PA Superior Court Rejects Southwestern “Briggs” Trespass Appeal

An unwelcome and troubling development in the Southwestern Energy “Briggs” court case. MDN brought you important news in April that the Pennsylvania Superior Court had handed down a decision (known as the “Briggs” case) that has the power to greatly restrict, perhaps even stop, Marcellus drilling in PA (see PA Superior Court Overturns “Rule of Capture” for Marcellus Well and PA “Rule of Capture” Case has Power to Limit Marcellus Drilling). The issue, in brief, is that the Superior Court decision disallows using an age-old principle called the “rule of capture” when it comes to shale drilling and fracking. It opens the door to a myriad of frivolous lawsuits claiming that a fracture, a crack created during fracking, is draining gas from a neighbor’s property without justly compensating the neighbor for the gas. Southwestern successfully argued in a lower court that the odd crack here and there that may slip under a neighbor’s property is permissible. The landowner appealed to Superior Court and three judges heard the case. Two of the three overturned the lower court and sided with the landowner. Southwestern, following the decision, petitioned the Superior Court to have all of the sitting justices (called en banc) hear the case (see Southwestern Appeals “Trespass” Case to Entire PA Superior Court). Sadly, on Friday, the Superiors declined to rehear the case. The next step? Southwestern has appealed the case directly to the PA Supreme Court…
Continue reading

Financial Checkup for Marcellus/Utica Drillers

RBN Energy, headed by founder Rusty Braziel (co-founder of Bentek Energy), is, in our opinion, the premier oil and gas analytics firm out there. Smart people working at RBN. And they offer up some amazing content on their blog site–for free! At least it’s free for a while, then it goes behind a paywall. A few days ago RBN published a blog post on the financial health for the 44 major publicly-traded U.S. exploration and production companies (drillers). RBN groups them into three categories: Oil-Weighted, Diversified, and Gas-Weighted. We found the Gas-Weighted list of 10 companies and the information revealed about them to be fascinating and worth studying. Each of the companies has major operations in the Marcellus/Utica–some of them totally focused on our region. Among the data points shared: revenue, production costs, lifting costs and more. We think of the following as a handy financial health scorecard/checkup for 10 of the biggest drillers in the M-U, including Antero Resources, Cabot Oil & Gas, Chesapeake Energy, CNX Resources, EQT, Gulfport Energy, National Fuel Gas (Seneca Resources), Range Resources, Southwestern Energy, and Ultra Petroleum…
Continue reading

Average Workers at Top Marcellus Drillers Make $100K+ Salary

The average worker who works for producers (i.e. drillers) in the Pennsylvania Marcellus makes among the highest average salaries of any industry in the state. Looking at six of the state’s top Marcellus drillers, the average worker made $113,610 last year! That’s an average taken from workers at CNX Resources, Range Resources, Chesapeake Energy, Southwestern Energy, EQT and Cabot Oil & Gas. We hasten to add not “all workers” but “average” or “median” workers–meaning there are people who make below that number and people who make well above that number. It also means the majority of Marcellus workers in those companies made at least $100,000 per year. Those working for oilfield services (OFS) companies like Halliburton, Baker Hughes and others didn’t fare quite as well, making an average of $52,000-$80,000 per year. Still, hey, it ain’t bad money! Here’s a look at the average wage for top Marcellus drillers and the OFS companies that serve them…
Continue reading

Another Look at “Rule of Capture” Case that Threatens PA Marcellus

MDN brought you important news in April that the Pennsylvania Superior Court had handed down a decision (known as the “Briggs” case) that has the power to greatly restrict, perhaps even stop, Marcellus drilling in PA (see PA Superior Court Overturns “Rule of Capture” for Marcellus Well and PA “Rule of Capture” Case has Power to Limit Marcellus Drilling). The issue, in brief, is that the Superior Court decision disallows using an age-old principle called the “rule of capture” when it comes to shale drilling and fracking. It opens the door to a myriad of frivolous lawsuits claiming that a fracture, a crack created during fracking, is draining gas from a neighbor’s property without justly compensating the neighbor for the gas. Southwestern successfully argued in a lower court that the odd crack here and there that may slip under a neighbor’s property is permissible. The landowner appealed to Superior Court and three judges heard the case. Southwestern, following the decision, petitioned the Superior Court to have all of the sitting justices (called en banc) hear the case (see Southwestern Appeals “Trespass” Case to Entire PA Superior Court). No word yet on whether the Superiors will do it. In the meantime, we spotted an article by the ace lawyers at the Blank Rome law firm discussing the case and its implications. We can’t stress enough just how critical this case is to the future of drilling in Pennsylvania, which is why we bring you the following…
Continue reading

