Southwestern’s Gas Drilling Revival Said Bad Sign for U.S. Bulls

  • Explorer plans to operate five rigs by the end of September
  • Bloomberg Intelligence calls revised guidance ominous signal

Southwestern Energy Co.’s revival of its dormant drilling program may be the beginning of the end for the U.S. natural gas rally.

The explorer’s plan to operate five rigs by the end of September will unleash more supply from shale basins, threatening the recovery, according to Bloomberg Intelligence. Southwestern had halted drilling for the first half of the year as the company sought to strengthen its balance sheet, recently returning a single rig to northeast Appalachia.

After tumbling to historic lows earlier this year, the U.S. rig count is rising as the industry bounces back from an oil and gas price rout that drove more than 80 North American explorers into bankruptcy since the beginning of last year. A rapid increase in gas output could overwhelm demand for the heating and power-plant fuel, curtailing the rebound, according to Vincent Piazza, a Bloomberg Intelligence senior industry analyst in New York.

Southwestern’s drilling restart “may pressure supply-demand balances and threaten the nascent price recovery,” Piazza said in a note to clients Friday, calling Southwestern’s revised guidance "an ominous sign for natural gas market fundamentals."

Southwestern boosted its production forecast 5 percent for 2016 to about 870 billion cubic feet equivalent of gas, oil and gas liquids, according to a statement Thursday after the close of regular trading. The driller has taken steps to reduce debt over the past several months, agreeing to sell West Virginia acreage to Antero Resources Corp. and issuing shares to repay loans.

The Spring, Texas-based company’s shares were up 9.3 percent to $14.44 at 3:02 p.m. in New York, earlier rising as much as 12 percent, the highest intraday since June 9.

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