What President Trump's tax reform might mean to royalty owners

Good morning,

It is December 18th and the news is rife with reports that the republicans may finally, just for once, have their act together enough to do something worthwhile for the American people. 

Tax reform, for the first time since President Reagan in the mid 80's, appears to be a reality. This, in my  opinion, will be a help to royalty owners. Remember that not too long ago many feared and opined that we were stuck in a perpetual down market for oil and gas even though the markets had never in their history gone down in value without rebounding. We were stuck in the boosh/obama malaise, assured that 3% economic growth was a thing of the past and that renewable energy was leaving the fossil fuel market behind.

Amazing what a simple electoral change of direction can do for an economy. obama never had a single year of 3% growth in GDP, the first American president to not do so, even though he doubled the national debt in his 8 years in the White House.

American business collectively describes his presidency either as a waterboarding or a gun to the head hostage situation. Hard to argue with reality.

Well, all that seems to be in the past now. President Trump has steadily rolled back the anti-business regulatory morass left behind by obama and now appears to be set to sign tax reform into law by Christmas.

The New York Fed is reporting GDP in their sector at 4% for this quarter, the Atlanta Fed chimes in at 3.3%, we are pretty sure that this will mean the first 3 full quarters of the Trump administration will be consecutive with 3% or higher growth. Post tax reform it is not unlikely that by the middle of 2018 we could see healthy, widespread growth at 4%, despite nearly every obama friendly economist assuring us over and over that growth could never again be that high and that 2% was now the bench mark for a booming economy.

GDP growth coupled with tax savings for corporations AND individuals cannot help but spur energy consumption. American Shale now essentially guarantees expanding production. What was needed was a more disciplined production effort by American shale as well as a big uptick in consumption. The consumption increase was never going to be substantial in an economy of 2% growth.

All that has changed now. Watch the markets through to the summer of 2018 and I predict WTI will be in the $70-$75 a barrel range. I recognize that royalty owners are not paid  that figure, but the relationship between the price reported and the price paid to royalty owners exists, the more WTI goes up the more we should be seeing on our statements.

Of course I could be wrong, I am after all just some hick up on a Guernsey county ridge with a laptop and the internet. But economics are cyclical, as are politics, and we are undeniably in an upswing. I was one of the few saying 2017 would see WTI near $60 a barrel back when we seemed stuck in the low $40 a barrel range. We'll see soon enough.

Hoping everyone has a Merry Christmas and a happy, healthy and prosperous New Year !

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Replies to This Discussion

Permalink Reply by David Perotto on December 19, 2017 at 1:47pm

I will get on that project right away. You are an asshole.

Permalink Reply by william george allison on December 19, 2017 at 8:47am

there should be a condition in this tax bill for the big companys if you do not create jobs or expand your business with this big tax break that trump is giving them and just filling their share holders pockets you don't get the tax cut .caterpillar  has been shafting uncle sam for years out of billions and closing plants left and right sending work to china and mexico and they are gonna get this tax cut !!!

Permalink Reply by Tree Farmer on December 18, 2017 at 6:40am

The pavlovian dog finger pointing at the other side is not why anyone comes here. There is only one party in DC anyway and they are all there drinking champagne at our expense. All of you need to grow up and stop polluting this board with your pablum.

Why Appalachia Is Dominating US Natural Gas Production

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Why Appalachia Is Dominating US Natural Gas Production PART 1 OF 5

Appalachia Driving Growth in US Natural Gas Production

By Keisha Bandz | Dec 18, 2017 9:15 am EST

Natural gas production growth in Appalachia

According to a report released by the EIA (U.S. Energy Information Administration) in December, natural gas production in the Appalachian region, or the Marcellus and Utica shale plays, has increased rapidly since 2012. The Appalachian region has driven the overall increase in natural gas production in the United States.

Appalachia Driving Growth in US Natural Gas Production

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Key players in the Appalachian region include Cabot Oil & Gas (COG), Antero Resources (AR), CONSOL Energy (CNX), Eclipse Resources (ECR), EQT (EQT), Chesapeake Energy (CHK), Gulfport Energy (GPOR), Range Resources (RRC), and Southwestern Energy (SWN).

EIA’s November Drilling Productivity Report

According to the EIA’s November DPR (Drilling Productivity Report), Appalachian natural gas production increased from 7.8 billion cubic feet per day (Bcf/d) in 2012 to 22.1 Bcf/d in 2016. According to EIA data through October 2017, natural gas production in the Appalachian region was 23.8 Bcf/d in 2017.

