Category Archives: Drilling News

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.

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.

DUCs Have Been Coming Online Already

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This is a fascinating article on the Reuters website.  It says that some oil companies have already been completing and producing oil from their Drilled but UnCompleted (DUC) wells.  The majority of the work has been in Texas, near the oil refineries, which allows the producer to realize a price close to benchmark prices.  Some of the production has been farther away though, as some companies have their oil production hedged at high enough prices to make production profitable.

This is interesting because it means that some of the oversupply that people have been factoring into their calculations has already been used up.  We may see a bump up in oil prices based off this information.

The question becomes, are some gas producers doing the same thing?  Antero Resources here in the Appalachian Basin has all of their gas production hedged at prices high enough to make a profit.  They also have some DUCs.  Are they completing and producing their DUCs?  Are other companies?  If they are, is the price of gas going to go up sooner than expected?  It’s hard to tell, but we sure do hope so.

Ohio’s Clinton Sandstone Produces Oil From Horizontal Fracturing

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EnerVest is drilling horizontal wells down to the Clinton formation in Ohio.  The Clinton produces oil, but not in huge quantities.  It’s enough to make a profit though, even in today’s bad oil market.  The wells cost just under $2 million, and return between $7 million and $10 million.  That’s a pretty good ROI.

Cunningham Energy is doing something similar with the Big Injun and the Weir Sand formations here in West Virginia.  They’re not drilling a lot right now, and the market isn’t good for oil right now, but if they’re able to keep the lights on until oil prices start to come back up they should be in a really good position.

Speaking of oil prices, they’re back over $41/bbl today.  We don’t see those prices being sustainable over the long term but if the Saudis are able to get Iran to agree to a production freeze at any level, maybe they will be.  Maybe.

Visualization of Active Drilling Rigs in the U.S.

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Bloomberg put together a cool visualization of active oil drilling rigs in the United States over the last five years.  There’s a remarkable drop in the last 18 months.  What’s amazing is that oil production has increased in the same time period.  Rigs and techniques are more efficient than ever.  We may not ever see the number or rigs running that we saw up through the end of 2014.  That’s bad news for roughnecks.

This visualization is only for oil, not for gas.  It appears that they don’t have one for gas drilling rigs.

Antero Resources Land Budget for 2016

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Antero Resources

Antero Resources is arguably the biggest player in West Virginia Marcellus/Utica natural gas development, so when their 2016 guidance report came out it was worth taking a quick look at.  Their overall budget has been reduced from $1.8 billion to $1.4 billion, but of greater interest to people we work with, the land budget is now $100 million.  That’s down from $150 million in 2015 and down from $450 million in 2014.

Why is the land budget interesting?  The land budget is the budget for the land department, and the land department is the department that buys leases, modifications, and renewals.  The land department has $100 million to spend.  While that’s a lot less than it has been in the past, it’s still a substantial number.  We can still expect Antero Resources to buy leases and modifications, and even renew leases that are coming due.  Speaking of which, it will be interesting to see how many of Antero’s leases are coming due this year, and how many of them they will be renewing.

The land budget is not down as much as we thought it might be.  Rumors that Antero was not taking any more leases in Tyler County made us think that perhaps Antero was cutting way, way back on leasing.  While there has definitely been a cut, it seems that Antero has shifted interests to Wetzel County, searching for the Utica dry gas that companies have realized is so prolific.

Also, the sheer number of leases may not be changing all that much.  Along with the cut in budget has come a cut in bonus amounts.  Property that would have commanded $4,000-$5,000 per acre last year is now being offered at $2,500-$3,000 per acre.  That alone makes up a large part of the reduction in their land budget.

So while there is going to be a reduction in the amount of money paid for leases and modifications this year, it seems that the number of leases taken and the number of landmen working is likely to remain the same.  The unknown is just how low the price of natural gas is going to drop.  If it continues to drop throughout the year then we could see additional reductions in activity.  However, if prices remain roughly the same through this year, then activity should remain about the same and might even pick up.  After all, most analysts are saying that the oversupply should be over sometime in 2017.  Antero will be well positioned to pick up any of that slack, and they’ll do so by

 

Northeast Natural Energy Drilling in Monongalia County, WV

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Marcellus_Shale_Gas_Drilling

Marcellus Drilling News (a great source for information about oil and gas development in  the Marcellus/Utica area) is reporting that Northeast Natural Energy has hired a new rig.  Right now, it seems that NNE is working exclusively in Monongalia County, WV, using leases that it bought from Chesapeake and leases that it is buying up itself.  NNE is going after Marcellus shale production there, which strikes me as odd because Chesapeake pulled up stakes in Monongalia County back in 2009 because it had drilled a few wells and the production was disappointing.  At least, that’s what the scuttlebutt was between the landmen that were working on the project.  With gas prices lower than they were then, it doesn’t make much sense for NNE to be drilling where CHK quit.  There must be some other factors in play that we aren’t aware of.  Nevertheless, best of luck to NNE.  We’re always glad to see that somebody is drilling and taking leases in West Virginia.

More Horizontal Oil Drilling in West Virginia

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We’ve talked about drilling for oil in West Virginia before.  The same folks who brought drilling to the Big Injun formation are introducing us to drilling to the Weir Sand formation.

Cunningham Energy has announced that it’s drilling for oil in Kanawha County, WV.  It’s currently working on another site in Clay County, WV.

It doesn’t seem like a really good time to be drilling for oil.  The Saudis have said they will produce enough to keep up with demand, and American frackers will follow the dictates of the market, so it’s impossible to tell how low oil prices will go.

Cunningham seems to think that their oil will be marketable.  They may be right.  Getting leases in that part of West Virginia will be cheap, probably in the $100-$300 per acre range when they’re dealing with knowledgeable mineral owners.  They’ll be able to pick up leases for $5-$10 per acre from people who don’t take the time to educate themselves about oil and gas.  Drilling only 2000 feet down and 4000 feet out will not present any kind of technology challenge.  The real trick will be putting systems in place to be efficient.

Fracking Earthquake Record

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earthquake-hazard-sign-5186792Well this is interesting.  It turns out that fracking activities have been linked to an earthquake that registered 4.6 on the Richter scale.  That’s strong enough that people indoors will feel it, with noticeable shaking of indoor objects and rattling noises.  People outdoors will feel it slightly.

It’s the biggest earthquake caused by fracking that has been clearly linked to fracking to date.

Most fracking earthquakes won’t ever be felt by anybody.  Apparently, bigger fracking projects in the right, er, wrong location could lead to bigger earthquakes.  It wasn’t something we had been concerned about previously, but it appears it’s time to look into it a little closer.  Stay tuned.