The State of Oil and Gas: September 1, 2017

It’s August 18, 2017.  Gas prices are at about $2.90/MMBtu, and oil prices are at about $47/bbl.

Earlier this week a Libyan oil terminal was closed by local protesters.  If the protest is lengthy, it could affect oil prices.

Hurricane Harvey has wreaked havoc in south Texas, including Houston, one of the oil and gas capitols of the world.  Destruction has shut down refineries and raw production, with the net effect on the oil and gas industry still undetermined.  While one would think that the price of oil would rise considerably, it has not.  Fracking should be able to provide the raw materials, and there has been a glut of gasoline for most of this year.  The price of gasoline has gone up some, and will probably continue to do so.  But the price of oil seems like it will remain steady.  It could even go down some if it takes a long time to get the refineries back online.

Libya never ceases to produce news about oil and gas.  This time the Libyan navy seized a tanker because they suspect the tanker was smuggling oil.

Nuclear energy is on the decline, with yet another nuclear power plant being put to rest.

I just happened to speak with a lawyer from Dallas today.  He said that some of the gas stations in Dallas have run out of gas.  That should only be a temporary problem, as the U.S. has had a glut of gasoline for most of the year.  We got a little low just before August, but that encouraged European suppliers to send plenty our way.  Of course, the trick is getting it from the Northeast to Houston.

It’s likely that we are at the beginning of a new oil “supercycle”.  This article in Arab News discusses the last two, the possible new one, and makes some suggestions for how OPEC should apprach the new supercycle reality.

Here’s your daily dose of contrarian thinking.  Everybody thinks that electric vehicles are going to be oil and gas killers in the near future, but someone did a back-of-the-napkin calculation and the numbers show that ten years from now EVs are going to only need about 0.76 Bcf/d of natural gas to produce the electricity necessary to power them.  To put that number into perspective, two new pipelines proposed for this area, the Mountain Valley Pipeline and the Atlantic Coast Pipeline, will each move 1.5 Bcf/d, and the under-construction Rover Pipeline will move 3.25 Bcf/d.  The U.S. currently burns a little over 72 Bcf/d, and is expected to burn a little over 75 Bcf/d in 2018.  So under 1 Bcf/d is not that much in the grand scheme of things.  Of course, demand for EVs could really take off, or it could not.  Guess we’ll see.

Probably the best summary of how the oil and gas industry has been affected by Hurricane Harvey can be found in this article at RBN Energy.

Libya’s crude production has dropped 30% because militants have blocked pipelines.

September 1, 2017: Oil prices are at about $47/bbl and gas prices are at just over $3/MMBtu.  Also, the price of gasoline here in Buckhannon has gone from $2.29 to $2.55/gallon since Hurricane Harvey hit, an increase of 26 cents.

The State of Oil and Gas: August 18, 2017

OPEC requested that Libya and Nigeria present data regarding their oil production at the meeting on July 24.  It’s presumed that OPEC is planning to limit their production now the they are producing more.

Wall Street is financing big oil, but it might be giving too much money to the industry.  More money equals more production equals more supply equals lower prices.

If you’d like to read about the Strategic Petroleum Reserve and its effects on the market, this is the article for you.

Venezuela owns almost 50% of Citgo, a Texas-based oil and gas company.  Venezuela owes Russia $1.5 billion dollars, collateralized by that ownership.  Venezuela is very likely to default on that loan to Russia, in which case Russia would end up owning almost 50% of Citgo.

Lots of people think that electric cars are likely to replace gas cars, and that consequently the demand for oil will go down.  That’s not the way things have happened in Norway.  It’s still early in the process, but it’s interesting to see that “what people think” isn’t necessarily what will happen.

OPEC is overproducing.  A lot of it is from Libya and Nigeria, but some of it is from Saudi Arabia itself.

Coal is expected to produce more energy in 2017 than natural gas, but natural gas will produce more in 2018.

Halliburton says that drilling will not grow much in 2018 because the service sector can’t provide enough services.

July 18, and there’s a rumor that an oil field in Saudi Arabia that produces 900,000 bpd may have some technical problems that could severely limit or entirely shut down its production in the next few weeks.  If that happened, oil prices would skyrocket.  Some investors are already getting in on the action, with oil prices jumping $.40/bbl today so far.  It’s amazing how things can change so fast in the oil patch.  Just yesterday we were thinking that oil and gas prices would probably be stable through the rest of this year.

