Drop in Production question

My family is in six of the Hoyt Units with HG in Wetzel. Most of the money comes from condensate. Just after AEP (Aubrey's new company) announced that they had acquired HG's wells and leases, we experienced an almost 50% drop in production. The prices have fallen a little, but not enough to account for anywhere near the 50% drop. While I know anything is possible, do some, mostly condensate wells, experience that much of a drop that quick or could it have anything to do with the buyout. Just your thoughts. 

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Permalink Reply by Joseph-Ohio on October 12, 2014 at 3:20am

Reads like 'asset management' to me offhand.

They produce what they want when they want it.

They've got the ball when it comes to how much they want to produce don't they ?

If the resource is depleted / not there that's one thing isn't it ?

If the resource is there and available but not being harvested that's another thing isn't it ?

The double edged sword is in the O & G production company's hands isn't it ?

Market conditions or just banking for higher prices later ?

I've got my opinions on that - I think they're banking on higher prices later and making plenty anyway while they wait.

All as always only IMHO.

Permalink Reply by jonathan M. on October 12, 2014 at 5:08am
How long have the wells been producing? Condensate is typically the first to fall off in a typical shale wells decline. 50% is not out of the norm. The timing does make you think though. Could be strictly coincidence and the well is naturally declining. Or might be something else.
Permalink Reply by Jack Straw on October 12, 2014 at 5:06am

First ....Congratulations to you in having Condensate production.

It is not easy for a landowner/royalty owner to gain any knowledge as to what is going on; even less likely to find out why.

One suggestion is to establish a rapport with the well tender(s).

If you can observe their schedule, you might arrange to occasionally bump into them.

They may be willing and able to inform you if the well is being throttled back, or whether there are any issues that might be affecting production.

As Joseph pointed out, it may be throttled back (or allowed to produce for a set number of days in a month) while awaiting better pricing.

It may be throttled back (or allowed to produce for a set number of days in a month) due to constraints in what the purchaser is able to accept (due to limits in current infrastructure).

There may be realities associated with the well.

And, of course, the decline curve may be biting hard.

One positive note is that there currently appears to be a game being paid with Condensate ..... the U.S. Government does not allow export of crude oil (excepting NAFTA - Mexico/Canada) .... but refined products can be exported. They are calling Condensate 'Ultra-Light Crude Oil' .... and they are allowing it to be minimally processed and then exported (a bit of a strange loophole). If the export of Condensate is allowed to continue and expand, it should approach a World Market price; as opposed to the much lower price it has been receiving as stranded and in local surplus.

Another positive note is that Canada need a diluent (such as Condensate) to thin the Syncrude produced from their Athabasca Tar Sands .... Marcellus/Utica Condensate could increasingly make its way to Canada (thus supporting price). Mexico likewise need light oil and/or Condensate to mix with their Maya Mud (heavy crude) for refining efficiencies (likewise potentially supporting domestic pricing of Condensate).

The market (and political sanity) needs to catch up with the new realities associated with the shale revolution.

All IMHO,

                 JS

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