Low Commodity Prices Hit Gas Companies; Workers Laid Off
DAVID GREENE, HOST:
You might say the industry we're going to hear about next had too much of a good thing. Energy companies in Pennsylvania were doing so well extracting natural gas from what's known as the Marcellus Shale - maybe too much natural gas. StateImpact Pennsylvania's Marie Cusick reports.
MARIE CUSICK, BYLINE: Bill desRosiers is standing inside the control center, known as the doghouse, of a massive drill rig.
BILL DESROSIERS: The actual drilling operation hasn't changed all that much.
CUSICK: He's explaining how his company, Cabot Oil and Gas, extracts gas from the Marcellus Shale formation nearly a mile underground.
DESROSIERS: What we now have is technology to make it better and more efficient.
CUSICK: But it turns out the industry became so efficient they flooded the market with gas. Supply outpaced demand and the price plummeted. That interview was recorded in 2013, and times have changed. Cabot recently announced plans to cut its 2016 capital spending roughly in half. And that's a pretty big deal, according to Stephen Beck, who analyzes U.S. shale plays for the research firm IHS.
STEPHEN BECK: The noteworthy thing about Cabot is that's located in some of the best areas of the Marcellus in Northeast Pennsylvania, and the wells in these areas are some of the most economic wells in the Marcellus.
CUSICK: Other major gas companies are having a rough year, too. Southwestern Energy recently laid off about 40 percent of its workforce, and Chesapeake Energy saw its stock plummet as fended off bankruptcy rumors after hiring a restructuring firm. The downturn has also rippled through related industries. Clayton Bubeck is with Rettew, an engineering firm headquartered in Lancaster, Pa.
CLAYTON BUBECK: We really didn't understand what that cyclical nature was going to be as well as maybe we should've.
CUSICK: He says the gas boom was a shot in the arm at just the right time. While the Great Recession caused other work to dry up, Rettew pivoted to the gas industry. It opened new offices in other states, and its workforce more than doubled to nearly 500 people.
BUBECK: A lot of our eggs were in the oil and gas basket. About 85 percent of Rettew's work at that time was in the oil and gas market sector, and that concerned us.
CUSICK: Rettew has since scaled back its oil and gas work and laid off around 50 people. Bubeck says the company had to diversify to insulate itself from the booms and busts.
BUBECK: That's just the way oil and gas is. That's capitalism. When they're making money, they're drilling, they're doing work. And there's no time. You have to get it in now because I can make a lot of money now. And when the prices are down, they retract and try to keep all their money in-house.
CUSICK: Nationwide, there are now slightly over a hundred rigs drilling new gas wells, and that's down from 300 rigs just a year ago.
LYNN WESTFALL: It's really difficult for them to justify keeping all the rigs out there.
CUSICK: That's Lynn Westfall. He heads the office of energy markets and financial analysis for the U.S. Energy Information Administration. In the Marcellus Shale, a new well produces a lot of gas at the beginning of its life, but the flow drops off quickly so companies have to constantly drill new wells to keep up the pace.
WESTFALL: That's why production is going down in that the new wells aren't making up for the loss from the old wells. So until you see the rig count go up, you're not going to see production increases. As a matter of fact, you will see production declines.
CUSICK: But as an analyst watching this all play out, Stephen Beck says it's key to remember one thing.
BECK: The important thing is is that the industry does go through these boom and bust cycles, as everyone knows, and the industry will get through this low price period as well.
CUSICK: Although fewer wells are being drilled these days, companies are rapidly building more pipelines in an effort to alleviate the glut and move the gas to new markets. For NPR News, I'm Marie Cusick. Transcript provided by NPR, Copyright NPR.