Category Archives: Royalty Amounts

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

Posted on by

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.

Blog Post_Redacted_2017-06-22

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.

 

Cheated Royalty Owners are Uniting

Posted on by

West Virginia royalty owners will want to pay attention to what’s going on up in Pennsylvania.

For years, Chesapeake and other oil and gas producers have been deducting costs from royalty owners’ checks in large amounts.  Some of those deductions have been so large that some royalty owners have gotten negative amounts on their check stubs.  In other words, the royalty owners have ended up owing the company money.  Everybody knows that’s not right.

Up in Wyoming County, PA, over 200 people showed up for a town meeting to discuss the problem a couple weeks ago.

Discussions revolved around how to force the companies to pay a reasonable royalty.  Some suggestions included legislation, forcing the companies into arbitration, and organizing at a grass-roots level.

Chesapeake took a lot of leases and drilled a lot of wells in West Virginia at one point.  Any West Virginia royalty owners who have seen enormous deductions from their royalty checks should be aware that taking deductions is not fair, or legal, in West Virginia.  You can do something about it.

If you need help with enormous deductions taken from your royalty check, give the office a call at 304-473-1403 and set up a time to discuss your situation with one of our staff.

Why You Should Always Ask How Long the Lateral Will Be

Posted on by

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.

Chesapeake (and Most Other Producers) Doesn’t Pay Royalties Right

Posted on by

This article from the Pittsburgh Post-Gazette describes a royalty owner’s experience with Chesapeake Energy.  In short, Chesapeake ignored a lease clause stating that no deductions would be taken from the royalties.

This owner’s experience is very common.  Chesapeake is known for taking post-production costs out of royalties, even when the lease explicitly says they can’t.

If your minerals have been produced by Chesapeake, you should take a look at your check stubs.  You will probably find that post-production costs have been taken out.

Here in West Virginia, the only costs that can be taken out are those that have been specified in the lease and for which a method for calculating them has been shown in the lease.  See Tawney v. Columbia Natural Resources.  Most leases don’t meet this standard.  Most companies shouldn’t be deducting post-production costs.

Chesapeake isn’t the only company that will deduct post-production costs when they’re not supposed to.  Our office recently got Antero Resources to pay out close to a quarter million dollars in post-production costs they weren’t supposed to deduct.  We didn’t even have to go to court for that one.

If you suspect that post-production costs have been deducted from your royalties and you can’t work out the issue with the producing company, give us a call and we’ll help you out.  304-473-1403.

Why Your Royalties are Low Right Now

Posted on by

There are actually a couple of reasons why your royalty checks are pretty small (relative to a couple years ago) right now.  First, production from wells always decreases over time, second, the price of gas is down, third, the producer is probably taking post-production costs out of your check, and fourth, the producer is probably throttling back production from the well.

Side Note: if you think your producer is taking out post-production costs you should call the office and talk with us about it.  We can probably force them to stop.

We’re going to focus on the second reason in this post, the price of gas.  Prices are down for a couple of reasons.  One is that there’s just way more gas available across the nation than there ever has been.  A second reason is that the gas here in the Appalachian basin is…..stuck.  It’s backed up.  It’s constrained.  Whatever you want to say, there’s just not enough transportation capacity for it all.

Because there’s not enough transportation capacity, you aren’t getting paid top dollar for the gas coming out of your property.

It’s not just that we can’t transport all the Appalachian basin gas to someone who will buy it, either.

The price of gas is set at the Henry Hub in Louisiana.  The Henry Hub is a place where a bunch of pipelines come together and there’s a bunch of storage.  Whatever gas is selling for at the Henry Hub is the benchmark price for gas in the United States.  It changes constantly based on a huge number of factors.

Here in the Appalachian basin there are a couple of local hubs.  Prices for gas are set at these hubs.  They are based on the Henry Hub price, and then changed either up or down depending on local market conditions.  Once upon a time we could sell gas for more than Henry Hub prices.  It hasn’t been that way in a long time.

Because we’re producing so much gas we don’t have enough space for it all in the local hubs and other pipelines in the area.  Because of that, gas sells at a discount to the Henry Hub price.

So not only can we not get all our gas into a pipeline in the first place, we also can’t get full price for it.

And that is one of the reasons why royalty checks have been relatively small lately.

Is there any hope for the future?  Well, RBN Energy is doing a two-part series on pipeline buildout in the Appalachian basin.  Here’s the first part, and the second part will be coming in the near future.

