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Groningen Gas Field to be Phased out Next Year Ahead of Time

Output at Groningen will be trimmed by more than 50% to 3.9 billion cubic meters (bcm) in the year through October 2022, which will be the final year...

This story originally appeared on Zacks

Per the government of the Netherlands, gas production from the Groningen field, once biggest in Europe, will be stopped in 2022 (eight years earlier than planned) to lower the risk and damages from the earthquakes caused by drilling. Nederlandse Aardolie Maatschappij BV or NAM, a joint venture between Royal Dutch Shell PLC (RDS.A) and Exxon Mobil Corporation XOM is the operator of the field.

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As part of the government’s preliminary plans, output at Groningen will be slashed by more than half to 3.9 billion cubic meters (bcm) in the year through October 2022, which will be the final year of regular production.

For decades, Groningen was a major gas supplier to Europe with its peak production reaching 88 billion cubic meters in 1976 and above 30 billion cubic meters just five years ago. However, earlier-than-planned halt of the Groningen gas field activity was induced by the frequently felt earth tremors with 3.4 magnitude earthquakes hitting the region in January 2018 as well as in early 2019. This contracted the extraction levels, forcing the government to cease production as soon as possible.

Back in 2013, before the field was detected to trigger drilling-related tremors that damaged buildings, Groningen extracted nearly 54 billion cubic meters (bcm) of gas. Following the earthquake at the start of 2019, an immediate step was taken to cut production at the field by the gas sector regulator.

Due to below-normal inventory levels, interruptions, repair work, lack of investment and increased demand from consumer, commercial and industrial users, gas prices in Europe and the United Kingdom reached new highs this month. Despite the favorable natural gas price scenario, a government official stated that the outlook for Groningen has not been altered.

Both Shell and Exxon Mobil with a Zacks Rank #2 (Buy) and a Zacks Rank #3 (Hold), respectively, at present have a number of energy assets on the European continent. Therefore, the shutdown of production from the Groningen field is unlikely to be a headache for the oil majors in the long run. You can see the complete list of today’s Zacks #1 Rank stocks here.

If you are interested in the oil and energy sector, you may consider a couple of better-ranked stocks like Continental Resources, Inc. CLR and Magnolia Oil & Gas Corp MGY, each presently flaunting a Zacks Rank #1 (Strong Buy).

Continental Resources’ bottom line beat the Zacks Consensus Estimate in three of the previous four quarters while missing the same on one occasion.

Magnolia’s earnings beat the Zacks Consensus Estimate in all the last four quarters.

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