WV Supreme Court: Non-Participating Rights Owner Can’t Stop Lease

Just yesterday we told you about an important court case that had gone to the West Virginia Supreme Court of Appeals (see WV Rights/Pooling Case May have Big Impact on Shale Industry). In brief, the case was appealed from a lower court where a judge found that a “non-participating” mineral rights owner, someone who owned a quarter of the rights for a property in Marshall County, had the power to object and stop a lease of the property for oil and gas drilling. We thought it strange that the lower court judge would make such a decision, which threatens to up-end thousands of leases in WV that are similar. Little did we know that as we were publishing that story, the WV Supreme Court was rendering its decision. All five justices voted to overturn the lower court ruling and preserve sanity for leases in the Mountain State…Continue reading

WV Rights/Pooling Case May have Big Impact on Shale Industry

A court case from Marshall County, WV decided in April 2016 is heading to the WV Supreme Court of Appeals (the state’s highest court). The stakes in Contraguerro v Gastar Exploration could not be higher for the Marcellus industry in the Mountain State. In brief, 70 years ago a 106-acre track of property was sold. The sellers retained a one-quarter “non-participating interest” in the oil and gas rights. That means the buyer got to decide when/if to lease the property for drilling, and if so, has the right to negotiate the price, etc. The remaining one-quarter non-participating interest holders would get royalties, but nothing else. Fast forward several generations and the heirs of the original sellers didn’t even know they owned an interest in the land until contacted by Gastar, which needed a signature in order to send them checks for royalties. The heirs decided to sue to stop the deal, either in a bid to negotiate a better deal or perhaps because they don’t like fossil fuels. Who knows? The case went to the Circuit Court of Marshall County and a judge there found in favor of the heirs–giving them, and by extension any minority rights owner, the power to stop lease deals. An unmitigated mess that threatens many lease deals because divided rights ownership is common in WV. Perhaps this case was part of the motivation to pass a new law this year addressing “co-tenancy” (see Analysis of New WV Bill SB 576 re Co-Tenancy & Joint Development). The co-tenancy law, if passed, means if there are multiple owners for the mineral rights under a property, you would only need a simple majority of those owners to approve a drilling lease. Currently, if one person with a teeny tiny share objects, it stops the process. In the Contraguerro case, although the heirs are owners, they are “non-participating”–so they should not have had a say anyway. However, a lower court judge found otherwise. So the case was appealed and is now before to the WV Supreme Court…Continue reading

Gastar Leaving the Marcellus/Utica “on or before” April 8th

As MDN previously told you, Gastar Exploration has found a buyer for its Marcellus/Utica wells and leased acreage located mainly in Marshall and Wetzel counties in West Virginia–for $80 million (see Gastar Leaving Marcellus/Utica, Sells Assets to Tug Hill for $80M). Gastar expected the sale to be completed long before now–but ran into issues with one landowner. Gastar says it’s all patched up now and the transaction will be complete “on or before” April 8th…
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Gastar 2015: Paper Loss of $429M; Ending Preferred Dividends

As MDN previously reported, Gastar Exploration is throwing in the towel in the Marcellus/Utica (see Gastar Leaving Marcellus/Utica, Sells Assets to Tug Hill for $80M). Gastar is selling its Marcellus/Utica assets–mainly located in Marshall and Wetzel counties in West Virginia–to Tug Hill for $80 million. Before they go into the long, dark night, Gastar has just filed its fourth quarter and full year 2015 operating and financial update. During 2015 Gastar lost $429 million–but virtually all of it was a paper loss of writing down assets (not out of pocket money loss). Gastar also announced yesterday that after this month, the company will no longer pay dividends on its preferred stock. Here’s the updates from yesterday…
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Gastar Leaving Marcellus/Utica, Sells Assets to Tug Hill for $80M

