News - Tag Archives: natural gas
At the end of March, West Virginia’s Senate voted to authorize natural gas producers to drill when three fourths of those with royalty rights agree and a reasonable effort has been made to negotiate with the remaining owners of a property. The bill was approved with a vote of 19 to 14. The West Virginia Oil and Natural Gas Association has commented that the law reflects current technology and that the state of West Virginia is ready for major gas development. This vote came after a three-hour meeting of the West Virginia senate two days after companies, industry trade groups, and natural gas law firms brought hundreds of workers to speak in support of the bill.
Details of the Bill
The bill in question, SB 576, is designed to make it easier for natural gas companies to work despite the protests of unwilling co-owners of minerals. SB 576 also imposes modern horizontal drilling techniques despite leases written years before these types of drilling methods were even imagined. During horizontal drilling, gas companies drill both down and horizontally which allows the companies to capture gas from a larger area. SB 576 also allows drilling of multiple contiguous leases with horizontal drilling rights provided that the leases do not expressly prohibit horizontal drilling.
Supporters of the Bill
Natural gas companies have long desired this legislation. One senator who supports the bill claims that the bill was passed because West Virginia legislature has finally responded to royalty owners who have leased rights and desire such a bill to be passed. Supporters of SB 576 argue that that the legislation is necessary for natural gas companies to pool sufficient amounts of gas.
Opponents of the Bill
The bill is opposed by the West Virginia Surface Owners Rights Organization, which argues that the bill enables out-of-state gas producers to take mineral owners’ property for the benefit of shareholders. The president of the Farm Bureau referred to the bill as a “total betrayal” of the property rights of West Virginians. Other land and mineral owner groups have expressed concerns about the legislation. Opponents of the bill even held a news conference at the time that the measure was scheduled for potential amendments and a vote on passage. The news conference was organized by lobbyists who represent Shiben Estates Incorporated, a land and mineral firm based in New Martinsville. Opponents of SB 576 argue that the gas industry is attempting to use legislation to endorse modern drilling techniques that would undermine land rights.
Obtain the Assistance of Skilled West Virginia Attorney
West Virginia’s legislature has listed only one amendment to be considered for SB 576, which would allow unwilling mineral owners who are forced into gas pools to obtain a review from West Virginia’s Oil and Gas Conservation Committee. For individuals in the energy business, including natural gas, it is a wise idea to retain the assistance of legal counsel who has in-depth understanding of the natural gas business. Contact the law firm of Hendrickson and Long, a West Virginia law firm dedicated to protecting the rights of those companies involved in the energy industry.
The recent spike in natural gas prices may have helped numerous drilling companies avoid disaster. Often, natural gas companies involved in drilling in the Marcellus Shale in West Virginia lease mineral rights from landowners and sign contracts to provide natural gas to third parties. When natural gas prices are low, drilling companies may have difficulty seeing profit due to price suppression. Yet those companies may feel compelled to continue drilling and supplying natural gas based on their obligations under the contract.
Prophylactic Avoidance of Low Price Drilling
As mentioned, suppressed natural gas prices can damage the profitability of gas companies. Based on the economic law of supply and demand, natural gas prices will likely remain low for the foreseeable future. In January of 2016, the Washington Times reported that a single natural gas well in Ohio County, West Virginia produced enough natural gas to power over 24,000 homes in 2014. With the substantial amount of natural gas drilling along the Marcellus Shale, natural gas prices are likely to stay low.
A gas company seeking to avoid the risk of drilling for natural gas when it is not profitable may want to negotiate a price clause in the contract. That is, the company should stipulate that it will only drill if the market price stays above a set price. This would assure the gas company that it does not have to deliver natural gas when prices are too low, per a stipulation in the agreement.
Similarly, a gas company may want to condition delivery of natural gas upon a pipeline. Currently, in most instances in West Virginia, there is no widespread pipeline system that carries natural gas from the well to a refinery. Instead, after extraction from the ground, the people working the field load the natural gas into a tanker truck, which transports the natural gas to a refinery. If, instead of a tanker, a pipeline existed, the gas company extracting the natural gas would be able to cut out the tanker truck. By conditioning delivery on a pipeline when drilling is not profitable, a gas company would be able to prophylactically avoid this issue.
U.S. contract law provides for certain “defenses” when a party does not or cannot fulfill its obligation under a contract. Note that negotiating a bad deal does not remove one’s obligation under a contract.
One such defense to a contract is indefinite. This means that a court might find a contract to be unenforceable if that contract has an indefinite time frame. The argument is that a party can claim that the contract was not finalized as evidenced by at its lack of definitiveness. If a gas company has an indefinite term to provide a third party with, then this may be a good argument. The gas company would probably need to point to other contracts in the industry and the area. If those contracts do have a definitive nature then the indefinite defense may be compelling.
If you are in the natural gas business in West Virginia and have questions regarding certain contract requirements, contact the law firm of Hendrickson & Long, oil and gas defense specialists.
