Rogersville Shale: Holding Pattern

Rogersville Shale

The Herald-Dispatch ran an article by Brandon Roberts today about the Rogersville Shale.  We’ve seen an uptick in talk about the Rogersville Shale lately.  It seems everybody knows it’s there and it seems everybody is excited about the prospect of developing the Rogersville Shale.  It just doesn’t seem like any oil and gas companies are excited about developing the Rogersville Shale right now.

The reason, as pointed out by Corky DeMarco in the article, is that gas prices are just too low for the time being. Once gas gets up to $4.00/MCF again, the Rogersville Shale will get a lot more development.  That’s also true of the other shale plays here in West Virginia and around the country.

The only trouble with waiting for gas prices to rise over $4/MCF is that when prices start to approach $4.00 producers are going to start opening up wells that they have shut in.  There is a large amount of gas stored in the ground that could be produced but isn’t because prices are so low.  That gas will be produced first, and will drive prices down.  It’s very unlikely that gas prices are going to go up and stay up for any length of time.

There are a couple of factors on the demand side that could, and will, change this.  New power plants coming on line in a few years will drive demand up.  New pipelines coming on line in a few years will drive demand up.  New cracker plants coming on line in a few years will drive demand up.  You’ll notice that the pattern is “in a few years”.  Demand is just not increasing right now.  It will in a few years.

We don’t expect any wild fluctuations in the price of gas for the time being.  Barring a war, a really bad hurricane season, or some other unpredictable catastrophe, things are going to stay pretty much the same for a few years, and the Rogersville Shale will remain relatively untapped.

That puts Cabot Oil and Gas in a pretty good position.  They are the one company that is working in the Rogersville Shale area of West Virginia.  They are taking some leases and drilling exploratory wells (the Cabot 50 in Putnam County).  Cabot could have a big payday when prices rise on natural gas.  Here’s to hoping that Cabot continues to work in the area.

More Natural Gas Vehicles

CNG in Trunk

We hope this is a long-term trend and not just a fad.  It seems that more and more fleets are turning to compressed natural gas to fuel their vehicles.

Waste Management in Waterloo, Ontario has a new fleet of CNG trucks.

Three school districts in Connecticut are switching to CNG buses.

Carnival Cruise Lines is building four new cruise ships which will be powered by liquid natural gas.

However, in the interest of fairness, we do have to note that Honda decided to quit making it’s CNG Civic.  They had only sold about 16,000 of them in the last 17 years, so under 1,000 a year.  Their limited distribution area may have affected that.

Fleet vehicles running compressed natural gas make more sense right now than consumer vehicles due to the lack of CNG filling stations.  As long as there’s gasoline available and it’s competitive in price we don’t expect to see CNG replace gasoline for consumers.  The slightly lower price and cleaner nature of CNG just isn’t enough for most consumers.

Mountaineer Xpress Pipeline

Columbia Gas Pipeline Group has announced two pipeline projects, one of which will be called the Mountaineer Xpress Pipeline (MXP) and appears to start in Marshall County, WV.  The MXP will be part of a larger pipeline construction project intended to transport gas from the Marcellus and Utica Shales to the Gulf of Mexico.  This is great for us, as one of the issues plaguing oil and gas development in West Virginia is a lack of infrastructure to take the gas to market.

The MXP will transport gas from areas in and around the northern panhandle of West Virginia down to Kentucky. These are the best maps we could find so far.

MXP Map

MXP Map 02

They’re obviously lacking in detail, but we can at least get an idea of where the pipeline is going to run through West Virginia.  Interestingly, one of the Supply Areas of Interest is to the east of the wet/dry gas line.  Upshur, Barbour, Tucker, and Randolph counties are all included.  There’s precious little going on in those counties right now.  Maybe it’s going to pick up as this project picks up.  We’d like to see that.

We ran across an interesting post on a small local news web site called the Hur Herald.  David Hedges did some good research to pick up what’s going on over in his neck of the woods in relation to this pipeline.