On top of getting a better price for our gas compared to the Henry Hub, we also need to start shipping gas out of the country for foreign markets to buy.  Right now, 99% of the gas produced in the United States is consumed in the United States.  That is changing rapidly, with the Sabine Pass LNG plant shipping its first cargo of LNG back in February of 2016, and with other plants coming online in the next couple of years.  Once natural gas has become a world commodity we should be able to sell at a better price than we can get right now.

Royalty Cases Against Chesapeake and Southwestern

Posted on by

Some folks are suing Chesapeake and Southwestern for back royalties, among a couple other things.  The other things are not likely to be high-dollar amounts, but the royalties could add up.

There are quite a few cases against Chesapeake for back royalties in other states.  We’ve been surprised that there haven’t been more cases against Chesapeake in West Virginia.  It seems that CHK would have done the same thing to West Virginia royalty owners that they did to Ohio, PA, and Oklahoma royalty owners.

If anybody out there has a case that they’d like to take up against Chesapeake for back royalties, give us a call.  It won’t hurt and could help.  It could help a lot.

304-473-1403

Wonder of Wonders! A Tax Cut!

Posted on by

Dollar SignWho knew that the West Virginia legislature had it in them?  They’ve gone and cut taxes!  Specifically, a severance tax on coal, oil, and gas that was intended to replenish the State’s Worker’s Compensation Fund’s old debts.  It’s not done yet, but the prognosis is good.

The legislature passed this particular severance tax back in 2005.  It was in addition to the usual severance tax, and imposed a 4.7 cents per MCF tax on all gas production.  At the time, they expected this tax to be in place until about 2025, but Marcellus shale development brought higher than expected revenue.  The old debts got paid off quicker than expected.

When the tax was imposed, Governor Earl Ray Tomblin was a State Senator, and he promised that the tax would be repealed once the debts were paid off.  I have to give him props.  It’s not often, after all, that you hear of a politician keeping promises.  That’s especially true when the promise is to repeal a tax.

We’re excited, because even though it’s only 4.7 cents per MCF, it’s something.  In today’s rough natural gas climate, any good news is very welcome.  This is good for producers, which in turn is good for royalty and mineral owners.  Here’s to a bump up, however slight, in your royalty checks!

 

Stonewall Gathering Pipeline Finished!

Posted on by

IM000716.JPG

Great news for West Virginia royalty and mineral owners!  The Stonewall Gathering project is complete and pumping gas out of the Marcellus Shale area.  It takes gas from Doddridge, Harrison, and Lewis counties and transports it to Braxton County where it connects with an existing Columbia Gas pipeline.  That pipeline takes the gas out of state.

It’s a big pipeline, at 36 inches in diameter, and is currently moving about 700 MMcf/day.  It’s highest capacity is expected to be 1.4 billion cubic feet of gas per day.  If it’s like other pipelines, it could probably be pushed a bit higher with some additional compressors.

The most pressing need in the Marcellus shale and Utica shale area is for take away capacity.  There is so much gas in the region that there simply aren’t enough pipelines to transport it all to market.  Consequently, pipeline companies can name their price to transport the gas, and they take a huge chunk of the value of the gas.  When all is said and done, Marcellus shale gas has been netting West Virginia producers more than a dollar less than what gas sells for at Henry Hub.

With more pipelines, the “differential” between Henry Hub and the Marcellus/Utica region will decrease.  That means more money in royalty owners’ and lessors’ pockets.  The Stonewall Gathering pipeline itself will not make a large difference.  Combined with other projects that should be completed in the next few years, though, we will start to see better royalty payments.

The Appalachian Gas Oversupply: Over Soon?

Posted on by

The biggest problem for gas developers, and consequently royalty owners, here in West Virginia has been the lack of pipeline infrastructure to transport the gas to market.  The Marcellus shale development has been so fast that it was impossible for pipeline companies to keep up.  Either that or they just didn’t think ahead far enough.  Either way, midway through 2015 we need pipelines in a bad way.  Hope is on the horizon, however.

This article over at SeekingAlpha is practically a list of pipelines and completion dates.  Conspicuously absent are the Mountain Valley Pipeline and the Atlantic Coast Pipeline, but those won’t even start construction until next year.

The article points out that pipelines are about to start coming online, and that will drive the cost of transportation down.  As the cost of transportation goes down, the profit to producers is going to go up.

West Virginia mineral owners can expect to see an uptick in production, so their royalty checks should get bigger.  Those who aren’t leased can expect to see leasing start back up, too.

The next few years will see increased transportation capacity, so mineral ownership should only get better and better from here on out.