NATURAL GAS INDUSTRY REELING AS PRICES PLUMMET

The plunge in natural gas revenues has created a number of problems, including the loss of jobs and hard times falling on the state’s long-time independent gas companies, the latter not likely to rebound against the mega-corporations that essentially control the industry.

TOO MUCH GAS – Industry reeling as natural gas prices plummet

By David Hedges Publisher
Times Record-Roane County Reporter

Jon Hildreth recalls just a few years ago when the natural gas business was turning a nice profit.

Now it’s costing him just to be in business.

His family-owned business, Roy G. Hildreth and Son Oil and Gas, signed a 10-year contract in 2012 to sell all their gas through Dominion, operator of the only major pipeline in this part of the state.

After paying transportation costs last month, he said instead of receiving a check for their gas, the company got a bill for $333.

“The price of natural gas keeps going down,” Hildreth, who also serves as president of the Independent Oil and Gas Association of West Virginia, said. “It’s terrible.”

“In this region, we are awash in natural gas,” another local producer, Sam McKown of C.I. McKown Oil and Gas, said. “It’s driven the prices down.”

Natural gas prices are at an all-time low, which is having an impact on a lot of companies, even those not in the drilling business.

E&H Manufacturing, on Liverpool Road near Reedy, has made equipment for the oil and gas industry for years including tanks, separators and pump jacks.

David Haney, one of the owners, said the company employed 25 people before layoffs started in the second half of 2015. Now they are down to eight.

“I haven’t seen a downturn this drastic in several years,” Haney, an oil and gas producer himself, said. “This one is going to have a severe impact, with several bankruptcies. We’ve seen quite a few already.

“We’re getting about a dollar for our gas now,” Haney said. “It’s not enough to pay our bills.”

Hildreth said the gas business is the worst in his company’s 63-year history.

Last year they had their first lay-offs in history, which amounted to about half a dozen people.

This year the knife cut much deeper.

At its peak, about five years ago, Hildreth said the company had 98 employees.

“And they were working all the overtime they could,” he said.

Now the company has 32 employees, and overtime is a thing of the past.

“We’ve cut all we can cut, and put everything on a line item right down to the water cooler in the office,” he said.

Hildreth said natural gas producers in Roane and Calhoun counties are selling their gas at historically low prices.

For gas being pumped into the Dominion system, several deductions are taken out before the producer is paid for his gas.

Additional fees are taken by so-called midstream companies for gathering and retainage. Then there are firm transportation fees that are charged to the producer each month, regardless of whether any gas is sold.

In addition to the fees are royalty payments, property taxes, state severance taxes and the cost of operating, including labor.

“Something has to give,” Hildreth said. “This is the most hellacious mess imaginable.

“Half the industry will be broke another year or two,” he said.

He said the Marcellus Shale boom, which has produced record amounts of natural gas, is part of the problem.

“Wall Street invested too much, too fast,” he said. “They drilled too many wells and it ran all of our costs up.”

According to one firm that watches the industry, in February the United States produced more natural gas than in any other month in history.

Gas that was selling at anywhere from S7 to $14 per dekatherm is now at $1, with no change in sight

“The turnaround is not going to happen overnight,” Hildreth said. “A lot of people who have been in the business for a long time say they’ll never see $5 gas again.”

Until last year, Hildreth said his company was getting anywhere from 8 to 18 permits a year to drill new wells. They did not drill any last year, and have no plans to drill this year. There are a couple of bright spots for the industry, although they may be dwarfed by the onslaught of bad news.

One is that the price of oil, produced in conjunction with much of the gas in this region, is expected to rebound much quicker than natural gas.

The other positive development it new pipelines being planned for the state, which could give producers more options for selling their gas.

Hildreth’s hope is that the producers can hang on long enough for those to have an impact, but he is doubtful that all of them can.

“A lot of the people we know in this business, I’d say in another two years won’t be around anymore,” he said.