Author Archives: R. Kyle Nuttall

West Virginia Nuisance Lawsuits Against Oil and Gas Companies Sent Back to Mediation

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There are around 200 people who have filed nuisance lawsuits against two oil and gas companies here in West Virginia.  Judge Moats has ordered them back to mediation, telling the parties that fixing the problem is worth more than money.  The parties previously went to mediation.  Perhaps having the judge encourage the parties to settle will help mediation move along a bit.  We think Judge Moats’ words were well chosen.  They could be interpreted to hint that the judge is leaning either way.  Perhaps it’s better to say that neither party can say that the judge is leaning toward their own side.

In related news, we have heard through the grapevine that SB 508, which would have severely limited the ability of landowners to bring nuisance lawsuits against any company operating nearby, has been defeated.  It’s a little too soon to say for sure that’s the case, but the word out of Charleston is that the House Judiciary is unlikely to pass the bill out to the full House.

Legislative Update, March 1, 2016

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We may be a day early to report the death of this year’s forced pooling bill, but the rumors coming out of Charleston and the news articles we’ve read sound promising.  Good for McGeehan and everyone else who has worked to defeat this bill.  Maybe next year they’ll come up with something that makes it easier for oil and gas companies to put together drilling units, but without taking away private property rights.  Eminent domain is one of a few things the Founding Fathers got wrong.

The other good thing we’ve seen is that the bill which would have allowed pipeline companies to enter private property without permission if they were surveying for a proposed pipeline easement has been killed.  The Senate voted it down by a margin of 2-1.  Those are good numbers against a bad bill.

 

Ohio Cracker Plant Has a Website

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Man, these cracker plants move sloooow.  They’re awfully expensive, which is why they move slow.  Even spending $100 million dollars and then pulling the plug if the deal isn’t good is a good deal when you’re talking billions of dollars.  Here in West Virginia we’re hoping for a cracker plant of our own, but we don’t expect it for at least five years.

One good thing we can point at is that the cracker plant in Ohio now has a web site of its own.  Web sites are cheap relative to the size of this project, but it’s another step in the right direction.  Step by step by step these things will (hopefully) get built.

Visualization of Active Drilling Rigs in the U.S.

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Bloomberg put together a cool visualization of active oil drilling rigs in the United States over the last five years.  There’s a remarkable drop in the last 18 months.  What’s amazing is that oil production has increased in the same time period.  Rigs and techniques are more efficient than ever.  We may not ever see the number or rigs running that we saw up through the end of 2014.  That’s bad news for roughnecks.

This visualization is only for oil, not for gas.  It appears that they don’t have one for gas drilling rigs.

Antero Resources Land Budget for 2016

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Antero Resources

Antero Resources is arguably the biggest player in West Virginia Marcellus/Utica natural gas development, so when their 2016 guidance report came out it was worth taking a quick look at.  Their overall budget has been reduced from $1.8 billion to $1.4 billion, but of greater interest to people we work with, the land budget is now $100 million.  That’s down from $150 million in 2015 and down from $450 million in 2014.

Why is the land budget interesting?  The land budget is the budget for the land department, and the land department is the department that buys leases, modifications, and renewals.  The land department has $100 million to spend.  While that’s a lot less than it has been in the past, it’s still a substantial number.  We can still expect Antero Resources to buy leases and modifications, and even renew leases that are coming due.  Speaking of which, it will be interesting to see how many of Antero’s leases are coming due this year, and how many of them they will be renewing.

The land budget is not down as much as we thought it might be.  Rumors that Antero was not taking any more leases in Tyler County made us think that perhaps Antero was cutting way, way back on leasing.  While there has definitely been a cut, it seems that Antero has shifted interests to Wetzel County, searching for the Utica dry gas that companies have realized is so prolific.

Also, the sheer number of leases may not be changing all that much.  Along with the cut in budget has come a cut in bonus amounts.  Property that would have commanded $4,000-$5,000 per acre last year is now being offered at $2,500-$3,000 per acre.  That alone makes up a large part of the reduction in their land budget.

