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.
The very large pipelines that will be cutting through West Virginia are using federal eminent domain to acquire property from people who don’t want to sell to them. The only reason the pipelines can use federal eminent domain is because the pipeline is considered to be a “public use”.
This article by David McMahon, a West Virginia attorney and founder of the West Virginia Surface Owners’ Rights Organization, points out why a pipeline shouldn’t be considered a “public use”. I fully agree with him. The full article is worth the read, so I won’t summarize it here.
He also points out how West Virginians “are poor because we cede too often and too much to the drillers and pipeline companies”. Well said, Dave. Well said.
There are several very big pipelines that are proposed for West Virginia, including the Atlantic Coast Pipeline, the Mountain Valley Pipeline, the Mountaineer Xpress, and others. There’s a lot of debate over whether these pipelines are good, with most of the lines being drawn over environmental/economic arguments. Basically, if the environment is more important to you, then you oppose the pipelines and if the economy is more important to you then you support the pipelines.
If you oppose the pipelines, then this article in the Register Herald holds a tasty tidbit for your consumption.
Autumn Crowe with the West Virginia Rivers Coalition said that even if the FERC green lights [the pipeline], if West Virginia fails to issue one of the permits, the project comes to a halt.
That’s something I had not realized until now, and I think a lot of other people hadn’t realized, either.
When I first started researching the pipelines it took about two seconds to discover that they would have the power of federal eminent domain. In other words, once the FERC gave permission for the project to proceed, any property the pipeline wanted to cross automatically and immediately belonged to them.
I didn’t think there was any way to stop that from happening.
FERC, after all, has only turned down a small handful of projects in its 39 years of existence. One Atlantic Coast Pipeline official I talked to said only four.
However, if you can show that the West Virginia Department of Environmental Protection shouldn’t issue one of the permits that the pipeline requires, it seems you can actually stop the process.
As I have become more opposed to the pipeline (not on environmental grounds) this gives me and my clients some hope.
Natural gas prices continue to plummet. Today, Feb 21, prices have dropped 27 cents down to $2.57/MMBtu. The reason is simple. We haven’t used as much gas as investors expected. The positive way of looking at this is that we’re still a dollar higher than we were this time last year, and we have less gas in storage than we did this time last year. Andrew Hecht over at Seeking Alpha thinks that there is reason to believe that prices will be pretty volatile in the next few weeks.
What will really be interesting is to watch the rig count in the Utica/Marcellus area. Prices below $3.00/MMBtu will discourage new drilling. Producers have been ramping up drilling in the last six months or so. It will be interesting to see how quickly they slow drilling down.
Oil prices are doing well, which is unfortunate for natural gas prices. Oil production will continue to climb, and the gas produced with oil will compete with our Marcellus/Utica wells, keeping prices and development down.
RB Energy did an excellent breakdown of why natural gas prices have dropped so much and how the market compares to last year and the five year average. Most of you don’t have a subscription to RB Energy, so here’s a very condensed summary: this winter hasn’t been cold enough. That’s really it. Production has been picking up a little, but not enough to make the difference. Storage levels aren’t ridiculously high. If you plug in last year’s winter weather into this year’s winter weather you end up with very low storage levels and, consequently, higher natural gas prices. It’s that simple.
Oil prices remain above $50.00/bbl. In fact, it’s better to say they are around $55/bbl. The main cause is the production cut set in place by OPEC in November. OPEC has said they have about 70% compliance with the agreement. Pretty impressive, especially considering past performance. More importantly, the non-OPEC countries that agreed to cut production were at about 66% compliance.
U.S. oil drillers, however, have increased production since last summer. That increase is not as much as the decrease by OPEC, but you can bet there is a lot more U.S. production planned in the very near future.
Sorry for the late and short nature of this post. I’ve been sick again this week.
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.