Third Company Scales Back U.S. Shale Operations

With the price of natural gas so low, BG Group has become the latest company to scale back its shale natural gas production in the United States, in what could be the start of a temporary retreat by the domestic gas industry.

The British gas company announced Thursday it intends to reduce its natural gas rig counts this year from 35 down to eight, as it scales its production back, The Guardian said.

This is a deferral of the program, given that we see, at least for the time being, a period of lower prices, said BG chief executive Sir Frank Chapman.

BG joins the likes of Chesapeake and ConocoPhillips in slicing natural gas operations. With natural gas booming in multiple parts of the country, the price of the stuff has plummeted, and more companies could do the same.

It could be the start of a trend, but not anything alarming, said Charlie Ebinger, director of the Energy Security Institute with the Brookings Institute.

Ebinger said as long as gas prices remain near $2.50 per 1,000 cubic feet, some companies will not be able to compete, and could be knocked out. Other giant energy companies, like ExxonMobil, are better suited to hold out and wait until gas prices rise.

ExxonMobil announced in recent weeks the company was not scaling back its natural gas production.

Fadel Gheit, an analyst with Oppenheimer, said natural gas companies can stay in the natural gas industry even if they are making very little money, because the vast majority of them do not solely mine dry natural gas.

Instead, he said, companies in the natural gas plays have various assets, and they also produce oil and natural gas liquids, both of which trade at considerably higher levels than dry gas.

Rather than simply pack up and leave, companies, Gheit said, are likely to shift their operating focus where they can make the most money - but that does not mean they will exit the natural gas industry permanently.

I am really surprised at how resilient natural gas companies are, Gheit said.