Southwestern 1Q18: New $3.5B Line of Credit, Fayetteville Not Sold

Last Friday Southwestern Energy, one of the biggest drillers in the Marcellus (4th largest natgas producer in the country), issued its first quarter 2018 update. Southwestern drills in two plays: The Marcellus (i.e. Appalachia), and the Fayetteville (in Arkansas). In March the company signaled it wants to sell its Fayetteville Shale assets (see Southwestern 2017: $3.5B Turnaround, Shopping Fayetteville Assets). A sale hasn’t happened yet, according to Friday’s update. In fact, Southwestern CEO Bill Way gave an elaborate “no comment” (our words) on the Fayetteville “process” currently under way with the help of JPMorgan. Southwestern reported earning $205 million in 1Q18, down 27% from the $281 million they earned in 1Q17. The company has just reorganized its debt, paying off a $1.2 billion term loan and arranging a $3.5 billion line of credit. Production in the Marcellus/Utica was 2.4 billion cubic feet equivalent per day (Bcfe/d) of natural gas gross, 159 million cubic feet equivalent per day (MMcfe/d) net. Production was up 42% in southwest Appalachia and up 24% in northeast Appalachia. Across both the M-U and Fayetteville, Southwestern drilled 32 wells, completed 29 wells, and placed 33 wells online into sales. Here’s the full 1Q18 update from Southwestern Energy…
Continue reading

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…
Continue reading

Southwestern Appeals “Trespass” Case to Entire PA Superior Court

Southwestern Energy has just taken the next very important step in a process that frankly has us holding our breath. Two weeks ago MDN brought you the news that the Pennsylvania Superior Court handed down a decision that has the power to greatly restrict, perhaps even stop, Marcellus drilling in PA (see PA Superior Court Overturns “Rule of Capture” for Marcellus Well and PA “Rule of Capture” Case has Power to Limit Marcellus Drilling). The issue, in brief, is that the Superior Court decision disallows using an age-old principle called the “rule of capture” when it comes to shale drilling and fracking. It opens the door to a myriad of frivolous lawsuits claiming that a fracture, a crack created during fracking, is draining gas from a neighbor’s property without justly compensating the neighbor for the gas. Southwestern successfully argued in a lower court that the odd crack here and there that may slip under a neighbor’s property is permissible. The landowner appealed the case to Superior Court and three judges heard the case. One of the Superior judges authored a decision overturning the lower court, with a second judge “joining” (agreeing with) the decision. The third judge was AWOL (“not participating”). Frankly, the stakes could not be higher for the future of Marcellus drilling in PA. Southwestern has just filed a request with the Superior Court asking that all 20 judges who sit on that court hear and consider the case, which makes sense given the gravity of the case and PA’s economic future…
Continue reading

Fracking Trespass Case (Rule of Capture) Still Reverberating in PA

Last week MDN brought you the news that the Pennsylvania Superior Court handed down a decision that has the power to greatly restrict, perhaps even stop, Marcellus drilling in PA (see PA Superior Court Overturns “Rule of Capture” for Marcellus Well and PA “Rule of Capture” Case has Power to Limit Marcellus Drilling). The issue, in brief, is that last week’s Superior Court decision disallows using an age-old principle called the “rule of capture” when it comes to shale drilling and fracking. It opens the door to a myriad of frivolous lawsuits claiming that a fracture, a crack created during fracking, is draining gas from a neighbor’s property without justly compensating the neighbor for the gas. Was the court’s decision a big deal? Or was is not such a big deal? We’ve seen stories appear every day since the decision, some indicating the decision is monumental in scope and impact–others saying meh, not so big after all. Which is it? We still believe the issue turns on how far cracks extend out from a wellbore during fracking–and whether you can accurately measure the distance of such fractures. If the cracks extend just a few hundred feet, the court decision is not a big deal. Most drillers stay at least 350 feet from the boundary line when drilling a well–meaning the cracks that drain gas do not extend to neighboring properties. However, if the cracks, the fractures, extend out more than a few hundred feet, say more than 300 feet, that’s a problem. Southwestern Energy responded in the lawsuit that IF their cracks had intruded (trespassed) under the boundary line, it would fall under “rule of capture”–the legal principle of he who gets there first, wins. The court ruled otherwise. We’re still haunted by the definition used (and accepted) in the lawsuit that says fracking fluid and sand can travel up to 3,000 feet…
Continue reading

