Royalties Plummeting at a More Rapid Rate - EQT Improvement under Rice Mgt?

Hello. It's been a while since I've been on here but I have a question for everyone I'm really curious about. Has anyone else noticed a sudden increase in plummeting royalty payments and market prices? I'm obviously not oblivious to the fact that the market has been steadily dropping for a variety of reasons and a lot of gas companies are dialing back production due to falling prices BUT the most recent market price seems to be twice the drop - at least  in my area. We are with EQT; former Rice Energy landowners, and bought stock and fought to vote the Rice team back into management positions at EQT after abysmal performance and poor relations over the course of EQT ownership of former Rice leaseholds. We had - and still have - confidence in the Rice contingent to turn things around for EQT but are currently questioning if it will be advantageous for their existing landowners and producing units. This months' ridiculously low sales accompanied by apparent lack of interest in advancing existing producing units have brought questions to mind. We attended the EQT Land Owner meetings with Toby Rice and a lot of emphasis was placed on returning to existing pads and drilling additional laterals, thereby saving prep costs, increasing production, and lowering drilling costs. They cannot - of course - affect falling market prices, however we haven't seen any attention being paid to existing units, which seem to be being let to slowly (and lately NOT so slowly) fizzle out. Wondering if this is something others are noticing. It would seem to me - logically - that the most financially profitable would be to get the most out of existing units, thereby reducing drilling costs, during this slump in market prices, rather than going to the expense of developing new units and starting from scratch. Just not understanding what is currently happening and wondering if anyone out there has any insight or ideas. Our unit is only 3 yrs old and has had an accumulative 30% drop in royalties over the past 12 mos and a full 30% drop between just last month and this month, which was a complete shock. Curious what others are thinking, though I'm sure it's nothing good.

Views: 8750

▶ Reply to This

Replies to This Discussion

Permalink Reply by Lynn mudder on December 16, 2019 at 4:09am

Lori, we totally agree with your entire post. We were thrilled when the Rices took control of EQT.  I do worry if they can survive the ridiculous price of $1.43 we were paid this month!  Gas has been good to us, and we are thankful, but I am fearful of the future. I might be naive, but I think we have our best shot with the Rices. I truly think they have had a vision for this industry in Appalachia, I hope they can make it work. All the best for all of us!

Permalink Reply by Lori Huber on December 16, 2019 at 4:34am

Hi Lynn. I think most of the land owners were in agreement that our best hope in regards to the survival of EQT were to get the Rice contingent back in the driver's seat. My fear is that their focus is going to be forward facing rather than expanding what they already started, leaving existing land/royalty owners to stagnate. Our unit has seen no expansion or improvements since going online in 2015/2016 and as I mentioned, we have seen a clear 30% drop over just 3 yrs and another full 30% in just 1 month. I realize that the gas companies and Rice team have no control over falling natural gas prices but expanding existing units just seems to be the most logical, economically sound, inexpensive means of bringing additional funds to the company, landowners, and shareholders, rather than developing new units that require much higher cost. Our gas sold at just $1.34 and although production was only down about 10% from the previous month, the market clearly calls for cheaper expansion to bring in the most cost effective funds/profits. That's what worries me, both for existing land/royalty owners and the company, itself. I've seen units smaller than ours with as many as 24 laterals; new ones added every few mos. Not sure if they are EQT or Range Resources or another drilling company but whoever, they are obviously staying above the curve by producing more for less while the market is low. The theory that it's smarter to leave the gas in the ground while prices are low just doesn't make sense if it puts the company and the royalty owners out of business with little or no sales coming in. I agree with your assessment, that the Rice's have had a vision but hope that they are accounting for the assets they already have rather than looking ahead to new during this downturn. We bought stock and voted for them to take over. Hoping they can turn things around for all of us, as well!

Permalink Reply by Lynn mudder on December 16, 2019 at 9:46am

One MAJOR concern we have,  our royalties have been SO diluted. Our wells have been thrown in with so much undrilled acreage.   If the day comes that they drill that, we will share in that.  In theory that would be great. In the meantime, so many people are getting a piece of this, royalties are very low.  In this climate of too much gas, I fear the drilling will not proceed as planned. Thus we will never recoup our shared royalties. 

