expected demand growth and lower prices in 2020 are putting further pressure on gas trading.

In the U.S. upstream, low prices have created the greatest risk for individual producers.

On Monday, S&P downgraded the credit ratings of six of Appalachia’s most prolific shale gas producers. It also adjusted its credit outlook to negative for eight of the nine Appalachian producers under its review.

“The downgrades were primarily driven by rollover risk… upcoming debt maturities and lack of unsecured collateral [debt] market access,” said Ben Tsocanos, director of S&P Global Ratings.

Tsocanos also pointed to the difficulty that deteriorating commodity and capital market conditions pose to producers looking to sell gas-weighted assets. Even for integrated multinational producers like Chevron, recent gas asset sales have resulted in significant quarterly writedowns and impairment charges.



Recent S&P Global Ratings actions on natural gas producers



Producer



Current Rating



Previous ranking



Rating Action


Antero Resources


G+/Negative


BB/Negative


Downgrade


Ascension Resources


B/Negative


G+/Negative


Downgrade


CNX Resources


G+/Negative


BB-/Negative


Downgrade


Comstock Resources


B/Negative


B/Stable


Revised outlook


EQT


BB+/Negative


BBB-/Negative


Downgrade


Gulfport Energy


B/Negative


B+/Stable


Downgrade, revised Outlook


Editing Resources


B-/Stable


B-/Stable


Affirmation


Range Resources


BB-/Negative


BB/Negative


Downgrade


South West Energy


BB/Negative


BB/Stable


Revised outlook



Source: S&P Global Ratings

PRICES

After falling below the $2/MMBtu threshold just over two weeks ago, Henry Hub gas prices remained mired near a four-year low this month. On Wednesday, the spot market was trading near $1.85/MMBtu, according to preliminary settlement data from S&P Global Platts.

Worse still for gas producers are the prices on the futures market, which point to more gloom in the months to come.

As of Tuesday’s market close, 2020 breakeven prices on the benchmark US hub stood at just $2.07/MMBtu with February, March, April and May calendar month contracts now valued at less than $2.07/MMBtu. $2/MMBtu, Platts M2MS transmits data.

In a newly revised price outlook presented by Tsocanos on Wednesday, S&P Global Ratings predicts U.S. gas prices will average $2.25/MMBtu this year, reaching just $2.50/MMBtu in 2021.


INTERMEDIATE

The commodity, capital markets and equity price pressures currently facing many upstream exploration and production companies, and in particular natural gas-weighted producers, have created risks reflected in the mid-market, ratings analysts said during Wednesday’s webcast.

Increased counterparty risk and slowing production growth are among the biggest challenges facing midstream developers, according to Michael Grande, senior director at S&P Global Ratings.

With many Appalachian dry gas producers now facing prices below estimated breakevens in the area above $1/MMBtu, analysts and market watchers have raised concerns about the potential for price concessions on the middle market.

During its third-quarter earnings call, TC Energy executives dismissed specific questions about the financial health of the company’s own Appalachian producer customers, saying its top 10 midstream contract holders had utilization rates. pipelines and strong acreage holdings.

Additional, but unrelated, factors that could pose a challenge, particularly for Appalachia’s midstream gas industry this year, stem from both regulatory and environmental risks.

“Whether the 2020 election changes administrations, I don’t think will matter in terms of how much weight it has on the future growth of the industry,” Grande said.

Following the halt to construction work on the 2,100,000 cfd Mountain Valley Pipeline in October, major capacity expansions in the Northeastern United States appear largely on hold for the time being.

The MVP project is not alone. Indeed, the fate of at least four other projects, including the 1.1 100 cfd PennEast Pipeline, the 1.5 100 cfd Atlantic Coast Pipeline, the 500 100 cfd and the 650,109 cfd Constitution pipeline, is in play, pending resolution of regulatory blockages.