Shale Gas is Great for the Economy

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We’ve mentioned before that the abundance of shale gas is good for industry, as natural gas is a major source of energy for industry.  We went looking for an article that shows just how good shale gas is for industry, and found several that are right on point.

Sterling Burnett, writing for the Heartland, explains how chemical plant construction is coming back to the U.S. because of cheap natural gas.  Steve Goldstein over at MarketWatch says that the plastics industry alone will directly generate 127,500 new jobs in the next decade.  Matthew V. Veazey over at RigZone describes the kinds of jobs that will be available at LNG facilities when they are built, of which five are likely.  The jobs at the facilities are not the only benefits, as shipping LNG worldwide will increase royalties and jobs in the “oil patch”.

Giles Parkinson over at CleanTechnica says that electricity rates for consumers are not going down, but they’re also not going up as much as they otherwise would.  And of course, those who use natural gas to heat their homes will see direct benefits from the low cost.

Eight or Nine Cracker Plants?

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It’s a big news day for West Virginia oil and gas.

Joe Eddy, President and CEO of Eagle Manufacturing out of Wellsburg, WV says that the Marcellus/Utica region could support eight or nine cracker plants right now.  Come again?  Why is it, then that there are only three planned, and one of those is awfully tentative?

We’d love to see a bunch of cracker plants.  There’s an awful lot of gas in the ground that could be processed in cracker plants.  Having that much more petrochemical feedstock would drive prices down for industry, and those savings would be passed on to consumers.  It would be yet another way the fracking boom would improve our economy.  We just kind of wonder how eight or nine could be possible when one of three is having a hard time getting off the ground.

Tentative Lease with Gastar on State Lands Falls Through

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DocumentGastar Exploration entered a bid with the State of West Virginia about a year ago, and in January 2015 they were notified that they had won the bid at $3,500/acre and 20% royalty.  The 20% was because that was the lowest royalty the State would entertain.  We appreciate the State’s efforts to bump up royalty amounts ’round these parts, but it doesn’t seem to have worked in this case.

The bid had been won, but there were still details to iron out, and Gastar and the State never got those details worked out.  In the meantime, Gastar decided to sell its Marcellus and Utica acreage and focus on other areas of the United States.  While that doesn’t seem like a very smart move considering the low cost of doing business in the Marcellus/Utica play, that’s what they did.

The State has decided that the bid with Gastar is no longer going to go through, and they are very likely to rescind it.

That leaves a bunch of acreage up for bid.  It’s nice acreage, contiguous with one owner.  Somebody’s going to jump on it, most likely Antero.  It won’t go for nearly as much this time, though.  It would be nice to see the State wait a couple years on it, as prices should improve in that time period.

Low Energy Prices are Good for Most Everyone

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The steep drop in energy prices is a really good thing for most everybody, but a bad thing for mineral owners and those few poor lawyers who make their living helping mineral owners.  We won’t cry over it, we’ll just work a little harder and a little smarter, just like all the drillers are.

Down in New Jersey, residential and small commercial customers are getting a rate reduction in their natural gas bill, and a credit back on their statements.  How cool is that?!  When’s the last time anybody was happy to see their gas bill?

The really awesome thing is, it’s mostly due to unprecedented output of natural gas in the Marcellus and Utica shale areas.  We’re proud to be a small part of that.  The other factor has been the increased production from Saudi Arabia as it tries to keep its share of the oil market and drive American oil developers into bankruptcy.  Everyone can see the direct effect on prices at the gas pump.

The great news is that low energy prices are going to heat our economy back up.  We think that one of the reasons the fed raised interest rates for the first time in years is because they see the economy taking off, in part to low energy prices.  Low energy prices make manufacturing and petrochemical industries in the United States more competitive.  It also makes it easier for transportation companies to make ends meet.  It also makes it easier to take that Great American Road Trip, and more interesting to buy big gas guzzlers.  It also puts a few more dollars into the wallets of every consumer.  All of the above will translate into jobs and greater energy demands.  It’s going to take a while, but low energy prices are going to help improve our economy, which will drive demand for energy back up, which will drive the price of energy back up.

The disappointing part of low energy prices is that it will drive down the demand for renewable energy sources.  I’m no tree hugging environmentalist, but I still think renewables are cool and would like to see that industry take off.

In the meantime, we hope that people will take a look at gas prices and decide to go visit both sets of grandmas this Christmas, and turn the heat up a bit.

Ford is Again Producing a CNG F-150

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Natural gas powered cars aren’t exactly popular right now, what with the lack of CNG fueling stations and all.  Even in the parts of the United States where there is a higher than average density of CNG fueling stations (what’s up with Oklahoma?!), you’re going to have to think ahead a bit more about when you fill up.  Here’s the CNG Now! website where you can find public CNG stations.  You’ll see that there just aren’t that many of them.  Part of the reason for that is that very little CNG is used to fuel vehicles.  The Alternative Fuels Data Center states that 0.1 percent of all natural gas is used to run vehicles.

However, they are becoming more common.

With that in mind, Ford has stepped up it’s game and is again offering a variant of the F-150 that will run on CNG.  It also runs on some other things, but we’re not terribly concerned with that here.  It would be great if more vehicles ran on natural gas.  Natural gas burns cleaner than gasoline and we have loads of the stuff in the ground.  If you’re in a position to buy a CNG vehicle, we encourage you to do so.

Chesapeake “Loses” 1.1 Billion Barrels of Oil

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magic-money-e1362106767971The drop in oil and natural gas prices doesn’t just affect the price of gas at the pump or your monthly utility bill.  It also hits energy companies awfully hard, and not in ways you might expect.  In this case, over a billion barrels of oil are going to just disappear off of Chesapeake’s books.  That’s billion with a B.  That’s disappear as in no longer exist.

