Infrastructure constraints and capital discipline are expected to cap the Marcellus in the near-term. Key highlights from our recent report include:

• Marcellus activity, and thus spending, has remained relatively flat in 2021 as producers prioritize cash flow rather than growth. Horizontal rig activity in the play has been range bound between 17 and 25 rigs since 2021, with the average for 2021 at 22 active horizontal rigs. The most active operators in 2021 have been Cabot (now merged with Cimarex to be Coterra) and Southwestern, both averaging ~2.5 rigs. The consistent activity level, particularly despite an impressive rally in natural gas prices, confirms operator commitment to investor demands for returns.

• Chesapeake's acquisition of Chief represents the last large private company acquisition opportunity with prime acreage available in the play. Future gas-focused mergers involving Marcellus operators would likely be a merger of equals among the larger players, or perhaps a foray into the nearby Utica to pick up privates, such as Ascent or Encino Partners. Both Chesapeake and Southwestern acquired significant Haynesville assets over the past year, and as a result may expend capital in the Haynesville at an increasing rate given its proximity to LNG facilities.

• The productivity landscape changed in the past year as well. Supercore productivity, long the leader in Marcellus, stalled out in 2020 and 2021, while Southwest Core productivity continued to rise. As a result, EQT's breakeven in the SW Core subplay pulled in line with Supercore operator results near $2.00/MMBtu to Henry Hub, after years of trailing by 10-20 cents.

• Oil price of $70/bbl WTI and NGL price strength place the Liquid Rich breakevens in a leading position in Marcellus. The major operators achieve wellhead liquids EURs of 50,000 to 300,000 barrels on Liquids Rich wells, so gas breakevens have plunged below $2.00/MMBtu. Marcellus served as a microcosm of the greater US system with liquids driven economics pushing small operators into ramping rigs during January in West Virginia-increasing from 7 to 10 rigs. Independents left rigs at previous months levels during the private company run-up.

Figure 1: Marcellus dry and wet gas market investment signal

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Posted 11 February 2022 by Imre Kugler, Director, Upstream Research, S&P Global Commodity Insights and

Reed Olmstead, Executive Director, Upstream Research, S&P Global Commodity Insights

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.