Yet Another Producible Formation in West Virginia

6169611171_c9d38cbcb6_oCunningham Energy has announced in a report that it has gotten good oil production from some wells to the Big Injun formation in Clay County, WV.  Reported numbers are 26,000 barrels of oil (total) over eleven months for the Cochran #5H and 26,000 barrels of oil (total) over eight months for the Cochran #6Ha.  Those are pretty decent numbers, and the fact that the second well has produced better than the first means that Cunningham has improved their techniques to recover more oil from the same formation.

Readers of this blog will know that there are multiple formations down there, and that when you sign a standard lease you give up rights to all of them for as long as the lease is paid for (the primary term) or producing.  It’s extremely important to draft around that issue, or you’ll sign a lease that could last for decades without giving you the chance to ever change it in any way.

Partition Suits and Forced Pooling

DocumentAndrew Brown of the Charleston Gazette wrote an excellent article on forced pooling and partition suits in West Virginia.  It points out the problems and advantages of both, doesn’t offer a solution, and does a pretty good job of pointing out that the current system doesn’t really work.  It’s a little long compared to what many of us read online, but it’s well worth the time.

He didn’t get into solutions.  One possible solution to some of this is a dormant minerals act similar to what Ohio already has.  Ohio is litigating the living daylights out of their dormant minerals act right now, with at least one decision expected in the next few months, so we could look to Ohio for sample language.  It wouldn’t solve all the problems, and we should dive into the subject at length sometime, but it’s certainly something that should be looked into closely by West Virginia.

Why the Saudi’s Kept Producing Oil

This article by Andrew Thomas writing as a guest for the Cleveland Business website is the most logical explanation for why the Saudi’s decided to continue producing oil at the same rate back in November of 2014.

What it boils down to is that natural gas was becoming a threat to oil being the dominant energy source worldwide, and the Saudi’s decided it was important to lock natural gas out of the competition.

It’s worth the read.

It makes one wonder, will natural gas production in the States die off, or will natural gas producers figure out a way to remain competitive?

Using Natural Gas to Make Hydrogen

Thanks to Marcellus Drilling News for bringing this one up.  We get a lot of the information that we blog about here from them.

A company called Global Tungsten & Powders Corp. in Towanda, PA is putting some of the natural gas that we’re producing here in the Marcellus shale area to make hydrogen.  GTP uses a lot of hydrogen to produce tungsten products and solid oxide fuel cells.  Right now it ships hydrogen in from Louisiana or Canada.  Being able to make hydrogen in their plant will help to keep the plant profitable, and open.  It’s less expensive to make the hydrogen from local natural gas, and the plant won’t have to scramble for hydrogen like it did in 2010 when Hurricane Katrina destroyed the Louisiana supplier.

Let’s hope other people out there come up with more uses for Marcellus natural gas.  The more it’s used, the more the price of the gas will go up, and the more royalties will be paid.

EIA Energy Map

Nicolas_Desliens_Map_(1566)

I like…..nay, love maps.  I ran across a cool interactive online one today.  I don’t think the data is really up to date as I know there’s some drilling going on in the center of Tyler County, and this map doesn’t reflect that.  It’s still a good resource for understanding what’s going on in general.  Check it out.

Williams Pipeline Bursts in Pennsylvania

Broken Pipe

There’s another pipeline that burst.  This time up in Lycoming County, Pennsylvania.  Interestingly, this one didn’t explode, it just broke and spewed natural gas into the air.  The breakage was powerful enough to be felt for some distance when it happened, though.  It’s a 24″ diameter pipe, and one of three that run on the same right of way.  100 or so homes were evacuated.  People a couple miles away said they could smell the gas.  It appears the other two pipelines were not affected.

 

Oil and Gas Leases Could Last Forever

Autica-shale-stratigraphy-smnyone who has had a lease reviewed by us in the last few years will know that there are multiple producible formations underneath the property they have leased. This is excellent for royalty owners, as the more formations can be produced the more gas can be produced. There’s just one problem with that. It means that the lease that you sign today could possibly be in existence decades, or even centuries from now.

