Southwestern Deducts Post-Production Costs Without Showing Them on the Check Stub

The way most oil and gas companies inform you about how much production came from the well, how much of it is yours, and any deductions taken from your royalty, is on the stub that comes with the royalty check.

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Southwestern appears to have taken lessons from Chesapeake, as they figured out a way to hide deductions from the royalty owners.  They just didn’t list the deductions on the check stub.

How they made the numbers work isn’t clear from the article, but what is clear is that a jury decided that Southwestern owed those deductions to the royalty owners.

If anybody has been paid royalties from Southwestern, check your check stub production numbers against the production numbers listed at the Office of Oil and Gas’ web site.  If something looks fishy, give us a call and we’ll help you get things sorted out.

 

Cheated Royalty Owners are Uniting

West Virginia royalty owners will want to pay attention to what’s going on up in Pennsylvania.

For years, Chesapeake and other oil and gas producers have been deducting costs from royalty owners’ checks in large amounts.  Some of those deductions have been so large that some royalty owners have gotten negative amounts on their check stubs.  In other words, the royalty owners have ended up owing the company money.  Everybody knows that’s not right.

Up in Wyoming County, PA, over 200 people showed up for a town meeting to discuss the problem a couple weeks ago.

Discussions revolved around how to force the companies to pay a reasonable royalty.  Some suggestions included legislation, forcing the companies into arbitration, and organizing at a grass-roots level.

Chesapeake took a lot of leases and drilled a lot of wells in West Virginia at one point.  Any West Virginia royalty owners who have seen enormous deductions from their royalty checks should be aware that taking deductions is not fair, or legal, in West Virginia.  You can do something about it.

If you need help with enormous deductions taken from your royalty check, give the office a call at 304-473-1403 and set up a time to discuss your situation with one of our staff.

The State of Oil and Gas: June 15, 2017

The price of oil and natural gas have taken hits in the last few weeks.  Oil is down below $45/bbl and natural gas is hanging out around $3.00/MMBtu.  It’ll be interesting to see where things go as the summer progresses.

This article at Energyfuse.org suggests that shale drilling is hitting a ceiling as far as productivity per well is concerned.

Some drillers are ready to slow down activity if prices continue to decline.

Wind and solar electricity generation exceeded 10% of U.S. total for the first time in March, according to the EIA.  We expect that growth trend to continue for the next few years at least.  It seems that renewable power generation has reached a critical mass of sorts, and will continue to grow regardless of the price of fossil fuels.

Russia believes that oil markets will rebalance by the time the current OPEC/Russia production cut agreement is over.

OPEC says rebalancing is happening slower than expected.

Fracking technology has improved significantly over the last few years.  Companies are getting more product from each foot of lateral than they used to.  Now they are going back and using current techniques on older wells and getting increased production.  It’s called refracking, and it’s going to add significant supply at very little additional cost in the way of money, time, and environmental impact.

One reason oil prices are declining is that Libya and Nigeria have begun producing more oil.  They are excluded from the OPEC/Russia production cut agreement because their production has been tiny due to civil war.

West Virginia Senator Capito has introduced a bill that would expedite permitting for a gas storage hub, and Senators Capito and Manchin have introduced a bill that would make it possible for West Virginia to get a loan guarantee from the federal government for the project.

Why is my Bonus Check Smaller than It Was Supposed to Be?

We’ve gotten several phone calls and emails from clients over the years about the size of the bonus check that the oil and gas company sent them.  It’s always the same story: the landman made promises of big money, and the big money never came.  As you can imagine, this makes people angry.  It feels very bait-and-switchy.
Side Note: This happens often enough that the companies should train their landmen to warn people that it could happen.
To understand why this happens you’ll need some background.
When a company first decides it is interested in developing any given tract of land it will request a title search on that tract.  That title search will be done by a landman, not a lawyer.
The landman will tell the company who they think owns the mineral rights, and the company will then buy leases from those people.
Once the company gets a signed lease back from those people, it will usually have some time (90 days, for example) to check the title work the first landman did.  More than once we’ve seen the company change its mind about how much our clients own based off this second title search.  Usually it’s for the worse.
Later, usually much later (sometimes never, but we’re hopeful), the company will drill a well and produce natural gas.  Once they do, they owe royalties.  But before they go paying royalties, the company will ask a lawyer to provide them with certified title.  The lawyer will go out and do all the same work the first two landmen did, but sometimes with different results.  We’ve seen the company change its mind about how much our clients own based off this certified title.  Again, usually it’s for the worse.
When the company changes its mind, it has the right to pay only for what you own, not for what it promised to pay.  Why?