PA “Rule of Capture” Case has Power to Limit Marcellus Drilling

As we indicated in our post yesterday, the Pennsylvania Superior Court has handed down a decision that has the power to greatly restrict, even stop, Marcellus drilling in PA (see PA Superior Court Overturns “Rule of Capture” for Marcellus Well). This is a legal issue–and MDN is not written by a lawyer. Hence our earlier misreading of the importance and facts in the Superior Court decision. The issue, in brief, is that Monday’s court decision disallows using an age-old principle called the rule of capture, which we previously described. The rule of capture works for conventional drilling where underground deposits of oil and gas are in pools and the pool may exist underneath multiple surface property owners. Whoever gets there first and sucks the oil/gas out, wins. That’s the rule of capture in a nutshell. And it makes sense. You can’t be held responsible for oil and gas moving from one place to another as it’s extracted. And who knows how much of the pool is located under your property, or your neighbor’s property? The Superior Court justices ruled that the rule of capture doesn’t work for hydraulic fracturing because gas (and oil) trapped in shale rock does not freely move from one place to another as it does in a pool. The judges say the gas would “stay forever” where it is without fracking. In the case of Briggs v. Southwestern Energy, the Briggs family (in Susquehanna County, PA) alleges that when Southwestern drilled and fracked on the Briggs’ neighbor, the fracking was done close enough to their property that some of the gas located under their property (unleased) was released and extracted through the Southwestern well–a “trepass.” Southwestern countered that IF such a “trespass” took place, it falls under the rule of capture. The ultimate issue boils down to this: How far do fractures extend from a lateral well? An expert energy attorney told MDN off the record that Monday’s decision “could change the entire Pennsylvania shale industry” in two important ways…
Continue reading

PA Superior Court Overturns “Rule of Capture” for Marcellus Well

STOP PRESS: Shortly after this post was published, a MDN reader (an energy attorney) called us to alert us that our initial take on this case is not right. The case is NOT about a company stretching a lateral too far so that it trespasses under an adjoining property. Instead, the case is about the “zone of fracking”–that is, that fracking, by its nature, creates cracks that may open up and drain some of the gas under a neighboring property–even though the fracking was done properly within the boundaries of the leased property. The case (ominously) says that fracking itself can cause a trespass. Our attorney friend said this case has the potential to negatively affect Marcellus drilling in PA–in a BIG way. We will write another post on this issue tomorrow. In the meantime, just be aware that our initial take below is not correct. – Jim Willis, Editor

The Pennsylvania Superior Court handed down an important decision yesterday that impacts both Marcellus landowners and drillers. The decision removes “rule of capture” as a way for shale drillers to drill under adjoining neighbors who haven’t specifically leased their property for drilling. The rule of capture came about with conventional (vertical only) drilling, cases in which a pool of oil or natural gas exists that runs underneath the property owned by multiple surface owners (see the image to the left). The rule of capture principle says “the first person to capture a natural resource owns that resource.” If you put a well or two or three on your property to extract the oil/gas, if it flows from the neighbor’s side to your side and up the well, it’s yours. Same for your neighbor. He/she can grab the oil and gas under your property if the pool exists under both. The principle originated in England (it’s a very old principle). However, Southwestern Energy tried to use the rule of capture principle to drill under property not leased for drilling that sits next to property that is leased–claiming the rule of capture. The molecules in shale are a whole other story than molecules sitting in a common pool. That’s what the Superiors ruled. Southwestern (and by extension, other Marcellus drillers) can’t simply extend a lateral well a few hundred feet under an un-leased neighbor, which certainly makes sense to us…
Continue reading

