Marcellus Drilling News linked to an article from the Gas and Oil Mag which reports that the City of St. Clairsville, OH got $8,700 an acre to sign a lease on a 195 acre tract of city property.  The deal was with Rice Energy, which has a really great well in the vicinity.

I’d like to point out just how close St. Clairsville is to Wetzel and Marshall counties here in West Virginia.  Google Maps gives me a distance of 11.2 miles from St. Clairsville to Wheeling.

To me, that means that leases in West Virginia have been going for next to nothing.  Sure, the Utica is deeper, but it produces dry gas in huge quantities.  Exhibit A is Stone Energy’s Pribble 6H well in Wetzel County, producing 30 MMcf per day when it came in, and Exhibit B is Magnum Hunter’s Stewart Winland well in Tyler County, producing 45.6 MMcf per day when it came in.  Also, the Marcellus underlies the same acreage, and produces wet gas in large quantities.  It’s a two-for-one deal.

I can’t think of a lease I’ve seen in West Virginia that went for more that $5,000 an acre, unless we’re talking about State property, which has gotten up over $6,000 an acre.

The recent downturn in oil prices has driven gas prices down, and consequently chilled oil and gas leasing.  But it hasn’t stopped leasing altogether, and negotiated prices haven’t dropped much.  I still think that West Virginia oil and gas properties are being leased for much less than they could be.

HB 2688, the West Virginia forced pooling bill, known in some circles as eminent domain for oil and gas producers, was defeated over the weekend.  MetroNews of West Virginia had an article on the proceedings.

If you’d like a quick summary, here’s what happened.  The House passed the bill and sent it to the Senate.  The Senate modified the bill and sent it back to the House.  The House vote ended in a tie on the last day of the session, late in the evening.  There wasn’t time to fix things, so the bill died.

I’m both happy and sad.  I don’t like forced pooling because it takes control out of the hands of the owner.  I liked a couple of the provisions in this bill, particularly the part that put the mineral interest back in the hands of the surface owner after five years.  Anything that can tie mineral and surface ownership back together is a step in the right direction to me.  But I’d prefer to see something like that created in a stand-alone bill.  It will be interesting to see what legislators come up with next year.

The Intelligencer out of Wheeling, West Virginia, put a list of all the leases that had been taken in Wetzel County, WV in January 2015.  While this list may have been longer in September 2014, it’s still pretty lengthy.  Even with the drop in prices for oil and gas, there’s a lot of development going on.

On a side note, I’d like to thank Marcellus Drilling News.  I get a lot of the information that I use from them.  They do excellent work for the whole Marcellus/Utica region.

There’s a very interesting article in the Pittsburgh Post-Gazette about the cracker plants that are planned for the Marcellus/Utica region, and why oil prices affect whether to build one or not.  What it boils down to is that you can use either oil or ethane to make the same product.  When oil prices are high, the ethane has a big price advantage over oil, so an ethane cracker plant is very attractive.  When oil prices are low, the advantage isn’t so great.  At $50/bbl, the cracker plants in this area would still be making money, but not enough to strongly attract the investment capital that is necessary to build.  Hence the current wait-and-see attitude of Shell and Odebrecht.

Back in December of 2014, it became obvious to everybody that the most recent oil boom was over.  Oil prices dropped below $50 a barrel.  OPEC had stated that it wasn’t going to cut back production to drive up prices.  Our office started getting calls from landmen trying to finalize leases before the end of the year.  All of them said that the new year was going to bring lower bonus prices and reduced drilling activity, and they were right.

In January 2015, Antero Resources laid off 301 landmen and rescinded all their offers in Wetzel County.  Cimarex pulled out of Wayne County.  Stone Energy stated it was going to quit drilling for the rest of the year.  Pretty much every published 2015 budget stated that drilling and leasing was going to decrease by 33%.  Even Odebrecht said it was “rethinking” the cracker plant that’s being planned for Wood County, though they say they’re optimistic it will still be completed.  It was all doom and gloom for the Marcellus Shale region.