So while there is going to be a reduction in the amount of money paid for leases and modifications this year, it seems that the number of leases taken and the number of landmen working is likely to remain the same.  The unknown is just how low the price of natural gas is going to drop.  If it continues to drop throughout the year then we could see additional reductions in activity.  However, if prices remain roughly the same through this year, then activity should remain about the same and might even pick up.  After all, most analysts are saying that the oversupply should be over sometime in 2017.  Antero will be well positioned to pick up any of that slack, and they’ll do so by

 

Chesapeake Sells Interests to Haymaker Resources

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Danger SybmolChesapeake Energy needs cash, and it needs cash now, but it can’t go to J. G. Wentworth.  Instead, they’re selling some of their interests in oil and gas wells to another company, Haymaker Resources.

It appears that the interests signed over to Haymaker are scattered around, not in one specific area.  CHK is getting rid of what it calls “non-core” property.  That means this is probably not Marcellus or Utica property, unless it’s on the outskirts of the Marcellus/Utica area.  However, if you fit that description you might be receiving royalty checks from Haymaker in the future.  It might be worth it to double-check.

State of Oil and Gas: Feb 2016

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While oil and gas supplies are way, way up, it seems that may not be the case forever.  Some people are projecting that the oil oversupply may end as early as 4Q 2016, and it seems that pretty nearly everybody agrees that the gas oversupply is going to be over sometime in 2017.  And just a couple of weeks ago, Saudi Arabia, Russia, Venezuela, and Qatar got together and agreed in principle that it would be a good idea to freeze (not cut back) production at January 2016 levels.  They wanted Iran to get in on it, but Iran won’t. They want to get back to making money on oil after sanctions against them were lifted.  American production will be down about 600,000 barrels per day at some point in 2016, but Iran will make up that difference.  It looks pretty bleak for the American fracking industry.

The real question becomes whether the industry will actually come close to balancing demand with supply.  At some point demand for oil is going to outpace production.  There are some people saying that the industry’s supply chain for labor, parts, machines, etc., is going to be in such a shambles that it won’t be able to ramp production back up in time to counteract a gigantic swing in energy prices.  Watch out for high prices at the pump this coming Christmas and in your utility bills the Christmas after.  If that happens, we could be in for a very volatile energy market for a few years.

In the same vein of thought, Daniel Jones over at Seeking Alpha thinks that natural gas production is going to drop off a lot before the end of this year.  A combination of high production and low demand has driven prices low enough to drive a lot of drillers into the ground, so to speak.  Fewer drillers means fewer new wells.  We need new wells to keep production numbers up because the old wells naturally experience a decline in production as reservoir pressured drops with production.  The lack of new wells means a drop off in production.

The long and short of it all is that we’re in for a serious rebound in oil and gas prices sometime in the future, but that future may not be near enough to save some of the oil and gas companies out there.

Gastar Selling Marcellus/Utica Property to Tug Hill

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Just a quick FYI for any of our clients who are leased with Gastar, Gastar is selling its Marcellus/Utica property to a company called Tug Hill.  If you leased with Gastar, you will soon be working with Tug Hill.  The sale is scheduled to close on March 31, 2016.

Gastar is selling for two reasons.  One, it wants to focus on its Oklahoma holdings, and two, it can’t get a good price for the gas it produces from the Marcellus/Utica.

Wonder of Wonders! A Tax Cut!

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Dollar SignWho knew that the West Virginia legislature had it in them?  They’ve gone and cut taxes!  Specifically, a severance tax on coal, oil, and gas that was intended to replenish the State’s Worker’s Compensation Fund’s old debts.  It’s not done yet, but the prognosis is good.

The legislature passed this particular severance tax back in 2005.  It was in addition to the usual severance tax, and imposed a 4.7 cents per MCF tax on all gas production.  At the time, they expected this tax to be in place until about 2025, but Marcellus shale development brought higher than expected revenue.  The old debts got paid off quicker than expected.

When the tax was imposed, Governor Earl Ray Tomblin was a State Senator, and he promised that the tax would be repealed once the debts were paid off.  I have to give him props.  It’s not often, after all, that you hear of a politician keeping promises.  That’s especially true when the promise is to repeal a tax.

We’re excited, because even though it’s only 4.7 cents per MCF, it’s something.  In today’s rough natural gas climate, any good news is very welcome.  This is good for producers, which in turn is good for royalty and mineral owners.  Here’s to a bump up, however slight, in your royalty checks!