Monthly Archives: July 2015

The Appalachian Gas Oversupply: Over Soon?

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The biggest problem for gas developers, and consequently royalty owners, here in West Virginia has been the lack of pipeline infrastructure to transport the gas to market.  The Marcellus shale development has been so fast that it was impossible for pipeline companies to keep up.  Either that or they just didn’t think ahead far enough.  Either way, midway through 2015 we need pipelines in a bad way.  Hope is on the horizon, however.

This article over at SeekingAlpha is practically a list of pipelines and completion dates.  Conspicuously absent are the Mountain Valley Pipeline and the Atlantic Coast Pipeline, but those won’t even start construction until next year.

The article points out that pipelines are about to start coming online, and that will drive the cost of transportation down.  As the cost of transportation goes down, the profit to producers is going to go up.

West Virginia mineral owners can expect to see an uptick in production, so their royalty checks should get bigger.  Those who aren’t leased can expect to see leasing start back up, too.

The next few years will see increased transportation capacity, so mineral ownership should only get better and better from here on out.

Utica in West Virginia: More Details

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WVMetroNews has an article by Sunshine Wiles which points out a few things about the Marcellus Shale.  It points out that the Utica is much deeper than the Marcellus, and that we in West Virginia have “some of the lowest energy costs in the country”.

One of the reasons that energy cost is so low is that West Virginia mineral owners tend to sell cheap.  Hold on to your minerals, don’t lease for a couple thousand bucks an acre and a royalty of 12.5% (which is 1/8), and write your legislator about forced pooling to make sure they vote against forced pooling.

This is Weird about Water and Fracking

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Monongahela_River_Fairmont

Maybe this is some Freakonimics-type thinking here, but there’s a thought bouncing around the internet that goes something like this, “coal-fired power plants use a lot more water than natural gas-fired power plants, and since we’re moving towards more of the latter because we have so much more natural gas than we used to, and since fracking is why we have so much more natural gas than we used to, then fracking is reducing the amount of water that we are using.”

This article over at wateronline.com says we used 33 trillion gallons of water in 2012, down from 52 trillion gallons in 2005.  If somebody knows more about this subject than we do, and can add something to this article, we’d love to hear it.

Marcellus and Utica Producers are Still Making Money

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With gas and oil prices down, it’s been a lot harder to make money in the oil patch.  The one good thing about this situation is that producers have had to figure out how to cut costs.  Producers have convinced suppliers to lower their prices, drillers have figured out new tecDollar Signhniques, leasing has slowed down, lease prices have dropped, and people have been fired.

Most of the cost cutting measures end up in people getting fired.  We hate to see people get fired.  We’ve been there ourselves more than once.

The only good thing about it is that companies are now profitable at a much lower price point than they were a year ago.  They’re still in business, still employing people, and still paying out royalties.

Mark Passwaters over at snl.com (not the comedy show) thinks that most producers are capable of turning a comfortable profit with oil at $75/bbl.

While that is interesting in general for West Virginia mineral and royalty owners, the most interesting part of the article says that Utica and Marcellus producers are doing just fine at $3.00/MCF gas.

Why is that?  The success mantra for developers in the Marcellus has been “keep costs low”.  I’ve heard that from more than one small developer, and it’s true for the mid-majors like Antero and Southwestern, too.  They’ve been on the cutting edge of science in the shales from the beginnin

Antero Resources 2Q15 Production is Huge

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Antero Resources produced awfully close to 1.5 billion cubic feet per day of natural gas in the second quarter of 2015.  That’s a big number, and an interesting number, too.  Why is it interesting?  Because that’s the same amount of gas that the Atlantic Coast Pipeline is expected to be able to transport every day.  You can go take a look at Antero’s Second Quarter Report at this link.

