Over the past two years we’ve heard the building mantra of “liquids rich” as natural gas producers hawk the wet (and higher valued) by-products saturating their gas streams. This as the price of oil steadied above $100 a barrel before slipping into the $80s, and the price of natural gas sunk into the $2 range, with gas liquids solidly in the middle.

Grinding gears, gas-weighted E&P companies redirected capex and acquisitions to these liquids-rich plays.

The liquids might include oil, condensate or natural gas liquids. But it is the NGLs produced from an otherwise uneconomic gas well that lift that well over the bar. With a glut of shale gas flooding the market and dampening prices, natural gas liquids rose to the economic rescue.

That liquids-rich portfolio may be trending middle class.

Historically, these liquids plucked out of the methane gas stream priced at 55% to 70% of a barrel of black crude, providing nice value uplift to gas production. Not so much today: NGL prices have tumbled since the first of the year, dropping 11% in first-quarter 2012, and another 14% in the second quarter—to 43% of West Texas Intermediate. Such a price move sharply trims returns and cash flows of NGL-dependent producers, not to mention acquisition metrics.

“The NGL content of a well previously added $2 to $2.50 per Mcf (thousand cubic feet) realization, lowering the needed (methane) gas price to break even,” according to Bob Brackett, senior analyst for Bernstein Research out of New York. However, “depressed NGL prices have since eroded this uplift by up to $1.” Brackett studied the trend in a June 20 report titled, “The Flood of NGLs from Wet Shale Gas.”

Being liquids rich is all about the uplift.

The NGL basket is primarily comprised of ethane and propane, with ethane typically about half of the stream. As companies shift gas drilling to wetter fields, however, current downstream cracking capacity—i.e. demand—is not keeping up with production.

Ethane production alone grew 6% year-over-year in second-half 2011, and a full 10% in recent months. “NGL realizations relative to crude are likely to stay depressed or fall further as oversupply threatens ethane prices,” says Brackett.

An ethane barrel currently trades at around 14% of crude, down from a relative high of 50% toward the beginning of 2010.

Brackett sees NGL pricing relative to crude waning over the medium term, yet continuing to be a value-add. “Decreased ethane and propane prices make NGL economics ‘less good,’ but the gas-to-oil price differential still makes liquids-rich drilling much preferred to gas.”

He warns investors, though, to distinguish between NGLs and oil. “To be sure, NGL-rich production is much preferred to dry gas, but likely a growing distinction between an E&P’s ‘black oil’ vs. NGL volumes will continue to emerge.”

The same logic applies to acquisitions. Deal metrics are definitely being impacted by both the decline in current NGL pricing and the uncertainty around future pricing, according to Rob Bilger, vice chairman, Macquarie Capital (USA) Inc.

“The combination of most buyers being reluctant to hedge non-producing volumes in an acquisition, and NGLs being more difficult to hedge long-term, increases the risk on future cash flows of these low-percentage PDP (proved developed producing) liquids-rich deals.”

But a polar shift has not yet occurred in the acquisitions market, says Bilger. “Most of the core area ‘liquids-rich’ plays are still economically attractive and, thus, are still in high demand from buyers attempting to diversify their gas-dominated portfolios.”

Going forward, Brackett says the NGL value addition can make or break a marginal liquids-rich well in areas such as the Barnett combo, Marcellus and non-oil portions of the Eagle Ford. “NGL realizations can swing gas break-even costs meaningfully.” Likewise, as ethane and propane prices trend downward, barrels of NGLs begin to appear more and more gassy. “The loss of a meaningful portion of NGL uplift could make strained gassy financial statements look even worse.”

On the upside, Brackett anticipates falling NGLs could revive gas. “While dry-gas activity is uneconomic at current prices, wet-gas plays are now proving to be the ones with marginal returns. Further downside in natural gas liquids pricing could push these wells below the economic threshold—and take associated gas production out of the market.”

But for now, while natural gas liquids might have taken a haircut, liquids-rich gas still trumps liquids-poor.