A Bloomberg article attempts to predict the future, which is always difficult but perhaps even more so when it’s the future of oil and gas you’re attempting to predict.  Natural gas has been thought of as a bridge fuel between oil and renewables.  The article says that the transition period is going to be much shorter than previously thought.  The one thing we think the article didn’t take into account is the fact that as the demand for gas goes down because the price of renewables is going down, the price of gas will also go down.  We’ve seen the industry adapt to low prices.  We’ve seen that this year coal will produce more electricity than gas because the price of coal went down.  This may or may not be the last year that happens.  It’s a fluctuating market and gas will be around longer than environmentalists want to believe, but not as long as oil and gas industry people want to believe.

Mark Zuckerberg, the founder of Facebook, went fracking.  Lots of people think he’s prepping for a Presidential run.

There are twice as many rigs running today than there were this time last year.

Consequently, the price of drilling has gone up about 8%, after declining 34% since March of 2014.

Congress has passed legislation aimed at speeding up the permitting process for interstate and international pipelines.

U.S. News published an article that’s essentially an overview of the need and the safety record of major interstate pipelines.  That still doesn’t make me very comfortable with the idea of living about 1000 feet from a 42-inch high-pressure gas pipeline.

The House Committee on Science, Space and Technology thinks that Russia is funding environmentalist efforts that oppose fracking in the United States.  That would be a wise financial investment for Russia.

Kevin DiGregori hints that there are lots of down-stream projects in the works in West Virginia.  That would be really good for West Virginia’s economy.  Maybe we’ll finally stop shipping our raw natural resources out of the state for other states to turn into greater value products.

Fracking is changing world politics.

Gas and oil production numbers in the U.S. are both increasing.

It’s August 18, 2017 and gas prices are still below $3.00/MMBtu.  As we get close to the end of injection season it will be interesting to see how close we get to filling up our storage facilities again.  If we end up with less in storage than last year we can expect slightly higher prices than last year.  Slightly less is the trend so far this year.

Oil is at about $47/bbl.

I’ve been on vacation and catching up from being on vacation, so this edition is both late and not complete.  Here’s looking forward to the next regularly scheduled edition.

Why You Shouldn’t Sell Your Minerals in West Virginia

Most of the people we talk to had no idea they owned oil and gas rights in West Virginia until a landman contacted them asking for a lease or until an investment company contacted them asking to buy their rights.  Lots of people consider selling their mineral rights, even if they haven’t been approached by an investment company.

When we discuss whether to sell with our clients we talk about a few things.  They mainly boil down to “will the money now be better for me than the money later?”.

Part of that discussion includes determining how much money could be coming down the road.  Most people think about what they could get for a signing bonus if a company buys a lease from them, and what the royalties could be.

Sadly, it’s impossible to say for sure what the royalties could be.  Anybody who tries to give you an exact figure is either lying or uninformed because the price of gas, the amount of production, and your actual ownership amount can’t or won’t be determined until gas is actually flowing out of the well and being sold.

That said, we do try to guess what that number could be over time, and part of that guessing includes which formations might be producible in the future.

Most people know about the Marcellus and the Utica formations, and in the areas that are being heavily developed right now both formations are likely to be developed.

Most people don’t know about the work that Cunningham Energy has been doing on shallower oil-bearing formations.

Cunningham Energy began work on two wells in Clay County, WV back at the end of 2014.  Online sources don’t report any production from the wells, probably because they are considered exploratory and so aren’t required to report their numbers to the State.  However, this newspaper article says those wells have reached a cumulative 20,000 barrels of production.  Cunningham also reported that kind of production from some other Clay County wells in June of 2015.

It’s hard to say for sure whether that’s worth getting excited about.  If these new wells were put into production in the middle of 2015, they’ve been producing for two years and paid out about $1,000,000 assuming an average of $50/bbl (which is generous).  It’s new technology, fracking a formation for the first time, and getting the combination of fluid additives, pressure, and techniques right could significantly enhance the amount of oil that is produced in the future, so there’s hope that this could be very lucrative.

However, the important data for the purpose of this post is that there’s another formation which could produce royalties for you.

