Royalty Checks Likely to Slow as Natural Gas Prices Remain Low

By -
From the Pittsburgh Post-Gazette:
Royalty checks that start to arrive when a gas company drills on your property can make for some very profitable envelopes in the mailbox. But the low natural gas prices that have disrupted industry balance sheets in recent months could start to cut into those checks. 
Put it this way: "You could be having filet mignon when they're high, and Kraft macaroni & cheese when they're low," said Craig Tillotson, executive vice president of sales at the Downtown-based Hefren-Tillotson wealth management firm. 
Mr. Tillotson is a wealth adviser whose expanding client base includes farmers and landowners signing lucrative leases for their mineral rights in the Marcellus Shale natural gas formation. So-called "shaleionaires" can take home millions of dollars by signing a lease, but they are now entering an unpredictable market that can cause royalty checks to fluctuate -- or stop altogether. 
The lowest natural gas prices in a decade also have forced a new industry emphasis on lease terms that allow companies to deduct certain well costs from landowner royalty checks. 
So far this year, the Pittsburgh region's dominant driller, Range Resources, said it has paid $65 million in royalty payments, which should put the company on pace to match last year's total of $166 million. Because it can take months to get gas from the wellhead to market, it can take months for low natural gas prices to be reflected in royalty checks. 
Landowners typically make money in two forms when they sign a lease: a per-acre lump sum and then monthly royalty checks once a well is drilled and starts producing. While the lump sums can total millions of dollars for major landowners, the potential for years of royalty checks can add up to even more. 
"The aggregate of the royalty checks should make the bonus payment appear insignificant," said Kit F. Pettit, an attorney in Pittsburgh who specializes in representing landowners. 
If a landowner's income were compared to the U.S. Steel building, he said, "A bonus payment would fill up the first floor and then a productive horizontal well -- assuming good natural gas prices -- would fill up the other 63 floors with royalty payments." 
But low prices now threaten to keep many of those 63 floors vacant.

Read the rest of the article here.

Visit our Forum!

Connect with us on Facebook and Twitter!

Popular posts from this blog

Fracktivist in Dimock Releases Carefully Edited Video, Refuses to Release the Rest

By -
Image
From Energy in Depth: There is something very strange going on along Carter Road, in Dimock, Pennsylvania, and I’m not speaking of natural gas, methane migration, contamination, litigation or even the extensive water testing there by the EPA and others.  No, I’m talking about a new “Watergate” conspiracy, complete with 18 minutes of missing tape (well, video, actually). It seems the ever-present Green Party member and  naturist   Vera Scroggins  (a/k/a  Vera Duerga ) has posted a video of Craig Sautner meeting with the EPA.  Mysteriously, the video is but 14 seconds in length, cutting off conversation in what is obviously mid-stream.  It raises a question Craig Sautner, like  Ronald Reagan in Kings Row , might have asked, “Where’s the rest of me?’  Carter Road, isn’t Kings Row, of course, (at least not until you arrive at  the mansion Scott Ely, one of the Dimock litigants, is building with his royalty money ), but there appears to be a whole lot of film editing going on there to fi
Read more

The Second Largest Oil and Gas Merger - Cabot and Cimarex

By -
Image
       Due to investor pressure, the U.S shale drillers are being pushed to improve financial and operational performance after a few years of poor returns. Even though the industry has improved its numbers, when compared to last year, investors still want more to be done for them to earn more money.      That's why two mid-tier shale drillers, Cabot and Climarex, have decided to merge in order to eliminate $100 million in annual costs, which means more money for the investors. This all-stock transaction is valued at about $7.4 billion, which is relatively high for the oil and gas sector.      The new entity will be renamed and the headquarters located in Houston, Texas. Cabot shareholders will own 49.5 percent of the new entity, and Climarex the rest.       The Cimarex-Cabot merger will address the investor's demand for a higher amount of returning cash. The initial plan is to pay a 50-cent-per-share special dividend on closing the deal while offering a quarterly variable div
Read more

Is a Strong Oil Demand Expected This Year?

By -
Image
  According to the world's largest oil traders, global oil demand is set for a rebound. Between now and the end of 2022, global consumption is expected to increase by up to 8 million barrels each day. Vitol Group, the world's largest oil trader, supports this statement.  In an interview with Bloomberg, Vitol's chief executive Russell Hardy said, "We'll need all eight cylinders to get through 2022". This, of course, is due to the lower than average demand for oil at the moment. Reopening economies and Asian markets will create a strong demand rebound by the end of this year and in 2022.  Although the demand for jet fuel will slowly increase, it will still be below average at the end of the year. Nevertheless, a surge in petrochemicals will offset the expected delay in jet fuel demand. Last year, the oil surplus reached a record of 1 billion barrels. This excess is already more than halfway drained, and experts believe it will be depleted by the third quarter th
Read more