Standard & Poor’s believes that horizontal drilling and hydraulic fracturing of the Marcellus shale will particularly benefit two groups of rated debt issuers: midstream and pipeline companies that are building or expanding infrastructure in the Northeast; and E&P companies that produce natural gas and NGLs in the region.
Conversely, two groups of rated issuers could feel ratings pressure from the development of the Marcellus if they don’t modify their strategies to offset a potential increase in business risk or reduce debt to limit the impact from potential cash flow declines on their financial risk profiles, says S&P in a Special Report. These issuers include: long-haul pipeline operators that are unlikely or unable to reverse their pipeline flows, face recontracting risk, or have high asset concentration; and E&P companies producing natural gas in the U.S. Rockies or Canada that are currently sending gas to the Northeast.
Marcellus shale could contain recoverable resources equal to almost half of the current proven natural gas reserves in the U.S.
Longer term, once sufficient takeaway capacity is in place, S&P expects low-cost production in the Marcellus to displace higher-cost production in other U.S. regions.