Category Archives: Companies

Delay Rentals: The Old Becomes New Again

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Once upon a time in the oil patch it was completely normal for West Virginia oil and gas companies to pay a delay rentals for their leases.

Then the Marcellus Shale boom happened and competition for mineral rights blew up. Instead of paying a delay rental, the companies started paying a signing bonus. Actually, it might be better to say that the companies started paying the entire delay rental up front and calling it a signing bonus because that’s what actually happened.

Like for so many other things, 2020 happened. Demand for natural gas dropped, driving the price of natural gas down to almost $1.50/MMBtu at one point, a price that had never been seen in the Marcellus Shale era. Banks realized that oil and gas was a bad investment, and stopped throwing fists full of Benjamins at the drilling companies.

Without loads of cash, oil and gas companies had to cut back. But the nature of oil and gas wells is that their production goes down every day, so the companies had to keep drilling new wells. To drill new wells they had to keep taking new leases. You see the problem, right?

In order to make it cheaper to acquire new properties, one company, EQT, has started paying for leases the old fashioned way–delay rentals.

What’s, exactly, is a delay rental you ask? There are two parts to explain. The Rental, and The Delay.

The Rental: A delay rental is a rent payment that’s due on the anniversary of the lease. If you think of this as a commercial lease on a building where there is one large payment per year, it might make more sense. Right now, EQT is offering $250 per acre, so if you owned 10 acres you would get $2500 at the beginning of each year of the lease.

The Delay: A delay rental payment is made so that the oil and gas company can delay drilling on the property, but keep the property under contract. Historically, oil and gas companies would sign a lease and the lease would say that they had to drill a well within 30 or 90 or 180 days (or some other time period) or they would have to pay a rental or lose the lease. As the industry matured, they dropped the requirement to drill within a time period and just started agreeing upfront to pay a delay rental for a certain number of years.

There is one very important thing to know about Delay Rental leases. There is always language in the lease that says the company will no longer have to pay delay rentals if they drill a well. You don’t want this. They will change it.

There is one other very important thing to know about Delay Rental leases. There is also almost always language that says they will be able to recoup any delay rental paid once royalties start flowing. You don’t want this. They will change it.

So the next time EQT calls you up about a lease, take a good hard look at the language of the lease and make sure you understand what you’re agreeing to (or have your local oil and gas attorney take a look at it). You might find that you save yourself an awful lot of money and confusion if you do.

Why You Shouldn’t Sell Your Minerals in West Virginia

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Most of the people we talk to had no idea they owned oil and gas rights in West Virginia until a landman contacted them asking for a lease or until an investment company contacted them asking to buy their rights.  Lots of people consider selling their mineral rights, even if they haven’t been approached by an investment company.

When we discuss whether to sell with our clients we talk about a few things.  They mainly boil down to “will the money now be better for me than the money later?”.

Part of that discussion includes determining how much money could be coming down the road.  Most people think about what they could get for a signing bonus if a company buys a lease from them, and what the royalties could be.

Sadly, it’s impossible to say for sure what the royalties could be.  Anybody who tries to give you an exact figure is either lying or uninformed because the price of gas, the amount of production, and your actual ownership amount can’t or won’t be determined until gas is actually flowing out of the well and being sold.

That said, we do try to guess what that number could be over time, and part of that guessing includes which formations might be producible in the future.

Most people know about the Marcellus and the Utica formations, and in the areas that are being heavily developed right now both formations are likely to be developed.

Most people don’t know about the work that Cunningham Energy has been doing on shallower oil-bearing formations.

Cunningham Energy began work on two wells in Clay County, WV back at the end of 2014.  Online sources don’t report any production from the wells, probably because they are considered exploratory and so aren’t required to report their numbers to the State.  However, this newspaper article says those wells have reached a cumulative 20,000 barrels of production.  Cunningham also reported that kind of production from some other Clay County wells in June of 2015.

It’s hard to say for sure whether that’s worth getting excited about.  If these new wells were put into production in the middle of 2015, they’ve been producing for two years and paid out about $1,000,000 assuming an average of $50/bbl (which is generous).  It’s new technology, fracking a formation for the first time, and getting the combination of fluid additives, pressure, and techniques right could significantly enhance the amount of oil that is produced in the future, so there’s hope that this could be very lucrative.

However, the important data for the purpose of this post is that there’s another formation which could produce royalties for you.

And there could be others.  Horizontal fracking is in its infancy.  There were a lot of formations in West Virginia that produced oil back in the late 1800s and early 1900s.  The combination could result in tens of thousands to hundreds of thousands of dollars in royalty money from any given acre of mineral rights in West Virginia.

