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.

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Permalink Reply by Dennis M on December 31, 2019 at 2:51pm

My suggestion is to not sell your rights unless it is a last ditch attempt to raise some cash.

Some drillers buy mineral rights, so be clear who you are working with, and if they have knowledge that they will be coming in your direction.

One direction is to sell 1/2 of your rights. This gives you the possible upside 1, 5 or 10 years down the line. Try this one on the rights purchasers. Sell Marcellus only, reserving the shallow rights, and the deep rights. Utica in PA could mostly be a 5 to 10 year time frame, except for some areas.

Permalink Reply by GotGas on December 31, 2019 at 3:53pm

What are the shallow rights?

Permalink Reply by Jeff Kerr on December 31, 2019 at 7:44pm

Shallow rights are Gas that's above the marcellus like 3000 feet deep it's the upper devion play This is what the old time wells were in as the tech. was not there back in the early days of gas drilling 

Permalink Reply by Lori Huber on January 1, 2020 at 1:20am

We only leased our deep well rights. Kept the shallow in the event a company might want to put a shallow well on the property.  We thought as far ahead as we could, given the available info at the time, when we signed a lease.  Early Rice Energy leases were pretty good without adding addendums, before they went public, so we started out with a pretty good lease. Still added a few clauses after extensive research on older natural gas area landowner forums to see what THEY were running in to (ie: Barnett in TX) before completing terms on a lease for our Marcellus. Rice had already included the Gross Royalties clause in the main body of their standard early leases which was copied and and added in this discussion verbatim. Its pretty ironclad, leaving no room for interpretation OTHER than the possibility of wellhead location and calculated selling price. We also have a "Right To Audit" clause stating "RIGHT TO AUDIT: Lessee further grants the Lessor the right annually to examine, audit, or inspect books, records, and accounts of Lessee pertinent to the purpose of verifying the accuracy of the reports and statements furnished to Lessor and for checking the amount of payments lawfully due the Lessor under the terms of this agreement. In exercising this right, Lessor shall give reasonable notice to the Lessee of its intended audit and such audit shall be conducted during normal business hours at the office of Lessee." We also added addendums concerning tax liability should the municipality decide to add or raise taxes in connection with the gas activity and the company would be responsible for paying that difference, including loss of Clean and Green, if applicable. No gas storage. Regarding payment - there is a clause that states within it regarding payment of royalties that "GAS: To pay Lessor and amount equal to [% agreed to in lease] of the gas recovered by the Lessor for all gas and constituents removed from the Leasehold during the preceding month".  There is no mention of "at the wellhead" or any other point other than ALL GAS AND CONSTITUENTS REMOVED FROM THE LEASEHOLD DURING THE PRECEDING MONTH. I have read this lease over and over again and it absolutely, strictly states that Lessee (us) will be paid the percentage we agreed to in the contract on all gas removed from the leasehold with absolutely no deduction for any reason and we have a right to annual audits of all matters and records pertaining to our gas, sales  and payments to us under the leases contract with notice to company. The ONLY thing I cannot find is references to HOW they sell that gas. Not all leases are the same and we do have several addendums to our but our lease is legal and binding on those terms. It is for those reasons that I am questioning how they are selling the gas that they take from our leasehold (and others) and that they are not reducing the sale price as it is coming out of the ground (as stated by the lease) for any reason, including deals or other incentives or administrative costs at the other end. It would absolutely be a breach of at least our contract. And you know, I am not actually accusing them of anything but I AM asking questions that no one seems to have answers for - or are willing to answer.  Happy New Year to Everyone out there! Here's hoping 2020 brings us all some positive futures with this blessing we've received in the discovery of our gas under our lands and means to extract it.

Permalink Reply by Lori Huber on January 1, 2020 at 3:18am

Our lease actually specifies the 2 different levels. It states as follows:

DEPTH CLAUSE ("DEEP WELLS ONLY") : In the event of a conflict or inconsistency between the printed terms of this Lease and the added terms of this "Depth Clause", the added terms of this "Depth Clause" control and shall be deemed to supersede the printed terms of the Lease.

"Shallow Zone" shall have the definition of any zone which is above 4500 ft or above the Tully Limestone, whichever is shallower.

"Deep Zone" shall have the definition of any zone which is below 4500 ft or below the Tully Limestone, whichever is shallower.

There are several actual layers but in our lease, since we specified deep well only and retianed ownership of shallow rights, it was specified in this manner.

Permalink Reply by marcellusinvictus on January 1, 2020 at 4:40am

Does your lease only cover "dry" gas? 

Permalink Reply by Lori Huber on January 1, 2020 at 5:01am

It doesn't specify but we DO have dry gas. It does talk about oil, etc, so I would imagine it covers all manner of mineral extracted in the drilling process HOWEVER I do have a clause the specifies NO methane gas extraction.

Permalink Reply by marcellusinvictus on January 1, 2020 at 6:12am

I ask because my lease is for everything and I don't pay attention to the dry gas price fluctuations because I'm pretty sure they are a small part of my overall royalties. It's mostly the NGLs.  Calculating using the total acreage in the unit and my share of that, total royalties come out to about $425/acre per month.  

Permalink Reply by Lori Huber on January 1, 2020 at 6:48am

Hard to calculate total royalties per acre as everyone has a different lease with different percentages calculating their royalties per their negotiations when they signed. Minimum would be 12.5%. Also, in a fluctuating market it would be impossible to calculate since selling prices have varied as much as $2.00+ over 3 yrs. Dry gas requires NO PROCESSING and can be piped straight to customers, producing only very small amounts of liquid by products in the drilling process. In fact, now that I think about it, we've never shown payments for any liquid (oil or gas) on our statements since the beginning. Dry gas is obviously cheaper to produce. My lease calls for pooled unitization and we have a 1049 acre unit so our 68 acres is a small portion of the whole, even though there are several within the unit with an acre or less. The majority of our landowners don't even have a lateral going under their land however there are reasons behind the larger units and I have no complaints, unless they just leave the large unit without adding to it as it is sized to compensate for royalties we lose to lands within the unit that are not producing gas that they are receiving a percentage of. None the less, I don't think there's an accurate way to calculate how much royalty per acre our unit produces. THIS month, I could say approximately $130.00 per acre based on our acreage divided into the royalties paid. However, others with different lease terms would come up with a different figure so not sure how you calculated yours.

Permalink Reply by Bullfrex on January 1, 2020 at 6:14am

I must be dumb...I thought Methane was the main ingredient in 'dry gas'.

Does that mean they can only produce oil or NGLs?

Pardon my ignorance, but I don't understand "specifies NO methane gas extraction"...

Permalink Reply by marcellusinvictus on January 1, 2020 at 6:24am

I need to check my online pay stubs again to answer your question. I was winging it a bit based on memory. My royalties are primarily NGLs and not dry gas. The price of natural gas (Henry Hub) does not affect my check much. 

Permalink Reply by Lori Huber on January 1, 2020 at 7:01am

Methane gas is what is produced in abandoned coal mines. It is shallow and actually called "Coal Bed Methane".  Here's a definition - "Dry natural gas is at least 85% methane, but often more. Wet natural gas contains some methane, but also contains liquids such as ethane, propane or butane. ... The natural gas used in homes and business for heating, cooling, cooking and electricity generation is dry gas. It can also be compressed and used as a fuel."  Here's a good article. https://naturalgasnow.org/wet-natural-gas-dry-natural-gas-difference/  

Our addendum referred to coal bed methane which is not really a natural occurrence. There is a coal bed methane well on the property behind us that has been nothing but trouble, which I won't get in to.

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