In many ways, the country's exploration and production companies have been their own worst enemies.
New technology and improved drilling techniques quickly allowed the industry to tap vast natural gas supplies throughout the county, flooding the market and destroying prices.
“Too much of a good thing is a bad thing,” said Fadel Gheit, an industry analyst with Oppenheimer in New York. “Too much oversupply of natural gas has depressed natural gas prices.”
In response, the industry is going through a transformation as natural gas companies try to reinvent themselves as oil producers.
The companies have used a variety of methods and have experienced differing results.
SandRidge Energy Inc.
One of the earliest and most radical transformations in recent years is that of Oklahoma City-based SandRidge Energy Inc.
The company was born in 2006 as a natural gas company. Just two years later, SandRidge executives began changing its focus.
In 2008, natural gas represented 90 percent of SandRidge's revenue. In 2012, the company expects 85 percent of its revenues to come from oil.
To make the transition, SandRidge sold off natural gas producing assets, gobbled up oil companies and oil and natural gas liquids-rich properties and piled on billions of dollars in debt.
“It's fair to say that SandRidge had more debt on its balance sheet than it would have preferred to have in 2010 and 2011,” said Kevin White, senior vice president of business development at SandRidge.
But the company has largely completed its transition into an oil company and now is experiencing much larger revenues as a result, he said.
“On a relative basis, our debt level is in a much better place today than it was a year ago, not that we have paid off that debt, but because our earnings power is increasing so dramatically,” White said.
One common way of measuring debt is by looking at total debt as a ratio to earnings before interest, taxes depreciation and amortization, or EBITDA. SandRidge's debt ratio was 3.2 as of the end of 2011. The company's February purchase of Dynamic Offshore Resources drops the ratio below 3.
“We're comfortable with that number,” White said.
While SandRidge carries more debt than many of its peers, it also works hard to minimize risk, using hedges to lock in a guaranteed price or price range for most of its production.
“Throughout the history of the company, SandRidge has been one of the most actively hedged,” White said.
Chesapeake Energy Corp.
Across town, Chesapeake Energy Corp. is on the same journey.
The company is trying to transform an asset portfolio it built over more than 20 years into one of the largest natural gas resources in the country.
Chesapeake executives have said the company should complete its transition to oil and natural gas liquids by 2014. To pay for the transformation, the company has taken on billions of dollars of debt and plans to sell $9.5 billion to $11 billion in assets throughout the rest of the year.
“The payoff for this corporate transition we have under way should be increasingly clear for all to see in our liquids production growth over the next year and into the years ahead,” CEO Aubrey McClendon said last month on the company's second-quarter conference call.