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Market Chatter: Permian Operators Shut Wells as Waha Gas Prices Stay Below Zero

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Persistently weak gas prices in the Permian Basin are forcing some producers to curb output even as stronger crude prices encourage additional oil drilling, Bloomberg reported Monday.

Producers, including Permian Resources (PR) and Devon Energy (DVN), have shut in wells with elevated gas-to-oil ratios after prices at the Waha Hub remained below zero for 124 straight days.

Describing the move as an obvious economic decision, Permian Resources Co-Chief Executive Officer James Walter said the company curtailed gas-heavy production that was generating losses.

While gas producers struggle with negative pricing, crude output across the Permian continues to climb as operators respond to oil prices that remain roughly 50% above levels seen before the Iran conflict.

Flooding the market with associated gas from oil wells, rising crude-focused activity has overwhelmed existing pipeline infrastructure across West Texas and southeastern New Mexico.

According to Targa Resources (TRGP) President Jennifer Kneale, producers are currently shutting in between 200 million and 400 million cubic feet of gas per day, compared with basin-wide dry gas production of about 23 Bcf/d.

Middle East-related supply disruptions have encouraged additional oil-weighted drilling, which is adding further pressure to already constrained gas takeaway capacity, Rystad Energy Vice President Matt Bernstein said.

Despite stronger crude prices, some operators have refrained from increasing production because losses tied to associated gas can offset gains from oil sales, Bernstein added.

Instead of curtailing output, privately held Elevation Resources has opted to flare excess gas, allowing the company to free up infrastructure capacity and continue producing more crude oil, according to the report.

Highlighting the pressure facing gas-focused operators, Elevation Resources Chief Executive Officer Steve Pruett said, "We're losing money hand over fist on gas," adding that natural gas accounts for roughly half of the company's production.

Recent production curtailments have started to tighten the market, helping lift natural gas prices at the Waha Hub, according to the report.

Recovering from a record low of negative $9.60 per million British thermal units on April 24, Waha prices improved to negative $0.33/MMBtu on Thursday, their highest level since February.

Later this year, new Permian gas pipeline projects are expected to ease transportation constraints, allowing producers to move more gas to demand centers and improving in-basin pricing, the report said.

Despite those expected improvements, Kinetik Holdings (KNTK) raised its full-year gas curtailment outlook and said higher oil prices continue to encourage crude-focused operators to expand activity while gas-focused producers face a much more challenging market environment.

"It's a tale of two cities: crude folks that are doing cartwheels and backflips," Kinetik Holdings (KNTK) Chief Executive Officer Jamie Welch said, while "those that are literally localized, gas-centric sellers are literally crying poverty."

(Market Chatter news is derived from conversations with market professionals globally. This information is believed to be from reliable sources but may include rumor and speculation. Accuracy is not guaranteed.)

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