Antero Resources produced awfully close to 1.5 billion cubic feet per day of natural gas in the second quarter of 2015. That’s a big number, and an interesting number, too. Why is it interesting? Because that’s the same amount of gas that the Atlantic Coast Pipeline is expected to be able to transport every day. You can go take a look at Antero’s Second Quarter Report at this link.
This news has us a little torn. According to a report released by the U.S. Energy Information Administration, the United States now burns more natural gas in energy production than it does coal. While that’s good for West Virginia, it’s also bad for West Virginia. A huge portion of West Virginia’s economy depends on coal, and has for generations. West Virginia’s economy is being boosted by natural gas development, and will for decades. It’s probable that natural gas will replace coal, and that West Virginia’s economy will do well on natural gas, but the transition is going to be full of heartache and misery for some folks. The southern counties especially are going to be hard hit since there’s not as much natural gas development going on down there, and won’t be for the near future.
Just a quick little blurb about this. The Manhattan Institute has published a report saying that the United States should produce more gas and change laws to make gas production easier and more lucrative. We agree. Read the report here.
A new study by WVU has found evidence that the Utica shale is much larger than previously believed. The study says that the Utica could be just as big as the Marcellus, previously believed to be the largest shale play in the country.
The Utica is quite a bit deeper than the Marcellus, between 4,000 and 12,000 feet deeper depending on the region you’re looking at. It’s shallowest over in Ohio, and dives down at about the West Virginia border, and is at its deepest in New York. The depth creates additional challenges (translation: expenses) for drillers.
The Utica underlies a lot of West Virginia, and while it’s not being developed heavily in every possible location, it will be someday. West Virginia lessors need to know that even if the other shale formations that could be produced are never produced, the Marcellus and the Utica are both very likely to be produced.
As you well know if you’ve been reading this blog for any length of time, there are more producible formations underneath West Virginia than just the Marcellus and the Utica. The Rogersville shale, among others, over in the western part of the state is getting some interest, and the Burket formation in the northern part of the state is finally getting some real air time, too.
Wrightstone Energy Consulting has put together some data on the Burket.
It’s not a very thick formation in West Virginia, but it’s pretty close to the Marcellus shale, lying just a few hundred feet above it here in West Virginia. It’s not a ridiculously productive formation, but when drilling from one pad to the Marcellus and Utica it makes sense to drill to the Burket as well.
The best locations for Burket drilling appear to be in Doddridge, western Harrison, western Marion, and western Monongalia counties. There’s a little bit in Wetzel, Tyler, and Lewis counties where they border the previously named counties, too. There may be some good production in a small strip of Upshur, Barbour, and Tucker counties as well. We don’t anticipate much development there because it makes more sense to drill where you already have pads, but we also know that Consol/CNX/Dominion was drilling to the Burket in Barbour county a couple of years ago, so if gas prices go up a little we expect to see them pursue that activity again.
By far the most interesting aspect of the data that Wrightstone Energy presents suggests that producing the Burket with the Marcellus could yield increased production from one or the other, or even both. Fracking the Marcellus and then coming back later to frack the Burket may result in wasted energy as the fractures may communicate with the previous Marcellus fractures, resulting in fewer new fractures. However, if both are fracked at the same time, or “zipper fracked“, the resulting production from both formations could be significantly higher.
We hate to harp on this one subject yet again, but this is yet another reason why it is important for mineral owners to be able to say no to a lease and not have to worry about being force pooled. If the lessee is not going to produce the Burket with the Marcellus the mineral owner should be able to say they want to wait until a producer who wants to produce both formations comes along.
We’re not sure how this happens, but a new pipeline at a drilling site in Tyler County, West Virginia, burst and burned. News reports say that the pipe didn’t explode. That’s a little odd. So is the fact that it’s a rather new pipe. The usual reason given for pipeline ruptures is that the pipe corroded and failed.
The fire occurred at the Jay-Bee’s Gorby pad in Big Run to the east of Middlebourne.
We’re all for oil and gas development, but we don’t pretend that there are no risks. You’ve got to go into this kind of thing with your eyes wide open and ask questions. Do some research. Don’t make snap decisions. Sleep on it at least once. You’ll be glad you did. That way when a truck meets you coming around a narrow blind curve, a hill slips, a pipeline bursts, the well is flared off, the compressor station noise keeps you up at night, or there’s natural gas filling your hollow, you can at least say you thought about it.
