Monthly Archives: December 2016

Electric Cars Aren’t As Green As You Think

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There’s this guy, Adam Conover, who creates videos “ruining” everything you think is great.  It’s called Adam Ruins Everything.  He’s kind of like the Freakonomics of YouTube and TruTV.  I don’t agree with everything he says, and you can’t cover most subjects properly in the amount of time that a typical YouTube video lasts.  However, he’s entertaining and makes a good point most of the time.

His latest video explains why electric cars aren’t as eco-friendly as everyone thinks.  It’s part of a larger episode about “going green“.

He makes the argument that the strategy of both driving less and driving your current car into the ground is actually more eco-friendly than buying a new car, so long as your current car is reasonably efficient.  I’m glad to know that I’ve been eco-friendly all my life.

So keep driving your non-gas-guzzling normal car for as long as you can.  Don’t make the jump to electric unless you have to buy a new car anyways, or your old car is laying down a cloud of smoke everywhere it goes.

Of course, buying a car that runs on compressed natural gas (when your old car quits) would be even better for West Virginia royalty and mineral owners.  If only we could get more CNG filling stations around.

The State of Oil and Gas: December 19, 2016

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It’s the end of the day on December 1, 2016 and natural gas prices have broken $3.50/MCF.  Impressive.  I really hope that price holds.  We have cold weather coming up in the next few days, so it probably will.

A Reuters article says that a lot of U.S. producers can produce oil and make money below $40/bbl.  One area of the Bakken can even turn a profit at below $15/bbl!  Those are numbers that rival Middle Eastern numbers.  We may never see Saudi Arabia and OPEC power return, assuming we get more renewable energy sources built up in the next few decades.

For those interested in the environment, the natural gas industry is growing on pace to make it so that we will meet Paris accord emissions targets, even if Trump goes back on that agreement.  That’s naturally, market driven, with no regulations or government mandates required.  You could argue that coal regulations and renewables subsidies are forcing the market, but it appears that coal was already being phased out, and renewables are a pretty small part of the energy sector still.

Part of OPECs plan to cut 1.2 million barrels per day in production is to have non-OPEC countries also cut production by 600,000 barrels per day.  Russia may not play ball.  We’ll see what is said during the meeting on December 9.

A company called Blue Racer started shipping NLGs down the Ohio River to the Gulf Coast back in October.  That’s great news for West Virginia royalty and mineral owners, since it’s a way of getting product out of West Virginia (it comes from the Natrium plant on the WV side of the Ohio) to a new market.  The interesting thing about that is that not too long ago, there was a big stink about shipping produced water (water that comes back up the well after fracking) on the Ohio River, but there hasn’t been a peep about NGLs.  Seems like NGLs would be far worse to ship, but what do I know?

A Reuters article says that Vladimir Putin was involved in getting Saudi Arabia and Iran to work together for the recent production cut/freeze agreement.  If that’s the case, then it’s very likely that Russia will also cooperate.  What will other countries do?  If they all cooperate, then we could have a real production cut.  Good news for U.S. producers!

There’s a very good story at FinancialTimes.com that goes into some detail about how the production cut/freeze agreement came about.  It’s well worth the read.

There are some people out there saying that the production cut/freeze deal may succeed.  They base their argument mainly around the fact that OPEC and Russia both need higher prices.  OPEC didn’t expect the price of oil to fall as far as it did, and has been hemorrhaging money because of it.  So it seems like the main arguments for and against are:  It won’t succeed because all of the OPEC members cheat historically on these kinds of deals, and Russia’s oil production is partially privatized.  It will succeed because OPEC members all need a higher price for oil, Vladimir Putin will strong-arm his cronies, and the private side of Russian production needs high oil prices too.  It’ll be interesting to see what actually happens.

The cracker plant over in Ohio has reached another milestone.  The property has been cleared of the old industrial plant, ready for new construction.  The company has not come to a final decision, but since the cracker plant in Pennsylvania has been approved it’s expected that the Ohio one will be, too.  This is excellent news for us in West Virginia.  Greater demand for natural gas will increase the price, driving up royalty payments and bonus payments.  The more they want your mineral rights the better a deal you’ll be able to wrangle from them.  Too bad we can’t seem to make progress on the cracker plant in West Virginia.

