Low Energy Prices are Good for Most Everyone

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christmas-bonus

The steep drop in energy prices is a really good thing for most everybody, but a bad thing for mineral owners and those few poor lawyers who make their living helping mineral owners.  We won’t cry over it, we’ll just work a little harder and a little smarter, just like all the drillers are.

Down in New Jersey, residential and small commercial customers are getting a rate reduction in their natural gas bill, and a credit back on their statements.  How cool is that?!  When’s the last time anybody was happy to see their gas bill?

The really awesome thing is, it’s mostly due to unprecedented output of natural gas in the Marcellus and Utica shale areas.  We’re proud to be a small part of that.  The other factor has been the increased production from Saudi Arabia as it tries to keep its share of the oil market and drive American oil developers into bankruptcy.  Everyone can see the direct effect on prices at the gas pump.

The great news is that low energy prices are going to heat our economy back up.  We think that one of the reasons the fed raised interest rates for the first time in years is because they see the economy taking off, in part to low energy prices.  Low energy prices make manufacturing and petrochemical industries in the United States more competitive.  It also makes it easier for transportation companies to make ends meet.  It also makes it easier to take that Great American Road Trip, and more interesting to buy big gas guzzlers.  It also puts a few more dollars into the wallets of every consumer.  All of the above will translate into jobs and greater energy demands.  It’s going to take a while, but low energy prices are going to help improve our economy, which will drive demand for energy back up, which will drive the price of energy back up.

The disappointing part of low energy prices is that it will drive down the demand for renewable energy sources.  I’m no tree hugging environmentalist, but I still think renewables are cool and would like to see that industry take off.

In the meantime, we hope that people will take a look at gas prices and decide to go visit both sets of grandmas this Christmas, and turn the heat up a bit.

Ford is Again Producing a CNG F-150

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Natural gas powered cars aren’t exactly popular right now, what with the lack of CNG fueling stations and all.  Even in the parts of the United States where there is a higher than average density of CNG fueling stations (what’s up with Oklahoma?!), you’re going to have to think ahead a bit more about when you fill up.  Here’s the CNG Now! website where you can find public CNG stations.  You’ll see that there just aren’t that many of them.  Part of the reason for that is that very little CNG is used to fuel vehicles.  The Alternative Fuels Data Center states that 0.1 percent of all natural gas is used to run vehicles.

However, they are becoming more common.

With that in mind, Ford has stepped up it’s game and is again offering a variant of the F-150 that will run on CNG.  It also runs on some other things, but we’re not terribly concerned with that here.  It would be great if more vehicles ran on natural gas.  Natural gas burns cleaner than gasoline and we have loads of the stuff in the ground.  If you’re in a position to buy a CNG vehicle, we encourage you to do so.

Chesapeake “Loses” 1.1 Billion Barrels of Oil

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magic-money-e1362106767971The drop in oil and natural gas prices doesn’t just affect the price of gas at the pump or your monthly utility bill.  It also hits energy companies awfully hard, and not in ways you might expect.  In this case, over a billion barrels of oil are going to just disappear off of Chesapeake’s books.  That’s billion with a B.  That’s disappear as in no longer exist.

How does that happen?

Oil and gas companies are allowed to give a value to their wells even before drilling them and producing gas from them.  They do that to get loans from banks. There’s a formula provided by the SEC (not the football conference) that they use to determine that value.  The formula includes the price of oil or the price of gas, depending on which the company is expecting to produce.  When the price goes down, the value of the undrilled wells goes down.  It has more to do with what’s economically producible than anything, so a lot of properties that were marginally economic are no longer considered economic, and so have no value.  Poof, $1.1 billion dollars in value just disappears.

Oil and gas is just crazy.

Hilcorp Energy Gives Employees $100,000 Christmas Bonus

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christmas-bonus

So, it pays to be in the oil and gas business.  It also pays to build a business using the correct principles.

Hilcorp Energy, a Houston energy exploration firm, is giving its employees a $100,000 Christmas bonus.  That’s $100,000 each.  The bonus was based on the company reaching a five-year goal, and was prorated based off the amount of that five years each employee was with the company.  So if you were with the company the entire five years, you got the $100,000, if you were with the company for 2.5 years, you got $50,000.  Not too shabby.

It’s really interesting to see that they are giving that bonus in the current oil and gas climate.  It can’t be easy to write checks for a grand total of over $138 million right now.  It’s nice to see that the company owners have the integrity to do the right thing.

Selling West Virginia Mineral Rights

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Dollar SignLots of West Virginia mineral rights owners are getting offers from companies that want to buy their minerals.  At least a couple of times a month someone calls the office to let us know that they received a letter in the mail with an offer to buy.  The offers usually don’t name a price, and only give the size of the tract the person has ownership in.  Being West Virginia, the person usually only owns a small fraction of that tract.

The most common question we get is, “should I sell?”, followed by, “should I hire you to represent me in this?”

Whether you should sell is not a decision we can make.  We can make recommendations and help you think it through, but ultimately, you have to decide whether it makes sense for your situation.

THE CONSIDERATIONS

The nice thing about selling the minerals is that you get a lump sum of cash right now (well, within 30-90 days in most cases).  If you need cash, this can be a great option.

If you don’t need the cash right now, you should seriously consider keeping the mineral rights.  Most of the offers that we hear about are for just a little more than you would get for a lease bonus.  You can negotiate for more, but some of the companies that are buying mineral rights are not willing to negotiate for much more than they offered.  This means that you will get a little more than you would in a leasing situation, and never get any royalty payments.  If you wait for a lease you could get a lot more money.

