The largest U.S. gas producer, Expand Energy, has shifted to a profits-on-demand program, planning to continue to open the chokes on new wells— but only when the price is right.
The just-in-time TIL (turning wells inline into sales) model could shorten receipt of returns by up to two years, the company reported.
It could shift Expand—and other U.S. gas producers who are holding back the chokes—into price-makers after more than a century of price-taking’s booms and busts.
Cutting rigs loose, not completing wells that were already drilled and keeping choked those ready to be turned into sales the past year has already diminished new supply.
In the Haynesville Shale, for example, producers’ overall output fell from 15 Bcf/d in the summer of 2023 to 12 Bcf/d this past January, according to Energy Information Administration (EIA) data.
In the Marcellus Shale, production fell from 28 Bcf/d to 25 Bcf/d, according to the EIA.
Meanwhile, aided by winter gas demand, U.S. gas in storage fell to less than 1.8 Tcf, 25% less than a year before, the EIA reported March 6.
“If we put capital to work in this industry today, it takes us a couple of years to bring production online, and then earn a return on that production,” Nick Dell’Osso, Expand president and CEO, told investors and securities analysts in a recent earnings call.
“From the point at which you make the decision until the time at which you have the return of capital in the bank from that decision, it's a couple years,” Dell’Osso said.
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When futures add up
Expand’s new counter-cyclical drilling and completions (D&C) program will develop an ongoing inventory of deferred TIL (DTIL) wells—then open the chokes on them immediately when gas futures add up, shortening the payback.
Meanwhile, it will complete its inventory of DUC wells, converting these to DTILs, getting them ready to turn online when gas futures add up again.
At the same time, Expand would drill new wells, replenishing its DUC inventory to have in the hole for another round of higher gas prices.
Without an ever-ready supply of warehoused DTILs, Expand, like other U.S. gas producers, will continue to show up too early with new gas or too late, Dell’Osso said.
The pureplay gas operator’s D&C budget this year is $2.7 billion for a 12-rig program to hold its total output at 7.1 Bcfe/d—which includes 4.2 Bcf/d from Appalachia and 2.9 Bcf/d from the Haynesville—after falling to average 6.4 Bcfe/d in the fourth quarter when postponing TILs.
It expects to spend an extra $300 million in the second half on three more rigs that would make extra DTILs to accumulate 0.3 Bcfe/d behind pipe.
Chokes would be opened on these new DTILs this winter if gas futures are better than at least $3.50, it reported.
Or not, Dell’Osso said.
“We're going to build this productive capacity coming into the end of this year. It will be ready to be turned in line in 2026,” Dell’Osso said.
“And if the market is not there, then we would likely have a response that would be some combination of either holding back on turning in line or curtailing volumes to alleviate pressure on the market.”
Front of the race
Could Expand take its 2026 production beyond its pre-curtailment level of 7.5 Bcfe/d if higher gas futures persist?
“At $3.50 to $4, you can see that we sit in a pretty good place at 7.5 Bcfe/d,” Dell’Osso said.
The 12-month strip averaged $4 this year into February and jumped to as much as $4.78 on March 4 after news of OPEC+ bringing more oil online, potentially reducing U.S. oil prices and, thus, oil drilling, which would result in less associated gas supply.
That news was followed the next day by an immediate 25% tariff on goods from Canada, including natural gas, by President Trump.
U.S. shale-gas producers’ breakeven price is “loosely in the mid-$3s,” Dell’Osso said in the Feb. 27 call.
As for Expand’s own breakeven, “we think we sit probably on the lower end of that as a business because we have a huge amount of inventory at very, very low cost than some of our peers.”
The lower breakeven will put Expand at the front of the race to TIL.
“If you're at the tail end of that marginal breakeven, you shouldn't be the first company to respond,” Dell’Osso said.
“We don't think that's where we [at Expand] are…. We have the most capital-efficient assets.”
$4 instead of $2
Josh Viets, COO, said Expand put 40 wells online in the fourth quarter, including 25 that were among its 80 DTILs. That included those it picked up from Southwestern Energy in a $7.4 billion merger that closed on Oct. 1.
“Those [25] wells could have come online in a $2 gas-price environment,” before this past winter, Viets said,
“But instead, we were able to bring them on into a very strong environment with roughly $4 gas.”
Jeff Jewell, CFO of gas shipper DT Midstream, told investors in a February call that “in 2025, volumes appear to be responding positively to the improved natural gas price environment.”
But before opening all of the chokes in response to the new strip, he has been hearing producers say they want palpable demand, DT Midstream President and CEO David Slater said.
“They want to see it, feel it and experience it before they start to deploy capital to growing some of their production,” Slater said.
“… We're just being patient. We see growth. We have growth in our plan and we'll see how that evolves as the year unfolds.”