A new LNG plant is opening up in Louisiana. Marcellus Shale gas will flow to the plant, be turned into liquefied natural gas, and shipped abroad. Demand for gas will go up, and prices will (hopefully) start to go back up. One plant isn’t going to make a huge difference of course, but more are coming online in the future.

Speaking of gas prices, this year’s slide into oblivion has been pretty bad. Prices haven’t been above $2.75/MMBtu since about February in spite of lower than normal storage levels. The main reason is that gas production has been able to ramp up to keep up with and even exceed demand, making storage levels moot.

Libya is still struggling with civil war. “Someone” turned off a valve to the Sharara oil field which produces about 290,000 barrels per day, dropping Libya’s production below 1,000,000 barrels per day.

The Texas Eastern Transmission pipeline exploded in Kentucky, killing one and injuring five people. It’s a 30-inch pipe, and one of the major pipeline running from here to Texas. It’s disrupted natural gas supplies and prices have jumped a bit as a result.

Antero is planning to keep costs flat next year, but will drill longer laterals and increase land expenditures just a bit.

The Atlantic Coast Pipeline is looking down the barrel at yet another legal hurdle.

One thing that the FERC looks at when deciding whether to approve a major pipeline project is the need for the project. An independent analysis has called into question the need for the MVP. Whether this analysis was truly independent is, of course, in question. But the original analysis for need was done by the MVP so that was hardly an independent analysis itself.

On the other hand, Roanoke Gas says that the MVP is critical to them not running out of gas.

Since we’re talking about pipelines, West Virginia’s Attorney General has filed a brief with the U. S. Supreme Court opposing the Fourth Circuit Court’s decision to halt work on the Atlantic Coast Pipeline.

There’s a bill in Congress that will improve national pipeline safety. This is a good thing.

We have too much gas. That’s the reason natural gas prices are so low. Lots of gas being produced from the Marcellus Shale, and lots of natural gas being produced with the oil from the Permian Basin are the main culprits. For the next couple of years there will be major natural gas project completions, such as LNG plants and cracker plants, which will drive some demand. But between 2021 and 2023 there are no new major projects slated for completion. That could make 2021 to 2023 a period of time when natural gas prices get really low and put a lot of drillers out of work.

It’s very disappointing to West Virginia that the proposed cracker plant will definitely not be built, at least by Braskem. The land is being marketed, purportedly with a focus on other companies that might be interested in building a cracker plant.

U. S. oil production growth is declining slightly and, according to a Forbes article, it will continue to decline. It doesn’t really give a reason why, though, so who knows.

Rig counts overall are down, but in West Virginia they’re up year over year.

On Saturday, January 26, a well drilled to the Utica formation, about 14,000 feet deep, communicated with several shallow wells, the deepest of which was drilled to about 3,000 feet. This is bad.

The well, drilled by CNX, and called the Shaw 1G, was being fracked. Pressure dropped suddenly and the workers stopped the fracking process. They discovered something blocking the wellbore. There doesn’t appear to be any information about where exactly the blockage is. That could be important because the blockage could indicate a failure in the casing. If there’s a failure in the vertical portion of the casing, that would explain why this well is communicating with much shallower wells. The casing failed and fracking fluid pushed out into the formation or formations that the shallow wells are producing from.

If, instead, there’s a failure in the horizontal portion of the casing, that means that fracking fluid propagated up through 11,000 feet of rock. The Marcellus Shale lies at around 5,000 to 7,000 feet deep in most areas of West Virginia That would mean that the fractures created through the fracking process in a Marcellus Shale well could potentially reach the surface and could certainly find their way into water wells.

The likelihood that the fractures pushed up through 11,000 feet of rock is low. Fracking has been going on for long enough now that it’s hard to believe that under normal circumstances this kind of thing would happen. There just aren’t any reports of it happening. There have been reports of water wells being ruined and of shallow wells being stimulated by fracking, however. Maybe this happens more often than we think, we just don’t realize what’s going on.

Update: The Pittsburgh Post-Gazette is reporting that there are now nine wells impacted by the problem. Interestingly, none of them are in line with the horizontal path of the well. It runs southeast, and the nine wells are to the north, west, and east. Additionally, the other Marcellus Shale wells in the area are not affected. This almost certainly means that the casing in the vertical portion of the well failed and allowed pressure to flow into a formation that all nine of the affected wells are producing from.

Chesapeake Energy has gotten something of a reputation for making money any way it can.  That includes cutting down the royalties it pays to mineral and royalty owners, whether the lease allows for that or not.

One Pennsylvania man fought the good fight against Chesapeake and won.

When Paul Sidorek signed a lease he did it with both eyes wide open.  He had seen what companies did with post-production costs, and made sure his lease included a strong clause that prohibited any post-production costs of any kind.

Then his lease was sold to Chesapeake.

Chesapeake deducted post-production costs.

Paul Sidorek arbitrated and won on part of his case.  He’ll be getting a lot of money back from Chesapeake.

I’d encourage anybody who wants to fight against post-production costs to do so.  West Virginia law is very much on your side, even more so than Pennsylvania law.

Professor Joshua Fershee who teaches at the West Virginia University College of Law has made a statement regarding the decision (.pdf) by Judge Hummel that all leases include the right to pool.

Professor Fershee didn’t go so far as to say the decision was wrong, but he did criticize some of the reasoning of the decision, including what he thought the decision left out.

Fershee believes that if the decision were reviewed by a higher court, it would probably be sent back to the lower court for some explanation.

I am of the opinion that older leases that were signed before pooling became a thing couldn’t possibly have included the right to pool.  It wasn’t in the contemplation of the parties.

It will be interesting to see how this one plays out in court.  No one appealed the decision, and the time for appeal has long since passed, so it won’t be appealed.  However, someone is going to have a fight over this issue in the future, and someone will appeal the issue to the Supreme Court.

NPR did a broadcast on their Inside Appalachia series that’s mostly about pipelines and compressor stations.  It’s 48 minutes long, but if you’re into listening to podcasts and into oil and gas issues, this will be interesting to you.

We have a few clients who have leased with Stone Energy over the years.  Some have been drilled on, others are still waiting.  Those who are waiting may still be waiting a while.  Stone Energy announced that it has borrowed $385 million dollars on its line of credit.  That’s the last of it, too.  Stone has to keep the lights on with that money or it will have to declare bankruptcy.  Seeing as how Stone lost $1 billion dollars last year, and we don’t expect gas prices to move up much until the end of 2016 or the beginning of 2017, we’re not terribly confident that $385 million dollars will keep Stone going until things get better.  It will be interesting to see what creative techniques Stone’s financial and legal advisers come up with to keep operating.  For the sake of our clients who have signed leases with Stone we hope that they can pull it off.  Of course, if they don’t some larger company will just move in and buy up all those leases at fire sale prices during bankruptcy proceedings or when Stone puts them on the market to drum up cash.  The leases won’t just disappear.

The reason that compressed natural gas isn’t a good idea for truckers lies in the trucker’s contract with the company they work for, not in the actual price of CNG.  This article over at Seeking Alpha explains it pretty well.  What it boils down to is this: trucking contracts are written in such a way that they protect the trucker from variations in gas prices, so a cheaper fuel isn’t going to help the trucker, and in some cases actually hurts.

It’s too bad, because if truckers would convert over to CNG there would be a huge demand for it.