Monthly Archives: March 2017

Pipeline Failure: Providence, Rhode Island

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A natural gas pipeline broke in Providence, Rhode Island last night.  Thankfully, no one was hurt.

The break was in a location where a high pressure (200-300 psi) transmission line connected with a “take station” where the pressure is reduced before the gas is distributed to consumers.

While the gas leaked, there was a haze of gas in the area.  If that haze had ignited, the explosion would have been enormous.

Eyewitnesses said the leak sounded like a jet engine.

It’s worth pointing out that the pipelines that will be crossing West Virginia will be operating at about 1400 psi.

And here I was thinking we’d go a month without running across a major incident involving a natural gas pipeline…..

Mountain Valley Pipeline Gets Permit from WV DEP

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The Mountain Valley Pipeline is one step closer to becoming reality.  The West Virginia Department of Environmental Protection issued a 401 permit yesterday.  A 401 permit allows the project to affect state waters.  Without the permit, the MVP would not have been able to undertake construction on or near lakes, rivers, and streams.  This allows that.

Quite a few people opposed this permit, noting that the MVP filing for this permit included a lot of paperwork that looked like it had been cut and pasted from other projects.

While I’ve been a fan of getting West Virginia’s gas to market, I also think it needs to be done responsibly, and with a little more consideration for the people whose property is being crossed by the pipeline.  I’m beginning to seriously reconsider my support for the pipelines as I watch them deal with my clients and my community.

Lease Integration and Co-Tenancy Bill Slowed Down — UPDATED:

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The West Virginia Senate postponed voting on SB 576, the Cotenancy Mineral Development Act.  It was previously SB 244, but underwent some significant changes and was given a new number.

This is great news!  After the rally at the capitol last week it seemed like the oil and gas industry was pulling out the stops to get this bill passed.

Thankfully, there are some good people at the capitol who are working hard to keep it from passing.  Their work is paying off.

Also notable in the linked article is the fact that the Farm Bureau came out in opposition to the bill.  They had previously expressed some support for it.

2017-03-30 UPDATE: The bill passed the senate yesterday evening.  Time to call the House.

Eminent Domain for the Mountain Valley Pipeline and the Atlantic Coast Pipeline

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If you’ve wondered what will happen if you refuse to work with one of the big pipeline companies, here’s the preview.

The Rover Pipeline is just like the Mountain Valley Pipeline, the Atlantic Coast Pipeline, and the Mountaineer Xpress pipeline in that they all have eminent domain rights.

Once they get eminent domain rights, your fight is pretty much over.

The judge hearing the Rover Pipeline cases ruled that the Rover Pipeline gets immediate possession of the route that it wants.

Yep.  You read that right.  Immediate possession.  Do not pass Go, do not collect $200.

At this point, the pipeline company is using all the might and power of the federal government to take private property and give it to a private company.  It’s no longer a friendly conversation about where the pipeline should go and how much money it’s worth.

Speaking of which, the judge hasn’t ruled on how much money the landowners will get.  We’ll be watching closely for that news.

More importantly, we’ll be watching to see what kind of changes the judge allows to the company’s standard easement agreement.

Reading the linked article is frustrating.  The landowners are frustrated because the Rover Pipeline didn’t work with them — didn’t address the unique needs of the owners and their properties.  That’s justifiable.  The way these pipeline companies have been operating has been ridiculous.

I understand the importance of moving natural gas from here to there.  I think it’s more important to actually work out agreements with landowners.

FERC Commissioners Being Vetted

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Back in January, the Trump administration demoted Norman Bay from chairman of the FERC to just a normal FERC commissioner.  Mr. Bay promptly (and probably unexpectedly) quit.

The FERC has been unable to operate, as it needs at least three commissioners to make decisions, and Mr. Bay’s resignation left it with just two.

There has been quite a bit of speculation as to how long it would take to get the FERC back up and running.

The Trump administration is not being public about it, but is probably now vetting people for positions in the FERC.  The Washington Examiner has a full write up on it, including who people think the possible nominees are, and what those nominees’ backgrounds are.

