Why are they selling the gas so cheaply?

No wonder the big drop in my recent royalty checks. The two producers that I'm leased with in my unit are selling natural gas at between $1.48 and $1.61 per unit. Even though the market price is low right now, why do they sell it this far below the market price?

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Permalink Reply by Dexter Green on August 8, 2015 at 3:38am

That's not really below market price.  HH is around $2.80.  Appalachian differentials are anywhere from $.50 to $1.25.  They're selling it at the actual market price here in this region.  When supply exceeds demand as much as it does today the gas is simply not valuable.  

Permalink Reply by rmc on August 8, 2015 at 5:45am
Times are hard in the gas and oil patch
Permalink Reply by Dexter Green on August 8, 2015 at 4:15pm

They're about to get tougher.  This cycle isn't even close to being over.

Permalink Reply by rmc on August 9, 2015 at 11:19am
Hmm I don't think most of these companies will last another 18 months with this price environment.
Permalink Reply by Tim on August 9, 2015 at 11:46am
Dexter,

Why do you make that statement?
Permalink Reply by Dexter Green on August 9, 2015 at 2:31pm

Banks have been cooperative so far.  Their patience will only last for so long.  At some point small and mid cap E&P companies will have their revolvers shut down, probably right around the time the Fed has its first (of two, I'm guessing) rate hike in 4Q15.  The easy money spigot will be shut off completely.  Commodity prices will not have rebounded by then.  Things will get much, much worse before they get better.  

Permalink Reply by rmc on August 9, 2015 at 11:38pm
little and mid sized companies go out of business or get bought up. Bigger companies get bigger. Supply goes down prices go back up and here we go again another boom.

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