Some PA Drillers Threaten to Spoil it for All via Royalty Shenanigans
We’ve written a number of posts over the years about the ongoing, sometimes quiet sometimes not, civil war between Pennsylvania landowners and some (not all) drillers who use inflated post-production deductions to pad their own bottom lines, leaving landowners with peanuts–sometimes with no royalties at all (see Deep Dive: PA Royalties Civil War Between Landowners & Drillers). If we can oversimplify and summarize this complex issue, landowners maintain that a 1979 PA law guarantees landowners a 12.5% royalty regardless of expenses involved in extracting the gas, and drillers say no, landowners must abide by the contracts they’ve signed and if those contracts allow post-production costs to be deducted before calculating a royalty, the rate may go lower than 12.5%–sometimes to zero and below. PA landowners have, for the past six plus years, lobbied for legislation to clarify and protect a 12.5% minimum royalty. Today we have a guest post from the landowner point-of-view. Thad Stevens is a Gaines, PA resident and real estate developer. Thad has negotiated more than 50 oil and gas leases. He sits on the Dept. of Environmental Protection Citizen Advisory Council and is a director with the National Association of Royalty Owners PA chapter. We consider Thad a friend. He’s smart and he’s passionate about the the ongoing issue that some companies take inflated post-production deductions leaving PA landowners with little or nothing. Thad writes that some of PA’s gas drillers are displaying real arrogance in their attitudes toward the very people they need the most–landowners…
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Earlier this year the West Virginia legislature passed Senate Bill (SB) 360, which Gov. Jim Justice subsequently signed into law (see 
EQT had to take their case all the way to the Pennsylvania Supreme Court, but in the end, the company was victorious over a wildly overinflated $4.53 million fine levied by the state Dept. of Environmental Protection (DEP) for a leaky wastewater impoundment in Tioga County dating back to 2014 (see 
A debate is playing out in West Pike Run Township in Washington County, PA (near Pittsburgh) that we find interesting. A quick PA history lesson: Back in 2012 PA passed the Act 13 law to update oil and gas regulations to account for shale drilling. One of the updates was a uniform set of zoning requirements to protect residents and the environment. Unfortunately, seven selfish townships sued and eventually won (at the PA Supreme Court) challenging those regulations. So PA towns won the right to impose restrictions on drilling activities. In West Pike Run, the debate is over “setbacks”–how far does a well have to be from nearby structures, like homes and barns and businesses. State law imposes a minimum of 500 feet from the wellhead to an “occupied” structure–and 300 feet from the well to a body of water. In West Pike Run, antis want to up that number to 1,000 feet, which would effectively prevent any more drilling by EQT, the primary driller in the township. The town recently held a hearing on the proposed 1,000 foot setback, a hearing which has been continued to a future meeting on April 16…
The Pennsylvania Dept. of Conservation and Natural Resources (DCNR) has just amended an existing lease with EQT that allows EQT to extract natural gas (and other hydrocarbons) from underneath the Monongahela River in Allegheny, Greene, Fayette, Washington and Westmoreland counties. EQT is paying $4,000 per acre for 392 acres ($1.568 million total) in a signing bonus, along with a big 20% royalty on anything produced. However, the announcement raises an important question we’ve asked for more than four years: Is the land under rivers and streams actually owned by the state? PA says yes. We suspect landowners who own land along those rivers and streams would say otherwise. The state grabbing money for land under bodies of water has been going on for years (see 
We spotted an intriguing story that summarizes some of the information found in a newly-released report from private equity firm Baird Equity Research. Baird’s report purports to show, using data, “the most productive operators in the Marcellus shale.” What is the criteria used? They use productivity per average well along with how much money the average well is generating for the operator (i.e. driller). We wish we had a copy of the full report. Sadly, we do not. However, we do have the article summarizing it, which shares the top three operators. The top operator stands head and shoulders above the rest. Would it surprise you to learn the top operator in the Marcellus, according to Baird, is Cabot Oil & Gas? No, it didn’t surprise us. What about the other two in the top three? And what about the top Utica operator? Read on…
