Category Archives: Leasing News

Drilling in West Virginia is Likely to Pick Up

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Somebody who’s a lot better with a calculator than we are did some number crunching and came up with a truly astounding result.

The new pipelines being built in the area will require 45 new drilling rigs to fill them to capacity.  We’re currently running at about 50.

Historically, the Marcellus/Utica play has hosted around 130 rigs or so at any given time, with the highest numbers being between 2010 and 2014.  Since 2014, of course, rig counts have been dropping like mad.

Since it’s becoming hard to find frack crews, it seems like it may be a little difficult to find enough drilling rig crews.  Frack crews and drilling rig crews went through the same downturn, got fired, and went a long time waiting for the call to come back to work.  A lot of them have gone to find more reliable work in other industries.

However, for West Virginia mineral and royalty owners, the important thing to think about is how this is going to affect leasing.  It seems that in the next few months there is probably going to be an increase in leasing which is going to continue for a couple years.  When that happens, prices typically go up and the terms that you can request get much better.

It looks like boom times may be coming again.

Of course, this is us looking through a crystal ball.  Don’t go betting the farm on the accuracy of this prediction.  All kinds of things affect leasing activity, from local geology to international geopolitics.  We sure like the way things look right now, though.

What If We Ban OPEC Oil?

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One of Donald Trump’s promises during his campaign was that he would ban oil from all OPEC countries.

This article over at Alberta Oil Magazine discusses some of the implications of doing that.  It points out that we use about 20 million barrels a day, produce about 8.5 million right now, and produced about 9.4 million in 2015 and about 8.7 million in 2014.  We import only 3 million to 3.5 million barrels a day from OPEC countries.

Looking at the EIA reports, we get about four times as much oil from Canada as we do from Saudi Arabia, and almost as much from Mexico as we do from Saudi Arabia.  All told, though, we get about 1/3 of our imports from OPEC countries. We would have to make up that 3-3.5 million barrels a day from somewhere.

If we banned OPEC imports it’s almost certain that OPEC would pick up some customers that non-OPEC countries currently supply, just by cuthing prices.  Those non-OPEC countries would have some additional supply floating around, and would very likely just sell to the US.  Most of the difference we need would be made up from shuffling around suppliers and customers.

Some of the difference would probably be made up by Canadian tar sands, but the tar sand operations would probably take a while to bring production back up.  After the fires in Alberta earlier this year, the oil sands operations took a few weeks to bring back to full operations.  Opening up new areas would likely take a lot more than a few weeks.

Mexico would probably try to take up some of the slack as well, but most oil exploration outside the United States is the old style, requiring months to years to bring significant oil production online.

That’s assuming there will be slack in oil supplies.  Presumably, we would just start buying more oil from countries which already provide us oil.  Of course, there may be treaties and transportation issues that I don’t know about which would limit the amount of oil we could buy from non-OPEC countries.  If something, anything, gets in the way of our acquiring more oil from current non-OPEC sources, then the price of oil will certainly rise and production in the US will increase. Any kind of uncertainty will drive market prices up. 
Any real slack in oil supplies would be taken up by American companies, doing horizontal fracking.  The nice thing about a fracking operation is that it can be up and running in months, sometimes even weeks.  Areas like the Permian and the Bakken which have been heavily explored and leased would be able to bring new production online within months.  That’s not counting DUCs, drilled but uncompleted wells which just need to be fracked or turned in line (open the valves) to start producing.

There is one point about this entire thing that is worrisome for those of us in the Marcellus/Utica area.  Increased oil production brings increased natural gas production.  From the majority of oil wells there is some natural gas produced.  This natural gas isn’t just vented or burned onsite.  It’s sold into the pipeline system, and competes with gas produced elsewhere.  If we do see increased oil production in the US, the associated natural gas production will drive down prices and demand, even if slightly, for Marcellus/Utica gas.

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.

West Virginia Forced Pooling: Woody Ireland’s Arguments in Favor

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Woody Ireleand has been interviewed again for an article in the Wheeling Intelligencer.  The Forced Pooling legislation that he is championing has improved over the years, but it’s never going to overcome the one argument that is foremost in my mind: forcing someone to sell or use their land is not right, even when it’s lawful.

Tentative Lease with Gastar on State Lands Falls Through

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DocumentGastar Exploration entered a bid with the State of West Virginia about a year ago, and in January 2015 they were notified that they had won the bid at $3,500/acre and 20% royalty.  The 20% was because that was the lowest royalty the State would entertain.  We appreciate the State’s efforts to bump up royalty amounts ’round these parts, but it doesn’t seem to have worked in this case.

The bid had been won, but there were still details to iron out, and Gastar and the State never got those details worked out.  In the meantime, Gastar decided to sell its Marcellus and Utica acreage and focus on other areas of the United States.  While that doesn’t seem like a very smart move considering the low cost of doing business in the Marcellus/Utica play, that’s what they did.

The State has decided that the bid with Gastar is no longer going to go through, and they are very likely to rescind it.

That leaves a bunch of acreage up for bid.  It’s nice acreage, contiguous with one owner.  Somebody’s going to jump on it, most likely Antero.  It won’t go for nearly as much this time, though.  It would be nice to see the State wait a couple years on it, as prices should improve in that time period.

One Company Will Start Drilling Again in 2016

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energy-marcellus-shale05-drill-site-houses_26890_600x450PDC Energy is going to start drilling again in the first quarter of 2016.  Reading the article, it seems like the wells they have planned are mainly testing out new techniques, but they fully expect the wells to return more than their investment.  Part of that seems to be because they have hedged well, with oil hedged at $85/bbl and gas at $3.65/MCF.

Overall, we don’t see this as a sign that drilling is going to ramp up in 2016.  There will still be some leasing going on — there are always leases being taken.  We think it will be 2017 before we see anything start to really take off, and maybe even 2018.  It’s going to be lean times for anyone in the oil and gas industry.  However, those who are competent and hard-working will have something to do.

And there we go again, making predictions.  It’s so hard to not speculate about the direction of oil and gas.  Well, we’ll see whether these predictions are accurate or not in a year or so.

Baby It’s Cold Outside…..No It’s Not

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huh_450Just a couple of weeks ago, Burleson LLP, a Houston law firm with Pittsburgh offices specializing in oil and gas shut it’s doors.  It was a sign that things were getting bad in the oil and gas industry.

This week, Frost Brown Todd, also an energy company, announced that it is opening an office in Pittsburgh and hiring 10 of the 30 lawyer that lost their jobs when Burleson shut down.

So, is it bad, or is it good?

We’ve seen an increase in the number of people calling the office about oil and gas leases in the last few months, with a drop off in the last week or two.  The amount that oil and gas companies are willing to offer for lease bonuses and royalties has just started to drop a little.  The price of oil and the price of natural gas continue to decline.  Sometime next year some pipeline projects are going to be completed, with more to come in 2017 and 2018.  There are natural gas energy plants being built in West Virginia, Ohio, and Pennsylvania.  There are cracker plants being built in Ohio and Pennsylvania, and the one planned for Wood County, WV may not be on life support any more.  This winter, while expected to be snowy, is not expected to be cold.  Russia is getting in a fight with Turkey, but the rest of the Middle East is pretty much business as usual with the Saudis still producing as much oil as they want with no signs they will cut back.

So, it’s bad, and it’s good.

We’ve given up predicting where oil and gas prices are going, and where the oil and gas industry is going.  There’s always good news and there’s always bad news.  The more important question is, do you have a lease or a modification or a right of way agreement in hand that needs to be dealt with?  If so, give us a call.  We’re here to help.

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.