Author Archives: R. Kyle Nuttall

Why You Should Always Ask How Long the Lateral Will Be

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Eclipse Resources holds the world record for a horizontal well at 18,500 feet.  This year they plan to drill 11 extra long wells.

Longer wells have several benefits, including a better ROI for the companies, and fewer environmental burdens on the surface.

The one thing people don’t like about them is that there will be fewer workers as there will be fewer drilling rigs.

Regarding the ROI, Eclipse says it makes an ROI of about 25% on a 6,000 foot well, 67% on a 13,000 foot well, and 87% at 19,000 feet.  That’s a huge jump in ROI.

It occurs to me that if the company is going to be making a lot more money per well, maybe it’s time we started tying royalty percentages to the length of the lateral.  A typical negotiated lease in West Virginia provides for 15-18% royalties, with a few even higher.  If the well is going to be longer than usual, say between 5000 and 10,000 feet the lease could provide for a 2% increase in royalties.  If between 10,000 and 15,000 feet, 4%.  And if between 15,000 feet and 20,000 feet, 6%.  So a 2% increase in royalties per 5,000 feet of lateral.

Share the wealth.

This may not be terribly applicable in some parts of West Virginia.  Well length and unit size are limited in Harrison County in part because there are a lot of leased properties checkerboarding the area.  The company wanting to do horizontal drilling isn’t always able to get an assignment for all the tracts it wants to drill.

It’s an idea to consider, though, and should work well in the northern panhandle where all the leases are owned mainly by Southwestern.

Forced Pooling Bill is Dead (Most Likely)

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SB 576, this year’s revised version of forced pooling, is unlikely to pass.

The reason it isn’t likely to pass is that the House is running out of time to pass legislation and the House hasn’t spent any time on the forced pooling legislation.  This sounds like bad planning on the sponsor’s part, but actually the House spent a huge amount of time debating some legislation about medical marijuana–lots more than was expected.  (It looks like that is going to pass, if you’re interested.)

There’s a small possibility that someone could push for this bill on the last day or two of the session so we can’t say it’s completely dead yet.  It’s on life support, though.

We’re glad this forced pooling legislation won’t pass.  It was not really well written and it gave a lot of power to the companies.  Last year’s legislation was probably a tiny bit better, actually.  At very least it was a better written piece of legislation.

One of these years the companies are going to realize that getting forced pooling passed is really hard.

One of these years the companies are going to realize that they need to address one or two issues instead of trying to push legislation that addresses every single issue they want to address.

This year wasn’t that year.

Atlantic Coast Pipeline: A Small Scandal

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As it turns out, there may be some conflicts of interest for some of the people that have been working for FERC on the Atlantic Coast Pipeline.

The FERC contracts out some of the work it does reviewing the pipeline application.  Merjent was hired by the FERC to review the ACP’s Environmental Impact Statement.

The EIS was put together by a company called Natural Resources Group.

There are eight Merjent employees who previously worked for Natural Resources Group.

All eight of those Merjent employees approved the work Natural Resources Group did on the ACP.

Looks like a pretty clear conflict of interest there.

That conflict of interest was supposed to have been disclosed when Merjent got the contract from the FERC.  It wasn’t.

Interestingly, Natural Resources Group is listed on Merjent’s web site as one of Merjent’s clients.

That looks pretty bad.

Mountain Valley Pipeline Final Environmental Impact Statement

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The FERC is now scheduled to release its final environmental impact statement for the Mountain Valley Pipeline on June 23, 2017.

Once the FEIS is released, other agencies will have 90 days to make comments on it.

Once the 90 days has passed the FERC will approve the project.  While technically the FERC is supposed to “make a decision”, the reality is that the FERC has only turned down four projects in it’s 38 year life.

Approval will come on September 21, 2017.

The only thing that could stop approval would be if the FERC still doesn’t have a quorum of commissioners on September 21.

The State of Oil and Gas: April 3, 2017

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The Cheniere Energy gas liquefaction plant in Sabine Pass, Louisiana is selling it’s product overseas for about $7.50 MCF.  They have two of four “trains” online, with the other two expected to come online this year.  At least some of the gas being sent down there is from the Marcellus/Utica area.

March 21: Oil prices have been below $50/bbl for about two weeks.  OPEC is curbing production, but Libya is about to start shipping more oil and American producers are taking advantage of reasonably high prices.  The real question is, will American producers continue to produce and drive oil prices down?  Put another way, will banks continue to lend money to producers until they go bankrupt again?

Most of the major banks believe that oil prices will continue to go up throughout the rest of this year.  This is mainly due to their belief that the market is slowly working towards balance in production and consumption.

Goldman-Sachs thinks we’ll be back in an oversupply situation in 2018-2019, as shale drilling and new mega projects will bring lots of oil online in that time period.

We should end up with less gas in storage this year than we did last year.  That’s good for royalty checks.

This guy thinks that the major gains in efficiency in the American oil and gas industry are actually from the service companies slashing their prices, not from technological increases.

A study suggests that the Marcellus/Utica area could provide enough natural gas to supply a total of five cracker plants.  That’s a lot of gas.

Right now, most of the gas produced from the Marcellus/Utica is used in power generation and industry.

The guy who predicted the oil market crash (when most other people weren’t) is predicting oil will hit $60/bbl by the end of the year.  Everybody can be wrong, but it’s worth reading why he thinks that way.

Here’s a breakdown of oil production around the world, and some focus on oil production in the U.S. fracking fields.  The really short takeaway is that we have lots of oil in the U.S.  The same is true for natural gas.  The article actually points out that most of the rest of the world’s production is in decline, but it seems that the U.S. is going to be the producer that the world begins to rely on more and more.

The oil and gas industry does all kinds of things to improve output and cut costs.  The strangest one we’ve run across that actually seems to work is testing the DNA of microbes that come from the well.  Who came up with that one?

April 3, 2017: Oil prices broke $50/bbl at the end of last week, and natural gas prices have been above $3.00/MMBtu for about 10 days.  Price wise, it looks like the oil and gas industry is doing well.  I don’t see drilling slowing down any time soon here in West Virginia.  We’ll be here for anybody who needs us to help them navigate the murky waters of those oil and gas leases, pipeline easements, and surface use agreements.

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”.