Shale-gas joint ventures have kept the U.S. natural gas industry drilling the millions of acres they leased and need to hold by production in the wake of the financial turmoil of second-half 2008 and increasingly lower gas prices.

That’s the good news.

The challenge: These JVs have kept the U.S. gas industry drilling.

This dichotomy is apparent in U.S. gas prices.

“I don’t know if I’d say the U.S. gas industry would have been crushed by the events of the second half of 2008. But, it’s been good and bad,” says an executive with an Appalachia-focused E&P.

“A lot of these JVs were great for the (acreage-owning) companies doing them, and I certainly did some of that too,” he notes. He arranged JVs with producers who wanted entry to Marcellus gas acreage—and knowledge—and was late to the play, buying into it via JVs later.

“It allows you to keep drilling and to hold the acreage that all of us had spent hundreds of millions of dollars putting together. The drawback is that the rig count has not dropped and capital is not reallocated in the way it would have been in an efficient market because all this foreign capital continues to invest in onshore U.S. shale plays.

“So, it’s good and it’s bad. It’s definitely sustained a lot of companies and allowed them to clean up their balance sheets but, for commodity prices, it’s certainly been bad because it has promoted inefficient use of capital for a longer period of time.”

The plethora of gas JVs is not yet exhausted, he forecasts. He’s seen the number of interested parties in data rooms. “I think there are still a lot of very resource-rich companies out there and still a lot of foreign-capital interest in onshore shale plays, so I think it’s a trend that will probably continue for a long time.”

Because of the drilling carries that JVs bring, making them economic despite the traditional business paradigm, U.S. gas prices will continue to range between $4 and $6 per million Btu, he adds.

“I don’t think natural gas can stay below $4 for an extended period of time because, when you add up the true F&D (finding and development) costs, it isn’t very profitable to drill at $4 gas, so if we get below that, it would be for a relatively short time period,” he says. Rigs would be laid down, thus less production would come online.

“But, I don’t believe we’re going to see gas over $6 any time soon if the gas-targeted rig count declines as shale-gas acreage becomes held by production and/or rigs move to drilling for oil. That hopefully self-corrects some of the gas oversupply. But as gas prices start to move back up to $6, I would expect the rigs would move right back into the gas shales.

“So, my opinion is that we are in a $4 to $6 trading range for natural gas for quite some time.”

–Nissa Darbonne, Editor-at-Large, Oil and Gas Investor,, Today, Oil and Gas Investor This Week, A&D Watch,, Contact Nissa at