There’s a little-noticed clause in almost every lease called the Lesser Interest clause.  It says that if you own less than the entire tract, the company will pay you accordingly.  There is usually also an Order for Pay or an Order of Payment that the company has you sign at the same time you sign the lease, and it includes similar language.

So when the company discovers that you own less than they originally said you did they pay you accordingly.
The opposite is actually true, too.  If the company discovers that you own more than they originally said you did they pay you accordingly.  We’ve seen clients get more than they expected.  Oddly, that happens far less often than getting less.
Now, it’s quite possible that the landman/lawyer got it wrong.  It wouldn’t be the first time and won’t be the last that a human being makes a mistake.  The trouble is that it will often take quite a bit of time and effort to prove the landman/lawyer wrong, or in other words it will take quite a bit of money.
If you want to do something about it, you should start by getting a copy of the run sheet that the landman/lawyer made.  Most companies will provide it to you if you’re persistent and nice.  It’s a list of all the documents the landman/lawyer used to determine ownership.  It might not make any sense at all to you, but we can help with that part.
If the company won’t provide you with the run sheet, you will at least be able to get a copy of the document that changed your ownership.  Sometimes the change in ownership will be based on an interpretation of a vague clause in that document.  If so, we might be able to help you change the company’s interpretation of that clause.
As always, good luck!

The State of Oil and Gas: June 5, 2017

Whew!  Five days later than usual.  I’ll stick with the “business is booming” story for now.

Libya says it has exceeded 800,000 barrels of oil per day recently, with the possibility of hitting 1MM in the near future if they can get some contractual issues ironed out.

The EIA expects the U.S. to produce more gas this year than it previously thought.

A new study suggests that re-fracking can bring so much new production online from an old well that it’s just like drilling a new well.  It doesn’t mention whether re-fracking makes it possible to extract gas that otherwise would remain trapped in the formation, or just speeds up the extraction of gas that would come out anyways.

Sabine Pass continues to increase exports of LNGs.  The plant took in 2.3 Bcf per day in the second week of May, up from 2.1 Bcf per day in the first week.

A recent trade deal will make it possible for the U.S. to export LNGs to China.  Nice.

Some think that OPEC can’t just extend their production cuts, they need to double down on them.  There’s no other way to chew through the surplus.

Mexico has been increasing its reliance on natural gas.  Interestingly, it has a shockingly small number or drilling rigs running.  Good for the U.S., weirdly bad for Mexico.

This article discusses what OPEC is trying to accomplish by cutting production.  It’s pretty interesting, but even more interesting is the fact provided in the article that U.S. oil production is expected to hit 9.3 million barrels per day this year, and 10 million barrels per day next year.  That’s a lot of new production, and all thanks to OPEC and Russia cutting production.  They’re playing a dangerous game, and at some point they’ll probably have to start producing at full speed or they’ll just create a behemoth in the U.S.

This article goes into just how much money OPEC has “lost” since their announcement in November of 2014 that they would flood the market with cheap oil.  It also briefly mentions that Saudi Arabia has explored using fracking in its own oil fields, with little success.

There aren’t enough frack crews.  This was one of the factors that I thought might slow down the growth of the oil and gas industry when the price of oil and gas started to recover.

On top of that, somebody crunched the numbers and decided that the Marcellus/Utica region needs an additional 45 drilling rigs (and corresponding frack crews, of course) to fill the new pipelines that are going to be completed in this area.  There are only about 50 rigs running in this area right now.  There used to be a lot more than those two number combined, back in the boom before 2014, so if the crews could be found the rigs could be run and the gas produced.

Both oil and gas prices are down again.  Oil is down in spite of OPEC and Russia extending the production cuts for another nine months.  This article says the extension is going to have the desired effect and oil prices will go higher again.

Natural gas prices have gone down in part because some power producers are switching back to coal.  This leads me to think that we’ll probably be pushing the limits of natural gas storage at the end of injection season this year, just like last year, with the associated low price of natural gas.

Marcellus drillers aren’t drilling a lot of new wells compared to other oil or natural gas plays.  They’re completing DUCs.  There’s a lot of drilling that needs to be done in the near future, and they’ll have to bring on some new rigs soon.