In November, the Appalachian region produced 25.6 billion cubic feet of natural gas per day, and it’s expected to produce ~26.1 billion cubic feet per day in December—an increase of 394 million cubic feet per day (MMcf/d). For context, total natural gas production in the United States in December is expected to rise 779 MMcf/d over November, and almost 51% of that growth will be coming from the Appalachian region.

Key constraints

The onslaught in natural gas production in the Appalachian region wasn’t met with sufficient infrastructure and takeaway capacity to transport natural gas to demand centers and export locations. This imbalance led to prices at local hubs such as Dominion South trading at discounts to Henry Hub prices.

According to an EIA report released in August this year, 25 pipeline projects are under development and are scheduled to be completed in 2017. These will result in 7.2 Bcf/d of additional takeaway capacity in the Northeast Appalachian region.

These upcoming projects likely explain the decrease in DUCs (drilled but uncompleted well) in the Appalachian region. The number of DUCs has fallen 10% since October 2016 and 26% since October 2015.

In the following article, we’ll take a look at productivity in the Appalachian region.


PART 2
Why Appalachia Is Dominating US Natural Gas Production PART 2 OF 5

What’s Driving the Growth in Appalachian Natural Gas Production?

By Keisha Bandz | Dec 18, 2017 10:05 am EST

Natural gas production in new wells

According to the EIA (U.S. Energy Information Administration), the average monthly natural gas production per rig for new wells in the Appalachian region has increased by 10.8 million cubic feet per day (MMcf/d) since January 2012.

According to the EIA’s November DPR (Drilling Productivity Report), new well gas production per rig is expected to rise by 27 MMcf/d in December 2017 compared to November 2017.

What’s Driving the Growth in Appalachian Natural Gas Production?

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The EIA reported that the increase was driven by improved efficiencies in horizontal drilling and hydraulic fracturing in the region. These improved efficiencies included faster drilling, longer laterals, and advancements in technology.

Productivity in Appalachia

In the West Virginia region of the Appalachia play, the average lateral length per well increased from ~2,500 feet in 2007 to over 7,000 feet in 2016. In the Marcellus play, some operators have reported lateral lengths as long as 15,000 feet, while in the Utica play, there have been reports of lateral lengths of 19,000 feet.

Following its Rice Energy acquisition, which it completed in November this year, EQT (EQT) expects its Marcellus wells in Greene and Washington counties to average at least 12,000 feet compared to their current average of 8,000 feet. Also, recently, Chesapeake Energy (CHK) placed a 10,000-foot lateral well into production in the Marcellus shale. To know more, read What’s New in Chesapeake Energy’s Marcellus Operations?

Additionally, days taken for completion in Appalachia fell from ~30 days in 2011 to seven days in 2015, according to the EIA.

In the following article, we’ll look at trends in natural gas processing capacity in the Appalachian region.


PART 3
Why Appalachia Is Dominating US Natural Gas Production PART 3 OF 5

EIA Projections for Natural Gas Processing Capacity in Appalachia

By Keisha Bandz | Dec 18, 2017 10:01 am EST

Natural gas processing capacity

Natural gas processing is the process of separating dry natural gas from natural gas plant liquids (or NGPL). The process involves the removal of water, carbon dioxide, sulfur, and the like because they could potentially cause mechanical issues during pipeline transit.

The increase in natural gas production in the Appalachian region has therefore spurred the development of natural gas processing plants. According to EIA (U.S. Energy Information Administration) estimates, natural gas processing capacity in states such as Kentucky, Ohio, Pennsylvania, and West Virginia rose from 1.1 billion cubic feet per day (or Bcf/d) to 10.0 Bcf/d between 2010 and 2016.

EIA Projections for Natural Gas Processing Capacity in Appalachia

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As a result, natural gas production in the above states increased to 22.9 Bcf/d in May 2017 compared to 2.0 Bcf/d in January 2010, while NGPL production rose from 106,000 barrels per day to 621,000 barrels per day during the same period.

Midstream companies will benefit

An increase in natural gas production benefits midstream companies that provide natural gas processing services. Therefore, Appalachia-based midstream MLPs such as Antero Midstream Partners (AM), EQT Midstream (EQM), and Western Gas Partners (WES) will benefit from increasing natural gas production in the region

The EIA expects natural gas processing capacity to increase by 2.5 Bcf/d over the next two years.