Ignoring the happy fact that the lease will be in effect because the producer will be paying you royalties, let’s look at what the implications of a decades-old lease are. The easiest way is to look into history.

In 1892 a farmer (no names will be used here so as to preserve my clients’ confidentiality) signed a lease on property here in West Virginia. The producer was diligent, and drilled a well on the property within a few months. The well produced gas, which was something of a disappointment because everyone was looking for oil at the time. They didn’t shut the well in though because the producer allowed the farmer to run a pipe to the house and use the gas for heating and cooking.

Over the years gas became a valuable commodity, and the developer put a line of his own to the well and started selling the gas. Of course, the producer paid royalties to the farmer, and all was well. Eventually though, the well produced less and less gas.

Let’s fast forward to today, and that well that was drilled in the late 1800s is still producing in 2015. The production has dropped off to a few hundred MCFs per year. The royalties paid are only a few dollars each year, but it’s just enough production to keep the lease alive.

Now let’s back up to 2007, when the Marcellus boom was just taking off. The current producer of the well was just a small time mom and pop operation. They didn’t have enough money to drill a Marcellus shale horizontal well on their own. They were approached by a big producer who wanted to buy the rights to produce gas from the Marcellus, and the mom and pop jumped at the chance to make some good money from the old lease. They assigned the rights to the Marcellus shale over to the big company for thousands of dollars an acre.

Along with the rights to develop the Marcellus shale came the rights to use the surface in any way that was “fairly necessary”. The big company approached the current owner of the farm. The big company said they wanted to put in a well pad, an access road, and a pipeline. The well pad was going to take up about 10 acres of mostly flat land (flat land is hard to come by in most parts of West Virginia), the access road would be 1/2 mile over property the farmer hunted on, and the pipeline was going to be across other property the farmer owned. All told, the development was going to take up about 15 acres of the farm.

The farmer said no. The big company said, “we have the right to do this because we have this lease that was signed back in 1892, and that lease gives us the right to use the surface in any way that is fairly necessary for the development of oil and gas.” The farmer said, “I don’t see that in there.” The company said, “no, but the courts have said that any lease gives the company that right.” The farmer consulted with a lawyer, who told him the big company was right, but that there were some legal arguments to make and he could take the big company to court, but it would cost $10,000.

Back in 1892 when the first farmer signed the lease, he didn’t expect a well pad, road, and pipeline to take up 15 acres of his good farmland. A well pad took up maybe an acre, and the access road was usually nothing more than a jeep trail.  The pipeline was usually just a couple inches in diameter, and was sometimes laid on the surface over rough ground. He had no way of foreseeing the size and extent of modern well sites. If he could have seen into the future, he probably would have made some changes to the lease before he signed it.

That’s just one example of how a lease surviving for decades could be detrimental to those who inherit it, or those who inherit the property affected by it.

It’s impossible to foresee every possible way that a lease could affect people in the future. You can’t protect your heirs from everything. It is possible, however, to do the best that you can with the information that is out there now.

Multiple formations mean that oil and gas companies could produce one formation until it is exhausted, then a second formation until it is exhausted, and then a third and maybe even a fourth. It’s impossible to tell for sure how many producible formations are down there.  It’s impossible to tell how long the lease will stay alive.

The reason we’re pointing this out right now is that Rex Energy has completed wells to the Marcellus and the Upper Devonian on the same property in Pennsylvania. The Marcellus produced reasonably well, but the Upper Devonian actually produced a little better.  It’s been questionable up until now whether the Upper Devonian would be a good formation to explore.  That question is now laid to rest, at least to some extent.  Wet-Dry_Line_with_Depth

For our West Virginia mineral owners, keep an eye out for leases that include the Upper Devonian.  We can look forward to increased exploration in the usual counties; Tyler, Wetzel, Marshall, Doddridge, Harrison, Ritchie.  There may be a renewed interest in Barbour, Upshur, Taylor, and some of the other counties in the Marcellus dry gas area.  We hope so, as we have clients who are waiting on leases in those counties.

For everyone that’s thinking about signing a lease — do try to think about the future as much as you can.  If you need some help, give us a call.