In what one analyst calls a peek into the future for Appalachia'snatural gas producers, tiny Utica Shale driller Eclipse Resources I LP said it was choking back gas and liquidsproduction from drilled wells in southeast Ohio and will minimize well completionsthrough the first quarter of 2016 while it waits for oil and gas prices to recover.

The move is designed to save money on drilling in a low priceenvironment but also to keep as much of its resource in the bank rather than sellinto today's markets, Eclipse said in its Jan. 4 announcement.

Eclipse stopped drilling wells in November 2015 and will drillonly one new well in the first quarter of 2016. According to a January company presentation,Eclipse will defer the completion of 23 gross wells in the Utica Shale until pricesimprove.

It said it ended 2015 with approximately 268 MMcfe/d of productionfrom 179 wells (gross) in Ohio and will dial production back to roughly 200 MMcfe/duntil the market improves.

"Given the lower current market prices for both naturalgas and oil, coupled with the uncertain outlook in the near term, the company isfocusing its initial 2016 plan on limiting cash outlays on drilling while allowingfor greater productivity as prices rebound," Eclipse said.

"The company believes these measures are prudent given thesignificant decline in oil and natural gas prices as they will enable the companyto maintain sufficient cash flows to meet its obligations, limit use of cash onhand for drilling expenses, avoid selling its valuable products in a depressed priceenvironment and return to its historic production growth profile as commoditiesbegin to rebound in the future," Eclipse said.

Despite Eclipse's smaller production footprint, analysts at TudorPickering Holt & Co. highlighted the move as a "potential preview of soberingoutlooks to emerge from northeast operators."

"Limited liquidity and razor-thin cash margins (at best)equate to gas shut-ins and minimal drilling," TPH said in a Jan. 5 note. "Notablethat this small-cap, Appalachia-focused producer announced that while Q4'15 [production]is likely to exceed guidance, Q1'16 [production] is anticipated to be down ~15%[quarter over quarter]. ECR has begun shutting in gas to limit net volumes to be~flat with 2015."

TPH estimated that Eclipse, which produces and sells oil, liquids,and gas from its Utica wells, 65% of which natural gas, has a $2/Mcfe gap betweencosts and realized prices. In the most recently reported third quarter, Eclipsesaid its operating expenses, including transportation, averaged $5.32/Mcfe for itscombined production while realizing $3.25/Mcfe.

Topeka Capital Markets analyst Gabriele Sorbara downgraded ECRstock to Hold from a Buy and said the clock is ticking. "Without improved pricing,the company may run into financing issues in 2017," Sorbara told his clientson Jan. 5.

"With budgetingseason in the headlights, we're looking to see how [Northeast] operators guide 2016with [Henry Hub] strip at ~$2.50/Mcf," TPH said. "Early guidance by EQTshows a clear bias to ease up on the gas pedal, but we think ECR's strategy of slammingon the brakes is the ideal strategy, especially in the SW Marcellus where realizedprices are $1-$1.50/Mcf and NGLs are low single digits or negative as a percentageof WTI."

TPH doesn't thinkanybody in Appalachia is making money in the present environment and generatingenough cash to keep the lights on is preferable to burning cash up on holes in theground.

"We calculateall in cash costs for covered NE names ranging from $1.30/Mcf to >$2/Mcf, implyingthat no one is generating a cash on cash return in the current environment,"TPH said. "Our analysis shows that a [Proved Developed Producing] decline scenariowould maintain or help 2016 leverage metrics at strip for all NE names under coveragecompared to an active drilling program."