The most interesting question, how long it will take to fill the open position, is not answered with anything more than “weeks, even months”.

 

The State of Oil and Gas: March 18, 2017

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Natural gas is quickly becoming the power-generation source of choice.  That’s great news for West Virginia royalty and mineral owners.

U.S. oil producers are increasing production at a faster rate than they did during the last oil boom.  This OilPrice.com article gives four reasons why.  Nobody’s sure where oil production is going to go in the near term.  However, as production picks up, service companies are raising prices, which might slow the growth in production at some point.  The interesting thing is, OPEC’s production cut does not seem to have had quite the desired effect.  Prices have remained above $50/bbl, but haven’t reached $60/bbl.

This Bloomberg article says that natural gas prices aren’t going to go up much this year.  Most everyone was expecting natural gas prices to hang out around $3.50/MMBtu or so.  The recent warmer-than-average winter weather in the east during January and February really cut down on heating demand, and we now have about as much natural gas in storage as we normally do.  We were previously on track to have less than normal.  That should curtail some of the drilling and leasing activity we were expecting this year.  We shouldn’t experience a true bust, though, and that’s good.

One reason oil prices are going to stay below $60/bbl is that shale drilling is so fast to bring product to market.  The big boys have realized that that’s important, and are spending more and more of their development money on shale drilling.

Exporting natural gas is a new thing for the United States.  As we sell more natural gas overseas, the price of natural gas is going to go up.  Bad for consumers, but good for West Virginia mineral and royalty owners.  The Marcus Hook natural gas liquefaction terminal shipped almost six times as much natural gas last year as the year before, 34 cargoes vs. 6.  This year will probably be more.

Southwestern has finally drilled a well in West Virginia.  They’re happy with the results, but haven’t published any hard numbers.  They’ve had a presence here for years, but haven’t done much on the ground.  They will have two rigs running in West Virginia through the rest of 2017.

OPEC says it wants to see $60/bbl oil by the end of 2017.  Breaking News: so do American fracking companies.  In fact, many of them are perfectly happy producing above $50/bbl, and the link three paragraphs up includes a statement that the Permian Basin is now profitable at $40/bbl.  OPEC is giving Christmas gifts to U.S. producers early this year.

The International Energy Agency thinks that we’re looking at a shortage of oil supply by 2020, a mere three years away.  The IEA says that demand is continuing to grow, but that too many development projects were stopped during the 2014-2016 downturn.  The IEA expects demand to be at 104 million barrels per day by 2020.  We are at just over 97 million barrels per day right now.

ExxonMobil will be laying down some serious cash on oil projects in the Gulf Coast over the next 5 years.

The U.S. EIA (Energy Information Administration) makes a prediction each month about the coming month’s oil and natural gas production numbers.  March is expected to break records for natural gas production.  That’s going to drive natural gas prices down.  Maybe we will see another bust after all.  Sigh.

This article from ZeroHedge.com analyzes the current oil production landscape and concludes that regardless of what happens oil is stuck in the $30-$60/bbl range.

March 18, 2017: After showing signs of a complete collapse, natural gas prices have rebounded and remain just under $3.00/MMBtu.  Cold March weather has increased energy burn, but not enough for traders to decide that natural gas is worth more than $3.00.  We’ll be coming in to injection season with less gas in storage than last year, and with more gas in storage than the five year average.

Big Win for Royalty Owner Against Chesapeake

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Chesapeake Energy has gotten something of a reputation for making money any way it can.  That includes cutting down the royalties it pays to mineral and royalty owners, whether the lease allows for that or not.

One Pennsylvania man fought the good fight against Chesapeake and won.

When Paul Sidorek signed a lease he did it with both eyes wide open.  He had seen what companies did with post-production costs, and made sure his lease included a strong clause that prohibited any post-production costs of any kind.

Then his lease was sold to Chesapeake.

Chesapeake deducted post-production costs.

