About two weeks ago there was a pipeline explosion in Texas.
The pipeline was a 36-inch natural gas line. The explosion was felt for 60 miles, and could be seen for 175 miles. Sure, that part of Texas is pretty flat, but that’s still pretty big.
Here’s some video from ABC13.
The pipeline is owned by Kinder-Morgan. The area was very rural, so no lives or property were threatened by this one.
As part of the changing of the guard that always accompanies a new Presidential administration, the FERC’s chairmanship was switched. The previous chairman was Norman Bay, and the new one is Cherly LaFleur.
Chairmen are also commission members, and remain on the commission both before and after serving as the chairman.
When the change in chairmanship was announced, Mr. Bay decided to resign from the commission.
That wouldn’t usually be a big deal. However, the FERC has five seats on its commission, and two were already vacant.
Mr. Bay resigning from the FERC left only two voting members.
The commission needs three voting members in order to make decisions.
Therefore, the FERC can no longer approve natural gas pipeline projects, large natural gas company mergers, and liquefaction plant projects.
The speculation is that it will take at least a few months, maybe a year, to get a new member on the commission.
That could seriously slow down the approval process for the Atlantic Coast Pipeline and the Mountain Valley Pipeline.
Well, look at that. Don’t pay attention to natural gas prices for a week or so (sick and catching up from being sick) and prices drop below $3.00/MMBtu. That’s both good news and bad news. How is that good news? Well, because it’s bad news. Let me explain.
Drilling has been picking up recently. That’s the natural reaction of the industry when prices rise. We got down to 404 total rigs in the U.S. in May of 2016 as a result of low prices, and we’re already up over 700 in the second week of February 2017 as a result of climbing prices. When drilling picks up we get more natural gas of course. More natural gas means lower prices. Lower prices means less drilling and fewer rigs. It’s a cycle that repeats itself constantly, with some extreme highs an some extreme lows.
The extreme highs and the extreme lows are bad for everyone. During the lows workers get laid off, royalty owners are paid less, and consumers get excited about paying a little less for their gas. During the extreme highs, workers go back to work, royalty owners get excited about bigger royalty checks and consumers hate looking at their monthly bills. What’s better is to have slow and steady growth or at least lower highs and higher lows.
The fact that natural gas prices couldn’t break $4.00/MMBtu means that we probably won’t see really high highs in the near future. If we don’t see really high highs, we won’t see a huge boom in drilling and development work. If we don’t see a boom, we won’t see an oversupply of natural gas. If we don’t see an oversupply we won’t see a bust. No high highs, no low lows.
What will probably happen with gas prices at or below $3.00/MMBtu is that producers will kill some of the short-term programs they have planned. That will bring less gas into the market in the near future, so we should see fewer new rigs, and maybe even fewer rigs overall. That would result in less production and bring prices back up.
What I expect to see in the near future is that we’ll have something of a hard cap at around $4.00/MMBtu. That cap will slowly climb due to population growth and liquefaction plants being completed. Because drillers will start new drilling programs over $3.00/MMBtu, and it doesn’t take a long time to get new wells online, by the time prices hit $4.00 we’ll be looking at an oversupply of gas. Drillers will stop new programs, supply will drop, prices will drop, but by the time prices get significantly below $3.00 everyone will start drilling again. Hopefully the boom/bust cycle of natural gas will be greatly shortened. The oil and gas industry is going to respond quickly to the market, instead of slowly like it used to.
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Seeking Alpha is predicting natural gas prices will be $3.50/MMBtu in the next 8-12 months. That’s a good healthy price for the industry.
The rest of February is going to be warmer than usual. Demand for natural gas is going to go way down. We’ll have more gas in storage than we expected.
Gas prices have stabilized at about $2.84/MMBtu. It will be interesting to see how prices change moving into the storage season.
This post was supposed to publish at the end of January. For some reason it didn’t. Better late than never.
This month there have been two more pipeline leaks.
The first was on January 14. It spilled 50,000 gallons of oil into the Yellowstone River in Montana. It has affected drinking water for some locals.
The second was on January 30. Exact numbers aren’t in yet for it, but 1,400 barrels of oil have been recovered. The leak was in Blue Ridge, Texas. It appears a contractor accidentally cut a 30-inch high pressure oil line.
Now, I’m a fan of the pipelines that are being put in here in West Virginia for economic reasons. I’m a realist, though. Pipelines deteriorate. Pipelines get punctured. Pipelines rupture. Pipelines explode. There is a clear risk in living or working close to a pipeline. While I believe the risk is low, it’s still there. Anyone who agrees to have a pipeline close to their house or business has to be aware of the risk. That’s why I publish this data.
Be informed.
This article from the Pittsburgh Post-Gazette describes a royalty owner’s experience with Chesapeake Energy. In short, Chesapeake ignored a lease clause stating that no deductions would be taken from the royalties.
This owner’s experience is very common. Chesapeake is known for taking post-production costs out of royalties, even when the lease explicitly says they can’t.
If your minerals have been produced by Chesapeake, you should take a look at your check stubs. You will probably find that post-production costs have been taken out.
Here in West Virginia, the only costs that can be taken out are those that have been specified in the lease and for which a method for calculating them has been shown in the lease. See Tawney v. Columbia Natural Resources. Most leases don’t meet this standard. Most companies shouldn’t be deducting post-production costs.
Chesapeake isn’t the only company that will deduct post-production costs when they’re not supposed to. Our office recently got Antero Resources to pay out close to a quarter million dollars in post-production costs they weren’t supposed to deduct. We didn’t even have to go to court for that one.
