It was kind of a slow news cycle this month. Natural gas prices are down a bit, to $3.84/MMBtu. They had gotten as high as $4.16/MMBtu very recently, but are coming back down, probably on speculation about the new COVID-19 variant making the rounds. Drilling rigs are up to 500, an addition of 26 new rigs this month. That’s still healthy growth, not a signal that we’ll be moving into a boom/bust cycle. DUCs are down to 5,957, a drop of 258. That’s still a lot of DUCs, but they are continually dwindling.
Oil and gas pipelines don’t explode often, but they do explode. This time it was in Kansas, and was in the middle of a pasture, so thankfully it didn’t hurt anybody. They’re currently trying to figure out what made it explode.
The TETCO pipeline transports a lot of natural gas out of our area down to the Gulf Coast. It’s been operating at reduced pressure due to three separate explosions. After providing documentation to PHMSA which supposedly demonstrates that inspections have been done and the pipeline is safe, it is expected to resume normal operations.
Higher oil and gas prices are tempting oil and gas producers to start drilling more. Smaller, private companies are the most likely culprits, as they’ve already almost returned to pre-pandemic levels. We sincerely hope that they’ll continue to exercise restraint, as yo-yoing prices make it hard to run a business.
It’s important to think ahead when you’re signing any kind of agreement with an oil and gas company. The Atlantic Coast Pipeline has been given permission to leave downed trees in place, and leave installed pipeline in place. It’s also unclear whether the easements are going to continue to affect the property. Our clients’ agreements with ACP dealt with all these issues. Most did not.
Fracking is a noisy undertaking. Up in Brooke County, WV, it’s hard to put a well down in an area that’s not close to somebody’s house. The noise is not just bothersome, it keeps people from getting enough quality sleep, as fracking is a 24-hour activity. Whoever is drilling in Brooke County (ahem, SWN) should be more neighborly, but since they didn’t take steps on their own, the County Commission is going to revisit the noise ordinance and do what it can to make sleeping a possibility.
Demand for oil is keeping prices up.
DUCs (Drilled but UnCompleted wells) are dwindling in number, according to this Forbes article. More concerning to us is a quote in that article indicating that virtually all investors are unwilling to give money to oil and gas companies. We’ve been encouraged by the lack of investment capital in the past–forcing drillers to be more efficient–but a complete lack of investment capital will result in a lack of production which will result in a spike in energy prices. The old boom/bust cycle would return, at least for one cycle. That’s not good for anyone.
The EIA is predicting that we’ll enter the winter heating season with below-average natural gas storage levels. That means strong prices for natural gas through the rest of the year, most likely, which translates to good royalties for our clients.