×

Gas prices recovering, putting rigs back to action

WHEELING — Southwestern Energy Co. lost $2.5 billion in the first nine months of 2016, a reflection of the global oil and natural gas price collapse that could be felt throughout the Marcellus and Utica shale region this year.

However, commodity prices on the New York Mercantile Exchange are steadily recovering, so Southwestern and other drillers should be able to place more rigs and fracking crews back in service across Ohio and West Virginia — all the while recovering from a year of monetary losses.

Amid those profit losses, some landowners are seeing companies offer them far less to renew the leases originally signed five years ago when prices boomed into the $5,000-per-acre range and beyond.

“When rigs are running, that is a great sign,” said Tim Greene, owner of Land & Mineral Management of Appalachia and a former West Virginia Department of Environmental Protection inspector. “Any uptick in price certainly helps.”

Rigs and prices

In April, a 1,000-cubic-foot unit of natural gas (Mcf) was worth about $1.97 on the NYMEX, but on Friday, this price hovered around $3. A barrel of oil, meanwhile, sold for about $39 on the exchange in April, but the price is now over $50.

“Any little bit helps,” said Shawn Bennett, executive vice president of the Ohio Oil and Gas Association. “As long as gas prices are at least around $3, you’ll have some drilling in Belmont County and Monroe County.”

Oilfield services giant Baker Hughes tracks active drilling rig counts across the globe. There are now 14 rigs running in Ohio compared to only 11 in April, a small but steady increase. The numbers in West Virginia, however, dropped to 10 as of last week.

“It’s really just supply and demand, like anything else,” Greene said. “As long as the price goes up, the number of rigs will follow.”

“What we really need is a recovery in the price of liquids,” Bennett said. “That would make it more profitable to drill now.”

Southwestern

and pipelines

In summer 2015, Southwestern President and CEO Bill Way said the company planned to invest $24 billion to produce oil and natural gas in West Virginia over the next two decades. Despite the profit losses this year, the company continues renewing many of the Northern Panhandle leases it paid Chesapeake Energy for $5 billion to acquire two years ago.

“During the third quarter, we once again delivered on our commitments and delivered solid results through our relentless focus on value creation in the current pricing environment,” Way said in announcing the firm’s third quarter earnings last week.

Southwestern officials said they are forced to sell their natural gas at a price lower than the NYMEX average, partially due to a lack of interstate pipelines in the region to transport the material to market. During the third quarter, the company sold its gas at a rate $1.03 lower than the actual exchange price.

“Operators are constrained by the lack of takeaway capacity,” Bennett said. “You have to get the capacity up, which means you need more pipelines.”

Greene and Bennett said the Federal Energy Regulatory Commission (FERC) continues evaluating six major natural gas pipeline projects — collectively worth as much as $20 billion — that would help alleviate the drillers’ problems: the Atlantic Coast Pipeline, the Leach XPress, the Mountaineer XPress, the Mountain Valley Pipeline, the Rover Pipeline and the Nexus Pipeline.

“A lot of these pipelines are not going to be in service for a while, even after they are approved,” Bennett said noting the construction time involved.

“It’s just something you have to let FERC go through,” Greene added.

In Southwestern’s West Virginia operating area, which also includes southwestern Pennsylvania, the company spent $41 million during the third quarter to drill four wells and frack a total of eight. The firm plans to place nine new wells into production throughout the region before the end of the year.

“As we look forward to 2017, our capital rigor and commitment to balance sheet strength will remain central to delivering value-adding growth from our vast portfolio,” Way added.

Leasing renewals

Many of the leases companies such as Chesapeake and others signed with landowners lasted five years. If the driller has begun producing natural gas from your property, Greene said the firm should be committed to the terms of the original contract. This means they would have to renew the agreement for the same amount — with lease payments of $5,000 or more, along with royalties as high as 20 percent.

“Generally, they have to pay you what they agreed to pay you once it starts producing,” Greene said. “Every lease is different, but that is normal.

However, those who signed leases but have not yet seen any drilling on their property could find the companies offering far less for lease renewals than the original agreements provided.

“If they paid you $5,000 (per acre) initially, they could pay you $5,000 to renew,” he said. “But if the renewal is optional, that is at their discretion. They don’t have to offer you that again,” Greene said.

Greene said he expects some drillers will now “lowball” landowners because the market is not as active as it was five years ago.

“They may only offer $1,500 an acre now. I don’t think you’re going see $5,000 or $8,000 per acre,” he said.

“The payments will probably be all over the place again, unfortunately,” Greene added.

(Junkins can be contacted at cjunkins@theintelligencer.net)

NEWSLETTER

Today's breaking news and more in your inbox

I'm interested in (please check all that apply)
Are you a paying subscriber to the newspaper? *

COMMENTS

Starting at $4.73/week.

Subscribe Today