How does that happen?

Oil and gas companies are allowed to give a value to their wells even before drilling them and producing gas from them.  They do that to get loans from banks. There’s a formula provided by the SEC (not the football conference) that they use to determine that value.  The formula includes the price of oil or the price of gas, depending on which the company is expecting to produce.  When the price goes down, the value of the undrilled wells goes down.  It has more to do with what’s economically producible than anything, so a lot of properties that were marginally economic are no longer considered economic, and so have no value.  Poof, $1.1 billion dollars in value just disappears.

Oil and gas is just crazy.

Hilcorp Energy Gives Employees $100,000 Christmas Bonus

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So, it pays to be in the oil and gas business.  It also pays to build a business using the correct principles.

Hilcorp Energy, a Houston energy exploration firm, is giving its employees a $100,000 Christmas bonus.  That’s $100,000 each.  The bonus was based on the company reaching a five-year goal, and was prorated based off the amount of that five years each employee was with the company.  So if you were with the company the entire five years, you got the $100,000, if you were with the company for 2.5 years, you got $50,000.  Not too shabby.

It’s really interesting to see that they are giving that bonus in the current oil and gas climate.  It can’t be easy to write checks for a grand total of over $138 million right now.  It’s nice to see that the company owners have the integrity to do the right thing.

Selling West Virginia Mineral Rights

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Dollar SignLots of West Virginia mineral rights owners are getting offers from companies that want to buy their minerals.  At least a couple of times a month someone calls the office to let us know that they received a letter in the mail with an offer to buy.  The offers usually don’t name a price, and only give the size of the tract the person has ownership in.  Being West Virginia, the person usually only owns a small fraction of that tract.

The most common question we get is, “should I sell?”, followed by, “should I hire you to represent me in this?”

Whether you should sell is not a decision we can make.  We can make recommendations and help you think it through, but ultimately, you have to decide whether it makes sense for your situation.

THE CONSIDERATIONS

The nice thing about selling the minerals is that you get a lump sum of cash right now (well, within 30-90 days in most cases).  If you need cash, this can be a great option.

If you don’t need the cash right now, you should seriously consider keeping the mineral rights.  Most of the offers that we hear about are for just a little more than you would get for a lease bonus.  You can negotiate for more, but some of the companies that are buying mineral rights are not willing to negotiate for much more than they offered.  This means that you will get a little more than you would in a leasing situation, and never get any royalty payments.  If you wait for a lease you could get a lot more money.

On the other hand, waiting for a lease could be a wait for eternity.  There is no guarantee you will ever be offered a lease.  Even if you are offered a lease, there is no guarantee that they will take that lease when you’ve signed it.  Even if someone takes a lease from you and swears up and down that they are going to drill a well in the next six months, that might not happen; the oil and gas industry is notorious for being unpredictable.  Even if someone takes a lease from you and they drill a well, that process is lengthy and could stretch out into years.

The long and short of it is, mineral ownership is both a long-term investment and highly speculative.

You have to decide if you want to sell out for a smaller cash infusion now or if you want to hold on and bet that someone will develop your minerals and take the larger amount of cash that might, but isn’t guaranteed, to come over time.

Pro Tip — If you sell, don’t forget to keep back enough to pay income taxes with, and make sure the large cash infusion isn’t going to interfere with Medicare, Medicaid, or any other benefits you might be receiving from a government agency.

SHOULD YOU HIRE A LAWYER?

So, the other question we get from people is whether to hire a lawyer to represent them.  We love it when people ask this question, and our answer is always, “you’re asking a lawyer whether you should hire a lawyer?!  Of course you should!  And you should pay him lots and lots of money!”

Seriously though, if there’s a substantial amount of money involved, or you are worried about liability, or you’re uncomfortable negotiating, or if you want us to act as an escrow agent because you don’t want to send a signed deed to a company before they send you a check, then you should hire a lawyer.

Give the office a call at 304-473-1403.  We’ll be glad to help you out.

One Company Will Start Drilling Again in 2016

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energy-marcellus-shale05-drill-site-houses_26890_600x450PDC Energy is going to start drilling again in the first quarter of 2016.  Reading the article, it seems like the wells they have planned are mainly testing out new techniques, but they fully expect the wells to return more than their investment.  Part of that seems to be because they have hedged well, with oil hedged at $85/bbl and gas at $3.65/MCF.

Overall, we don’t see this as a sign that drilling is going to ramp up in 2016.  There will still be some leasing going on — there are always leases being taken.  We think it will be 2017 before we see anything start to really take off, and maybe even 2018.  It’s going to be lean times for anyone in the oil and gas industry.  However, those who are competent and hard-working will have something to do.

And there we go again, making predictions.  It’s so hard to not speculate about the direction of oil and gas.  Well, we’ll see whether these predictions are accurate or not in a year or so.

Post Production Costs

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Dollar SignThe West Virginia Royalty Owner’s Association posted a quick calculation showing what post production costs will do to your royalties.  It’s quite simple, so we won’t belabor the point on this blog.  Hop on over to this page and take a quick look.

When you’re reviewing your lease, watch for “post production costs” and “market enhancement”.  If either of those terms are in your lease, you will be charged for post production costs.  Keep in mind that we lawyers are sneaky and very good with words.  Post production cost language can be hidden, obscured, and difficult to understand.  If you have any questions at all about whether your lease includes post production cost language, call this office at 304-473-1403 and someone on our team will explain what we can do to help you.