Southwestern 2017: $3.5B Turnaround, Shopping Fayetteville Assets

Late last week Southwestern Energy, one of the biggest drillers in the Marcellus (4th largest natgas producer in the country), issued its fourth quarter and full year 2017 update. Southwestern drills in two plays: The Marcellus (i.e. Appalachia), and the Fayetteville (in Arkansas). The big news coming from last week’s update is that Southwestern signaled it wants to sell some–or all–of its “underperforming” Fayetteville assets, and use the money to pay down debt and drill more in the northeast. Largely on the back of prolific production in the Marcellus, Southwestern had a dramatic financial turnaround last year. In 2016, Southwestern lost $2.75 billion. In 2017, the company made $815 million in profit. That’s a swing of $3.5 billion in a single year!…
Continue reading

Southwestern 2018: Sell Fayetteville Assets, Invest in Marcellus

Yesterday Southwestern Energy issued two announcements: One covers highlights of company activity and performance in 2017 with “guidance” predictions for 2018; the second is about “repositioning” the company’s “portfolio.” We’ll tackle the second one first. Southwestern’s announcement says (in obfuscated language), that they’re putting their considerable Fayetteville Shale assets up for sale, so the company can further concentrate its time, talent and money on developing their Marcellus Shale assets. We consider that big news. Southwestern drills in two shale plays: the Marcellus (in PA and WV), and the Fayetteville (in Arkansas). Acreage-wise, Southwestern owns more acreage in the Fayetteville than in the Marcellus–over 918,000 acres in Arkansas vs. 567,000 in PA/WV. They plan to use the money from a Fayetteville sale (rumored to be on the order of $2 billion) to pay down debt and invest in more Marcellus drilling. It will make Southwestern, headquartered in Houston, TX, a pure play driller in the northeast. As for 2017, Southwestern shared just a few high level numbers (the full report is due out March 1). The stat that caught our eye is Southwestern’s Marcellus production. At the end of 2017, Marcellus production averaged 2.35 billion cubic feet equivalent per day (Bcfe/d). That’s 40% higher than at the end of 2016! What’s ahead in 2018? Southwestern says they will spend $1.15-$1.25 billion this year–and every single penny will come from its own cash flow, no new borrowing or stock sales. Southwestern also said its operations in northeastern PA will, for the first time (ever) turn a true profit, somewhere around $150 million for the year. Here’s the latest on a big, and very important, Marcellus driller…
Continue reading

Clash of the Titans: PA Marcellus Gas Competes with TX Permian

Last week MDN editor Jim Willis attended Hart Energy’s Marcellus-Utica Midstream conference in Pittsburgh (a series of stories are coming this week from that event). One of the stray comments Jim heard at the event was this: The chief rival or competitor to the Marcellus with respect to natural gas production is not, as you might assume (we sure did) the Haynesville Shale in Louisiana. No. The chief competitor, producing more and more volumes of natgas, is…the Permian! That’s right, an oil play! Why? When you drill for oil, you get other hydrocarbons out of the ground along with the oil. Primarily methane, or natural gas. It’s called “associated gas.” Even though most of what comes out of a Permian well is oil and not gas, because there are so darned many oil wells in the Permian (with more being drilled all the time), the total volume of gas coming from the Permian is going up, dramatically. The problem is, some Marcellus/Utica gas heads to the Gulf Coast to be used by petrochemical companies or to be exported. However, gas produced right there in the region is less expensive to get to market (shorter distance), so that Permian-sourced gas is competing, and increasingly crowding out, Marcellus/Utica gas. Investors have noticed and have, in a sense, “punished” some of the biggest of the big Marcellus/Utica producers by selling their shares, leading to a loss in share value. Among the hardest hit have been Southwestern Energy, Gulfport Energy, and Range Resources. The stock price for those three companies is down, since Jan. 1st, 33%, 30% and 25% respectively. A Bloomberg article says the stocks for those companies have been “mauled.” Indeed. Here’s some insight into how the Marcellus/Utica is increasingly going up against the oil giant Permian Basin, sometimes getting mauled…
Continue reading

