Chesapeake natural gas, NGL, and oil price update

Hands holding a gas flame
Source: DollarPhotoClub

During the 2014 second quarter and continuing into July, Chesapeake and other natural gas producers in the Marcellus shale experienced significant weakening of natural gas price differentials relative to the Henry Hub benchmark natural gas price.

At certain delivery points during the 2014 second quarter, particularly Dominion South, Tetco M3, TGP Zone 4 and Transco Leidy, the company experienced basis discounts to Henry Hub prices between $0.92 and $2.32 per mcf, which was significantly wider than forecast.

As a result, the realized price after gathering, transportation, and basis on its Marcellus North natural gas production (approximately 29% of total company natural gas production), is expected to average $2.47 per mcf below Henry Hub during the 2014 second quarter, compared to an average discount of $0.18 per mcf that the company received for its Marcellus North production during the 2014 first quarter.

Chesapeake’s companywide natural gas price differential is expected to average ($1.91) per mcf during the second quarter of 2014 and its realized natural gas price after hedges is expected to average $2.45 per mcf, compared to a companywide differential of ($1.08) per mcf and a realized natural gas price after hedges of $3.27 per mcf in the 2014 first quarter.

Chesapeake’s realized NGL price during the 2014 second quarter, after processing and transportation costs, is expected to be $21.03 per barrel, compared to an average realized price per barrel of $29.23 during the 2014 first quarter. The decrease in NGL price realizations during the 2014 second quarter was primarily due to weakness in ethane prices and lower seasonal demand for propane and butane. Chesapeake’s average NGL price per barrel as a percentage of the average WTI crude oil price, before processing and transportation costs, is expected to be 34% during the 2014 second quarter, compared to approximately 47% of WTI that was realized during the 2014 first quarter.

Chesapeake’s realized oil price during the 2014 second quarter, after hedging, processing and transportation costs, is expected to be $85.23 per barrel, compared to an average realized price per barrel of $85.08 during the 2014 first quarter. The company’s differential to the average WTI crude oil price is expected to be ($5.50) per barrel in the 2014 second quarter compared to ($5.08) per barrel in the 2014 first quarter. The increase was primarily driven by a temporary outage of a third-party crude oil pipeline and a contraction in the premium between Louisiana Light Sweet crude oil prices, the benchmark for all of Chesapeake’s Eagle Ford Shale production, and WTI prices during the second quarter.

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