Operators in the gassy Marcellus play are pulling back drilling and completions activity amid a bleak forecast for natural gas prices going into 2020 and as investors push for companies to curb growth and increase free cash flow, writes Caroline Evans.

The most recent Baker Hughes rig count showed the Marcellus with 56 rigs last week.

That is one fewer than at the start of 2019 but 12 below the peak of 68 in April.

The majority of Marcellus rigs are concentrated in Pennsylvania, with the rest in West Virginia.

Yet production is expected to continue to grow in the area. According to the latest figures from the US Energy Information Administration (EIA), natural gas production from the Appalachian region is expected to increase by 367 million cubic feet per day in September.

However, the EIA has also forecast that monthly average US gas production may decline slightly in the first quarter of 2020 as low prices take their toll on late 2019 drilling.

The agency recently lowered its Henry Hub spot price forecast for the second half of 2019 to an average of $2.36 per million British thermal units from $2.50 in a July projection.

Southwestern Energy, which has assets in both Pennsylvania and West Virginia, said in its earnings release last week that it would, as planned, reduce its rig count from an average of six in the first half of 2019 to two in the second half.

Chief executive Bill Way said the move would lower the company's high-end of capital guidance for the year by $30 million.

"We intend to grow differentiated and sustainable shareholder value through returns focused investment and consistent operational performance in leading high quality, concentrated large scale and low-cost assets with an emphasis on high margin liquids," he said during a second-quarter earnings call.

Way also said the company may ramp back up in the first few months of 2020 and pull back again in the second half.

He said the company "will begin the process of ramping back to a nominal amount of rigs and frack fleets commensurate with our estimates of the budget, and we’ll make adjustments to that as we finalise that budget after the January-February time period."

Earlier in the earnings cycle, Cabot Oil & Gas chief executive Dan Dinges assured investors that the company was hitting the brakes on growth.

"We see absolutely no rationale for continuing to chase double-digit production growth when supply growth could outpace expected demand growth at this time," he said.

Another Marcellus player, CNX, expects output to rise consistently next year but then plans to keep it flat in 2021, as demand growth is expected to slow.

"And we do have flexibility built into our go-forward business model in 2019, and especially obviously in 2020, since we're coming out pretty early with our initial viewpoint on 2020 to dial that back or dial that up as conditions warrant," chief executive Don Rush said on a recent earnings call.

Surprisingly, however, permitting activity has picked up in the Marcellus despite a bearish outlook for natural gas.

Permits for unconventional gas wells in the play increased by 20 in July to 117 month-on-month, although permits in the nearby Utica dropped by one to 29, according to a recent report from EverCore ISI.

While permits in the Marcellus increased, activity in the Haynesville, another large US shale gas play in Louisiana and Texas, dropped in July by 18 to 150.

Weekly

Players pulling back in Marcellus play