Energy Companies

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    Major Transaction: CONSOL Energy Buys Dominion Resources Appalachian Business, Including Marcellus Gas Operations, for $3.475 Billion

    CONSOL Energy of Pittsburgh today announced it is buying the Appalachian exploration and production operation of Dominion Resources. Dominion’s Marcellus Shale drilling operations are part of the transaction. CONSOL is paying $3.475 billion in cash.

    Dominion currently has leases on approximately 500,000 acres in the Marcellus Shale. Added to CONSOL’s existing 250,000 acres (which belong to CNX Gas, another CONSOL company), the new total acreage controlled by CONSOL will be 750,000. Dominion’s large Marcellus acreage was one of the key attractions for CONSOL.

    The total acreage CONSOL is buying from Dominion for both oil and gas totals 1.46 million acres, along with 9,000 active oil and gas wells. Dominion’s operation was once part of John D. Rockefeller’s Standard Oil company.

    CONSOL will add 193 employees from Dominion’s Appalachian operation to its own payroll when the deal closes, which is expected to happen at the end of April.

    For more details, see the press release:
    CONSOL Energy to Acquire Dominion’s Appalachian E&P Business for $3.475 Billion In Cash

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    Chief Oil & Gas Drilling Wells in Dauphin and Somerset Counties, PA

    Chief Oil & Gas (based in Dallas), is in the process of drilling wells in Jefferson Township in Dauphin County, and Addison Township in Somerset County, both in Pennsylvania. According to a Chief spokesman, if those wells do well, it “could lead to large-scale development in the region.” Chief owns the rights to 580,000 acres across the entire Marcellus Shale area.

    For more details on Chief and a recent meeting they held for area residents, see:
    Somerset Daily American (Mar 11) – Gas reps seek community support

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    Nytis Exploration Sells Lease for 11,657 Acres in the PA Marcellus to Northeast Natural Energy

    From a press release* dated March 11:

    Northeast Natural Energy LLC (“NNE”) announced today that it has closed the acquisition of 11,657 net acres in the core of the Marcellus Shale and associated shallow conventional oil and gas wells from Nytis Exploration Company LLC and from Nytis Exploration of Pennsylvania LLC (“Nytis”), both private exploration and production companies. Financial terms were not disclosed.

    “We are very pleased to establish a significant acreage position in the core of the Marcellus Shale,” said Mike John, NNE’s President. “The acreage, which is very high in quality, is located in some of the most attractive areas in the Marcellus including Armstrong, Clearfield and Westmoreland Counties, Pennsylvania. This transaction provides a platform for future bolt-on positions in the region and establishes NNE’s position as a key participant in the development of the Marcellus Shale. We look forward to drilling this acreage as we continue to evaluate many other substantial opportunities in the Marcellus.”

    *Business Wire (Mar 11) – Northeast Natural Energy Acquires 11,657 Net Acres in the Marcellus Shale from Nytis Exploration Company

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    New Drilling to Begin in Luzerne County, PA in May or June

    According to an article in the Wilkes-Barre Times Leader, drilling company Encana Energy Corp (from Canada) will begin drilling a Marcellus gas well in Lake Township, PA (Luzerne County) starting in May or June. At a recent town meeting, some residents expressed concerns about trucking activity on local roadways. More meetings are planned to answer local residents’ concerns.

    For more information, see: Times Leader (Mar 11) – Lake Twp. antsy about gas drilling

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    Landowners Beware of Post-Production Expenses Deducted from Your Royalty Checks

    An informative article with a lot of background on the issue of gas royalty payments and the practice of deducting post-production expenses from those payments is published in today’s The State Journal. The article covers in detail the case of Tawney v. Columbia Natural Resources that was settled by the West Virginia Supreme Court in 2006. That decision said, in essence:

    [G]as producers cannot deduct “post-production” expenses — those incurred between the wellhead and market, such as dehydration, compression and transportation — from royalty payments unless explicitly spelled out in the lease.*

    West Virginia is in the minority of states that have ruled against post-production expenses. Other states disallowing post-production expenses (unless specifically spelled out in the lease) include Arkansas, Colorado, Kansas and Oklahoma.

    However, because gas “at the wellhead” is not in “marketable condition,” a number of other states do allow deduction of post-production expenses from royalty payments in cases where it’s not specifically enumerated in the lease. Those states include Louisiana, Mississippi, Texas, California, Montana, New Mexico and some others.

    Kentucky and Pennsylvania have not yet ruled on the matter, although the Pennsylvania Supreme Court is due to rule soon in Kilmer v. Elexco Land Services Inc.

    The lesson for landowners: Make sure the language in your lease is spelled out in detail about what kinds of post-production expenses can and cannot be deducted from your royalty checks. And if you have a contract that is not specific, get legal advice and be sure you’re receiving the money you’re owed.

