Appalachia has been hit especially hard with lower commodity prices. Many RI/ORRI owners have seen their checks cut to almost zero in the past few months with little explanation. Some have also probably seen large costs associated with post-production (another issue all together). Many don't know all of the reasons why this has occurred.
On top of lower commodity pricing pipelines have been adding many costs to transportation of hydrocarbons. This can occur in marketing, tariffs, etc. making the realized price per MCF around $1. This has also hit NGL and Oil prices as the same fees apply. All of this leads many operators to shutting in wells that are older or newer in order to preserve reserves. If a well is older the costs associated with producing might be higher than the revenue received from selling the produced hydrocarbons. On the flip side many new wells will not be turned on because shale wells make the most money in the first months due to flash/flush production, etc.
Personally, I have seen revenue checks in the Marcellus wells we are involved in go from six figures to less than three in the past months, I can only assume RI/ORRI have seen the same. Many operators including Stone Energy, Gastar, etc. have cut their Marcellus drilling budgets and released rigs. Many owners who had received notice of a permit on their property will now not be having wells drilled which is a disappointment. However, do not forget the Utica. Utica test wells in the region have been phenomenal. With operator slashing budgets however, this gain of a new formation and revenue source will not be recognized for awhile. The question is for how long?
Stone Energy, Antero and Gastar are the two prominent players in Wetzel County and North and South of Wetzel. Gastar is in financial trouble and has cut their drilling budget. Antero has acreage within the Utica in Ohio and due to lower costs will probably continue to drill those wells over WV. Stone has released their Marcellus rig as of a few weeks ago and is taking a 6-month hiatus from drilling. They will be coming back however to drill Utica wells exclusively on previous Marcellus pads. It will be 1 YEAR OR MORE before royalty owners will benefit from these wells but is worth the wait. The test wells came in as the second highest reported Utica well per thousand feet, ever.
Many owners will start to feel the pinch over the next year because their royalty checks will basically be nothing. Mineral and RI/ORRI purchasers will be circling like vultures on people who have extended themselves or think that it will never recover. Do not buy into this, it will recover and will continue as it is profitable to drill regardless of pricing at the production coming off from these wells (Marcellus is indefinitely shut down). Find someone who will loan against current production if you need a holdover for life's events but do not sell out if you do not have to. It is impossible to value what the Utica will be able to pay out for mineral owners as these test wells have only been online for 6 months or less but from the production data we receive from these wells it is far better to hold onto your rights than to sell and lose out on future income.
Would love to hear some thoughts from mineral owners in WV and Ohio about this issue and am happy to answer any questions on where the Utica and Marcellus is going.
For reference I am involved in over 25,000 acres of producing Marcellus/Utica and consult for many Utica owners and am always happy to mineral owners!
Hi Philip, This was a very informative article! Do you have any knowledge as to the counties in WV that will likely be impacted by the Utica Shale bed? My family's interest are in Doddridge County.
Doddridge is about ~25 miles South East from our Utica well and about 16 miles South East of the closest Utica test (Triad Hunter Steward in Tyler). Thermal maturity will be alright in the west and southern portions but will be questionable towards the east. Depths will grow as you move more east (about 11k feet). The issue is that companies right now are drilling near offsets to their Ohio counterparts (ours is only ~1-2 mile away from Utica well in Ohio) because they know it will produce. All permits for Utica are within ~6 miles of border in Tyler, Wetzel, and Marshall and I would expect that those locations will be drilled out first before companies move farther east. Reason is risk and pricing.
Good thing for Doddridge, depending on where you have acreage is that Antero seems to have most of the Marcellus wells closest to the west border. They are one of the most active in Ohio and will eventually bring a test well that way. Unless pricing and transport get better I would not expect, other than maybe a test well, any Utica activity that way for at least a year or more. As the next 4-6 pads are drilled in Wetzel and Marshall it will significantly de-risk the play and move farther east. Problem with Tyler expansion is that Magunm (Triad) Hunter will be the main player and right now they are having cash flow issues on paper; I would not expect to the see them do any activity at all this year. (I attached a basic map of Utica permit locations compared to Marcellus activity).
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Thanks so much. Our interests are in New Milton District (#6). I have 4 signed leases with Antero now with 5 wells drilled and producing from Marcellus. I'm not sure how many more wells in the future with these leases. The annual report stated that they are deferring 15 permitted wells in 2015 due to the drop in gas prices. I checked the WV map site and could find no permits for Utica. But when I raised the issue with the Landman regarding Utica, he kind of downplayed it for Doddridge. I suspect you are right...it's a way off. Appreciate the map...thanks.
Phillip, you say Marcellus is indefinitely shut down. Is this true or an example of what the buyers may say to coax a sale?
