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 Lori Huber on February 11, 2020 at 3:33am

Thank you for the info. Seems like a perfect storm right now, in regards to the natural gas market and land owner royalties. Unusually warm winter weather has decreased the need for energy to heat with so decreasing the market for production of the gas. Lack of infrastructure and supply lines to areas outside the producing regions reduce the market area, decreasing the available market. Over supply because we can't get the gas to markets needing the gas decreases the value of the produced gas. And gas companies are doing everything they can to stay above water during all of these negative market conditions with their own bottom line their priority; not necessarily in the best interests of the land owners providing the natural gas. In truth, when I read the projections and predicted gas prices I wonder who are actually getting them because despite the drops, they are always well above what we actually see on our end. I would be HAPPY to see a sale price of $1.76 on my statements right now, after receiving $1.58 & $1.34 in Nov and Dec (though January WAS sold at $1.93 so a brief reprieve that I am not expecting as the norm). Additionally, sudden decrease in production numbers is showing that producers are likely turning back production while prices are so low, which further reduces OUR bottom line, even if there is a small rebound in sale price. Can't disagree with the strategy, I suppose, but again - a perfect storm for land owners' royalties. We can't do anything about the weather but there are many other uses for natural gas not contingent on NOAA forecasts such as cracker plants producing plastics and other products as well as gas fueled power plants generating electricity. Both are HUGE markets that we - to date - have been unable to capitalize on due to the lack of pipelines getting our gas to the areas it's needed. It's a sad situation hampered by multiple factors that, other than the weather, aren't necessary and could be eliminated, benefiting all, from producers to consumers. But what's new, right? The situation is bleak, but NOT unsolvable. Natural gas is one of the best sources of energy available today. It's clean, has reduced carbon emissions, is plentiful, reliable, safe, and economical. And the industry has provided economical advantages throughout producing regions from employment in direct and supporting industries to community income to land owner income. The setback has resulted in more negativity in more areas than the gas company's profits and land owner's royalties. Just another example of this upside down world that I can admit that I often just don't understand the motivation of. Here's to hoping this slump is short lived and things rebound soon, before the industry is set back farther than is economically sound to regain.

Permalink Reply by william Allen. Ladd on February 12, 2020 at 3:44am

After re-reading this last posting of yours Lori, one thing that has stood out like "A sore thumb" was your statement about the "lack of pipelines".  Almost before we were aware of the Painter  pad being  prepared for a well,  A crew of men appeared on our property. As it was my son and I was doing some work in that particular area where this crew walked up with flags. Turns out they were an advance crew mapping out possible routes for a pipe line.

"OH NO you are not putting a pipeline "ROW" right through here" I told them.  After a little discussion it was agreed that they could move it a few hundred yards to the south just in side of our line fence. Our neighbor was not pleased but there was already a little problem about the line fence anyway from long before the property was left to me.

The pipeline crew had to add a couple of "dog legs" to accommodate a couple of "wet weather springs" and the neighbor's house, which was within a few yards of the line fence.  Now all the noise, dust, digging activity, trucks parking and causing congestion, would not affect me greatly.  

So now the crew installing the pipeline would have a few bones to pick with that neighbor. A water line was laid in hopes to cut costs for hauling water in tanker trucks. A booster pump next to neighbor's house was needed to shove water up the next hill to the well.  It did not work very good. Too small and not positioned properly I guess.  Many months later another, much larger water line was installed by a different company. It worked better. We were told that this new waterline would become permanent. And possibly buried to be used eventually to connect other wells and transport gas from them to the Sabinsville storage and pumping facility..  Painter pad number two was drilled and put on line. 

Just about all of the preliminary work has been done. Pipeline to Sabinsville in operation. Two or three more wells planned for the Painter Pad. Water impoundment supposedly filled and ready for use.

So why not look ahead a little and finish these already planned operations? 

There are other wells in the area that have no way to move their production without  a lot of work that has already been done in  the "Flat Castle area".

One fly in the ointment, so I have been told, was the wind farm and installations of the wind turbines in Potter county.  Personally, I'd be afraid that turbines would need a great deal of maintenance and even complete failure!