And there could be others.  Horizontal fracking is in its infancy.  There were a lot of formations in West Virginia that produced oil back in the late 1800s and early 1900s.  The combination could result in tens of thousands to hundreds of thousands of dollars in royalty money from any given acre of mineral rights in West Virginia.

When you’re thinking about selling or keeping your minerals, make sure that you get all the data necessary to make the right decision.  We’re not telling you that it makes sense for you to always keep your minerals or always sell your minerals, but that you need to talk with someone who can help you think it through so that you make the decision in a way that will allow you to sleep at night.  We can help you do that.

FERC Still Not Happy with Rover Pipeline

The Rover Pipeline would like to start horizontal directional drilling again, but the FERC isn’t allowing it.

In a letter to Rover, FERC listed several things it’s expecting Rover to do, including figure out where the diesel fuel came from in what was supposed to be only bentonite drilling mud and let its supervisors and workers talk with FERC about the incidents.

While we at Nuttall Legal sure hope that this will educate the Atlantic Coast Pipeline and the Mountain Valley Pipeline on how to go about things, we don’t expect it.  These companies only want to get pipe in the ground as fast as possible.  If cutting a few “unimportant” corners will get pipe in the ground faster, the corners will get cut.

When construction on the pipelines begins, don’t expect it to all go smoothly.

 

The State of Oil and Gas: July 17, 2017

There was a public hearing about the natural gas fired power plant that is proposed for Harrison County, WV.  The projected operation date is sometime in July, 2020.  This would be a good thing for West Virginia royalty owners, and West Virginians as a whole.  Instead of shipping all our gas out of state as a raw material, we can add value here and then ship it out at a higher price.

South Jersey residents will see a reduction in their power bills, in part because of the low cost of Marcellus Shale gas.

The Wall Street Journal is saying that natural gas is finally a global market.  I don’t agree that’s true quite yet, but I think we’re awfully close.

The U.S. is the worlds top producer of petroleum and natural gas, and has been for five years straight.

Mexico is buying up a lot of U.S. natural gas.  Exports to Mexico have quadrupled in recent years.

Volvo is making a push towards building more electric vehicles.  All new models from 2019 on will be either full electric or hybrid.

Shale drillers in Pennsylvania have drilled twice as many wells in the first half of this year as they did in the first half of last year.

Saudi Arabia is warning that there’s not enough investment in oil drilling, and that in the next five years we’re going to see a serious drop in production.  Seems that would be in their best interest, and American shale producers should be licking their chops if that’s really the case.

The cracker plant in Ohio is coming a little closer to reality.  A final decision has not been made, but PTT Global Chemical announced the purchase of land for about $130 million.

Rig counts in the Marcellus-Utica region remain steady after a slow but steady increase in the last few months.

Watching how the oil and gas supply industry is going is a pretty good way of knowing how the oil and gas industry is going.  Recently, suppliers of frac sand have taken a hit by investors, meaning there’s not confidence that demand for frac sand will grow.  That said, demand is up considerably year over year already, so the industry isn’t doing poorly.

China’s national gas developer plans to double natural gas production in the next three years.

The Trump administration has appointed some new commissioners for the FERC, but they have not been approved.  The CEOs of some major pipeline companies are saying that if they aren’t approved by August the investment money for those projects may disappear.

Now that Nigeria and Libya are back to producing large amounts of oil, OPEC is going to force them to curtail their production.

President Trump stumped in Europe for U.S. natural gas.

CNN Money doesn’t think gas powered cars are going away any time soon, in spite of Volvo’s move to electric.

France won’t be developing oil and gas any more.  American fracking companies are happy.

Investors are hesitant to throw more money at the oil and gas industry right now.  That’s good for the time being.  We don’t need more development at the moment.  More investment will be needed when prices start to climb towards $4.00/MMBtu.  That may be a while.

July 17, and gas prices have moved a lot in the last month but they’re back at about $3.00/MMBtu.  Oil prices are at $46/bbl, but have been moving around a lot as well.

Currently, it seems that energy prices are going to be relatively stable for some time.  Natural gas production is about right to put us at about the right amount of gas storage before winter, so we’ll see the usual bump in price this winter.  Oil prices could nosedive if OPEC decided to open the spigots but they appear to be committed to keeping prices up until at least the IPO for Saudi Aramco, and American fracking is not yet producing enough oil to drive prices down.

 

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.

Blog Post_Redacted_2017-06-22

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.