SHREVEPORT, La.—Craig Jarchow, president and CEO of TG Natural Resources, began with a less than upbeat status update as of 8:30 a.m. March 27. The Henry Hub prompt month price, he said, was $1.76—well below $2 prices that are seemingly fantastical amid overstocked gas inventories.

Glum news? Jarchow said that, on the contrary, he was actually “very optimistic about the industry.” The reason for his positive outlook, despite all the perceived hardships of the industry, is that they are simply matters of perception, not reality, Jarchow said.

Reality shows that, long term, the future is bright.

“We are in good shape,” Jarchow said at Hart Energy’s DUG GAS+ Conference and Expo.

TG Natural Resources, is also, of course, coming off a high, having closed its $2.7 billion deal for Rockcliff Energy. In the same conference hall last year, Jarchow and Alan Smith, CEO of Rockcliff, had essentially pretended not to know each other as rumors flew that TG and Rockcliff were close to a deal, only to have prices scuttle the deal.

“Indeed, the Rockcliff acquisition was quite a process,” he said. The deal took 18 months to complete, with initial negotiations breaking off as high prices began moving south. As prices stabilized lower, the buyer and seller were able to get together.

“So ultimately it was stability prices, although they were lower, they got the deal done,” he said.

So far, Jarchow painted a picture of two complementary companies that managed to successfully integrate and create the second largest private operator, by net acreage, in the Haynesville Shale.

And the synergies have been dynamic.

The Rockcliff acquisition increased TG’s production by about 300% and increased in

reserves by 230%.

In the field, total headcount has been reduced by 40%. While corporate level employees are up by 44%, a 300% increase in production seems acceptable, he said.

The company also redesigned pumper routes, reassigned personnel to reduce drive time and

increased the wells per pumper to 89 from 30 while reducing chemical costs, charged by vendors, by one-fifth.

“Hats are off to Alan Smith and his team. They did the hard work in demonstrating that this rock west of Louisiana, Texas border actually works,” Jarchow said. “They did a lot of work on the clays, a lot of work on drilling and completions. And so were the beneficiaries of their hard work and their success.”

In TG’s estimation, the company has “332 sticks,” or gross locations that resulted from its acquisition.

“These are all economic but [qualified as] good, better or best. And are the laterals short, medium or long? And you'll notice that quite a number of our sticks are actually in best rock with long laterals, which we're pleased with.”

What TG terms its “best” long lateral wells have increased by a gross 77 (net 53.4) locations and 187 gross (108.4 net) overall.

In short, TG and Rockcliff’s positions, meshed together, formed a blocky, contiguous acreage position with high net revenue interests.

The slowdown and the macro

Still, Jarchow’s opening remarks referenced the general pullback in rigs and completions that gassy E&Ps have recently announced.

Companies, including Chesapeake Energy, announced plans to begin slashing rigs and completion crews in March. EQT Corp. also announced a decrease in production, as did CNX Resources more recently, citing low commodity prices.

So the question, Jarchow said, is that among objective financial leading indicators, are there signs that “this business is a sunset business?”

Is there, he asked, a material increase in demand or decrease? Is the material cost of capital increasing?

“We hear about banks exiting this business. We hear about private equity firms and raising less capital, but is the cost of capital for this business going up?”

A calculation of the cost of capital shows that obtaining money is slightly cheaper in the past five years, falling from around 11% to closer to 10% now.

“The price of capital has not gone up,” he said.

Likewise, insurance for E&Ps is no harder to obtain than before. Nor has plugging and abandonment costs ticked up.

“So we're not seeing any of these,” he said.

And, of course, when it comes to long-term projects, confidence remains robustly strong.

In the past 18 months, nearly 82 binding contracts for LNG offtake have been signed with facilities on the U.S. Gulf Coast. Of those, Jarchow said, 68% contemplate a start date in 2026 or 2027 and more than half of those contracts run for 20 years, with another 26% for 15-year terms.

Sophisticated investors, he said, are betting material capital on natural gas and LNG remaining a profitable business through at least 2045.

“If you look at the contracts that are being signed to build these LNG facilities on the Gulf Coast, of course these are multibillion dollar projects that require project finance,” he said. “You have to have an offtaker that's investment grade who's willing to sign a binding 20-year contract.”

The answer to all the worries about the natural gas business, Jarchow argued, is that they’re unjustified.

“We just look at these objective financial indicators and ask ourselves, ‘is the red light blinking for this industry?’ And the answer is, ‘well we don't think so.’ It's not blinking red, he said. “We don't think it's even blinking yellow.

“We think it's blinking green.”

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