When Chevron snapped up Atlas Energy in 2011to join the natural gas land rush in the Appalachian shale region of the US, its then vice-chairman lauded the $4.3bn deal as a “compelling investment”, citing a “high-quality resource” with “strong growth potential”. Almost nine years on, George Kirkland’s views on growth and resources have proven spot on. But as an investment, Appalachia has disappointed.
The oil major on Tuesday wrote down more than $1obn of assets, more than half from gas resources in the Appalachian states of Pennsylvania, West Virginia and Ohio. Chevron has nearly 900,000 net acres across the region’s Marcellus and Utica shale fields; its writedown highlights the stress spreading beneath the booming region, less famous but no less consequential than the Permian Basin of Texas and New Mexico.
Hydraulic fracturing – or fracking – frees hydrocarbons from tightly packed shale rock and has lifted gas output in Appalachia from about 4bn cubic feet per day in 2011 to almost 34bn cu ft per day this year. This glut has led to US gas prices falling from $4 per million British thermal units at the time of the Atlas deal to $2.26 on Wednesday. In 2020 they will average less than $2 for the year, the lowest in real terms since the 1970s, consultancy IHS Markit forecasts.
“We’ve definitely started to blow through where companies can economically develop the resource,” said Matt Portillo, head of upstream research at Tudor, Pickering Holt, an investment bank. “The writedown, in our view, was not really a big surprise.”