    *The State Journal (Mar 11) – State Courts Continue to Evaluate Gas Royalties

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    PA DEP Staffs Up with More Gas Well Inspectors

    The Pennsylvania Department of Environmental Protection is hiring more inspectors for gas and oil wells. Right now there are 125 inspectors statewide. By the summer, an additional 68 will be on board bringing the total to 193 inspectors. Which is a good thing according to the York (PA) Dispatch, which notes:

    In the last year, to cite two examples, inspectors noted that a brine pipeline operated by Range Resources Corp. was spilling production fluids into the ground at Cross Creek Park near Avella, resulting in a $23,500 penalty for the Texas-based company; and Atlas Resources was fined for violations at 13 of its wells in Washington, Fayette and Greene counties.*

    MDN agrees. More inspectors are a good thing. It keeps everyone honest, and reassures the general public that drilling can be done safely.

    *York Dispatch (Mar 10) – Marcellus Shale: Drilling inspectors welcome

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    New Pipelines Coming to Lycoming, Tioga and Bradford Counties in Pennsylvania

    PVR Midstream, a division of Penn Virginia Resource Partners, has signed an agreement with Range Resources to construct and operate pipelines and compression facilities for Range’s drilling in the Marcellus shale in PA.

    According to the press release:

    PVR Midstream and Range have agreed to an area of mutual interest (AMI) that covers parts of Lycoming, Tioga and Bradford Counties in north central Pennsylvania, in which Range currently holds a substantial acreage position. Within this AMI, PVR Midstream will construct approximately 16 miles of 24- and 30-inch gathering trunklines, smaller-diameter field gathering lines and compression facilities required to gather Range’s production from the AMI. The gathering system will have over 700 million cubic feet per day (MMcf per day) of throughput capacity, and the initial phase is expected to become operational in the fourth quarter of 2010. The agreement provides Range significant firm gathering capacity in the system, and PVR Midstream will be compensated for the gathering and compression services provided to Range through a combination of volumetric fees, with no direct commodity exposure. Excess capacity on the system and the location within a core area of Marcellus Shale development should allow PVR Midstream to develop additional revenue by providing gathering and compression services to area producers.

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    William Zagorski, “Father of the Marcellus Shale”

    William Zagorski, geologist and musician, is credited as being the “Father of the Marcellus Shale.” It’s an interesting story how he convinced Range Resources to try drilling in the Marcellus using hydraulic fracturing. Mr. Zagorski even has a music CD! Read the story of the beginning of drilling in the Marcellus Shale and about the man who pioneered it:

    PA Observer-Reporter (Mar 7) – Riding high on the range, the ‘Father of the Marcellus Shale’ leading a busy life these days

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    Marcellus Leasing & Drilling in the West Virginia Panhandle Heats Up

    West Virginia Marcellus Shale is getting hot. From an article* in the Steubenville (OH) Herald-Star, we get a mountain of good intelligence on what energy companies have and are paying in the West Virginia panhandle:

    • AB Resources is paying the New Vrindaban Hare Krishna Community in Marshall County $2,500 per acre for approximately 4,000 acres, and 18.75 percent production royalties. That works out to $10 million in lease payments.
    • Chesapeake paid $750 per acre and 14 percent royalties to the Wheeling Park Commission for leases in the Oglebay and Wheeling Parks in 2009. The park commissioner is not happy that Chesapeake is planning to pay more this year to lease public lands in neighboring Ohio County.
    • Chesapeake paid $2,800 per acre and 18.75 percent production royalties last month to the Marshall County Board of Education for rights to 177 acres in Sherrard.
    • Chesapeake has 11,000 acres under lease in Ohio County, and 45,000 acres (with 26 wells drilled) in Marshall County.
    • Trans Energy owns and operates 300 active wells in Marshall, Wetzel and Marion counties, with 40,000 acres under lease.

    Also, according to the article:

    Current lease contracts range from as low as $5 per acre to as high as $2,800 per acre, with production royalties ranging from 12.5 percent to 18.75 percent. Landowners are being urged to think carefully before signing any contract.*

    *Steubenville Herald-Star (Mar 8th) – Steubenville Herald-Star – Natural gas could bring riches to Panhandle

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    Chesapeake Given Green Light to Drill 5 Wells in Washington County, PA

    Chesapeake Appalachia, a subsidiary of Chesapeake Energy, has received clearance from two townships in Washington County, Pennsylvania, to move forward with plans to drill five gas wells. Three of the wells will be drilled in Robinson Township, and two in North Fayette Township. Supervisors in both townships voted unanimously (3-0) to allow drilling to begin. The PA Department of Environmental Protection will still need to approve permits, but all systems appear to be “go” for drilling to begin.