Granddad Ladd 

 

Permalink Reply by Lori Huber on February 12, 2020 at 5:34am

Good Morning! Your story about the pipelines sounds pretty familiar and common. There are pipelines and then there are pipelines. When they first developed our unit and well pad they sent surveyors around the unit to map out possible routes for pipeline placement. Those pipelines are SUPPLY lines as opposed to transmission lines. Supply lines get the gas pumped from the well pad to the compressor station, where several pads route the extracted gas to. From there it goes into the transmission line(s) which customers who purchase the gas are tied in to. Transmission lines are what we are lacking, to get the extracted gas to customers. ie: we have a Dominion transmission pipeline running near us that picks up gas from the Twilight compressor station, which is where our supply line from our well pad pumps to, but it doesn't reach beyond our local region which is already over supplied. When our pad was developed, the impoundment pond was installed and an above ground water pipeline was installed on the same ROW as the buried supply line to the compressor station, but they took out the water line once the pad and wells were completed. It did cut down on truck traffic and there was very little disturbance during our pad development. As far as the surveyor, they mapped out several different possible routes and then met with the landowners that the routes ran through to discuss feasibility and acceptance of ROW. If there was a disagreement, another route was mapped out. The surveys and flags were just to show possibilities to discuss. We stopped one route because their surveyed plan would have gone over a very old mine shaft opening (from the late 1800's) that can't be seen unless you know where (and what) it is. Had they attempted to put digging equipment there they'd have lost it. So landowners knowing the land are vital in the planning. Also, we have a family cemetery and OF COURSE wouldn't permit a ROW near it, not knowing how long it will be in use in the future and not wanting a pipeline to infringe on it. So, your experience isn't unusual and probably more the norm. Also, something else you mentioned: they can't pipe Marcellus gas through a water pipeline. Too much pressure. (They can pipe shallow well gas but not the high pressure deep well Marcellus) So, don't know what they're talking about unless they're doing what they did here: installing the high pressure green pipeline underground (which transports the extracted gas to the nearest compressor station) and the water line above it - either above ground or buried. In any case, the supply lines aren't the problem. What we don't have enough of are the transmission lines that get the gas to the markets. Even if the supply lines are there getting the extracted gas to the compressor stations, if there aren't transmission lines that reach the customers to sell to then the gas sits. I know there is a plan to try to run a transmission line through NJ and out under the water to bypass NY (who won't allow the transmission pipelines) to get our gas into New England, where they desperately need it. Perhaps Canada. No telling how long that will take, if it's even possible. Meanwhile, it looks like our most promising developments are in the cracker plants and gas powered electric plants. I agree completely about the wind turbines. They have more issues than are publicized because of the war on fossil fuels and lobbying for alternative sources. Wind and solar may be fine as supplemental sources but they are not efficient enough to carry the full energy load and the cost is astronomical. Natural gas is our future, if they don't destroy it. 

I'm guessing the slow progress on your well development has a lot to do with the over supply and shortage of customers, causing the low sales prices making development less profitable. I agree completely with the idea of finishing what you started and already have planned. It seems like it would be less costly to the drilling companies, if nothing else, and help keep them above water. Our unit was originally planned to have 10 wells. We have 5 and they have kept renewing a permit for a 6th well for over 2 yrs, now.  They have also surveyed out a second pad on our unit (which I could never find any references of being something that has been done before) but they stopped all planning, telling our unit's pad location landowner that it's on hold while they work on leases about to expire. So I don't know if there is actually any rhyme or reason to anything they do. More often than not, I just feel like scratching my head.

Permalink Reply by william Allen. Ladd on February 12, 2020 at 9:07am

Thank you for replying so quickly Lori. 

Last year or longer ago A huge pipeline was installed across route 349 a few miles south of Sabinsville. I stopped to measure it as it was close to where I could actually put a tape measure on it.  It was a thirty inch in diameter section.  I have no idea what it was to be connected to. Thirty inches? Certainly not just a feeder between well sites.. 