When you’re thinking about selling or keeping your minerals, make sure that you get all the data necessary to make the right decision.  We’re not telling you that it makes sense for you to always keep your minerals or always sell your minerals, but that you need to talk with someone who can help you think it through so that you make the decision in a way that will allow you to sleep at night.  We can help you do that.

Southwestern Deducts Post-Production Costs Without Showing Them on the Check Stub

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The way most oil and gas companies inform you about how much production came from the well, how much of it is yours, and any deductions taken from your royalty, is on the stub that comes with the royalty check.

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Southwestern appears to have taken lessons from Chesapeake, as they figured out a way to hide deductions from the royalty owners.  They just didn’t list the deductions on the check stub.

How they made the numbers work isn’t clear from the article, but what is clear is that a jury decided that Southwestern owed those deductions to the royalty owners.

If anybody has been paid royalties from Southwestern, check your check stub production numbers against the production numbers listed at the Office of Oil and Gas’ web site.  If something looks fishy, give us a call and we’ll help you get things sorted out.

 

Is There A Need for the Atlantic Coast Pipeline?

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One argument that opponents of the Atlantic Coast Pipeline are making is that there simply isn’t a need for it.

This is an important argument to make, because one of the main factors that the FERC looks at when deciding whether to approve a pipeline is whether there is a need for the gas.

An article by Samantha Baars on c-ville.com looks into the question a little better than most I’ve seen.

She interviewed Greg Buppert, a lawyer for the Southern Environmental Law Center (SELC) and looked at data from the Dominion Energy and Duke Energy, the main companies backing the pipeline, and from PJM Interconnection, a group that controls the electricity grid in Virginia.

The data from Dominion/Duke and from PJM are significantly different.

Dominion/Duke say that Virginia will need 24,016 megawatts of electricity in 2017.  PJM says Virginia will only need 20,501 megawatts.

Dominion/Duke says that PJM doesn’t take into account some factors that it should.

PJM, however, is responsible for running the grid.  If PJM doesn’t get the numbers right, it would be left scrambling to find other sources of power on short notice.  PJM doesn’t just have money as a motivating factor.  I lean towards trusting PJM more than Dominion/Duke on this one.

It’s possible that there isn’t enough demand for electricity in Virginia to warrant building the pipeline.  If that’s so, then there’s a real case to be made that the FERC should not approve the Atlantic Coast Pipeline.

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.

Stone Energy Marcellus Shale Leases now Operated by EQT

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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.

EQT Buying Trans Energy

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EQT is buying Trans Energy’s properties in Marion, Wetzel, and Marshall counties.  Any of our clients who have leases with Trans Energy will soon be dealing with EQT.  Just a heads up.

This purchase will not change any of the terms of your lease.  However, if Trans Energy was interpreting it one way, you may find that EQT will interpret it another.  If your lease prohibited the company from deducting post-production costs you should really keep an eye on your check stubs to make sure that EQT doesn’t start to deduct post-production costs.

Stone Energy: Bankruptcy and Sale

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Stone Energy has been hurting badly for a long time.  They have been flirting with bankruptcy for at least a year.  This summer they re-opened some wells and I thought they might be able to avoid bankruptcy, but the news says otherwise.

As part of the deal, Stone Energy is going to sell it’s Marcellus leases to Tug Hill.  Tug Hill is growing slowly but surely in the northern panhandle of West Virginia.

Any of our clients who have leases with Stone Energy will soon be dealing with Tug Hill.  Nothing should change, as the lease governs the relationship between you and the company, regardless of which company it is.

Antero’s Water Treatment Plant in West Virginia

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Ken Ward, Jr. of the Charleston Gazette-Mail put together an excellent article on the wastewater treatment plant that Antero Resources is building on the Doddridge County and Ritchie County line.  He explains the need for the plant, the controversy around the plant, and gets into the regulatory framework that is either being used or abused depending on your point of view.  There are a number of points of view represented.

Basically, the plant takes up a lot of space and has disrupted the lives of the people who live next to it.

For regulatory purposes the plant is supposed to be privately held and used by Antero.  Being private instead of commercial, the plant doesn’t have to go through some regulatory approvals.  Interestingly, Antero will be taking water from other companies and treating it.  Usually that would be commercial, not private.   It looks like Antero is using a loophole to avoid regulations.  People don’t typically like that kind of thing, particularly when their lives are being disrupted by someone who is making a lot of money disrupting their lives.

There’s more in the article.  We won’t ruin it all for you here.