December 12, 2016: Russia has agreed to participate in the oil production/freeze.  Oil prices have jumped $1.33 per barrel.

December 19, 2016.  Oil prices are at about $52/bbl, and natural gas prices are only at $3.40/MCF.  The natural gas price is surprising.  Considering the cold weather crossing the United States, I would have expected something closer to $3.75/MCF.  We’ll take a look at why in the next edition.

Another Pipeline Rupture: Ash Coulee Creek, ND

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A six-inch oil pipeline in North Dakota has sprung a leak.  The amount of oil spilled is unknown at this time.  The oil has entered Ash Coulee Creek, and the company, Belle Fourche Pipeline Company, has placed booms and a siphon dam across the creek to minimize future damage.

It’s surprising how often these leaks go unnoticed for long periods of time.  The companies promote their electronic sensors as safe and reliable, but well over half of all spills and leaks are discovered by people, not technology.  Even when they do get discovered, they sometimes don’t get fixed, such as this natural gas pipeline near Franklinville, New York.

Five days after the original news of the spill broke, it turns out the spill was over 176,000 gallons of crude.  That’s about 4,190 barrels.

West Virginia Oil and Gas Lease Basics

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DocumentIMPORTANT!:  The following article includes good advice about how to improve a “standard” oil and gas lease.  However, it is no substitute for hiring a lawyer to read the exact document you have and give you advice about the exact language of that document.  Even if you decide not to hire me, go find a lawyer that knows oil and gas leases.

With the price of oil and natural gas rising and, more importantly, with production numbers dropping and new pipelines getting ready to be built, leasing activity in West Virginia is going to see another uptick.  People who have never seen an oil and gas lease will be needing some advice.  The following is some good basic advice that everyone can benefit from.  Rising tides and all……

THE MONEY – The Only Thing You Think Matters

The first thing anyone thinks of, and the first thing any landman will discuss after establishing that you own the oil and gas, is money.  The landman will offer you a signing bonus.  The signing bonus is in exchange for the rights to develop the oil and gas for a certain number of years.

You can always get more than their first offer.  You don’t wear your best pair of shoes to get to the dance.  As a rule of thumb, you can usually expect to get double what their first offer is, unless it’s over about $2,000/acre or below $500/acre.  (Note: If the company you’re dealing with is trying to get a delay rental lease, the bonus is paid out in equal yearly amounts.  It’s a little harder to understand, but the landman should be able to explain to you the difference between what they’re doing and a “paid up” lease, including the possibility of having to pay some of it back to the company.  Yes, that’s often in delay rental leases.)  Don’t be shy when negotiating the bonus, because the bonus can be the only money that you ever get.  If the company never drills on the land there will never be any production and there will never be anything to pay royalties on.

That segues nicely into the next thing that everyone thinks about–the royalty.  The statutory minimum royalty in West Virginia is 1/8, or 12.5%.  Don’t settle for 1/8, though.  You can get almost always get 15%, and the huge majority of leases we have negotiated over the years have ended up at 18%.  If the company does drill and produce, getting a little more money for that production can be a nice thing.

Along the same line of thought, you’re going to want to get what’s called a gross proceeds lease.  The company is going to want to deduct some of the costs of transporting the gas from the well to wherever it gets sold, and as many other costs as it can.  In West Virginia, the company is responsible for those costs up until it sells the gas.  Don’t let them stick you with those costs.  Not only will you end up with more royalty money, you will also find it a lot easier to read and understand the data on the check stub.

LIABILITY – You Should End Up With None

The company is going to ask you to warrant the title to the oil and gas.  In other words, they want you to promise that you own the oil and gas.  If it turns out later that you don’t own the oil and gas, or that you own a smaller portion of it, then they will ask you to return money to them.  Even worse, they could ask you to fix the problems with the title.  That’s expensive.  Thousands of dollars worth of expensive.