However, since the first half of January, things haven’t been quite so bad as expected.  Oil prices are hovering at $50 a barrel for WTI crude and $60 a barrel for Brent crude.  Our office continues to get calls from people saying they’ve been offered a lease on property they didn’t know they owned.  The offers aren’t quite as high as they were before, but it’s still normal to get over $4,000/acre in Tyler County. In fact, we just completed a lease in Wetzel County for $5,000/acre and 17% gross proceeds royalties.  It wasn’t even a large tract.  Big pipelines are still being worked on and demand for natural gas as a source of generating electricity is still growing.  There are even a couple of companies that are increasing their investment in the Marcellus Shale, Southwestern Energy being the biggest.

Today over at “Marcellus Drilling News”, there was an article about three new natural gas powered electrical generating plants being proposed for West Virginia.  They’ve been proposed by the same people who are behind the power plant going in at Mounsdville, WV.  Two of them are up in Brooke County and the other is in Harrison County.

Other parts of the country are feeling the effects more than the Marcellus/Utica region.  Things are slowing down more in the Bakken, Eagle Ford, Haynseville, and Niobrara plays.  That’s because the Marcellus is the most economic play due to low leasing costs (still), high production rates, and vicinity to large markets.  A lack of infrastructure has slowed things down some, but the infrastructure is being built.

Some analysts think that oil will drop down to $20 a barrel before prices start to recover.  It seems that most analysts think that $40 a barrel is the lowest it will go, and that prices will recover to around $70-$80 per barrel around the end of 2015.

Luckily for our clients, this means business as well. We just expect reduced profits.

The meeting I attended back in December was run by some attorneys who were trying to organize opposition to the pipeline.  It was reasonably well attended with the usual citizens, activists, and curious people.  Even a pair of pipeline workers. The odd thing was that there was only one landowner. Out of about 60 or so people. How odd was that? The attorneys said that the usual crowd at their meetings was made up of about one-third landowners. Weird. I guess Randolph County landowners aren’t terribly concerned about the pipeline. Unfortunately, they should be paying attention.

The pipeline is a big deal. It’s going to transport huge amounts of gas from the heart of the Marcellus Shale play to end users in Virginia and North Carolina. The price of natural gas could actually go up because of it. Right now there isn’t enough capacity to handle all the gas that comes out of the ground here in West Virginia. Pipeline owners can set their price, and producers have to pay. With additional capacity, pipeline owners will have a little more competition and should have to pay more for the gas.

This pipeline will have eminent domain. Once FERC approval is done, the company will be able to set their price and terms. Federal regulations will be the only limit. Landowners will not be able to negotiate well, because the company will be able to walk away from the negotiating table whenever they want to and apply eminent domain.

Besides the usual ripping up of surface tracts and the temporary easement or right of way that will be there as long as the pipeline company wants it, landowners need to be concerned about pipeline failure. You might not want a pipeline on your property at all because of the risk, however slight, that it might break. A smaller pipeline can do serious damage and force you to leave your property for days, even weeks.  A larger pipeline can be deadly.

The ATEX Pipeline explosion in Brooke County in January 2015 burned about 5 acres of woodlands, according to an article on the West Virginia Press website.  The ATEX Pipeline is a 20 inch pipeline that runs to the Gulf Coast.

The Sissonville pipeline explosion in December of 2012 was the result of age-related corrosion, according to a report by the NTSB (.pdf) that was finished up in March of 2014.  If you don’t want to read the whole thing or don’t like .pdf links, the West Virginia Gazette wrote a pretty decent summary of it.  MetroNews had a great picture in their article that gives some excellent perspective of the size of the fire.  Keep in mind that this was a 20 inch pipe.

Again in January 2015 (it was a bad month for pipeline accidents), a pipeline exploded near Jackson, Mississippi.  The Weather Channel, of all places, has a story with photos that put the damage in perspective.  That pipeline was 30 inches in diameter.

It’s eye opening to say the least. Having a pipeline this big close to your house might be a cause for concern. If you are concerned, now is the time to get involved and to get educated.