Health issues prevented us from determining just what it was all about.  It was more or less installed in a westerly direction. But it had to pass a few miles south of the wind turbine farm.  We did notice that the soil had been washed away a couple of times after pipe had been dropped in the trench and covered up again. This was just west of route 349 and a couple  miles south of Sabinsville.  Several attempts were made to stabilize the soil and to provide diverting areas to the side of the main ROW.   This was about a year ago.

Pipeline installers were all very friendly I took my little grandson with me a few times just to watch the work in progress. One worker put on an impromto show for my little 2 year old grandson. He did a little dance as we took photos of the heavy equipment taking out large trees and clearing stumps. And then came the chippers and the huge trenching machine.  Quite an education for me too. 

I do not pretend to understand the politics of the gas industry. But I do know it is important to be prepared as much as possible when the "flood gates" open up, which they will eventually will do.  In the meantime we are trying to keep up with our bills and a step or two ahead of the sheriff.  

Thank you again for your input. Just about any information can be helpful for the landowners.

Granddad Ladd

Permalink Reply by Lori Huber on February 18, 2020 at 5:41am

Well, I've begun to wonder if it's even possible to get a handle on what's happening in our industry these days. No complaints, but got a welcome surprise when I opened my statement this month (for December production) and discovered they'd sold at $2.07, breaching the $2.00 mark that was said to be unlikely for a long time to come, though production was a little low. Hope the rest of you got a welcome surprise as well, but given that I started this discussion, I thought I should keep with it when something of note occurs. Possibly a fluke because December was a very cold month but January was one of the warmest on record so have to wonder what next month will bring. If that's even a factor. Am I happy? Of course! Especially when taxes are due shortly. At ease? Not a chance. Time will tell. Just letting you all know. Hope you all have a great day!

Permalink Reply by william Allen. Ladd on February 19, 2020 at 3:10am

$2.18 was according to my wife's reply a few minutes ago for November. We received our Nov. check just yesterday.  2/18/ 2020. I did not look at the statement myself.  Now we can catch up on a couple of bills. and buy Another jar of peanut butter.

We thank the "POWERS THAT BE" for a reasonably mild winter. I cant cut wood anymore and we burn wood pellets now. We use electric heaters to augment our heat during really cold nights.

We have lots of wood...….I just cannot handle a chainsaw safely.  We did have a man help us a couple years ago. But he was just not dependable plus we missed a few items during the time he worked for us.  A neighbor had a machine that would take a log, block it up and split it. so we hired him to skid logs from the gas line right of way from one of the piles stacked up.  Some of these logs ,(6 of them), were too big for his machine to handle. But he skided them to our yard. But so far are unable to get these 6 worked up into fire wood.  The other two stacks of poles were not left where we could get them handily by the crew that cleared the pipeline ROW. 

My advice to every one would be, "DONT EVER GET OLD!"    Young folks simply do not understand the kinds of problems elderly folks are faced with!

Not complaining but just trying to point out what some of us are dealing with.

Granddad Ladd

Permalink Reply by Bullfrex on February 19, 2020 at 5:40am

I hear you, Grandad! But as I continually remind myself and others in my age group...getting old beats the alternative!!

Permalink Reply by william Allen. Ladd on February 19, 2020 at 8:05am

Well Bullfrex, I agree with you up to a point.  It depends  with that person you find yourself growing old with too.  After 18 years when I was about 48, it was time to make a change. I was finding myself being buried by assorted items from garage sales, Give away items, and often items salvaged from trash piles. Early on, much salvage items could be sold for a profit.  But then items that were not sold began to collect and overflow my sleeping area.  

Enough of this!!!!

An ultimatum was delivered. 'Keep the most of the very precious items and discard the rest...…. or else I will!'  A year was given for the choice to be made.  She made the choice to keep her items. 

Much more to this story but 30 plus years  have gone by now. And a new mate now shares my home.  A pitiful existantence for the Ex. But she made the choice to leave!  

