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.
Here’s an article with some food for thought.
The gist of it is, there are three proposed pipelines that run through West Virginia which originate in the same general area and end in the same general area. It makes a lot of sense to run all three pipelines on the same right of way. The only thing is, nobody is thinking of doing that. FERC is the only governmental entity that has the power to approve/disapprove of any of these projects, and it doesn’t appear to be thinking of them together. The companies have their own interests, and don’t seem to think that working together will benefit them. So running the pipelines along the same route is just not likely to happen.
While having three separate pipeline routes benefits this firm, as there will be more agreements to negotiate, we also don’t see the point of using up more land than necessary. This is an idea that has merit, and there should be a conversation about it.
By the way, here’s a link to more information about the Appalachian Connector project.
Additionally, the Mountaineer Xpress Pipeline will be running through roughly the same areas, as will the
EDIT: It was pointed out to me that this article appeared to be unfinished. I came back to look, and sure enough, it ended as you see it above. Guess I must have hit Publish when I meant to hit Save Draft.
I suspect that I was thinking of checking the maps to see exactly where the Mountaineer Xpress and the Rover pipelines ran. Both are farther north and farther west than the Atlantic Coast and the Mountain Valley.
This article was intended to express support for the idea of running both the ACP and the MVP along the same routes up to a certain point. I still think that would have been a great idea. It would have required the ACP and MVP to team up. The FERC actually doesn’t have the authority to look at these pipeline together unless they are presented to the FERC together as one project. They don’t connect, they’re not the same company or sister organizations, and they pull gas from slightly different areas and deliver gas from slightly different areas. It’s quite unfortunate that it couldn’t have been done. It would have been efficient, and I like efficiency. It would have had a smaller impact on the environment, and even though I don’t consider myself an environmentalist, there’s no sense cutting two swaths through the mountains when one will do.
In November of 2014, Saudi Arabia announced that it would not cut production of oil. This surprised everyone, as the price of oil had fallen quite a bit at that point, and Saudi Arabia’s usual move when oil prices had fallen in the past had been to cut production. The result — oil prices fell even further.
There was a lot of speculation as to why Saudi Arabia wasn’t cutting prices. Most people thought that it was a move to hurt Russia, Iran, and Venezuela. Some people thought it was a move to kill fracking in the US.
More and more, people have decided that while hurting Russia, Iran, and Venezuela was a nice bonus, the real target was US fracking.
While fracking has suffered, it hasn’t died. This article over at biznews.com explains why. The short story — US frackers figured out how to cut costs. A lot. The article says that costs of various drilling services have fallen by 20 percent to 50 percent, and that some oil plays now have a break even point below $40/bbl.
That’s what entrepreneurs and CEOs do when they operate in a free market. The Saudis didn’t count on that, and I don’t think anybody outside the US really believed it could be done. We did it.
The fascinating thing for West Virginia oil and gas royalty and mineral rights owners is that bonus amounts and royalty amounts really haven’t changed much since November of 2014. Royalty amounts haven’t dropped at all. Bonus amounts have dropped some. For instance, you can still get a lease for $2,500 per acre in Doddridge and Harrison counties, but you will have a harder time getting that for a lease in Ritchie County which was commanding even more than that at one point. In Tyler County you can still get $4,000 per acre, and in Wetzel and Marshall counties you can get anywhere between $2,500 and $4,000 per acre.
Some counties have no development at all now, but it’s more because the formations under those counties are not expected to produce as much gas as other counties. Those counties will be exploited (word choice purposefully made) in later months or years when gas has been fully exploited elsewhere.
The one real change that we’ve seen in West Virginia is that, while the price of an acre hasn’t dropped much, the sheer number of lease offers has. Instead, we’re talking with more people who have been given offers to buy their mineral rights. While we’re glad to help facilitate those sales in the right circumstances, we still recommend that people hold on to their mineral rights if they are in a position to do so. Those mineral rights will be more valuable when the lease buyer comes knocking than when the mineral buyer comes calling.
We still think that in a few years the infrastructure for gas delivery will improve, the demand for gas will go up, and the price of gas will go up. At that point leasing will pick up again.
For those of you thinking about whether to lease or sell, give us a call and we’ll help you decide what’s best for you. In the meantime, celebrate the exceptionalism of the American free market over the 4th of July weekend.
And be safe.
Gastar completed a well to the Utica that has excellent dry gas production. The Marcellus Drilling News article is short and sweet. MDN took a few minutes to crunch the numbers and figure out in dollars and cents what the MCFs mean from this well. Take a couple minutes and read it; it’s “well” worth it.