Yes and No, going to depend on location. With what we are invested in right now (direct investment and OR/RI) marcellus rigs are being released. Stone released their Marcellus rig and completed what was being drilled. They are taking a six month hiatus and bringing in a larger rig for Utica and have permits right now on current Marcellus pads. Magnum Hunter sold their non-core acreage in Tyler. Antero is deferring completions on 50 wells until later quarters that have already been drilled. Chesapeake cut their marcellus rig to 0-1 on the outlook for the year. Southwestern is waiting on completing 15 of 35 but is continuing to drill. So for WV in the southern region does not look good for new wells being brought online this year.
Some wells will be drilled in order to hold acreage, it is a cost analysis of paying to release a rig and lease cost vs drilling top hole. Mid-stream assets are being improved during this time which should help see an increase in wells being completed and turned on. There needs to be a .30-.50 uplift for that to occur, there are plans for some NGL pipeline improvements, etc. this year which should help reduce transport issues.
This is a great discussion! Phillip- thanks for the information! I also have well interests in Doddridge County- the Central District, right at the western border with Ritchie County. Do you think the Utica here is too deep for drilling, or is the layer too thin? I've also heard that the seam gets deeper West to East and it gets thinner too. On the other hand, I've heard that Antero wouldn't invest 2-3 million in a well pad for just a 5-7 year Marcellus production- they have to have other layers in mind. What do you think will play out??
It will really depend on step out tests by operators. The first indicator will be a test in the middle of Wetzel and one in the middle of Tyler. Those two tests will give an indication of how the formation is changing from Ohio border moving east and south. Ohio is having test wells in Washington County, more towards the center, but it is drier gas and will also help determine the movement of the play going South. Main problem you will have with the Utica is over cooked regions due to depth and time. The deeper you go with dry gas the more over pressured you are as well, if you have been tracking some developments in Ohio over the past year there have been multiple blowouts in dry gas areas due to drilling issues. There is really only one company in the area that is experienced in over pressured regions and that is Stone due to their Gulf assets. The thickness also dissipates as you move east and south as you have stated (attached thickness map to this reply). Good and bad pricing has helped slowdown the production of the formations in Appalachia giving people time to catch their breath. Big thing will be when leases expire, what will be the going rate? Land owners are smarter now and if the Marcellus has not been drilled yet can lease just that formation and hold onto Utica rights until the "right" price is offered. We are seeing Utica acreage in Wetzel and Monroe Ohio going for 6-8k/acre.
Big thing to keep track of now as things are slowing down is auditing companies on wells you are involved in,it does not say that you think they are screwing you but allows for companies to be honest with land owners. Multiple lawsuits lately over post-production costs, in WV there was a major lawsuit that went in favor of land owners. Also with the large breakup of mineral rights in WV also a good idea to make sure you are being paid for wells that your minerals are included in. Have had multiple clients when we review their acreage have had wells that they have not been paid for. It happens but people need to be careful and vigilant.
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Thanks Phillip! Indeed, with the help of Nancy Mosley I was able to identify a tract that I had interest in, but was not included in Antero's pool for that unit (Zellerback). After calling Antero, they confirmed that we are indeed in there, and that they missed my mother's will in the Doddridge database. It does pay to be vigilant!
Phillip D thanks a lot for the maps and all the great information.
You mentioned lawsuits about post production costs. Have you heard anything about companies taking post production costs on more recent 1/8 wells on old flat rate leases? The flat rate leases didn't mention costs like that, even for oil. There was a bit of ambiguity in the wording of the WV statute saying that newer wells needed to be 1/8 royalty wells on those leases. A company I know of has been driving trucks through that ambiguous language.
Darin, thanks for the plug! It is fun finding things and even better when it helps get things correct.
Hi Phillip:
Interested in what you are saying is utica lease prices, as we've had someone approach us regarding purchasing our mineral rights. It's our understanding there's a plan for a well on adjacent property of ours (where we own mineral and most surface), with 3-7 utica laterals on our land. Plans slowed by a partition suit, for which I cannot find details. Rights in Wetzel County, under a current lease.
Is the 6-8k for lease versus purchase? Is this common price for lease or just a few leases?
I look forward to hearing form you.
hey, nice work. i own rights in tyler co meade dist. sherily area. since sighing with nobel energy they have gone from sweet as wine to dang mean. i was told new drill year is 2017 but even getting that was like fighting and old black bear. thought of selling out. but my son are like those rights have been in our family for over hundern years. no dad. but we are just about straving poor mountain folk. sure need help on this. o’ and i own a oiwell in roane co. even got old checks in my granpappys name tryed hard to fine company but hit brick wall somebodys getting oil money? can you help? be glad to make adeal with yea. mailing address 264 ultra lane ashton west virginia.25503 ph# 304 761 2112 ( when i can afford time). with respect . WILLIAM A MCYOUNG