Permalink Reply by Jeff Kerr on December 30, 2020 at 4:51pm

You said you well has had no new activity from 2015  Our well the first one has been not touched sense 2011 one leg only I don't get it  

Permalink Reply by Lori Huber on December 16, 2019 at 1:53pm
Understand. Our unit is over 1040 pooled acres so we've shared from the beginning with acreage not drilled within the unit. Understanding was that they would add additional laterals and re-frack when production decreased however, after 3+ yrs there has been no additional development and with the market in such a slump, we have seen a 60% reduction in royalties from 1st month till this month, over just 36 months. Toby's plans of returning to producing unit pads to re-drill in order to save on operating costs and increase production not only made sense but also gave us a more secure outlook on our royalty livelihood and well site production. Unfortunately, well after his 100 day plan was implemented we haven't seen or heard of any improvements and our royalties have continued to shri k to their lowest ever with the largest drop between last & this month (30% lower). Much is obviously due to low mkt prices but we haven't seen any plan or effort on EQT's part to improve on the situation. As I mentioned in my initial discussion comment, my fear is that emphasis is going to be put on future facing plans with new units and drilling rather than expanding on units already developed, leaving long standing landowners in the dust. There are a variety of situations but it all tends to boil down to the same thing; how long before our royalties melt away?
Permalink Reply by marcellusinvictus on December 17, 2019 at 3:47am

Thank you for sharing your experience. I'm less than a year into receiving royalties and things are chugging along just fine from the wells I am a part of in Marshall County. Based on available data I can access and understand (as an absolute amateur/average person) on WV's oil and gas database, it appears that most nearby wells fall off in production after one year (if not before) and the decline is steady thereafter. There are simply too many variables at play to make apples to apples comparisons but, in my very limited understanding, your rate of declining royalties appear to be very common and should be expected. 
I don't know how long my boon will last but I expect to receive about 90% LESS than I am now in three years, if I'll receive anything at all. 
For my part, I don't want the fun times to end but I know I can't count on royalty checks for income even though it's been a great help so far. 
I get most of royalties from NGLs and not from straight up natural gas, if that matters. 

Permalink Reply by Lori Huber on December 17, 2019 at 6:49am
Thanks for the insight. There are definitely a lot of variables depending on area, type of has, and even lease contract. I did a LOT of research even before signing and continue to try to stay informed. We had a decline chart in the beginning and it showed steady decline in productivity (which I suppose is why we get depreciation on royalty income on taxes) but it stayed steady for 1st 2 yrs then showed a gradual decline till 5 or 6 and companies generally refracked at the 6 to 10 yr mark to reopen fractures and allow more gas flow. Then the cycle repeated. Back then, it was a general consensus that a well could only be refracked once with any profitability and would then eventually run out. Seemed to be "the science" and when Rice came on the scene they'd embraced a better fracking tech using ceramic pellets rather than sand to fracture shale veins that produced better and longer bc they didn't degrade like sand particles, thereby keeping fractures open and producing longer. Being a Rice unit it was quite a shock to see the drastic decline all of a sudden, though EQT had taken over so much was blamed on their mgt. Our biggest problem seems to be the market sale prices than anything. We have dry gas that needs no processing and goes straight into the main supply line. It just seems like it all went down all of a sudden and that sends red flags. Not enough pipelines, we know is a huge issue. A glut in our area keeping prices low while a few states away they're paying quadruple because they can't get our gas. It's a ridiculous situation. We'll never not be grateful for everything the Marcellus under our farm has provided us and see it as a blessing. Even with a 60% royalty decrease we can hardly complain. Just seems like there are ways to alleviate a good bit of the bite that aren't being utilized.
Permalink Reply by william Allen. Ladd on December 17, 2019 at 7:47am

Lorie I believe many of us  are very glad to be able to receive even a small pittance from the sale of gas or oil under our respective properties.

Some farms have been in the same families for close to two hundred years.  Their families have worked and worried that the hopes and dreams will carry on for generations yet to come.  But there are, of course, some folks that did not have the luck to be leased and receive a few dollars that allowed their family to hang on to those dreams. And there are some other folks that went way overboard hoping to advance and improve their situations. But instead a poor choice, (Borrowing against the expected royalty payments),  found themselves worse off then before..

