Petroleum Distilates

Here is my question? Say you have 30 wells pumping into a pipe line to the cracking plant. If some wells produce wetter gas than others, then how do you know you are getting your fair share of the royalties from the distilates produced from your well, or would all the gas be mixed together and someone with dry gas recieve royalties on other wet gas wells?                                                          if dog rabbit

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Permalink Reply by FXEF on January 17, 2012 at 1:58pm

Mike,

Separating the condensate and water from the raw natural gas is done at each well site and stored in the tank battery, therefore each wells liquids are not co-mingled with other wells.

Permalink Reply by Brian Day on January 17, 2012 at 2:17pm

Could the dried gas be recycled back into the well and the condensates collected if a pipeline had not reached the well yet?

Permalink Reply by Philip Brutz on January 17, 2012 at 2:26pm

The very sad thing is that they flare excess gas to get the liquids if there is no pipeline or the pipeline is at capacity.

Permalink Reply by FXEF on January 17, 2012 at 2:30pm

No, if there is not a pipeline, the only option would be to flare the gas. That would be a waste and not good for the environment.

Permalink Reply by Philip Brutz on January 17, 2012 at 2:39pm

I am worried that as the Utica wells go online we will reach the pipeline and gas storage capacity and they will flare off my gas to get the liquids.  Bad for both the environment and my royalties.  Should there be a limit to how long they can flare excess gas? 

Permalink Reply by Billy Park Whyde on January 17, 2012 at 7:28pm

In my opinion the burn off of the flare would probably be pretty clean. What would the harm be?

Permalink Reply by craig on January 17, 2012 at 9:25pm

I just read yesterday that there were actually violations reported as excessive flaring in Ohio. I can't tell you where in Ohio or when it happened, but I bet it was from a link here somewhere. 

Permalink Reply by matthew h mcsparren on January 17, 2012 at 10:51pm

Dependes on how your contract reads, when gas is flared it is metered.

Permalink Reply by matthew h mcsparren on January 18, 2012 at 1:26am

Wells in our area have been flare tested and shut in for over a year, then flare tested again. Always has been metered. If it isn't, how does the well producer know what the well produces? After well has been shut in for a length of time, seems  to increase flow, in nw Pa.

Permalink Reply by Philip Brutz on January 18, 2012 at 1:41am

From: Wall Street Journal

By RUSSELL GOLD, DANIEL GILBERT and RYAN DEZEMBER

U.S. energy companies are pumping so much natural gas out of the ground that prices are plummeting, and the cheap gas isn't likely to evaporate anytime soon.

Natural-gas prices fell 5.7% Wednesday to their lowest level in over two years—good news for people who use gas to heat homes and for companies that use it to power factories.

For U.S. energy companies, however, the domestic natural-gas market is looking increasingly out of whack. Despite a 32% drop in prices last year, onshore production rose 10%, and it is expected to rise another 4% this year, according to Barclays Capital. As a result, prices are expected to remain low for at least the next couple years.

Many energy companies have shifted their focus away from natural gas to more profitable oil. Still, natural gas is often a byproduct of oil drilling, and some companies are opting to burn off the gas they find because they don't have a way to transport it.

For example, Goodrich Petroleum Corp.—reluctantly, it says—is flaring gas from an oil well on a ranch in South Texas because a nearby pipeline is already full.

U.S. energy companies are pumping so much natural gas out of the ground that prices are plummeting, and the cheap gas isn't likely to evaporate anytime soon, Ryan Dezember reports on Markets Hub. (Photo: Benjamin Sklar for The Wall Street Journal)

Oil production isn't the only factor boosting natural-gas supplies. Some gas fields produce so much ethane, a valuable liquid used to make plastics, that companies will drill regardless of gas prices. In addition, some companies need to continue drilling so they don't violate terms of leases on millions of acres of land—deals struck when gas prices were high.

Wednesday's price drop on the New York Mercantile Exchange, to $2.77 per million British thermal units for gas delivered next month, stemmed in part from new forecasts for warmer weather in several large heating markets, including New York and Chicago.

Earlier this week, Bank of America Merrill Lynch said gas prices could drop below $2 in the fall, a level unseen since 2002. Four years ago, it sold for around $9.

Eventually, the natural-gas market is expected to correct itself, either by forcing companies to further slash gas-development budgets or by luring in new gas customers. But industry observers say that could take many months, or even years.

The current glut partly stems from the U.S. energy industry's success with new exploration techniques—notably hydraulic fracturing of shale formations, or fracking. Shale formations full of gas keep turning up across the country, storage reservoirs are close to full and companies are now starting to try to export the excess gas.

