Category Archives: EQT

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.

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.

Upper Devonian Drilling

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Upper Devonian

EQT has announced that it will start drilling Upper Devonian formations along with the Marcellus shale.  This is a great move, and while I don’t like EQTs stance on post-production costs or know anybody that really likes working with them, I have to applaud it.  Here’s why.

The Upper Devonian lies just a few hundred feet above the Marcellus shale.  It produces gas, sometimes wet gas that is rich in ethane, propane, butane and the like.  It doesn’t produce as much gas as the Marcellus, though, so a lot of companies have ignored it.

If memory serves, you can improve production from any acre by about 50% if you can produce from both the Marcellus and the Upper Devonian.

However, if you develop the Marcellus without developing the Upper Devonian formations you are unlikely to be able to develop the Upper Devonian.  This is because the fractures you make in the Marcellus migrate upwards for hundreds of feet, right up to the Upper Devonian formations.  When you go back later to fracture the Upper Devonian you lose a lot of, if not all of, your fracking pressure into the existing fractures.

In order to take advantage of the Upper Devonian formations you have to frack them at the same time you do the Marcellus formations.

Anybody out there negotiating their own lease should ask the company whether they are planning to develop the Upper Devonian, and find out why they are not.  They may have good reasons, such as it simply won’t produce much gas in your area.

You probably won’t be able to convince them to change their plans unless you control all of hundreds of acres, but you could always tell them you won’t sign a lease unless there’s something in there saying they will develop the Devonian with the Marcellus.  It’s worth a shot.

 

EQT is Buying West Virginia Leases from Statoil

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Statoil has sold their interest in leases in Wetzel, Tyler, and Harrison counties to EQT.  EQT is one of the few companies that is making money right now, and is increasing its footprint in the Marcellus/Utica sweet spot.  It’s a good move by EQT.

Anyone who had a lease with Statoil in those counties could expect to be dealing with EQT in the future.

As a heads up, EQT’s standard agreement allows EQT to deduct post-production costs from the royalties they pay, so they may try to get away with deducting post-production costs from any leases Statoil may have signed that do not allow for the deduction of post-production costs.  If you find yourself wondering why your royalty check is suddenly much smaller, check the deductions column.

Antero’s Plans for 2015

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This article over at Natural Gas Intel includes a lot of useful information about Antero Resources’ plans for the upcoming year.  In short, they plan to scale back production for a while before ramping back up at the end of the year.  They’ll be running 11 rigs and seven completion crews.  They’re going to be holding back completion of 50 wells, waiting for prices to come back up.

This jives well with the sense that we’ve been getting about oil and gas prices and production from fracked wells, and the amount of oil and gas that is currently in storage.  Sometime this summer we’ll probably see a drop off in production from already producing wells.  That drop off in production will be offset by bringing wells that have already been drilled but not completed into production.  As the number of drilled but non-producing wells starts to decline companies will begin to see the need to start drilling more.  This need will come from completed or soon-to-be completed pipelines and energy plants.  We don’t really see that need arising as early as the end of this year, but Antero probably has better research and data available to it than we do, so we’ll trust them.  Look for drilling to pick back up at the end of this year.

EDIT: As of July of 2015 we began to see an uptick in the number of people calling the office with questions about leases.  Surprisingly, they haven’t been from Antero.  We’ve begun hearing from Mountaineer Keystone and EQT.  It seems that in preparation for drilling in 2016, and after having reviewed the first half numbers, some companies have begun taking leases again.