After EQT announced its plan to buy/merge in Rice Energy last year, the company got pushback from a couple of so-called activist investors (i.e. corporate raiders). One raider, Jana Partners, tried its best to stop the EQT/Rice deal outright (see 
West Virginia royalty owners (which sometimes means landowners, sometimes not) are pushing Senate Bill (SB) 360 to fix the issue of post-production deductions drillers take from royalty checks. A brief history: In December 2016, MDN reported on the huge WV Supreme Court decision against EQT that disallows EQT from deducting post-production expenses from royalty checks, even with signed contracts in place (see 
Yesterday EQT, now the largest natural gas producing company in the United States following its acquisition of Rice Energy, released 2017 numbers. On an analyst call to discuss the number, CEO Steve Schlotterbeck turned the conversation in the direction of “sum of the parts”–which turned out to be the really big news. What in the world is “sum of the parts?” In October 2017, prior to EQT consummating its deal to buy Rice, Steve Schlotterbeck said following the merger EQT would study a plan to split the newly consolidated company into two pieces–upstream/drilling and midstream/pipelines (see 
Yesterday the biggest natural gas producing company in the U.S., EQT, released its fourth quarter and full year 2017 update. As we pointed out in our lead story today, the 800-pound gorilla in the room was talk about an impending announcement to split EQT into two companies (see EQT Big Announcement Coming Within 2 Wks to Split Co. in Two). However, there was plenty of other news coming out of the 2017 update and accompanying analyst phone call. Of course the big news for EQT in 2017 was closing on the deal to buy Rice Energy (see 
Our lead story today is about Gulfport Energy which highlights some exciting news: This year (in 2018) Gulfport will fund their entire drilling budget out of the cash flow the company generates from selling gas/oil/NGLs (see Gulfport Energy Continues Focus on Utica for 2018, No Borrowing). Thing is, Gulfport isn’t the only Marcellus/Utica driller to advertise the fact that this year they are “living within their means” and not borrowing. Others include Range Resources, EQT and Antero Resources. Wow! We’re finally profitable!! Or are we? MDN spotted some analysis by a hedge fund manager. Writing on the Seeking Alpha investor’s website, Josh Young says (in our words) “hold on a minute” with respect to M-U drillers appearing to be able to grow production without borrowing. Why is Josh not convinced with this good news? Because when you dig deeper into the numbers, you find that “organic growth within cash flow is further from reach” because drillers are using DUCs to spend less on drilling, and grow production, than they otherwise would be. A DUC is a Drilled but UnCompleted well. Many times drillers will drill the initial hole in the ground, but then not “complete” (or frack) the well. Why do that? For a variety of reasons. The biggest reason is usually because the commodity price of gas (or oil, depending on the well) is not favorable. Rather than lose the lease (an expensive proposition), drillers will begin the process by drilling, and then leaving, the well, returning later to complete it when prices go up again. Josh’s thesis is that by using DUC inventory drillers aren’t really funding the entire budget from current year cash flow, because some of the money was spent in a previous year to drill the well. They are, in essence, still borrowing–from a different year. Josh estimates an average of 20% of the “new” wells coming online are DUCs and not truly new wells funded by current year dollars–meaning these companies aren’t as “profitable” as they may seem. Does he have a point? Is it all just financial mumbo jumbo? You decide…
In December 2015 MDN told you about EQT’s application to drill a single shale well in Jefferson Hills (Allegheny County), PA (see 
The Marcellus/Utica Shale industry is changing underneath our feet–literally! Last time we checked, most well pads in the Marcellus/Utica sported an average of maybe 3-4 wells–with a dozen wells on a pad being “big.” Something has changed, dramatically, in the gas fields of PA, OH and WV. The “new normal” are supersized well pads–holding as many as (gasp) 40 wells! We hasten to add no such pad yet exists–a pad with 40 wells drilled from it. However, there is an EQT well pad in Allegheny County (near Pittsburgh) with 38 wells permitted (9 of which have been drilled so far). EQT says it now averages drilling 17-18 wells per pad. Antero Resources is drilling an average of 10 wells per pad–up from 3-4 “just a few years ago.” The trend now is more wells per pad, and longer laterals–meaning fewer well pads overall. That’s good for the environment, and good for the bottom line (less money spent pushing dirt around developing pads). Here’s an update on the trend to supersize well pads in the Marcellus/Utica…