 

United States Burning More Gas than Coal

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imgresThis news has us a little torn.  According to a report released by the U.S. Energy Information Administration, the United States now burns more natural gas in energy production than it does coal.  While that’s good for West Virginia, it’s also bad for West Virginia.  A huge portion of West Virginia’s economy depends on coal, and has for generations.  West Virginia’s economy is being boosted by natural gas development, and will for decades.  It’s probable that natural gas will replace coal, and that West Virginia’s economy will do well on natural gas, but the transition is going to be full of heartache and misery for some folks.  The southern counties especially are going to be hard hit since there’s not as much natural gas development going on down there, and won’t be for the near future.

Utica Shale just as big as Marcellus Shale

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utica-shale-map

A new study by WVU has found evidence that the Utica shale is much larger than previously believed.  The study says that the Utica could be just as big as the Marcellus, previously believed to be the largest shale play in the country.

The Utica is quite a bit deeper than the Marcellus, between 4,000 and 12,000 feet deeper depending on the region you’re looking at.  It’s shallowest over in Ohio, and dives down at about the West Virginia border, and is at its deepest in New York.  The depth creates additional challenges (translation: expenses) for drillers.

The Utica underlies a lot of West Virginia, and while it’s not being developed heavily in every possible location, it will be someday.  West Virginia lessors need to know that even if the other shale formations that could be produced are never produced, the Marcellus and the Utica are both very likely to be produced.

Burket Formation Data, Another Point Against Force Pooling

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Zipper Fracking

As you well know if you’ve been reading this blog for any length of time, there are more producible formations underneath West Virginia than just the Marcellus and the Utica.  The Rogersville shale, among others, over in the western part of the state is getting some interest, and the Burket formation in the northern part of the state is finally getting some real air time, too.

Wrightstone Energy Consulting has put together some data on the Burket.

It’s not a very thick formation in West Virginia, but it’s pretty close to the Marcellus shale, lying just a few hundred feet above it here in West Virginia.  It’s not a ridiculously productive formation, but when drilling from one pad to the Marcellus and Utica it makes sense to drill to the Burket as well.

The best locations for Burket drilling appear to be in Doddridge, western Harrison, western Marion, and western Monongalia counties.  There’s a little bit in Wetzel, Tyler, and Lewis counties where they border the previously named counties, too.  There may be some good production in a small strip of Upshur, Barbour, and Tucker counties as well.  We don’t anticipate much development there because it makes more sense to drill where you already have pads, but we also know that Consol/CNX/Dominion was drilling to the Burket in Barbour county a couple of years ago, so if gas prices go up a little we expect to see them pursue that activity again.

By far the most interesting aspect of the data that Wrightstone Energy presents suggests that producing the Burket with the Marcellus could yield increased production from one or the other, or even both.  Fracking the Marcellus and then coming back later to frack the Burket may result in wasted energy as the fractures may communicate with the previous Marcellus fractures, resulting in fewer new fractures.  However, if both are fracked at the same time, or “zipper fracked“, the resulting production from both formations could be significantly higher.

We hate to harp on this one subject yet again, but this is yet another reason why it is important for mineral owners to be able to say no to a lease and not have to worry about being force pooled.  If the lessee is not going to produce the Burket with the Marcellus the mineral owner should be able to say they want to wait until a producer who wants to produce both formations comes along.

 

Well Pad Pipeline Rutpures, Burns, but Doesn’t Explode

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Danger SybmolWe’re not sure how this happens, but a new pipeline at a drilling site in Tyler County, West Virginia, burst and burned.  News reports say that the pipe didn’t explode.  That’s a little odd.  So is the fact that it’s a rather new pipe.  The usual reason given for pipeline ruptures is that the pipe corroded and failed.

The fire occurred at the Jay-Bee’s Gorby pad in Big Run to the east of Middlebourne.Big Run, Tyler County, WV

We’re all for oil and gas development, but we don’t pretend that there are no risks.  You’ve got to go into this kind of thing with your eyes wide open and ask questions.  Do some research.  Don’t make snap decisions.  Sleep on it at least once.  You’ll be glad you did.  That way when a truck meets you coming around a narrow blind curve, a hill slips, a pipeline bursts, the well is flared off, the compressor station noise keeps you up at night, or there’s natural gas filling your hollow, you can at least say you thought about it.