Category Archives: Oil Prices

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.

Marcellus and Utica Producers are Still Making Money

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With gas and oil prices down, it’s been a lot harder to make money in the oil patch.  The one good thing about this situation is that producers have had to figure out how to cut costs.  Producers have convinced suppliers to lower their prices, drillers have figured out new tecDollar Signhniques, leasing has slowed down, lease prices have dropped, and people have been fired.

Most of the cost cutting measures end up in people getting fired.  We hate to see people get fired.  We’ve been there ourselves more than once.

The only good thing about it is that companies are now profitable at a much lower price point than they were a year ago.  They’re still in business, still employing people, and still paying out royalties.

Mark Passwaters over at snl.com (not the comedy show) thinks that most producers are capable of turning a comfortable profit with oil at $75/bbl.

While that is interesting in general for West Virginia mineral and royalty owners, the most interesting part of the article says that Utica and Marcellus producers are doing just fine at $3.00/MCF gas.

Why is that?  The success mantra for developers in the Marcellus has been “keep costs low”.  I’ve heard that from more than one small developer, and it’s true for the mid-majors like Antero and Southwestern, too.  They’ve been on the cutting edge of science in the shales from the beginnin

Shocking! West Virginia Lease Prices are Stable in a Downturned Market…

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American flag flying in the wind

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.

Why the Saudi’s Kept Producing Oil

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This article by Andrew Thomas writing as a guest for the Cleveland Business website is the most logical explanation for why the Saudi’s decided to continue producing oil at the same rate back in November of 2014.

What it boils down to is that natural gas was becoming a threat to oil being the dominant energy source worldwide, and the Saudi’s decided it was important to lock natural gas out of the competition.

It’s worth the read.

It makes one wonder, will natural gas production in the States die off, or will natural gas producers figure out a way to remain competitive?

It’s Time for the U.S. to Export Oil

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Oil TankerOil producers in the United States are not allowed to export oil.  It was a policy started back in the 70s with the energy crisis.  I imagine that it accomplished its stated purpose at the time, it probably protected the American public from high gas prices.  We didn’t have enough oil for our own needs, so shipping it abroad didn’t make much sense.  Now we have plenty, or pretty close to it, and we’re looking at being able to bring a whole lot more to the surface.  Exporting oil shouldn’t hurt gas prices, and according to this article over at the Council on Foreign Relations, it might even help gas prices.  That statement didn’t make a whole lot of sense to me either at first, but the article makes a pretty good case.  Regardless, we need to be able to ship our oil abroad.

The Latest on Oil Price Predictions

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Dollar SignOil prices have dropped for a couple of days because the Saudis said they would keep pumping oil to keep up with demand.  Basically, if somebody wants to buy their oil, they’re going to sell it.  I’m personally surprised that anybody is surprised at this.  I’ll be surprised when the Saudis start to cut back on production.  Why the market thinks that the Saudis want high oil prices right now is beyond me.  They haven’t yet accomplished any of their (suspected) goals, except for keeping market share.  U. S. shale drillers are not yet going out of business in large numbers, and Venezuela, Russia, and Iran have not been hurt enough to make any serious changes.  Until those goals are accomplished, Saudi Arabia is going to keep pumping oil so that they keep their current customers.

On the other hand, experts are predicting that rig counts will bottom out in May.  I think this is too soon to start bringing rigs back, as supply needs to drop and prices need to climb before more rigs become economically sound.   Supply isn’t going to drop enough to justify bringing rigs back online because producers will be able to bring previously drilled non-producing wells online.

 

The Fracklog

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Oil and gas prices aren’t going to rise astronomically in the near future.  That is, unless some unpredictable market force comes into play.  The reason: the fracklog.

Drillers have drilled lots of wells, but they have not turned them all on.  As prices come up, drillers will turn those wells on, and prices will either drop or stabilize.  There is a backlog of wells waiting to be turned on, or as Bloomberg puts it, a fracklog.

This Bloomberg article goes into more detail.

Oil and Gas Price Volatility

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rollercoaster

There are two interesting articles over at Bloomberg about oil prices.  The first says that the United States shale oil is coming to be seen as the world’s swing producer, or in other words, it has the most control over price and availability of oil on the market.  That’s good for the United States, but may be bad for prices.  The United States doesn’t have the ability to just turn a spigot and produce more oil when demand increases.  We have a bunch of wells drilled, but they need to be fracked and brought online, which can take months.  Getting laid-off crews back together adds time to that.  Not being able to respond quickly to market demand means that prices could jump a lot in a short period of time.  When that happens, everybody and their dog gets back into the oil and gas development game, and within a year or two there’s an oversupply, driving prices down.  The unpredictability would make for a rough time economically for most of us.

The second says that big oil companies fear a big jump in prices in the near future, which meshes well with what the first article says.  Some companies are expecting low prices for at least a few years, but most companies are expecting a decrease in supply leading to an increase in price.

The United States oil and gas industry has never been known for moderating itself well.  When prices rise, everyone opens the spigots and starts developing new plays.  When prices drop, everyone shuts down production and abandons projects.  There are very few players who work slow and steady, with a real long-term outlook.  It would be good if a few more of the big companies would think long-term.  I know this goes counter to the culture of getting the biggest short-term dividends for stockholders, but it would certainly be better in the long-term for everyone.

Efficiency Leads to Profits, and Should Lead to Higher Bonuses and Royalties

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DocumentWell now, this is an interesting take on things.  It appears that oil and gas companies that are working in the shale formations are actually doing pretty well still, in spite of the decrease in energy prices.  This article from Bloomberg says that improvements in efficiency have probably made up for the decreases in prices.

The most interesting number that the article quotes, at least for my clients, is that Antero has costs of less $18/bbl of oil produced from Appalachia.  That’s pretty impressive.  It also means that they can afford to pay a bit more in bonus and royalty amounts.

When you’re negotiating your lease, make sure to ask for more than you think you can get.  In most cases, you will be pleasantly surprised.