Granddad Ladd

 

Permalink Reply by Lori Huber on February 19, 2020 at 7:45am

Glad your royalties are improved! That's really good for Nov. Hope it helps you have an easier go of it. Understand the difficulties of age all too well, and not that far in to it, yet. A thought always comes to me when not feeling as able as I was 20 or even 10 yrs ago: some people don't get the opportunity of growing old. My son passed at 32 (diabetes complications). So I try to live for him, without complaining about age, even with the ups and downs that comes with it. (No problem complaining, though. ;) )  Hope things get better for you! Prayers your way.

 

Permalink Reply by william Allen. Ladd on February 20, 2020 at 1:51am

To Lori and Bullfrex

My Ex made the choice to leave. There was no chance she would or could ever change. It was a condition fostered since childhood. A really pitiful situation to have taken place. 

What I will say about that is, "BE CAREFUL WHAT YOU SAY TO YOUR OFFSPRING!" Don't allow your fears to be passed on to them!

The 1929 depression caused un repairable damage to many people.  She was never able to understand what was happening. 

Her daughter, also was a diabetic. She died at age of 31. Both of my stepdaughters and I had bonded and the divorce had not caused any strife. My ex had been away for about 5 years. One day the Diabetic stepdaughter called me to tell me she was heading to Florida for a visit/vacation to see her sister. She said, "I just wanted to say "GOOD BYE BILL and tell you I was flying to Florida in a day or two."  She would be coming back to Pennsylvania with her sister and brother in law in a few weeks.   

I wished her a good trip and have lots of fun there.

A couple of weeks later her older sister called me.  She wanted me to come quickly to Florida. The diabetic sister had a massive brain hemmorage.  We all agreed that keeping her on life support was not what she would want.

I have often wondered if my little stepdaughter had a premonition of her passing on when she called me that day and wanted to tell me GOOD BYE.

Granddad Ladd

                      

Permalink Reply by Lori Huber on February 20, 2020 at 6:28am

Glad you had the time with your step-daughters and I'm sure they were, as well. Sorry to hear about your deceased step-daughter.  As a matter of fact, I had a ruptured cerebral aneurysm in 2006 and wasn't expected to live, and if I did, would be severely impaired. After 3 wks in a coma after they coiled the rupture, I woke with no impairments and am fine, though have to keep my BP down. I was deemed a miracle, even by the medical people. That was 3 yrs before my son died. I believe that God wanted me here for him and am a firm believer in everyone having a Plan set for them. I also believe that if you are deviating from that path you will know it, one way or another. Sorry you had a bad experience with your first marriage but it sounds like you gained something from it, too. Nothing is ever ALL bad, I think, even in the worst situations. Sometimes its just hard to see. Hoping you can find some sunshine in the storm.

Permalink Reply by william Allen. Ladd on February 20, 2020 at 8:07am

Guess we all have our trials and tribulations to deal with Lori. 

I did not want to open up personal problems for anyone but just about everything we do is related to how we survive. Each day we learn something new and how to handle it.

The anticipation of opening up gas wells so close to us brought on all kinds of plans or dreams of future changes for many of us. I have known the Painter family since about 1949. I went to school and worked with and for them and went on a few picnic outings with them.

John Painter and I talked about the exploration nearby. I only had a slight idea where the well was to be drilled. It turns out that I had hunted that area,  Plowed an open field and combined the grain from that field. In our conversation I made the statement, "John, You and I will never benefit from any well drilled nearby."  We both were in our seventies at that time. Any progress being made was very slow and the years were creeping up on us. As  it turns out John was nearing the end of his lease on life. John died some months before the decision to establish a drilling pad right on the area I had mention a few sentences ago.  I still did not realize that the drilling unit took in a slice of my property.  I had not been approached yet.

 The next few years proved that my prediction was only have true. I am still here and have benefitted somewhat from that well.  John's family did benefit but not my friend Johnny.

Royaltys have allowed us to settle a few outstanding bills. but the early plans and dreams had to be scrapped. Was hoping the unit that takes in the rest of my acreage would be developed as were the plans as told to us.

Aside from the expected royaltys dropping drastically Lu and I are still a step or two ahead of the sheriff.

Nice visiting with you.

Granddad Ladd

 

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