Great hearing your input and commentary

Granddad Ladd

Permalink Reply by Lori Huber on January 3, 2020 at 3:16am

We are beyond a doubt grateful for the discovery and technology enabling the natural gas under our land to be harvested from our farm, which has also been in my husband's family for almost 200 yrs. My son and family lives in the original farmhouse built in 1842, next door. Many years have gone by when we didn't know if we'd be able to hang on to the farm but we persevered and were blessed with the royalties enabling us to guarantee our family farm will be here for the generations to come, in whatever form they choose; at least the next two. Our small (100 acres) family farm has never been able to support itself and we have kept and maintained it more out of love and honor to the land (and pure determination to not be the generation to lose it). We will be buried in the family cemetery, as will our next generation and other family members. The Marcellus gas play breathed new life into family farms that were doomed and we cannot feel anything but blessed that it came when it did. That said, knowing that we have a valuable commodity under our land and that it has the capability of keeping the farm going and land in the family as it has been for many generations, grateful or not, we cannot avoid being wary of unfair or unscrupulous corporations and operators who may or may not be cheating the landowner out of what is their fair royalty for providing the resource that is allowing the drilling companies to be in business and make the profits they have and do. Families have worked hard and hung on to family farms through the worst of times and it is only right for them to be treated fairly in this endeavor. I feel for those who placed TOO much on unsure royalty futures by borrowing against them or spending what wasn't guaranteed and I'm sure many are already feeling the massive decrease in gas prices as much as the dairy farmer feels the drop in milk prices and the cattle raiser the drop in beef. The natural gas has very much become a cash crop for many farms that couldn't self-sustain in today's agriculture markets, taken over by large commercial operations. My perspective is to look in to the business side of natural gas leases, royalties and business in general, particularly during this unprecedented drop in sales prices and royalties, to bring as many landowners together and questioning what's going on rather than sitting back and just accepting that it is what it is because - it may not be. One thing for sure - we landowners are blessed to have this resource available to market at a time when many faced losing their operations but lack of attention to what is going on and not being proactive with respective companies is not in our best interests. Just asking questions is more important than simply accepting all that we are told or not told. You certainly would question your employer if you suddenly started getting lower paychecks with no explanation, or if you sold a crop and the buyer cut the payment without a reason. It's the same situation. I also don't think just bailing and selling out is the answer either. This is just a discussion among other landowners facing the same issues. It is where answers begin. Blessings to all for a more profitable and happy New Year in 2020!

Permalink Reply by william Allen. Ladd on February 8, 2020 at 3:59am

Good morning Lori Huber. Just now getting back to this thread.  Your family history runs pretty much parallel to mine. My Great grandfather of  seven generations ago was the first permanent settler here at Westfield. My father was actually born in the house, (Inn for travelers), that was built by that first Grandfather.. His son, bought property next to his a few years later. And eventually a portion (70 A.) was passed down to me.  Some acreage went to my siblings, (40 A.).

The unit I am in cuts off about 15 A. of my share of that 70A.  However because the way the original storage lease was written, my siblings seems to be entitled to a share of my 15 A. of royalty.  If and when the unit next to the one I am in is developed,  I should receive a portion of my siblings royalty plus the rest of my own 70 A.

And like you, the royalty received was extremely helpful during medical problems here at home. I may or possibly may not be able to personally benefit from future royalty payments. ( The years have been pretty good to me health wise but  at 85 plus,  who knows how many more years are allotted for my  survival?)

However my son and his son will benefit in years to come.

Granddad Ladd

Permalink Reply by marcellusinvictus on December 17, 2019 at 7:57am

I believe you've clearly expressed why you are frustrated and it seems like a very reasonable and well informed position, based on what you know.  I often wonder how much information is unknown or intentionally masked from the royalty owners. I suspect it's quite a bit. I could be wrong, but I believe there is no external authority to check the accuracy of well production data in Marshall County, it's all self-reported by the drilling companies. Why that's even allowed may say a lot. I would imagine it's the same in your area. 

There is a glut of gas in the local market and there is a mass exodus by many companies from natural gas drilling. Some savvy companies are doing ok but it all may go up in smoke sooner than later.  Why does a certain company not take certain actions that would seem to clearly benefit their position and improve the income of royalty owners? It's just too hard to get a good read on the overall picture and all the small details using an average person's resources, in my opinion.  Drilling companies have their agenda and that doesn't necessarily benefit anyone else. 

Permalink Reply by Lori Huber on December 17, 2019 at 8:53am

Good analogy and I agree. No matter how good a co may be, they will always look to their own bottom line first. 

RSS

© 2024   Created by Keith Mauck (Site Publisher).   Powered by

Badges  |  Report an Issue  |  Terms of Service