Appalachian M&A Target HG Energy Ups Sand, Length

Privately held, Marcellus-focused operator HG Energy drilled 65% longer laterals among its Appalachian neighbors in 2024, while pumping 62% more proppant per lateral foot, according to findings in a new Appalachian Basin study.

The Quantum Capital Group-backed E&P used some 3,500 lb of sand per foot, asset divestment advisor Energy Advisors (EA) reported from its findings.

Next nearest was Ascent Resources with just under 3,000 lb/ft.

Other operators ranged from just under 2,000 lb (Repsol SA and National Fuel Gas’ E&P, Seneca Resources) to about 2,600 lb (Coterra Energy).

The 2024 average among all Marcellus operators was about 2,250 lb per foot, EA found.

In lateral length, HG’s 2024 average was about 22,500 ft, while the second-longest were made by Gulfport Energy, averaging some 18,000 ft.

Other operators ranged from less than 10,000 ft (Coterra and PennEnergy) to about 15,000 ft (Ascent and CNX Resources).

An M&A target

Parkersburg, West Virginia-based HG is an M&A target among U.S. gas producers as gas futures have grown to more than $4/MMBtu, current LNG exports are more than 15 Bcf/d and overall U.S. gas exports, including via pipe to Mexico, are some 23 Bcf/d.

Also, U.S. electricity demand is expected to grow by 71 Bcf/d equivalent to power new generative AI data centers. The figure is based on NextEra Energy’s estimation of an additional 450 gigawatts of electrons needed on the U.S. grid in the coming few years.

Meanwhile, another 13 Bcf/d of LNG export capacity is to come online by 2030.

“Operators with low-cost structures are optimistic as the call on more U.S. gas by LNG and AI powergen of 20 Bcf/d-plus by 2030 bodes well for future pricing,” reported Brian Lidsky, EA’s director of research.

The Appalachian Basin’s largest producer, EQT Corp., recently signed to buy Olympus Energy for $1.8 billion in cash (28%) and stock (72%), picking up some 500 MMcf/d, Lidsky noted.

Olympus was a Blackstone portfolio company.

Also, CNX bought Apex Energy II, a Carnelian Energy Capital portfolio company.

“Room for further consolidations remains high with 900-plus operators in the basin,” Lidsky reported.

773 MMcf/d from 104 wells

Through 2024, HG had 104 wells online, EA found, compared with Appalachia’s largest producers, EQT and Expand Energy, each with just under 800. The basin’s overall well count was 4,926.

HG’s production in 2024 was 773 MMcf/d, all gas except for 187 bbl/d of NGL, according to EA.

In 2023, HG Energy ranked 15th in boe/d among all privately held U.S. oil and gas producers in a 2024 Enverus study for Hart Energy.

The operator’s 2023 output averaged 115,456 boe/d, 2% gas liquids, from just 94 wells at the time, according to Enverus’ findings.

Gas averaged 682 MMcf/d; NGL, 1,858 bbl/d.

In 2018, its production averaged 82,130 boe/d, 9% liquids, from 11 wells, according to a 2019 Enverus review. Gas averaged 449 MMcf/d; NGL, 7,355 bbl/d.

Elliott, Andros stakes

Quantum initially backed HG in 2017 in HG’s $1.2 billion acquisition of Noble Energy’s Appalachian property.

In early 2024, Elliott Investment Management took a $500 million stake in a $1.6 billion Quantum fundraise to buy HG from previous Quantum funds.

Andros Capital Partners also joined the fund.

The “continuation fund” was created as the prior fund was expiring and the 12-month natural gas strip had sunk to less than $3/Mcf, which would have put HG in a fire sale situation.

Currently, strip is $4.10.

Lidsky said some Appalachian operators’ breakevens are less than $2/MMBtu.