Conventional Drillers Face Tough Decisions re Stripper Wells

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Although some Marcellus/Utica drillers also own conventional (vertical-only) oil and gas wells as part of their portfolio, most conventional drillers are smaller “mom and pop” types of companies. Conventional oil well owners in the M-U, as well as across the country, face some of the same problems as shale drillers with a crash in oil prices: What to do with older wells? Thousands of older conventional oil wells produce as little as 10 barrels of oil per day. These low-producing wells are called stripper wells. With oil selling at $20/barrel, some stripper wells can still break even, but many cannot. It costs an average of $20,000-$40,000 to plug an old stripper well. Sometimes it’s more economic to simply keep a stripper pumping (and losing money) rather than pony up big bucks to close the well. It’s a conundrum.
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Chesapeake Energy & Total Beat Class Action Royalty Lawsuit in OH

In 2015 a group of Ohio landowners did what landowners had previously done in Pennsylvania, Texas and elsewhere–they filed a proposed class-action lawsuit against Chesapeake Energy claiming Chessy had screwed them and about 1,000 other Ohio landowners out of a collective $30 million in royalty payments (see OH Landowners File Royalty Class Action Lawsuit Against Chesapeake). It took nearly five years with a lot of twists and turns, but yesterday the U.S. District Court for the Northern District of Ohio ruled in favor of Chesapeake, dismissing the claims against them.
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Equinor (Statoil) Stops All U.S. Shale Drilling, Incl. Marcellus

Oil and gas drilling giant Equinor (formerly called Statoil) is owned by the Norwegian government. Equinor/Statoil has drilled in the Marcellus/Utica for years. As recently as last June the company reported drilling 9-14 Utica wells per year (see Equinor (Statoil) Drilling Long Utica Laterals, Production Up 5X). The company also drills oil wells in the U.S., primarily in the North Dakota Bakken. All of that–both Utica and Bakken drilling–has come to a screeching halt. Yesterday the company announced it is reducing its drilling budget worldwide by $400 million and is “halting” all U.S. onshore (i.e. shale) drilling and completion activities.
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Diversified Agrees to Plug an Extra 2 Wells per Year in Ohio

Diversified Gas & Oil owns close to 8 million acres of leases with some 60,000 (mostly) conventional oil and gas wells. Their focus has been to acquire quality production and cash flow–regardless of the well or commodity type (gas or oil)–in the Appalachian Basin. They currently have over 400 Marcellus/Utica shale wells in their portfolio too. When a gas or oil well quits producing, it needs to be plugged. We were aware of deals Diversified has cut with both Pennsylvania and West Virginia to plug old, non-producing wells (see DEP and Diversified Gas & Oil Compromise on Plugging Old PA Wells and Diversified Deal in WV to Plug 730 Abandoned Wells Over 15 Years). It turns out Diversified also has a deal in place with Ohio to plug old wells, a deal that was recently modified.
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Encino Tops IP Charts with Ohio Utica Wells in 2019

Encino Acquisition Partners (aka Encino Energy) bought all of Chesapeake Energy’s Ohio assets for $2 billion in 2018 (see Stop Press: Chesapeake Sells ALL of its Ohio Utica Assets for $2B). The deal included all of Chessy’s 933,000 Ohio acres (with 320,000 net Utica acres) and 920 operated and non-operated Ohio Utica wells. Since that time Encino has quietly become one of the state’s top producers. The biggest news to come from the recently released Debrosse Memorial report is the high initial production (IP) rate for the wells Encino drilled in 2019. The IP rates are through the roof!
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Marcellus/Utica Keeps Drilling with COVID-19 Modifications

Many states in the northeast and in Appalachia are now in lock-down mode with most businesses shuttered to prevent the spread of COVID-19 coronavirus. However, certain activities and businesses continue to operate. They are called “life-sustaining” or “critical” or “essential.” On the list of essential businesses in both Pennsylvania and Ohio are shale drillers. Although drillers continue to work, at least one Marcellus/Utica driller, CNX Resources (we suspect others) is making changes to keep its employees and contractors protected against the virus.
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Debrosse Memorial Report: 2019 Ohio Oil Production Breaks Record

Earlier this month the Ohio Oil & Gas Association (OOGA) held its 73rd annual Winter Meeting in Columbus. One of the speakers was Martin Shumway, technical director at Locus Bio-Energy Solutions. Shumway shared details from the latest DeBrosse Memorial Report (full copy below). What does the report show for 2019? Ohio oil production hit the highest level ever in state history in 2019. There were 406 oil and gas wells completed last year, of which 351 (86%) were Utica wells. Belmont County saw the most wells drilled (80). Ascent Resources (formerly American Energy Partners) drilled the most wells last year in Ohio (104 wells), up 49% from 2018.
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Judge Blocks New Lease Sales in Ohio’s Wayne Natl Forest