Gastar Exploration is throwing in the towel in the Marcellus/Utica. Gastar is selling its Marcellus/Utica assets–mainly located in Marshall and Wetzel counties in West Virginia, to Tug Hill for $80 million. Gastar has seen the light and that light is in becoming a “pure play” company focused solely on the Oklahoma STACK Play. Why sell what they admit are “high-quality”? Because they can’t get enough money for their gas in the northeast–and they can’t get enough money because there aren’t enough pipelines to move the gas to other markets. So they’re throwing in the towel and calling it quits. In addition to the sad news that they’re leaving the Marcellus, Gastar also delivered the bad news that their proved reserves went down 45% in 2015 due to lower commodity prices…
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Gastar’s Mike McCown Retires; Peg Heeg Joins Columbia Pipeline Bd

From time to time we mention people coming and going at various drilling and midstream companies. The reason we mention it is because when there are changes at the top of an organization, it has the potential to affect the future actions of that organization. We have two such moves to report. The first is that Mike McCown, senior vice president and chief operating officer for driller Gastar is retiring. We’ve quoted Mike a number of times over the years–he’s an important cog in the Gastar wheel. The second bit of news is that Peggy Heeg has joined the board of directors at midstream giant Columbia Pipeline. Peggy is an attorney and former general counsel at El Paso Corporation…
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Gastar Spooked by Takeover Threat Adopts Shareholder Rights Plan

According to a press release from Gastar Exploration, a driller with operations in both the Marcellus and Utica Shale plays (among others), the company is adopting a “tax benefit preservation plan to preserve valuable net operating losses.” What, exactly, does that mumbo jumbo mean? It appears to us that Gastar is very concerned that they either are, or will become, a takeover target. The company holds certain paper assets, including an accounting line called a “cumulative net operating loss carryforward” that can be used to reduce Gastar’s income tax bill (i.e. boost per-share value). Apparently a new “Shareholder Rights Plan” just adopted by Gastar will ensure that if the company is taken over, they can use the carryforward to benefit existing shareholders. Yes, it’s complicated and we don’t pretend to understand it all. Our takeaway is that Gastar is spooked that they are being targeted for a takeover, and the current board and management is acting to either prevent it, make it more distasteful (“poison pill”), or perhaps just acting to be sure they don’t lose their own shirts in a takeover or sale…
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Gastar Deal to Lease Under the Ohio River in WV Falls Apart

Remember the brouhaha over energy companies bidding to drill on land underneath the Ohio River in West Virginia? We told you about one such lease–Gastar won a bid on a 232-acre tract underlying the river at the border of Marshall and Wetzel counties. They paid $3,500 per acre as a signing bonus and 20% royalties in their winning bid (see Gastar Wins Lease to Drill Under Ohio River in WV). There were just a few minor details to settle before the deal closed. Guess what? Gastar never closed the deal. Since October 2014 the price of natural gas has crashed, making it uneconomical to drill in many (most?) locations, and Gastar didn’t want to part with its precious capital–so no deal was never finalized. And now the West Virginia Division of Natural Resources is about to call the deal dead and shop it again. Problem is, it’s now a buyer’s market for leases, not a seller’s market as it was in October 2014. WV won’t get anywhere near the same terms this time around, of that we’re sure…
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Gastar 3Q15: Production Up but Still Shopping Marcellus/Utica

Yesterday Gastar Exploration, with active drilling programs in the Marcellus/Utica and in the Midcontinent region, issued their third quarter 2015 financial and operational update. What do we glean from it? The company lost $191.8 million for the quarter–but almost all of it was a paper loss and not actual money out the door (from writedowns). As we’ve previously noted (see Gastar Puts All Marcellus/Utica Assets (Leases/Wells) Up for Sale), Gastar continues to shop their Marcellus/Utica assets and said as much in this update. Net production in the northeast rose in 3Q15–8,000 barrels of oil equivalent per day, or Boe/d in 3Q15 vs 5,300 Boe/d in 3Q14. They didn’t drill a single new well in 3Q15 nor will they drill any in 4Q15 and for the foreseeable future. They’re trying to sell it…
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Gastar Puts All Marcellus/Utica Assets (Leases/Wells) Up for Sale