    Each well will take approximately three weeks to drill with drilling activity scheduled seven days a week, 24 hours a day. The approvals were granted contingent on certain guarantees and conditions about safety.

    For full details, see: Pittsburgh Post-Gazette (Mar 4) – Officials OK plan to drill Marcellus shale for natural gas

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    More Details on Southwestern Energy’s Marcellus Shale Plans from Earnings Call

    From a Q4 2009 earnings call* held on Feb. 26, we learn the following about Southwestern Energy’s involvement in the Marcellus Shale:

    At December 31, 2009, we had approximately 149,000 net acres in Pennsylvania prospective for the Marcellus Shale. Our undeveloped acreage position as of December 31, 2009 had an average remaining lease term of five years, an average royalty interest of 13%, and was obtained at an average cost of $594 per acre.

    During 2009, we invested $40 million in Pennsylvania, almost all of which was for acquisition of acreage, including approximately 22,800 net acres in Lycoming County that was purchased for $8.7 million, or $382 per acre.

    We are currently drilling our first horizontal well since 2008 in Pennsylvania. The Heckman Camp #1 well is located in Bradford County, and first gas production is expected in the area in the second quarter of 2010.

    Later in the call was this exchange between Jeff Hayden, an analyst with Rodman & Renshaw, and Steve Mueller, CEO of Southwestern Energy:

    Jeff Hayden: Okay, appreciate that. And then, jumping up to the Marcellus really quickly, I just wonder if you could give us an update kind of how you’re looking at the drilling program for 2010 in terms of where you’re going to spot the wells, whether it’s Bradford, Susquehanna, Lycoming, et cetera. And then, kind of building on that, sort of an update on the takeaway capacity that you’re looking at and how you’re going to manage that.

    Steve Mueller: Well, the rig that we’re running, we’ll drill between 20 and 24 wells this year. It is going to be all in Bradford County. It’s right on top of–I want to say right on top or within a mile or two of the Stagecoach Pipeline. And we have firm on that pipeline today of 20 million cubic foot and we’re building that going forward. And that’s the reason we’re drilling where we’re at, because we do have the capacity on that line to be able to do that. We’ll participate probably in another 20 wells. Most of those will probably be–a little bit maybe in the Bradford, but most will be in Susquehanna. And we’ll have a minority in those wells. And whatever the operator there is will have the takeaway, so we don’t have to worry about that portion.

    Over the next year, we’ll keep one rig running, and then you’ll see us build that activity into the future. We’ll say the one area that will have the less drilling over the next couple of years will be in Lycoming County. That’s more 2012 and beyond before you see much drilling there.

    *Southwestern Energy (Mar 1) – SWN 4Q 2009 Earnings Teleconference Transcript (PDF)

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    East Resources Donates $50K to Tioga County, PA 4-H in Goodwill Gesture

    East Resources, an independent oil and gas drilling company with a big stake in Tioga County, Pennsylvania, has just donated $50,000 to the Tioga County 4-H.

    East Resources, Inc. today signed an agreement with Penn State’s Cooperative Extension Service to create a new 4-H endowment fund for Tioga County. East created the endowment with an initial principal investment of $50,000. The fund will be used to supplement financial support for the Tioga County 4-H program and may include educational awards for 4-H members.

    “East Resources has a major stake in Tioga County’s future through its oil and gas interests, and our contribution to this endowment reflects East’s commitment to help sustain that future,” says Bob Long, the company’s executive vice president. “Tioga County’s young men and women are the key to the long-term health of our communities, and we appreciate the significant role that the county 4-H program plays in helping them grow into productive, self-directed citizens.”*

    Non-profits are always looking for new funding sources. Given that East Resources plans to drill upward of 6,000-7,000 gas wells in Tioga in the next few years (see this story), it’s nice to see them “giving back” to the community in this gesture of goodwill.

    *The Wellsboro Gazette (Mar 3) – East gives $50,000 to 4-H

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    CONSOL Energy COO DeIuliis Says Marcellus Drilling has Potential to “Reshape Western PA Economy”

    Nicholas DeIuliis, the Chief Operating Officer of CONSOL Energy Inc., spoke to a leadership group at the Rivers Club in Downtown Pittsburgh today. Among the things he said:

    “Five years ago, no one knew how to spell Marcellus Shale,” DeIuliis, who is also president and COO of CNX Gas Corp., a part of CONSOL, said. But now, the natural gas reserve has the potential to reshape western Pennsylvania’s economy. He projected that by 2020, 175,000 jobs would be created from the Shale, and state and local tax revenue would be in the neighborhood of $1.4 billion.