You probably didn’t have any clue you owned oil and gas in West Virginia before the company told you so.  You are acting in reliance on the company’s research.  It doesn’t make sense for the company to turn around and ask you to warrant that the company’s work was done right.  Tell them you won’t warrant title.

Also, make sure that there isn’t anything in the lease about old wells or old leases.  It’s a pretty safe bet that there is an old well somewhere on that property, and there’s also a chance that there’s an old lease that could be affecting the property.

Finally, go ahead and ask them for an indemnification clause.  It’s not terribly likely that you’ll be liable for bad things that happen while the company is drilling.  They have deep pockets, you don’t.  They’re easy to find, you’re not.  They’re doing things on the property, you probably had to look up West Virginia on Google.  But it’s pretty easy to get and nice insurance to have, so ask.

LIMITED SCOPE – Oil and Gas Production Only

An oil and gas lease should be limited to just producing oil and gas.  Most of them aren’t.  Most of them include things like the right to convert it to gas storage, or the right to use the property for a disposal well.  Many of them also include the right to produce coal bed methane.

The main problem with most of these is that they don’t pay well.  At all.  They pay a few hundred dollars a year most of the time.  Even worse, they keep that lease alive longer than it should be.  In other words, you won’t be able to re-negotiate the terms of the lease or get a new signing bonus.

In the case of coal bed methane, the company you are dealing with doesn’t drill coal bed methane wells.  How do I know?  Because I’ve asked them.  The best case scenario for coal bed methane is that another company will approach the company that owns your lease and work out a signing bonus with them.  Once they drill and start producing they will send you royalties, but nothing more.

You should make sure the lease is only for the purpose of producing oil and gas and other products that might come out of the well with the oil and gas.

FINAL WORDS – It’s Complicated

There are a lot of other things that we help people with when it comes to oil and gas leases, including making sure they’re getting the most amount of money they can for the area their property is in.  What’s in this article is the basic stuff that can help you improve the standard boilerplate that the company will present to you.  It can make your lease…..palatable.

If you own the surface it becomes even more important that you get a good lawyer on your side.

We highly recommend you hire us to help you with your lease, even if it’s just a quick initial consultation.  You’ll leave with a lot more knowledge, confidence, and peace of mind than you came in with.

Give us a call at 304-473-1403 to schedule an appointment.  I promise we don’t bite.

The State of Oil and Gas, December 1, 2016

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The energy sector is cautiously confident, according to this article at Fortune.com.  The key phrase from a quote in the article is, “We’re beginning to put capital back to work…”.  That means investors are willing to put money into the industry.  That means that work will start to pick up, development will increase, jobs will be provided, hydrocarbons will be produced.  However, I’m even more glad that there is caution in the industry.  That means we may not see an extreme boom/bust cycle soon.  When things move slowly, people can plan for it and prepare for it.  You can plan for a career.  When things move fast, nobody benefits–even the money men lose sometimes, and that’s saying something.  Here’s to cautious confidence in the oil and gas industry.

The Wolfcamp formation in the Permian Basin in Texas is not new, but we now have some new data that shows it will be ridiculously prolific.  Here is a very short write-up about it.  It’s interesting to see how new technologies have changed the future of oil and gas production.  Previously, there were a lot of people who were worried about “peak oil”, the idea that the world was running out of oil to produce.  The theory said, in essence, that on a specific day (which varied according to who was doing the calculating) we would produce the most oil ever, and never be able to produce more.  It seems we have put off peak oil for quite a while.  New technology, namely horizontal fracking, did it.

Here’s an article from Japantoday.com that says Trump is unlikely to ban Saudi oil.  It gets into the history of OPEC for a while, but the practical reasons for not banning Saudi oil are interesting.

There is some slight chance that the next OPEC meeting in Vienna on November 30 could result in a production freeze or cut.  This article by Richard Zeits over at Seeking Alpha gets into some detail about it, but the short version is that all producers stand to benefit from increased prices.

