Southwestern, Chesapeake, and the Northern Panhandle of West Virginia

Southwestern bought a ton of West Virginia acreage from Chesapeake.  It was land that CHK was just sitting on.  SWN is really ramping up their drilling program on it.  This is excellent news for West Virginia mineral owners in the northern panhandle and Monongalia County.  It seems like CHK bought up most of the good minerals in those parts of West Virginia back before 2009.  I say that because there just hasn’t been that much development in those parts, and I know that CHK bought up a ton of land up there because I was working as a landman for them at the time.  I’d been wondering when development was going to start up in the northern panhandle, and why it hadn’t been more developed already.  It’s prime gas real estate.  There’s a ton of development in Ohio and Pennsylvania, just across the borders.  I couldn’t think of a good reason for the northern panhandle to not be developed, other than that CHK just didn’t want to.  My gut told me it was prime, but nothing was happening.  Now it seems that my gut was right, as SWN is getting after it up there.

Yemen, Saudia Arabia, Rebellions, and Air Strikes

This is the kind of thing that adds so much unpredictability to the oil and gas market.  Yemen is an oil producing country, although it doesn’t produce a lot.  It also happens to be next door to the second largest oil producing country, Saudi Arabia.  Russia is number one, in case you were wondering, and the U.S. is a close third, with the likelihood of being or becoming number one very quickly.  But that’s beside the point.

Yemen has seen a lot of turmoil lately.  President imprisoned, president escaping, president declaring new capital city, rebels taking over, suicide bombings, all kinds of crazy stuff.  I feel for them.  I’d hate to be living in that kind of a political situation.

Today, Saudi Arabian jets carried out air strikes in Yemen.  Oil prices jumped a couple dollars as a result.  Why?  It doesn’t seem to me that it should.  Stockpiles of oil are very high, and it doesn’t appear that any oil fields or pipelines were targeted.  At least, there’s nothing in the news to indicate that they were.  There are shipping lanes that run right next to Yemen, but they are not being disrupted at the moment, either.

So it seems to me that oil prices jumped because of unpredictability.  Yemen is becoming less stable, and Iran and Saudi Arabia are involved, so of course oil is suddenly more valuable.  That’s the way the market works.  It’s weird, but it’s true.

Edit: I’d like to point out that the very next day oil prices dropped almost the same amount that they had jumped.  Everybody had a minute to look at the situation and realize it wasn’t all that bad after all.  I’d also like to point out that somebody in Saudi Arabia knew that the strikes were going to happen and that oil prices were going to jump because of it.  Somebody probably made a good chunk of change in the stock market.

One Really, Really Long Horizontal Well

Antero Resources has a well permitted in Ohio that has a 13,000 foot lateral, and a total depth (depth plus length) of 23,000 feet.  That’s a ridiculously long well.  That’s 4.35 miles!  That’s impressive.

The well name is the Turkey Unit 2H.  There are two other legs planned for the well pad.  The Turkey Unit 1H will be just as long as the Turkey Unit 2H, but the Turkey Unit 3H looks like it will be shorter.

I like to see longer legs because it minimizes surface disruption.  People live in and move to West Virginia because of it’s wild beauty.  Oil and gas development has changed that to some extent.  Parts of rural West Virginia are becoming increasingly industrialized, with well pads, pipelines, compressor stations, and other development associated with the oil and gas industry scattered all over the place.  This is particularly true of the northern panhandle, in Marshall and Wetzel Counties, and along the Route 50 corridor west of Clarksburg.

The other thing I like about longer laterals is efficiency.  Longer laterals mean more gas per dollar of investment.  One well pad develops the same number of acres as two, three, or four wells pads.  That means less cost.  When oil and gas companies are consistently making more money on their investment, they can afford to pay better bonuses and royalties to their mineral owners, and better money for acreage disruption to surface owners.

On a slightly different note, one thing that’s interesting to me is that the laterals will be about 700 feet apart.  That means that they expect the cracks from the frack job to extend out to about 300-350 feet out from the lateral.  I suspect they don’t want the cracks to touch, as they would lose frack pressure into the neighboring well.