Radicalized leftist groups pretending to care about the environment, including the Center for Biological Diversity, Sierra Club and Ohio Environmental Council, have struck again. In May 2017 the three groups sued the U.S. Forest Service and U.S. Bureau of Land Management (BLM) to block the sale of leases for oil and gas drilling in Ohio’s Wayne National Forest (WNF). Last week a federal judge ruled in their favor. The court has effectively blocked all future lease auctions for WNF and is considering overturning two previous auctions. This is a DIRECT attack on the property rights of private landowners.
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Ohio Cancels Forced Pooling Hearings Due to COVID-19 Virus

In Ohio forced pooling is called “unitization.” When a landowner/leaseholder owns 65% of the mineral rights under property in a given location and wants to pool other neighboring properties into an oil or gas drilling unit, that landowner/leaseholder files a request with the Ohio Dept. of Natural Resources Division of Oil and Gas Resources Management. The Division head then schedules a hearing to consider the request. All such hearings scheduled for this week are now canceled and will be rescheduled. Furthermore, the Division will only be able to accept new unitization requests on Tuesdays and Thursdays, and they will only return phone calls about unitization on Fridays. All due to the COVID-19 coronavirus.
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List of 10 Large Gas-Fired Power Plants Built or Coming in Ohio

One of our favorite Energy in Depth writers, Nicole Jacobs, has just published a great post that outlines the huge impact new natural gas-fired (mostly Utica Shale gas) power plants have had and will have in Ohio. She includes a list of 10 projects either already built and running, under construction, or on the books to get built. When you add up the total capacity for all 10 plants, they will generate an amazing 9,215 megawatts of electricity, enough to power upward of 9 million homes! The companies building those 10 plants are investing $15.9 billion. This is huge for Ohio’s economy.
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Former OH Gov. John Kasich Goes Hard Left, Anti-Fossil Fuel

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We were never impressed with John Kasich when he was governor of Ohio, nor when he ran for president. We’re even less impressed now. Kasich calls himself a Republican. We call him a RINO (Republican in Name Only), at best. He’s more of a Democrat-lite kind of person. And he proved it last weekend when he appeared on stage with former California Gov. Arnold Schwarzenegger (also a RINO/lefty) and radicalized former Sec. of State John F. Kerry. They were speaking at a town-hall-style meeting Sunday at Otterbein University (in Ohio), there to push a partisan, hard-left organization called World War Zero.
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OOGA 73rd Annual Mtg: More Downsizing Ahead

Over 700 people gathered yesterday in Columbus, OH for OOGA’s (Ohio Oil & Gas Association) 73rd Annual Meeting. Industry leaders soberly assessed the state of current affairs. According to OOGA president Matt Hammond, the industry may have to downsize for a while. Jeff Fisher, CEO of Ascent Resources, agreed. Hammond said, “it’s just going to look a little bit different in the next few years” before the price of gas rebounds. The sentiment was clearly what we’ve been preaching: Expect lower for longer when it comes to gas prices.
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Ohio House Bill 55 Aims to Make Royalty Checks Understandable

Is history repeating itself? Ohio House Bill 55 would require certain pieces of information to be included on royalty statements landowners receive from Ohio drillers. Ohio State Rep. Jack Cera (Democrat from Bellaire) introduced HB 55 last year–for the third time since 2011. Like the two previous times, the bill is now mired in committee and doesn’t appear to be making any headway toward a vote. Let’s look at what information landowners receive now under existing law, and what details they would receive under this bill if passed.
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Judge Rules Tug Hill Not on Hook to Buy Gulfport OH Marc. Assets

A kerfuffle between Gulfport Energy and Tug Hill Operating has been settled by a Texas judge. Gulfport and Tug Hill cut a deal in November 2018 for Tug Hill to purchase certain Marcellus shale assets in Ohio from Gulfport for $26 million. According to Gulfport, Tug Hill never sealed the deal and should be forced to complete it now. Tug Hill said Gulfport didn’t come through with necessary releases from third parties related to the deal, and therefore the deal is null and void. The judge agreed with Tug Hill.
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Ohio’s #3 Utica Driller, Gulfport Energy, Slashes 2020 Budget 50%

Last Friday the Ohio Utica’s third-largest (by the number of wells drilled) shale driller, Gulfport Energy, filed its fourth-quarter and full-year 2019 update. The bad news is that the company lost just over $2 billion in 2019. The good news is that the entire loss was an impairment charge, a “paper loss” and not an actual, out-of-pocket money loss. When you dig deeper into the numbers, you’ll find the company actually produced free cash flow of $37.8 million last year.
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Ohio Utica O&G Production Hits New Record High in 4Q19

The Ohio Dept. of Natural Resources (ODNR) issued fourth-quarter 2019 numbers for Utica shale oil and gas production last Friday. The numbers show new state record highs for quarterly oil and natural gas production, the most ever since quarterly reporting began in 2013. Utica oil production was up 17% over 4Q18, and Utica natural gas production was up 3.2% over 4Q18.
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