    “These are jobs that require serious levels of training, they’re not minimum wage jobs,” he said. “There’s a lot to be excited about in the Marcellus Shale.”*

    *Pittsburgh Business Times (Mar 2) – CONSOL COO Nicholas DeIuliis: Marcellus has changed everything

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    Rex Energy Drills 7 Horizontal Gas Wells in the Marcellus in 2009, Expects to Drill Another 19 in 2010, Controls 67,000 Acres

    Rex Energy Corporation, an energy company drilling in the Marcellus Shale, today announced its fourth quarter and year-end 2009 results. The portion of the press release dealing with Marcellus drilling activity is reproduced below.

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    In the Appalachian Region, Rex Energy has drilled and completed nine horizontal Marcellus Shale wells to date. The company drilled and completed two of these as test wells in a different zone of the shale, which resulted in lower recoveries. Excluding the two test wells, the seven day average test rate after peak production was reached has averaged 3.1 MMcfe per day with an average lateral length of 2,200 feet. The company has experimented with six to twelve stage fracture stimulations. The average gross EUR of these wells was estimated to be 3.2 Bcfe per well at an average cost of $4.6 million.

    Currently, Rex Energy is running two horizontal drilling rigs in the play. The company recently completed the drilling of two horizontal wells in Butler County. The wells have an average lateral length of 3,500 feet and were drilled in under 21 days per well. The company expects to simultaneously fracture stimulate these wells during the first quarter of 2010. The company has budgeted $4.0 million per well for its 2010 wells and it expects the wells to have average lateral lengths of 3,000 to 4,000 feet. The company is currently drilling two wells in Butler County and one well in Westmoreland County. During 2010, the company expects to drill and complete 10 gross (10 net) operated horizontal Marcellus Shale wells, and to participate in 9 gross (4.5 net) horizontal Marcellus Shale wells with our partner.

    [Rex Energy’s President and CEO Benjamin] Hulburt continued, “The build-out of our Marcellus midstream infrastructure is progressing as scheduled. We expect our two Clearfield County wells to be connected to our initial gathering system in April 2010. In Butler County, we expect our midstream joint venture to put our cryogenic processing facility into operation during the fourth quarter of 2010. We expect the plant will have a processing capacity of 40 MMcf per day. We plan to install compression to permit the plant to process 20 MMcf per day initially, which will be scaled up as additional wells are brought online.”

    The company has continued to lease additional acreage in its three Marcellus Shale project areas in southwestern and central Pennsylvania. Rex Energy’s current total acreage under control in the Marcellus Shale fairway is 68,700 acres, an increase of approximately 15% compared with the company’s previous leasing update in January 2010. The net acreage amount excludes approximately 22,000 acres, which can be earned by Williams pursuant to the Participation and Exploration Agreement entered into on June 18, 2009, and includes approximately 8,300 acres covered by oil and gas leases that are pending title verification and final closing.

    From: MarketWatch (Mar 2) – Rex Energy Corporation Announces Fourth Quarter and Year-End 2009 Results

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    Energy Company EQT Buys Rights to 58,000 Acres in PA, Now Holds 500K Net Acres in the Marcellus Shale

    EQT Corp. said today it is buying mineral rights to 58,000 net acres in the Marcellus Shale from a group of private operators and landowners for $280 million in stock and cash. That works out to $4,828 per acre. While the names of the sellers were not disclosed, most of the land is located in the Pennsylvania counties of Cameron, Clearfield, Elk and Jefferson.

    The deal includes a 200 mile gathering system and approximately 100 producing vertical wells. The deal is expected to close on April 30th, at which time EQT will then control approximately 500,000 net acres in the Marcellus Shale.

    More Details: Yahoo Finance (Mar 2) – EQT Announces Strategic Marcellus Acreage Acquisition; Increases EUR per Marcellus Well; Provides Update on Latest Marcellus Well

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    Southwestern Energy Investing $145 Million and Drilling 35-40 Wells in the Marcellus in 2010

    MarketWatch/PR Newswire (Feb 25)
    Southwestern Energy Announces 2009 Financial and Operating Results

    Southerwestern Energy made it’s 2009 results known today in a press release. Of concern to landowners in the Marcellus, particularly in northeastern PA, is this paragraph:

    Appalachia – The company began leasing in northeastern Pennsylvania in 2007 in an effort to gain a position in the emerging Marcellus Shale play. At December 31, 2009, Southwestern had approximately 149,000 net acres in Pennsylvania under which it believes the Marcellus Shale is prospective. The company’s undeveloped acreage position as of December 31, 2009 had an average remaining lease term of 5 years, an average royalty interest of 13% and was obtained at an average cost of approximately $594 per acre. During 2009, Southwestern invested approximately $40 million in Pennsylvania, almost all of which was for acquisition of acreage. In 2010, the company plans to invest approximately $145 million in Appalachia, which includes drilling with one operated rig in the Marcellus Shale play in Pennsylvania and participating in a total of 35 to 40 wells, 21 to 24 of which will be operated.