Royalty and Bonus Amounts in West Virginia, 2015

Statoil is going to drill under the Ohio River.  It’s paying really good money to the State of West Virginia to do so.  The bonus equals $8,732 per acre, and the royalty is going to be 20%.  There is no indication as to whether that is gross or net, but 20% is still really good for West Virginia.  As usual, I encourage every mineral owner out there to negotiate for a higher bonus and higher royalty.  You’re not getting paid what you should be getting paid.

Check here for the write-up over at Marcellus Drilling News.

Decreased Property Tax Rates Linked to Fracking!

Marshall County, WV is considering the possibility of decreasing property taxes due to the huge amount of tax income that gas production is providing the county.  The County Assessor has floated the idea with the Board of Education, and while the Board hasn’t said yes, it also hasn’t said no.  The BoE wants to take a more in depth look at the numbers, specifically what the county could do with the excess income, and how a decrease in property valuations would effect low, middle, and upper incomes.

Sell or Lease? Mineral Rights Conundrum

I get a lot of my info from an outfit called Marcellus Drilling News.  If you want to keep up with what’s going on in the region, they’re very useful.  Today they posted an article that says more companies are moving into buying minerals instead of leasing.  The article also goes a little bit into the considerations that a mineral right owner would have to think through before selling their mineral rights.  If you’re thinking about selling, read the article.  It will just take a couple minutes, and it will give you some points to consider while making that decision.

I usually strongly recommend to most people that they keep their minerals, but there are times and situations where it makes sense to sell.

Marcellus and Utica Pipeline Infrastructure

If you want to dig into the nuts and bolts of the pipeline infrastructure that exists in the area, this article would be a good place to start.  The maps are amazing.  The spiderweb of pipelines that crisscross the region is pretty dense.  Even more amazing is that they’re building more all the time.  For me, imagining all the manpower that has gone in to and is going in to creating this infrastructure is mind blowing.

Forecast Decreased Production from the Marcellus and Utica in 2016

As the price of oil and gas has fallen, drilling activity in the Marcellus and Utica shales has also fallen.  Interestingly, production of gas in our area has continued to increase.  The increase has been due to a large number of drilled wells being completed and put into production, and also due to improved drilling techniques which have increased production per linear foot from each new well.

Now for the first time we are beginning to see forecasts of a decrease in production.  That decrease won’t really hit until next year, so we can expect low gas prices through the rest of this year.

While gas prices being down really hurts those of us who work in the industry, this is pretty much par for the course.  There is a boom/bust cycle that lasts about eight years.  The last bust was in 2008, so this one is a bit early, but the next one might not come around for 10 years so it all evens out.  It would be nice if oil and gas producers would limit themselves a bit during the good times so that the good times could last a little longer, but everybody is competing with everybody else for their little bit so they open up the spigots as far as they’ll go while they can get good money.

Here’s to the good times, may they come back sooner than later.

This Info May Affect Oil and Gas Prices

Here in the next few months we may see another deep drop in the price of oil.  Bloomberg has pointed out in this article that the U. S. is probably running out of space to store oil.  While the article also points out that it’s difficult to be sure exactly how much storage the U. S. has, the simple fact that the known capacity will be filled or close to filled in a few months should be enough to drive prices down.  It will also influence oil companies to reduce the amount of drilling and encourage oil companies to shut in wells.  Pretty much everything is going to slow down.

That’s all going to happen if that’s actually the case.  You can never predict what’s going to happen in oil and gas.  If I were a betting man, though, I’d bet on cheap road trips this summer.

Chesapeake Royalty Owners Beware

Forbes ran an article in February about how Chesapeake has been systematically cheating royalty owners out of their royalties.  While pretty much everyone knows that Chesapeake has been stiffing people on royalty payments, I hadn’t realized just how wide spread the practice was.  This article was an eye opener for me.  If anyone who reads this has been receiving royalty payments from Chesapeake, you absolutely must spend some time reading your old check stubs to make sure you were paid the right amount.