for sale signWhat a difference a few months, or even a week, can make. In August, Gastar Exploration, which owns roughly 60,000 acres of leases in the Marcellus/Utica mostly in Marshall and Wetzel counties in West Virginia, was talking up their drilling program in the northeast (see Earnings Call Reveals More Details on Gastar’s Marcellus/Utica Plans). Just last week we reported on Gastar CEO Russ Porter’s talk at OGIS in San Francisco about the Marcellus/Utica and what’s ahead for his company (see Gastar CEO Porter Talks about Marcellus/Utica at San Fran Conf). Lately it seems like Gastar, which also drills in the Mid-Continent region of the country, has been giving a little more love to Mid-Continent area because gas prices in the northeast remain stubbornly low. Looks like the Mid-Continent is about to get all of Gastar’s love. The company announced yesterday they’ve put all of their Marcellus/Utica assets up for sale, including leases and drilled/producing wells…
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Negative Sign: Short Selling of Gastar’s Stock Increases 12%

negative signShort selling of Gastar Exploration stock has increased–certainly not a positive sign for the company. From time to time we bring you a story, like this one, that on the surface appears to be of interest only for investors rather than landowners or companies that sell goods and services to the shale industry (supply chain). MDN does have a number of investors who subscribe, but if you think stories like this one are only for investors, you are mistaken. Landowners, supply chain companies, even those in elected government are all affected and should pay attention. Short selling is when investors buy stock on a gamble that the stock will decrease–not increase–in price. When a company’s stock decreases in price, the company has a lower market capitalization and it makes it (a) harder to borrow money, and (b) if they can borrow the money, they have to do it at a higher interest rate, making business activities less profitable. If we cut out all of the connections from point A to point B and just boil it all down: when a driller’s stock price decreases significantly, it means less drilling and financial instability for the company, which does not benefit landowners and the supply chain companies that want to sell goods and services to that driller. In other words, it means less royalties, less business opportunities, less jobs and less economic impact. That’s why we report stories like the following…
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Banks Recertify Gastar Exploration’s $200M Line of Credit

line of creditGastar Exploration, which concentrates its shale drilling program in Oklahoma and West Virginia, earlier this year announced they would not drill any new wells in the Marcellus/Utica until commodity prices in Appalachia improve (see Gastar 1Q15: NE Production Up 5%, No New Marcellus Wells in 2015). They reaffirmed that strategy in August (see Earnings Call Reveals More Details on Gastar’s Marcellus/Utica Plans). Even though they are not currently drilling any new wells in our neck of the woods, the company continues to drill in the Midcontinent, and they continue to need money to keep the doors open. Yesterday Gastar announced their bankers have performed a review and have certified the company worthy to continue maintaining a $200 million line of credit from which they can borrow for drilling and other purposes. Currently Gastar has borrowed $65 million of the $200 million available credit line…
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Earnings Call Reveals More Details on Gastar’s Marcellus/Utica Plans

Last week we reported the very brief comments in Gastar Exploration’s 2Q15 update with respect to the Marcellus/Utica (see Gastar 2Q15: No New Marcellus/Utica Wells, Production Increased Anyway). Last Friday Gastar’s executives held a conference call with analysts and from that call we get a bit more color commentary on what’s happening with Gastar’s northeast drilling program, including an interesting question/answer about Gastar’s Marcellus East acreage actually being a good prospect for Utica development and a discussion about EQT’s monster Utica well in Pennsylvania…
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Top 10 Dry Gas Utica Shale Wells of All Time (as of Aug 2015)

Top 10A slide we spotted in a Gastar presentation got us to thinking: What are the top 10 Utica Shale wells? Who drilled them? And how much was their initial production (IP) rates? So we went searching and came up with the handy list below. This list is current as of August 2015. A few caveats: First, some of the wells in the list produced not only methane (“dry gas”) but also oil, condensate and natural gas liquids–i.e. other hydrocarbons. However, the numbers in the list below are for the methane/dry gas only portion of what the well flowed during an initial period of time (typically the first 24 hours). So keep that in mind. These are not necessary dry gas only wells, but the numbers are for the dry gas portion coming from the well. Second, we scoured the MDN archives and other sources to compile the list. If you believe we’ve overlooked a well–let us know! We would be happy to correct the list. As it is, we believe it to be accurate. It tells a pretty incredible story. Below the Top 10 list is another list–of MDN stories covering the details for the wells in the Top 10 list…
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