While Donald Trump plans to make significant changes to the Clean Power Plan, there’s at least one energy company CEO who thinks it won’t make a difference.  Gerry Anderson of DTE Energy in Michigan says that DTE is making the change over from coal to natural gas (and renewables) regardless.  Anderson also says that he doesn’t know anybody who is building a new coal plant.  While this is great news for the northern part of West Virginia, the southern part of the state is still hurting badly from the loss of coal-related jobs.  Luckily, there are a couple of new metallurgical coal mines being opened up on the West Virginia/Virginia border.  If I were reliant on the coal industry for my livelihood, thought, I’d be figuring out how to make a change quick.

It’s November 29, the day before the next OPEC meeting.  Saudi Arabia has proposed a 4.5% cut for itself if Iran will freeze at 3.8 million barrels per day and if Russia will agree to cut production.  That’s a pretty aggressive stance, and Iran has unsurprisingly resisted that proposal, with oil prices falling over $1.50 per barrel on that news.  This article says that Saudi Arabian Energy Minister Khalid Al-Falih is setting the stage for failure because he doesn’t like Trump’s campaign promise to ban Saudi oil imports.  While Trump’s campaign promises are looking more like suggestions these days, it makes sense to set someone else up as the scapegoat.  However, when going in to negotiations you always set your expectations high, and that’s what Saudi Arabia has done.  Any cut/freeze combo right now would bring prices well up over $50/bbl for at least a few months.  Attacks on Nigerian pipelines have boosted prices this month, and Nigeria doesn’t provide a huge number of barrels to the world market.

The United States became a net exporter of natural gas in the last couple of months.  Most of the exports went through pipelines to Mexico and Canada, but some went overseas in the form of LNG from the Sabine Pass plant in Louisiana.  This shipment of LNG to China, for example.  Additional LNG plants are expected to come online in late 2017 and in 2018, so exports should continue to pick up.

Good news for the Marcellus/Utica area, but mostly the Ohio portion of it.  The REX pipeline is about to expand from 1.8 billion cubic feet per day to 2.6 billion cubic feet per day.  It won’t have a direct effect on West Virginia, but any added capacity from the area is better than none.

Japanese environmentalists are excited about increased fracking in America, and oppose nuclear power.  American environmentalists are pretty much the opposite.  Kind of interesting.

November 30, 2016: The early news is that OPEC has agreed to cut production by 1.2 million barrels per day. That is shocking, to say the least.  Oil prices are up by $3.30 already, and the day has hardly begun.  It will be interesting to see if the price continues to climb throughout the day, or if the markets will think that is enough of a jump.

The highest change that we saw today was $4.40/bbl.  Markets closed at $3.35/bbl higher than they had opened.  Seems $4.40 up was just a little too much for the markets.

December 1, 2016:  Oil is up another dollar and fifty cents this morning.  The price at my local gas station went up ten cents overnight.  As usual, gasoline prices go up a lot faster than they go down.

Some articles about the Wolfcamp formation have come out saying that it will be uneconomic to produce at current ($45/bbl) prices.  The numbers he used look conservative, as horizontal wells can and do regularly drain more acreage than he allows for.  However, his main point stands: the hydrocarbons are worth a lot of money, but nobody in the media took the time to figure out how much it would take to get out of the ground.

Great news for West Virginia mineral and royalty owners!  The price of natural gas is up over $3.40/MCF this morning!  Those are excellent, healthy numbers, and should result in a nice increase in royalty check numbers.

Since it’s the first of December, a quick look at the winter forecast is worth doing.  Pretty much everybody agrees that it’s likely to be a little colder than average in the north, and about average across most of the country, with the south above average.  Since the majority of natural gas use comes in the Northeast and Midwest, that should indicate that we’ll use up a lot of natural gas this winter.  We can expect higher natural gas prices because of that.  Natural gas prices probably won’t climb up to $4.00/MCF this winter, but I wouldn’t be too surprised to see them break $3.70/MCF or even $3.80/MCF for long periods.