Even as the oil and gas business appears poised to enter the boom leg of another boom-bust cycle, companies that concentrate on natural gas exploration are cutting their exploration budgets. Two of the biggest players in the gas business - Chesapeake Energy Corp (based in Oklahoma City) and Range Resources (Fort Worth) - have already announced cutbacks. Officials of both companies cite a precipitous fall in natural gas prices, which industry analysts say is due to the combination of a record increase in gas production in 2011 and unseasonably warm winter weather so far. The benchmark price for natural gas has plummeted in recent weeks to a ten-year low price near $2.50 per million BTUs (MBTU).
Houston-based Cabot Oil and Gas Corp. and Southwestern Energy Co., both big gas-shale players, have not yet announced changes; though the revenues of both companies are clearly linked to gas prices. Cabot, the best performer in the S&P 500 in 2011, has lost more than 25% of its stock price since peaking in late November. Cabot officials claim that the break-even price for the company's Marcellus Shale production is approximately $2.44 per MBTU, compared to today's price of approximately $2.55 per MBTU. The company is closely watching gas prices, but has not yet announced changes in exploration plans. Much of Cabot's gas production in the Marcellus is contractually obligated at a price in excess of the market price.
While gas prices continue to be weak, oil prices remain at a level near $100 per barrel as European countries and Iran play a game of "petroleum chicken" over sanctions for the latter's nuclear aspirations. Cabot is banking on natural gas sales to fund development of the company's substantial leasehold in the Texas Eagle Ford Shale play, which produces not only natural gas but more lucrative crude oil.
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