Oct. 3--With natural gas prices tumbling and supplies ballooning, the industry needs a refresher course in basic business finance before creditors shut off the money supply and drilling companies flop, the CEO of the largest Appalachian Basin natural gas producer said Friday.

Many natural gas producers have forgotten that when prices are low, it's time to slow down or quit drilling holes to rein in the desire to keep drilling no matter what, said Nick DeIuliis, president and chief operating officer of CNX Gas Corp.

Natural gas prices for November delivery finished yesterday at $4.72 for 1,000 cubic feet of product. That's nearly double this year's lowest futures closing price, but far below 2008's peak of more than $13 in July of last year.

After hitting that peak, natural gas prices went into free-fall as a result of slackening demand resulting from both the recession and successful drilling in so-called unconventional gas plays, including in the Marcellus Shale formation that stretches across most of Pennsylvania.

The Energy Information Administration reported Thursday that underground aquifers and caverns in the lower 48 states stored 3.6 trillion cubic feet of natural gas last week, topping the previous all-time high of 3.5 trillion cubic feet set on Nov. 2, 2007. Government records go back to 1975.

"The coal industry in the past has been criticized for not showing enough discipline. When coal prices were low, they would keep producing," said DeIuliis, in an interview.

Through Aug. 21, the state Department of Environmental Protection had issued 1,067 Marcellus Shale drilling permits. That's more than double the 476 drilling permits issued for all of last year and well past the 700 permits the department expected to issue for 2009. The number of Marcellus Shale wells drilled through Aug. 21 totaled 283, up 45 percent from 2008's 195 total.

Yesterday, DeIuliis delivered the keynote address at the two-day, 32nd annual Platts Coal Marketing Days Conference at the Doubletree Hotel and Suites, Downtown. He also serves as executive vice president and COO of CNX parent Consol Energy Inc., based in Cecil.

Producers signed numerous land leases in areas like the Marcellus that mandated drilling begin within a specific time period or the owner could find a company that would, said DeIuliis.

"The natural gas industry makes the coal industry look extremely disciplined. Shareholders only care about production and reserve growth, and producers just keep producing."

The problem, DeIuliis said is that many natural gas producers have outspent cash flow, so that to keep drilling they must keep borrowing. That works as long as funds are available.

"The only thing that will slow drilling is when creditors quit funding drilling programs -- that will stop what some call irrational behavior," DeIuliis said.

With creditors beginning to pull in their financing, DeIuliis said there soon will be bargains available to companies with deep pockets, including bargain leases and even companies gasping for funding.

"There will be opportunities," DeIuliis said.

Rick Stouffer can be reached via e-mail or at 412-320-7853.

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