More propane and flexibility to adjust ethane extraction

According to the EIA, the new plants can recover more propane than the older plants, which used older processing technologies. The new plants are also equipped to extract more or less ethane from the natural gas stream. This flexibility to adjust ethane extraction rates has allowed operators to leave more ethane in the natural gas stream (up to the allowable limits) and to sell it as natural gas when the price of ethane is lower than natural gas prices.

Additionally, the natural gas processing capacity buildout in the Appalachian region has been accompanied by additions to regional fractionation capacity. NGPLs are further processed through fractionation, a process through which NGPLs become separate, marketable products.

According to the EIA, fractionation capacity in the Appalachian region increased from 41,000 barrels per day in 2010 to almost 850,000 barrels per day in 2016, and it has the potential to reach 1.1 million barrels per day in 2019.

http://marketrealist.com/2017/12/appalachia-driving-growth-in-us-na...

Permalink Reply by Turkey Leg on December 18, 2017 at 7:00am

Thank you. I agree. I don't come here for political analysis of the personalities in Washington, I come here for actual information that is tangible and helps our family make decisions about our land/lease/royalties. Just because we are here does not mean we drink the political Kool-Aid and it's insulting to scroll through this crap. 

Many of us may have had a delightful surprise over the last 8 or so years about what is beneath our land but that does not mean that we should be deregulating every business and actively working against renewable energy. We DO all have kids/grandkids and there appear to be plenty of people on this thread who actually give a crap about the future we'd like to leave them. 

Unbelievable. 

Permalink Reply by Gregory J Adams on December 18, 2017 at 12:16pm

True, however we should not continue to waste taxpayer dollars subsidizing energy production that is not cost effective and is detrimental to the environment because it sounds "green". Ethanol is a good example. It takes as much energy to produce as it returns. Wind is only effective if it is subsidized and kills almost as many birds as house cats, and takes out endangered ones to. Even the greenies fight over solar farms because they take up habitat and cause wildlife disruption.

No matter which side you fall on the fact is that our GDP growth rate never went over 2 (two, not 3) during the last 8 years, That is unprecedented in our history. That also affects out kids and grandkids. The US CAN produce goods cleaner than any other country. By taxing corps out of the US they go where they can get a better deal with less bizarre regulation, All that smoke from China is landing on CA beaches.

Permalink Reply by scott peterson on December 18, 2017 at 8:39am

Amen to that Tree Farmer this is an O/G forum not a political bashing board. Lets stick to the topic.

Permalink Reply by Bob Byler on December 18, 2017 at 6:55am

David Allen Lilly,   I couldn't have said it better myself! You are spot on! The despicable past administration was anti business, anti fossil fuel, anti growth. I was not a Trump voter (nor Hillary; I wrote in) but the proof is in the pudding now. Trump haters will NEVER acknowledge anything good he does, but we finally have a businessman in office & look what is happening. THANK GOD! we finally have a pro business president!!

Permalink Reply by Ed on December 18, 2017 at 7:23am

Not so fast on the huge surge in oil and gas prices given the tax bill also opens 19 million acres in Alaska to oil and gas production.  That little cherry should have been used to get the RINO witch Senator from Alaska to vote to repeal ObamaCare!

Permalink Reply by Bill Bergseid on December 21, 2017 at 6:59pm

Ed--Your statement is not quite right.  The entire ANWR is almost 20 million acres.  But when it was established in 1980, area 1002 (under ANILCA) was set aside for possible future oil development.  The new tax bill will allow oil and gas development within area 1002, BUT SURFACE DISTURBANCE IS LIMITED TO 2,000 ACRES!   So of the almost 20 million acres in ANWR, 500,000 acres were set aside for possible future development (only after certain conditions are met) and the new tax bill allows surface use of 2000 acres.  No oil development is allowed on any of the remaining19+ million ares, 9 million of which are wilderness area.

Permalink Reply by JK on December 19, 2017 at 3:45am

Agreed..

Permalink Reply by John OBrien, landowner advocate on December 18, 2017 at 7:10am
Well Dave I am not going to tear you down for being supportive of a narcissistic moron bigot we now have in charge of the white house. But, I think your prediction of $75 crude in '18 is a bit rosy. And you are right on the markets, but you forgot to mention,(since the regulations have been removed from wall street) that the markets cannot be trusted to tell the whole story and often gains that are based on falsehoods collapse in a heartbeat and the working class 401s are the first to pay. We all hope you are right and all will be "great again".
Permalink Reply by Daniel B. Gadd on December 18, 2017 at 7:31am

KEEP IN MIND PORTMAN & BROWN, Mike Gibbons MEANS BUSINESS! SAME AS TRUMP!

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