If you suspect that post-production costs have been deducted from your royalties and you can’t work out the issue with the producing company, give us a call and we’ll help you out. 304-473-1403.
Phillips 66 natural gas liquids pipeline has exploded in Louisiana. Workers were cleaning in the area when it exploded. One is missing, and two have been treated for burns.
The cause of the explosion is unknown at this time. Officials speculate that a valve or gasket may have failed.
The pipeline has been shut off, but because it’s liquids it will burn for quite a while before exhausting all that fuel. The fire is big and intense.
About 60 homes near the fire and the pipeline have been evacuated.
Pipelines don’t always blow up, but when they do it can be a life changing event for those nearby. You should know that before allowing a pipeline to be built near you.
We’re going through the list of proposed bills this year and finding the ones that mineral and royalty owners should be interested in.
First up, Pat McGeehan is doing his usual good work to protect mineral and royalty owners’ rights by proposing a bill that would do away with forced pooling for deep rights in West Virginia. A lot of people think we don’t have forced pooling in West Virginia, but we do. Anything below the Marcellus can be force pooled. HB 2131 would remove force pooling from deep formations. Prediction: this one doesn’t get passed, sadly.
A similar bill has been proposed by a group of Delegates. HB 2158 would make it necessary to get the approval of all the owners in the unit before the unit could be effective. Prediction: this one doesn’t get passed, sadly.
Here’s a great one. HB 2170 would require a setback of 1500 feet between the limit of disturbance of a well site to an occupied dwelling structure. Whew! Right now the setback is 625 feet from the center of the well pad. The current setback is definitely not enough. HB 2170 also does some other good things, including providing notice of development to the occupant of any residence on the tract, and creating air, noise, light, and dust standards. It would also create an obligation by the oil and gas developer to pay the surface owner for the change in value from it’s highest and best use, not the actual current use. Boy, would that help some people I know. Prediction: this one doesn’t get passed.
The West Virginia Oil and Natural Gas Association is going to push for forced pooling again, just from a different angle. They are calling their two proposals “co-tenancy” and “joint development”. I haven’t found the bills on the Legislature’s web site yet, so they must not have entered them yet. I’ll keep an eye out for them.
We’re in favor of developing oil and gas resources. However, not everyone is. If you don’t ever want your oil and gas developed, then here’s a new method that could work.
Essentially, it takes advantage of the ability to create conservation easements by creating a conservation easement for the formation (or all the formations) that have oil and gas in it (them).
Conservation easements have been around for a while, and they work. Mineral estate conservation easements, as the creator has dubbed them, may or may not work. I don’t see why they wouldn’t, and it certainly couldn’t hurt. If you want to give it a try, call your friendly neighborhood oil and gas attorney to discuss it.
The cracker plant being built in Pennsylvania has passed another hurdle: Potter Township has approved permits to begin construction. The process took longer than what one might have expected, with the Township holding extra meetings and requesting additional documents from the company on a couple of occasions. The Township gave it’s approval with several important conditions, including compliance with a noise ordinance, traffic analyses, and the commission of a lighting study. It seems the Township is actually concerned about effects other than economic effects. That’s wise.
I have thing for small-scale stuff and for oil and gas tech, so I’m posting this here. Up in north-central PA a company has put a small-scale liquefaction plant into use. Since it seems to be a relatively new technology it’s probably rather expensive and so won’t see extensive deployment across the Marcellus/Utica region. For clients whose minerals are in areas without pipeline infrastructure in place, this would be a solution to suggest to your oil and gas producer.
The analogy isn’t perfect, but this writer puts into words what I’ve been thinking about the current struggle between OPEC and U.S. frackers.
January 23: An oil leak in a major oil field in Kuwait has affected the production of oil. Just like that, oil prices have jumped $1.00. Let’s see what happens tomorrow, shall we?
I fully expect renewables to cut in to fossil fuel use eventually, and compete on the open market on price. Every time I turn around, though, it turns out that some renewable project or other is not working the way it was supposed to. The most recent one is out in California. It was supposed to be primarily solar, with some natural gas to assist at night. Turns out it’s using more gas than advertised. Renewables are the future, but that future still looks to be distant.
January 25: Libya is opening up to outside investment to help with development of its oil fields. Since Ghadaffi was deposed, oil development has been minimal, and closed to foreign investment. This could help Libya start producing a lot of oil again in the long-term. This news shouldn’t have much effect on the price of oil in the short-term.
President Trump has signed an executive order that will allow both the Keystone Pipeline and the Dakota Access Pipeline to move forward. Both will transport oil, so shouldn’t have a direct effect on natural gas prices. It may take some of the attention away from the Atlantic Coast and the Mountain Valley pipelines, so we may see less news about them in the near future.
January 26: The price at the pump went down ten cents today in Buckhannon. I was not expecting that, as the price of oil hasn’t dropped significantly lately.
The US dollar is strong and likely to stay strong for the foreseeable future. A strong dollar will always drive the price of oil down a bit. However, since it’s strong and will likely stay strong, the real determining factor for the price of oil in the near future will be simple supply and demand.
Renewable energy has weathered an oil bust for the first time in my memory. That suggests to me that renewable energy has reached a critical mass of sorts. I expect renewables to become a larger source of electrical energy generation. This article at the IEA suggests that worldwide power generation from renewables will be at 60% of worldwide power use by 2021. I’m a little skeptical, but I’ll be watching renewables closely.
The folks over at oilprice.com see lots of money pouring in to the oil and gas industry.
American companies are putting rigs back in the patch, and investors expect an additional 315,000 barrels per day by the end of the year. That won’t catch up with the 1.8 million barrels per day cut by OPEC. It looks like OPEC’s cut is going to work for the time being.