Oil producers sell US gas at lowest prices in years

Large crude oil producers in the second quarter sold their US natural gas output at the lowest prices in years as gas pipelines out of the Permian basin ran full and the US gas market remained oversupplied.

The historically discounted gas — mostly associated gas production — did little to dent the crude producers' profits, however, as crude sales represent a much larger share of their revenue and crude prices have remained strong. Nevertheless, crude-driven associated gas production comprises a significant share of total US gas output.

Chevron, which reported 2.6 Bcf/d (74mn m³/d) of US gas output in the second quarter, posted average realized sales at 73¢/mmBtu, the lowest for the oil major since the first quarter of 2020, according to company filings. This was down from its year-earlier sales realized at $1.18/mmBtu and its full-year 2022 sales realized at $5.35/mmBtu. A little more than half of Chevron's second-quarter US production, on an oil equivalent basis, came out of the Permian basin of west Texas and eastern New Mexico, while a quarter came out of Colorado.

ExxonMobil fared little better, with average sales realized at $1/mmBtu for its 2.9 Bcf/d of US gas in the second quarter, down from $1.40/mmBtu a year earlier and the lowest since at least 2002, as far back as Internet-accessible company filings reach. If it realized a more middling priceof $3/mmBtu on its US gas output, its second-quarter revenue would have been $548mn higher than its actual revenue of $51.2bn.

EOG Resources in the second quarter averaged realized sales at $1.51/mmBtu for its 1.7 Bcf/d of US gas output, while ConocoPhillips realized 31¢/mmBtu for its 1.6 Bcf/d of lower-48 US gas output.

Diamondback Energy posted such a low average price realization for its 564mn cf/d of US gas in the second quarter — 10¢/mmBtu — that earlier this month it said it had curtailed some oil production just to bring down the amount of gas that was coming up the well alongside the oil. State and federal regulations hinder indiscriminate so-called "economic" flaring, forcing producers to sometimes pay buyers to take gas off their hands in the absence of available pipeline takeaway capacity.

"Obviously, we need to start making more money on our gas in the Permian," Diamondback chief financial officer Kaes Van't Hof said.

Fly in the oil well

Still, large crude producers are not exactly hurting.

Exxon reported a $9.2bn profit, up from $7.9bn a year earlier, while Chevron reported a $4.4bn profit, down from $6bn a year earlier. Diamondback's second-quarter profit of $837mn was also up from its year-earlier profit of $556mn.

Those profits, on the back of solid crude prices in the latest quarter, were also partly thanks to booming oil production in the Permian basin, which as a side effect has flooded the region with associated gas. The pace of that gas growth has outpaced developers' efforts to expand local gas pipeline takeaway capacity, plunging spot prices there into negative territory. The Waha spot index in the second quarter averaged -58¢/mmBtu.

This upside-down market is not likely to last, however, as the 2.5 Bcf/d Matterhorn Express pipeline comes on line later this year to relieve takeaway constraints in the Permian. Argus forward curves show the September price of -48¢/mmBtu at Waha rising to 49¢/mmBtu in October, with the 2025-calendar strip there averaging $2.07/mmBtu — not so far below Tuesday's 2025 strip settlement at the US benchmark Henry Hub of $3.29/mmBtu.

By Julian Hast