NatGas, Oil Industry Partnership to Accelerate Methane Reductions

Yesterday America’s natural gas and oil industry announced “a landmark partnership”–called the Environmental Partnership–to “accelerate improvements to environmental performance in operations across the country.” How will they do that? The first area of focus will be to reduce methane and volatile organic compound (VOC) emissions. The Environmental Partnership includes 26 natural gas and oil producers, including several major Marcellus/Utica drillers (Chesapeake Energy, Cabot Oil & Gas, Chevron and Southwestern Energy). The list of 26 produce a “significant portion” of American energy resources–we’d peg it at around 80% of all production. The participating companies (full list below) will begin implementing the voluntary program starting January 1, 2018. Did you get that? It’s VOLUNTARY. Yet they will do it and they will voluntarily hold themselves and each other accountable–because they are good corporate citizens and (gasp) actually care about the environment. They don’t need the jackboot of government to force them to do it. Here’s how profoundly biased mainstream media reports it: Oil Firms Pledge to Plug Methane Leaks in Bid to Burnish Image (Bloomberg News). Yep, according to the anti-everything people, these companies are only doing it to “burnish” their image. They don’t really care about the environment. They’re evil, nasty fossil fuel companies (icky). MDN readers know differently. These companies are respectable, providing jobs and investment in local communities AND protecting the environment in those same communities–where they live. The other side? Groups like the Sierra Club destroy jobs in the name of “protecting” Mom Earth…
Continue reading

Southwestern 3Q17: Huge Swing to Profit, Drilled 43 Marc Wells

Southwestern Energy, one of the biggest drillers in the Marcellus/Utica, delivered their third quarter 2017 update on Friday. Financially speaking the company displayed a remarkable turnaround. In 3Q15 Southwestern lost $1.8 billion! In 3Q16 Southwestern lost $735 million–trimming loses in half. In 3Q17, the company made a profit of $43 million, a swing of more than 3/4 of a billion dollars year over year and a swing of nearly $2 billion if you go back to 2015. Production in the Marcellus/Utica soared in 3Q17, up 26% over last year–to 153 billion cubic feet equivalent (Bcfe). That works out to 1.7 Bcfe per day. Southwestern has a lot of irons in the fire. They’ve drilled their second Utica well (happy with the results). They’re actively drilling in northeast PA, southwest PA and West Virginia. Overall, across the entire Marcellus/Utica patch, Southwestern drilled 43 wells, completed 25 wells and brought online into production 33 wells–in the past three months. The company also began work on a water infrastructure project–in the Panhandle area of West Virginia. The water project is expected to reduce well completion costs by $500,000 per well beginning in late 2018, and lower Southwestern’s break-even gas price by $0.25 per Mcfe. Yeah, a lot of irons. And they own a lot of acreage throughout the play. But the company does a good job in juggling all of the competing priorities. Below is the full 3Q17 update, followed by comments from Southwestern’s senior VP of E&P operations, John Bergeron…
Continue reading

Southwestern Energy Offers $5/Acre for Seismic Testing in WV

In 2014, Southwestern Energy cut a massive deal to buy 413,000 Marcellus/Utica acres from Chesapeake Energy, most of it in northern West Virginia, for $5.375 billion (see Chesapeake Sells Close to 25% of Marcellus/Utica Operation). Southwestern has done some drilling on that acreage since, but all the signs are now visible that the company intends to really ramp up their WV drilling program. In August, Southwestern nailed down some missing acreage in the Wheeling area by leasing 66 acres from the Wheeling Park School District for $231,000 (see Wheeling Park HS Signs Lease with Southwestern for $3500/Acre). Just last week we reported that midstream giant Williams has cut a deal with Southwestern to provide gathering and processing for over 200,000 acres in Marshall and Wetzel counties (see Williams Launches Major WV Expansion to Serve Southwestern Energy). And now, further evidence: A contractor working for Southwestern plans to begin seismic testing covering 260 square miles–stretching from Donegal (Westmoreland County), PA through northern WV all the way to Shadyside (Belmont County), OH–next year. The contractor, in speaking with members of the Bethlehem Village Council (Wheeling, WV area), said Southwestern is offering the “standard” price of $5 per acre for seismic testing…
Continue reading