There’s a new study out by the Southern Environmental Law Center that says the economic impact of the Atlantic Coast Pipeline will not be as great as Dominion’s study indicated it would be. SELC’s study points to a variety of flaws and assumptions used in Dominion’s study. You can read the report in it’s entirety here.
Both studies look at the overall impact of the pipeline, not just to localized areas. We think that the ACP will have an enormous economic impact in West Virginia. There simply isn’t enough pipeline capacity to carry away all the natural gas that West Virginia is capable of producing. Gas producers are paying $1.00 per MCF to transport their gas. When gas prices are under $3.00 per MCF, that’s a pretty substantial amount of money. Producers have to make money at under $2.00 per MCF. Their profit margins at those prices are awfully thin. Adding pipeline capacity will cut the price of transportation some. When they’re making more money, gas producers will take more leases and drill more wells. That’s good for West Virginia property and mineral owners.
Whether the ACP will have a huge economic impact or a slightly less huge economic impact is not extremely important for West Virginia royalty and mineral owners. The ACP will reduce the cost to transport gas and increase the amount of gas produced. If we’re smart about it, we can make sure some of the resulting profits end up in the hands of West Virginia surface owners on the pipeline route, and in the hands of West Virginia mineral owners in the production area.
We’re waiting for landmen to start making offers on the pipeline route. When they do we’ll be helping property owners negotiate the best possible deal for their surface rights and helping them get protections for the rest of their property. Give us a call when the landman comes knocking. We can hardly wait to start negotiating with them.
Farm and Dairy put up a post about new drilling permits issued for June. The West Virginia data is at the bottom of the post.
The most interesting thing to me was that Southwestern got three drilling permits in Brooke County. Brooke County has been pretty quiet up until lately. Now that Southwestern has bought all of Chesapeake’s acreage in that area, it looks like we’re going to see some actual development up there.
There was a meeting in Doddridge County last night where residents were able to express their opinions about forced pooling to a couple of state legislators, Woody Ireland and Mike Romano. Woody Ireland is a proponent of forced pooling in the House of Delegates, and Mike Romano is a Senator who voted against it.
The article over at WBOY.com is short, but it’s important because it shows that the forced pooling agenda is still being pushed forward. We oppose forced pooling on principle. It’s not right to take a landowner’s property away from them and give it to another person or a corporation. Other provisions of the bill were good, and we would like to see them passed, but forced pooling should not be the law.
In early 2014 we had a client request help negotiating a pipeline right of way. The right of way was short, quite a bit shorter than 1000 feet, and the pipeline wasn’t large, only twelve inches. But the property was important to our client, who wanted it to be protected from unexpected use and abuse.
We negotiated for months. The location of the right of way never changed, but some important details did. Our client wanted to get rights to free gas from a well that was on the property, wanted to terrace the right of way to make it more useful for cultivation, and wanted to have the company push dirt across a waterway to create a pond.
As we negotiated, it became clear that the company would be unable to terrace the right of way because state law required that the right of way be returned to it’s original contours. The company was also unwilling to push dirt anywhere outside the confines of the right of way due to liability issues. The company was also unwilling to provide free gas as they had started making payments in lieu of free gas, as was provided for in the original oil and gas lease.
Because we had asked for a number of reasonable things, and the company kept saying no to them, the company eventually agreed to fence in the right of way.
Additionally, we were able to get a clause saying that if the pipeline wasn’t used for three years that the right of way would revert back to our client. We were also able to limit the company to just one pipeline instead of giving them the option for a second pipeline at their pleasure. Additionally, the company had requested the right to use all existing and future roads on the property for access to the right of way. We were able to get that removed.
The company also agreed to more than double the amount of money it had originally offered to pay for the right of way.
After a while, the company decided that fencing the right of way was going to be too much of a hassle, and too expensive for them, and asked that our client take a lump-sum payment in lieu of building a fence. Our client got a couple of bids and decided to take the money as it was significantly more than what the materials would cost.
In the end, our client was paid three times what the company had originally offered to pay for the right of way, and the property was protected from overuse by the company.
We got to that point by asking for far more than we expected to ever get from the company. The addendum we send to landmen when we start to negotiate is lengthy and comprehensive, and lets them know we are experienced and knowledgeable. In short, the landman knows we won’t accept an agreement that gives up all control of the land to the company. As a result, we start off negotiations in a position of strength. Negotiations are balanced, and our clients get a much better deal than they otherwise would.
If you want help with a pipeline right of way, give us a call at the office. We’ll be glad to help you.