A recent Baker Hughes report stated that it expects continued investment and expanding exploration of oil and gas fields. While the overall industry is approximately 40% leaner than it was in 2014, it has recently expanded. According to the report, the increasing price of crude oil, notably that it recently topped $50 per barrel, leads the charge toward expanding oil and gas drilling and exploration.
The continued and expanding investment will likely trigger an increase in deep-sea oil digging. Currently, offshore oil and gas drilling constitutes about 30% of the world’s oil and gas supply. Of offshore gas and oil drilling, only 9% of that oil is in deep water. Most offshore oil and gas drilling occurs in shallow water. However, with the increasing investment, especially in drilling technology, this trend is rapidly changing.
Likely, the increased technology will create increased sources of energy. If natural gas and other energy saturates the market, then prices will remain low, thereby causing energy companies to rethink their exploration and digging activities. In turn, mineral owners in energy rich areas like West Virginia’s Marcellus Shale may sue their counterpart energy companies.
Technology and Natural Gas
In 2013, Ford Motor Company introduced the F-150 CNG, which is a car that uses compressed natural gas. CNG can act in the place of fuel and produces less emissions. In the event of a spill, CNG is light and will disperse when released into the air, whereas oil and gas can produce environmental hazards. However, an F-150 CNG costs $10,000 plus more than other cars in its class.
Technology has gone even further. Some gas companies claim that they possess the technology to convert natural gas into gasoline. Once converted, they claim, the price for the gas would be approximately $1 per gallon. This continued surge in the natural gas market, which keeps prices low, would cross product lines with gasoline and be a boon for the economy.
On the other hand, the better technology, which leads to more drilling areas, may deflate the industry to a point where it is not profitable to extract natural gas from the ground. In fact, there was a 20% drop in Marcellus Shale natural gas drilling from 2014 to 2015. This reflects deflated pricing, not the availability of untapped natural gas.
Leasing of Mineral Rights
While land ownership and mineral rights ownership are two different matters, most landowners are also mineral rights owners. In recent years, landowners in the Marcellus Shale have leased mineral rights to various energy companies active in the area. Other mineral rights owners sold their rights to these companies. Those who leased their mineral rights might find that their counterparty energy companies are unable to keep their commitments under the lease because those companies are no longer profitable. If that happens, the lessee needs to know his or her legal rights. There may be contract and insolvency issues.
Modern technology is amazing. It affects the energy industry because it creates new avenues for revenue. It also may be hurting profitability, which, in turn, can end an energy company’s ability to continue operations. If you are a mineral rights lessee, you may need to defend yourself against your lessor. Contact the law firm of Hendrickson & Long.
In 2012, the oil and gas industry created more than 1.2 million jobs. Industry experts expect this trend to continue to more than 2.3 million jobs in 2035. Those experts also expect revenues to exceed $1.9 trillion during that time. The development of hydraulic fracturing, or fracking, technology, which is the extraction process for natural gas under shale formations, has allowed the oil and gas industry to experience this exponential growth.
In concert with this expansion is the technological expansion of equipment used for fracking. Armed with these new technologies, energy companies are heading to numerous places throughout the U.S. to extract natural gas. In other words, natural gas fields are everywhere. West Virginia is a beneficiary of the expanding fracking department.
The Marcellus Shale, which is a large rock formation found throughout the eastern United States, contains significant amounts of untapped natural gas. Part of the Marcellus Shale is found in West Virginia and West Virginia is capitalizing on the Marcellus Shale’s economic opportunity. The West Virginia Department of Environmental Protection (WVDEP) controls fracking in the state’s region of the Marcellus Shale.
Refracking of Wells
In general, the price tag for digging a well to obtain natural gas is between $8 and $12 million. Another issue with digging is that it is a magnet for opposition from those who claim that such wells are environmentally unfriendly and destructive. Opponents are constantly petitioning the WVDEP and other regulatory agencies to ban or limit the fracking industry.
In regard to both cost and opposition, new technology that allows for the refracking of wells has become a boon for the economy. Well refracking, also known as Fracking 2.0, is the process wherein those who initially dug the well use technology to extract more natural gas from the same well. The process cost is a bargain at $2 million and does not involve the drilling of new wells. For consumers, the ramifications are favorable. The price of natural gas will stay flat or drop due to cheaper production costs and a reduced need to fight environmental opposition. Furthermore, the uninterrupted supply will continue, thereby reducing the odds of a significant production drop. A production drop would create a roller coaster-like supply of ups and downs that would trigger a huge price spike in natural gas.
Moreover, well refracking will keep West Virginians employed because gas companies would look to continue producing at a given well. Instead of extracting from a well and moving on, gas companies would want to stay at a given well to refrack from that well. Likely, those companies would want to continue employing those employees in the same areas who have familiarity with specific wells.
The Fifth Amendment to the U.S. Constitution requires the government to pay citizens when it interferes with their rights to property. This has been a source of controversy when private citizens want to extract oil and gas from their property. It may be less of an issue now that re-fracking is becoming more of a means to extract natural gas because there is less need to dig new wells.
If you are facing opposition due to gas and oil exploration in West Virginia, contact the law firm of Hendrickson and Long, experienced environmental defense litigators.