Anadarko Petroleum Corporation (APC), Chesapeake Energy Corporation (CHK): When Will Energy Companies Start Drilling for Natural Gas Again?

Breakeven prices for gas producers
With gas prices currently above $4.25 per MMBtu, the companies most likely to resume or commence gas drilling are the ones that can turn a profit at those prices — low-cost producers, in other words. According to an analysis by Wells Fargo & Co (NYSE:WFC), Ultra Petroleum Corp. (NYSE:UPL), Chesapeake Energy Corporation (NYSE:CHK), Devon Energy Corp (NYSE:DVN), and Apache Corporation (NYSE:APA) were among the industry’s lowest-cost producers last year.

Ultra, Chesapeake Energy Corporation (NYSE:CHK), and Devon Energy Corp (NYSE:DVN) could all produce gas profitably at prices under $5 per Mcf, while Apache Corporation (NYSE:APA) required prices a little north of $6, as measured by their all-in costs per Mcfe. Surprisingly, however, neither Chesapeake nor Devon has expressed any desire to resume or accelerate gas drilling any time soon, despite the recent surge in prices.

Chesapeake Energy Corporation (NYSE:CHK)’s chief operating officer and acting CEO, Steve Dixon, recently said that the company will focus primarily on ramping up production in the liquids-rich Eagle Ford shale of Texas, while Devon Energy Corp (NYSE:DVN) plans to allocate much of its capital budget toward drilling for oil in the Permian Basin.

Final thoughts
As you can see, even some of the industry’s lowest-cost producers are opting not to resume or accelerate gas drilling until prices rise further. As to what that price level is, my guess would be at least $5-$6 per MMBtu, assuming the price of oil stays relatively constant at around $100 per barrel. That means we’ll probably have to wait a good while longer before companies start to divert resources away from oily plays toward gassy ones.

The article When Will Energy Companies Start Drilling for Natural Gas Again? originally appeared on Fool.com and is written by Arjun Sreekumar.

Fool contributor Arjun Sreekumar has no position in any stocks mentioned. The Motley Fool recommends Ultra Petroleum and Wells Fargo, owns shares of Apache, Devon Energy, Wells Fargo, and Ultra Petroleum, and has options on Chesapeake Energy and Ultra Petroleum.

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