On the other hand, waiting for a lease could be a wait for eternity.  There is no guarantee you will ever be offered a lease.  Even if you are offered a lease, there is no guarantee that they will take that lease when you’ve signed it.  Even if someone takes a lease from you and swears up and down that they are going to drill a well in the next six months, that might not happen; the oil and gas industry is notorious for being unpredictable.  Even if someone takes a lease from you and they drill a well, that process is lengthy and could stretch out into years.

The long and short of it is, mineral ownership is both a long-term investment and highly speculative.

You have to decide if you want to sell out for a smaller cash infusion now or if you want to hold on and bet that someone will develop your minerals and take the larger amount of cash that might, but isn’t guaranteed, to come over time.

Pro Tip — If you sell, don’t forget to keep back enough to pay income taxes with, and make sure the large cash infusion isn’t going to interfere with Medicare, Medicaid, or any other benefits you might be receiving from a government agency.

SHOULD YOU HIRE A LAWYER?

So, the other question we get from people is whether to hire a lawyer to represent them.  We love it when people ask this question, and our answer is always, “you’re asking a lawyer whether you should hire a lawyer?!  Of course you should!  And you should pay him lots and lots of money!”

Seriously though, if there’s a substantial amount of money involved, or you are worried about liability, or you’re uncomfortable negotiating, or if you want us to act as an escrow agent because you don’t want to send a signed deed to a company before they send you a check, then you should hire a lawyer.

Give the office a call at 304-473-1403.  We’ll be glad to help you out.

One Company Will Start Drilling Again in 2016

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energy-marcellus-shale05-drill-site-houses_26890_600x450PDC Energy is going to start drilling again in the first quarter of 2016.  Reading the article, it seems like the wells they have planned are mainly testing out new techniques, but they fully expect the wells to return more than their investment.  Part of that seems to be because they have hedged well, with oil hedged at $85/bbl and gas at $3.65/MCF.

Overall, we don’t see this as a sign that drilling is going to ramp up in 2016.  There will still be some leasing going on — there are always leases being taken.  We think it will be 2017 before we see anything start to really take off, and maybe even 2018.  It’s going to be lean times for anyone in the oil and gas industry.  However, those who are competent and hard-working will have something to do.

And there we go again, making predictions.  It’s so hard to not speculate about the direction of oil and gas.  Well, we’ll see whether these predictions are accurate or not in a year or so.

Post Production Costs

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Dollar SignThe West Virginia Royalty Owner’s Association posted a quick calculation showing what post production costs will do to your royalties.  It’s quite simple, so we won’t belabor the point on this blog.  Hop on over to this page and take a quick look.

When you’re reviewing your lease, watch for “post production costs” and “market enhancement”.  If either of those terms are in your lease, you will be charged for post production costs.  Keep in mind that we lawyers are sneaky and very good with words.  Post production cost language can be hidden, obscured, and difficult to understand.  If you have any questions at all about whether your lease includes post production cost language, call this office at 304-473-1403 and someone on our team will explain what we can do to help you.

Pipeline Internal Workings

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Gas Pipelines in ColumbiaHere is an interesting article about a pipeline that has seen better days but may also have better days ahead.  We’re not so interested in the pipeline itself as much as we’re interested in the details of how pipelines work.  If you’d like to start your education about pipelines, this article is a good one for you.

West Virginia has an Energy Export Problem

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Power Plant

This article from The Intelligencer out of Wheeling, WV says that West Virginia has a lot of gas in the ground.  While that’s not necessarily news, the estimated amount going up is.

It’s exciting that there’s that much gas in the ground, but West Virginia really needs to do more with the gas.  Right now we export most of it.  We would like to see West Virginia put more of it to use here.  The cracker plant in Parkersburg, WV and the gas-fired energy plants in Harrison County and the northern panhandle are the direction we need to go.  Exporting raw materials is OK, but refining and improving it so that we can keep more of the value in state will be better.  We exported coal for decades, and now we have a lot of coal mines and a lot of coal miners who are out of work.  If we can do more with the raw product we can keep more of the money here and develop more infrastructure so we don’t feel the hurt so badly when the economy tanks and changes.

Baby It’s Cold Outside…..No It’s Not

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huh_450Just a couple of weeks ago, Burleson LLP, a Houston law firm with Pittsburgh offices specializing in oil and gas shut it’s doors.  It was a sign that things were getting bad in the oil and gas industry.

This week, Frost Brown Todd, also an energy company, announced that it is opening an office in Pittsburgh and hiring 10 of the 30 lawyer that lost their jobs when Burleson shut down.

So, is it bad, or is it good?

We’ve seen an increase in the number of people calling the office about oil and gas leases in the last few months, with a drop off in the last week or two.  The amount that oil and gas companies are willing to offer for lease bonuses and royalties has just started to drop a little.  The price of oil and the price of natural gas continue to decline.  Sometime next year some pipeline projects are going to be completed, with more to come in 2017 and 2018.  There are natural gas energy plants being built in West Virginia, Ohio, and Pennsylvania.  There are cracker plants being built in Ohio and Pennsylvania, and the one planned for Wood County, WV may not be on life support any more.  This winter, while expected to be snowy, is not expected to be cold.  Russia is getting in a fight with Turkey, but the rest of the Middle East is pretty much business as usual with the Saudis still producing as much oil as they want with no signs they will cut back.

So, it’s bad, and it’s good.

We’ve given up predicting where oil and gas prices are going, and where the oil and gas industry is going.  There’s always good news and there’s always bad news.  The more important question is, do you have a lease or a modification or a right of way agreement in hand that needs to be dealt with?  If so, give us a call.  We’re here to help.