The gas produced by oil drilling has only added to the surplus—and made it unlikely that it will end any time soon. Oil prices now top $100 a barrel, giving energy companies ample incentive to expand drilling and keeping pressure on prices consumers pay at the pump. High oil prices effectively subsidize the production of otherwise unprofitable natural gas.

"That's what's being underestimated by a lot of people who expect the gas supply to fall precipitously," says Mark Papa, chief executive of EOG Resources Inc., one of the biggest independent oil-and-gas companies in the country.

Many experts predict rock-bottom natural-gas prices through at least 2013. "We're anticipating sustained low gas prices," says Andy Steinhubl, co-head of consultancy Bain & Co.'s North American oil and gas practice.

That is good news for consumers. More than half of American households use gas to heat their homes, and they can expect an 18% drop in the cost of staying warm this winter, according to federal forecasts. A home in the Northeast that uses natural gas can expect to spend $1,023 this year, less than half the cost of heating with oil.

Inexpensive natural gas also is a boon for manufacturers and petrochemical producers. For the first time in nearly a decade, steel companies and plastics makers are building facilities in the U.S., taking advantage of the inexpensive fuel to compete globally.

Domestic explorers have little choice but to keep pumping. They have spent enormous sums leasing up prospective acreage in gas fields. Saddled with those leasing costs, the companies are watching operating costs rise.

Although the energy industry typically talks about gas wells and oil wells, most wells usually contain a mixture of oil, gas and other petroleum products. In fact, nearly one-quarter of all U.S. gas production comes from oil wells, according to the government.

Moreover, many gas wells contain significant amounts of ethanes and other valuable liquids, which are sold separately and priced in relation to crude oil.

"Companies are making so much money on the oil and natural-gas liquids that gas is basically free," says Amy Myers Jaffe, director of Baker Institute Energy Forum, a policy think tank at Rice University in Houston. "They are saying to themselves: I am going to produce the gas regardless of what the price is, because I'm making money on the oil and liquids."

To be sure, not everyone thinks inexpensive gas will last long. Jon Wolff, an analyst with International Strategy and Investment Group, says "nearly all U.S. gas drilling is uneconomic." He expects significant declines in gas production in Louisiana this year as financial hedges expire and joint-venture capital gets used up. He forecasts a rebound in gas prices to $4.50 per million BTUs in the second half of this year.

Chesapeake Energy Corp., which has drilled more U.S. gas wells in recent years than any other company, has said it will cut spending on such wells if prices remained at current levels.

"The market needs a rest," says Chief Executive Officer Aubrey McClendon. As soon as prices rebound, he says, "the industry will be back to drilling more aggressively than it is today."

Billions of dollars worth of existing exploration leases, however, limit how much such companies can ratchet back. Such leases generally require companies to drill at least some wells to keep the leases from expiring.

When Louisiana's Haynesville Shale was discovered in 2008, gas prices were over $9 per million BTUs and companies rushed to lease as much acreage as possible. Landowners were paid up to $30,000 an acre. The leases required companies to drill at least one well on each 640-acre block, usually within four years.

"If you don't drill, you will lose the lease—money put up and thrown away," says Don G. Briggs, president of the Louisiana Oil & Gas Association.

Another issue: some companies raised money from foreign energy companies on the condition that they use it to drill, a commitment that doesn't go away just because gas prices are now low.

Blair Thomas, chief executive officer of EIG Global Energy Partners, a private-equity firm that has invested heavily in domestic energy companies, says the industry will be dealing with lease expirations and drilling commitments for another year or two.

"Until that passes, the industry will continue to drill gas wells, whether they are economic or not," he says.

Over the longer term, an increase in the number of natural-gas-fired power plants could reduce the surplus of natural gas. New federal environmental rules require extensive upgrades to coal-fired power plants in order to reduce air emissions. Many coal plants are likely to be replaced with gas-fired generation.

In the meantime, gas production continues to rise. Daily gas production in South Texas' Eagle Ford oil field doubled last year and is expected to nearly double this year.

Goodrich isn't the only company opting to burn off natural gas. In the 12 months ended in August, the most recent data available, Texas approved 651 permits to burn off gas, up from 107 three years earlier.

The state says it requires drillers to hook up to pipelines eventually. In a few weeks, after a pipeline is upgraded, Goodrich plans to hook up the Dilley, Texas, well that is now flaring gas, and the gas glut might get a little bigger.

Write to Russell Gold at russell.gold@wsj.com and Ryan Dezember atryan.dezember@dowjones.com

Permalink Reply by Larry P on January 20, 2012 at 4:21am

whats got to give? Exporting?

Permalink Reply by Klix on January 18, 2012 at 2:49am

Is there a way to find the "going rate" or wellhead price for NGLs? I can find oil & nat gas but nothing on NGLs. Or is it just sold to the highest bidder?

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