Paul Sidorek arbitrated and won on part of his case.  He’ll be getting a lot of money back from Chesapeake.

I’d encourage anybody who wants to fight against post-production costs to do so.  West Virginia law is very much on your side, even more so than Pennsylvania law.

Another Reason Why You Need a Good Gross Proceeds Clause

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West Virginia University is working on a project, together with a large number of other groups, that would significantly improve the royalties paid to mineral and royalty owners–if it works.

The issue is that West Virginia terrain is so rough that it’s difficult to install pipelines.  The pipelines are needed to transport the produced natural gas to centralized refineries, cracker plants, separation plants, and the like.  Since pipelines are so difficult to build that sometimes they’re not built, leaving gas “stranded”, unable to be transported to a place it can be used.

The U.S. Department of Energy has started a branch of its National Network of Manufacturing Institutes which it calls Rapid Advancement in Process Intensification Deployment, or RAPID.  RAPID will bring together people from academia, industry, government labs, and non-government labs to tackle “process intensification“.

Process intensification in the natural gas fields will combine multiple gas processing steps into one.

The result will be the ability to process gas at the wellpad using small, mobile, modular units.  The processed gas would be turned into products that could be transported in trucks.  The benefit to West Virginia is obvious.

West Virginia royalty owners could expect higher royalty checks, and in some cases where they wouldn’t see any real royalties at all, they would see significant royalties.

Of course, leases would have to be written with the idea of capturing those royalties for the mineral owners.  Companies will, of course, try to pay royalties on the lowest value they possibly can.  Mineral owners should be able to get the highest value they can.

Getting a strong gross proceeds clause into a lease will become even more important for our clients.

2017 Legislation: Force Pooling is Back

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Forced Pooling is back, as everyone expected it to be.  However, the oil and gas companies have realized that they can’t get forced pooling to pass under the name of forced pooling here in West Virginia.  So they’re giving it two new names, “joint development” and “cotenancy”.  Both seem to be created in the same bill.

The new forced pooling bill is Senate Bill 244.  It will change Chapter 37 Article 7 Section 2 of the West Virginia code which deals with a legal concept called “waste”.

The existing paragraph is very short, and says simply that if a cotenant commits waste he’ll be liable to his other cotenants for damages.  The new section is much longer and focused precisely on oil and gas leases.

The new paragraph (b) will make it so that if a majority of the owners of a tract agree to a “lawful use” (a lease), the company will not have to enter into a lease with the other owners.  All the company will have to do is account to (pay) the other owners a proportionate share of the revenues and costs of the “lawful use”.

So when 50.01 percent of the owners agree to lease, the other 49.99 percent of owners will have no say in what kind of lease they enter in to.

Also, the only thing the company will have to do is pay royalties to the 49.99 percent.  But they can deduct post-production costs.  It won’t be more than a minute before that right gets abused.

The new paragraph (c) will give the company the right to use the surface of any tract overlying the “jointly developed leases”.  In other words, when tracts are pooled for development the company can use any of the surface without entering into a surface use agreement with the surface owner.

The stated intent of this legislation is to make it so the companies can pool both old and new existing leases which don’t have pooling language in them.  However, it does a lot more than that.

This is bad legislation for both mineral owners and surface owners.  It only benefits the companies, which will get into leases for far less money than they already do.  Don’t forget, the West Virginia Marcellus Shale is the most economic shale play (in 2013, but not much has changed relative to other plays) in the United States.  We’re already giving up our minerals for less than people in Pennsylvania and Ohio do.  Let’s not let the companies force us into even cheaper leases.

 

Stone Energy Marcellus Shale Leases now Operated by EQT

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Any of our clients who had leases with Stone Energy will now be dealing with EQT.

Previously, Tug Hill had entered into an offer to purchase Stone Energy’s leases, but EQT came along and offered more money so Stone sold to EQT.

While Tug Hill is still rather new and we don’t have a real feel for what kind of company they are, we do know that EQT has a bad reputation with pretty much everybody in the industry.  We would have preferred to have Tug Hill as the operator.