The Herald-Dispatch ran an article by Brandon Roberts today about the Rogersville Shale. We’ve seen an uptick in talk about the Rogersville Shale lately. It seems everybody knows it’s there and it seems everybody is excited about the prospect of developing the Rogersville Shale. It just doesn’t seem like any oil and gas companies are excited about developing the Rogersville Shale right now.
The reason, as pointed out by Corky DeMarco in the article, is that gas prices are just too low for the time being. Once gas gets up to $4.00/MCF again, the Rogersville Shale will get a lot more development. That’s also true of the other shale plays here in West Virginia and around the country.
The only trouble with waiting for gas prices to rise over $4/MCF is that when prices start to approach $4.00 producers are going to start opening up wells that they have shut in. There is a large amount of gas stored in the ground that could be produced but isn’t because prices are so low. That gas will be produced first, and will drive prices down. It’s very unlikely that gas prices are going to go up and stay up for any length of time.
There are a couple of factors on the demand side that could, and will, change this. New power plants coming on line in a few years will drive demand up. New pipelines coming on line in a few years will drive demand up. New cracker plants coming on line in a few years will drive demand up. You’ll notice that the pattern is “in a few years”. Demand is just not increasing right now. It will in a few years.
We don’t expect any wild fluctuations in the price of gas for the time being. Barring a war, a really bad hurricane season, or some other unpredictable catastrophe, things are going to stay pretty much the same for a few years, and the Rogersville Shale will remain relatively untapped.
That puts Cabot Oil and Gas in a pretty good position. They are the one company that is working in the Rogersville Shale area of West Virginia. They are taking some leases and drilling exploratory wells (the Cabot 50 in Putnam County). Cabot could have a big payday when prices rise on natural gas. Here’s to hoping that Cabot continues to work in the area.
We hope this is a long-term trend and not just a fad. It seems that more and more fleets are turning to compressed natural gas to fuel their vehicles.
Waste Management in Waterloo, Ontario has a new fleet of CNG trucks.
Three school districts in Connecticut are switching to CNG buses.
Carnival Cruise Lines is building four new cruise ships which will be powered by liquid natural gas.
However, in the interest of fairness, we do have to note that Honda decided to quit making it’s CNG Civic. They had only sold about 16,000 of them in the last 17 years, so under 1,000 a year. Their limited distribution area may have affected that.
Fleet vehicles running compressed natural gas make more sense right now than consumer vehicles due to the lack of CNG filling stations. As long as there’s gasoline available and it’s competitive in price we don’t expect to see CNG replace gasoline for consumers. The slightly lower price and cleaner nature of CNG just isn’t enough for most consumers.
Columbia Gas Pipeline Group has announced two pipeline projects, one of which will be called the Mountaineer Xpress Pipeline (MXP) and appears to start in Marshall County, WV. The MXP will be part of a larger pipeline construction project intended to transport gas from the Marcellus and Utica Shales to the Gulf of Mexico. This is great for us, as one of the issues plaguing oil and gas development in West Virginia is a lack of infrastructure to take the gas to market.
The MXP will transport gas from areas in and around the northern panhandle of West Virginia down to Kentucky. These are the best maps we could find so far.
They’re obviously lacking in detail, but we can at least get an idea of where the pipeline is going to run through West Virginia. Interestingly, one of the Supply Areas of Interest is to the east of the wet/dry gas line. Upshur, Barbour, Tucker, and Randolph counties are all included. There’s precious little going on in those counties right now. Maybe it’s going to pick up as this project picks up. We’d like to see that.
We ran across an interesting post on a small local news web site called the Hur Herald. David Hedges did some good research to pick up what’s going on over in his neck of the woods in relation to this pipeline.
Cunningham Energy has announced in a report that it has gotten good oil production from some wells to the Big Injun formation in Clay County, WV. Reported numbers are 26,000 barrels of oil (total) over eleven months for the Cochran #5H and 26,000 barrels of oil (total) over eight months for the Cochran #6Ha. Those are pretty decent numbers, and the fact that the second well has produced better than the first means that Cunningham has improved their techniques to recover more oil from the same formation.
Readers of this blog will know that there are multiple formations down there, and that when you sign a standard lease you give up rights to all of them for as long as the lease is paid for (the primary term) or producing. It’s extremely important to draft around that issue, or you’ll sign a lease that could last for decades without giving you the chance to ever change it in any way.