EnCap Looks to Sell Royalty Stake in “Core” of Ohio Utica
EnCap Investments is a venture capital investor that funds independent companies in the U.S. oil and gas industry. EnCap has its fingers in a number of pies in the Marcellus/Utica. EnCap is the major investor behind Eclipse Resources and was instrumental in Eclipse selling itself to and merging with Blue Ridge Mountain Resources (see Eclipse Resources Merging with Former Magnum Hunter). EnCap is also a major investor in (i.e. owner of) PennEnergy Resources, which recently cut a deal to buy Rex Energy (see Rex Energy Sells Itself to PennEnergy Resources for $600M). Another way EnCap invests in our region is by funding drilling programs in return for royalty payments (or more properly, for a thin slice of the royalties). EnCap has put their royalty interests in several “core” Utica Shale counties up for sale.
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EQT certainly isn’t following Dale Carnegie’s advice on How to Win Friends and Influence People. Just the opposite, as the company continues to squeeze every last penny it can out of landowners’ pockets who hold old “flat rate” leases in West Virginia. We’ve reported on EQT’s efforts to overturn WV’s Senate Bill (SB) 360, passed earlier this year and signed into law by Gov. Jim Justice (see 
It’s been five years in the making, but finally a class action lawsuit that began in 2013, on behalf of 10,000 West Virginia landowners and royalty rights owners against EQT’s practice of deducting post-production expenses from royalty payments, will finally get its day in court in two weeks. That’s what we learn from an extended article published by ProPublica and the Charleston Gazette-Mail on the topic of WV drillers and their practice of “whittling away payments” from rights owners. Just over a month ago MDN told you about an elderly WV couple who won their private lawsuit against EQT on the same matter (see 
For some time we’ve covered the story of MLPs–master limited partnerships–and how they are being phased out. An MLP is an alternative form of organizing a company (or subsidiary company), different from a corporation. The primary purpose of an MLP is for investors, who buy “units” in the MLP instead of shares of stock, so the investor can pay less in taxes. Trump’s tax cut, while benefiting the little guy (yeah!), disadvantages MLPs (boo!). Which has caused many pipeline companies organized as an MLP to give up that form of structure. Meanwhile, new companies are being formed to buy royalty rights–using the MLP structure! So while pipeline companies are dumping the MLP structure, royalty companies are embracing it.
In the absence of a guaranteed minimum royalty in Pennsylvania–an issue which continues to divide landowners and drillers–individual landowners are left to litigate in order to get what they are fairly due. Such litigation is time consuming and expensive, and without a certain outcome, which is why most landowners don’t do it. In Washington County, PA a couple who signed a lease with Range Resources have just filed a lawsuit against Range in county court alleging Range violated the terms of the lease by deducting post-production expenses.
It’s this kind of story that makes our blood boil–we won’t lie. EQT tried to shaft an elderly couple in Ritchie County, West Virginia out of royalty money by slipping in not only post-production deductions never agreed to in the contract, but also by slipping in a deduction for WV severance taxes owed by EQT itself. Maddening!
Peters Township, the most populous township in Washington County, PA, is one of the seven selfish towns that sued the state in 2012 over the zoning provisions in the then-new Act 13 law, eventually winning at the PA Supreme Court level (see 
Chesapeake Energy has, according to the Pittsburgh Post-Gazette, “reached a $7.75 million settlement agreement with about two-thirds of its Pennsylvania natural gas royalty owners.” At the end of last year Chesapeake Energy offered a $30 million deal to Pennsylvania landowners to settle claims the company had screwed them out of royalty money by artificially inflating post-production costs in an elaborate scheme to pocket more money at landowners’ expense (see 
We spotted an article covering a “rally” of maybe 20 people (judging by the pictures) who gathered on the bank of the Clear Fork of the Mohican River in Ashland County, OH this past Sunday. The group was there to protest Cabot Oil & Gas drilling a few test wells in the area to see if there’s anything in the region worth drilling for. Out of state radicals calling themselves “pipeline fighters” who had engaged in illegal activities against the Dakota Access Pipeline where there to whip up the locals–maybe convince them to do something illegal too. That’s how this kind of insanity spreads–by human contact. Anywho, the most interesting part of the article for us was not about the machinations of antis and their big boasts of how they’ll stop fracking. Instead, the most interesting part was an explanation of how Cabot came by the acreage they’ve leased in central Ohio, and how much money Cabot is offering landowners to amend existing lease agreements…
Some 10 years ago in the “early days” of the Ohio Utica Shale, landowners signed leases not knowing about the Utica and the bonanza it would soon bring. A group of 24 landowners in Columbiana County signed a lease in 2008 with Anshutz–for a few bucks an acre and 12.5% royalties. Seemed like a good deal then. But five years later leases were going for $5,000-$6,000/acre in signing bonuses and 20% royalties. It didn’t seem like such a good deal then. Chesapeake Energy later bought the Anshutz leases. We all know about the shenanigans Chesapeake plays with royalty payments. But these wells produce mainly oil instead of gas. In the early days, a 12.5% royalty, even on properties where post-production deductions “generously” taken, yielded a lot of money. Then the price of oil bottomed out and royalty checks shriveled up. With the price of oil back up, royalty checks, while not as much as they were 4-5 years ago, are still much higher than they were a few years ago. All of which is to say: When the price of oil (or gas) goes up, it covers a multitude of post-production deduction sins. But when the price is down, landowners get the shaft. At least, some landowners. Here’s the story of some of those Ohio landowners who signed early. As we read the story, our impression was this: Yes there’s been some bad (even lawsuits), but there’s been a lot of good too. And in the end, these landowners (like others we’ve spoken to in person at various events), would say if they had to do it all over again, they would. That is, shale drilling is worth it, even with the bad, and the ugly…
Last week MDN told you about the ongoing vendetta by a few anti parents in the Mars School District (half hour from Pittsburgh, in Butler County) and their Big Green accomplices. They suffered a major court defeat (see 
This is a story that continues to bug us. The state of Pennsylvania, specifically the Dept. of Conservation and Natural Resources (DCNR), is grabbing money that we think belongs to private landowners. The DCNR has been, for years, claimed that under a centuries-old law that the state of PA “owns” the property under “navigable” waterways–including rivers and streams (see 
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