Drilling & fracking in the Marcellus and Utica shales is a huge investment

From an Article by Anya Litvak, Pittsburgh Post Gazette, May 21, 2022

When the airport and the company now known as CNX Resources signed their Marcellus Shale gas agreement in 2013, there was the potential to drill as many as 45 wells on the campus of Pittsburgh International Airport. (But, only 14 have been drilled.) On Friday, the airport authority approved two new agreements with CNX that would incentivize more drilling, including in the deeper and drier Utica Shale layer.

Over the next five years, the airport will act as a marketing agent for CNX to secure customers for the gas that would come from yet-to-be drilled Utica wells. In order to be burned as airline fuel or in vehicles, that gas would need to be either compressed or liquefied — that is, cooled to a point where it turns into a liquid. That would also require the vehicles and/or plane engines to be retrofitted.

All of this will take time and money, Christina Cassotis, CEO of the Allegheny County Airport Authority, acknowledged. But she believes that with an increasing number of transportation and aviation companies pledging to reduce their carbon emissions, natural gas — which burns cleaner than diesel and gasoline — might be a short-term draw.

“Given the carbon commitments that are out there, how can we be part of helping the industry and airlines start to decarbonize immediately,” she said, invoking natural gas as a bridge fuel until cleaner fuels become available.

Both the airport authority and CNX framed this as a path to hydrogen — the subject of billions in federal funding and a focus of the natural gas industry, which envisions using its product to make hydrogen with the resulting carbon dioxide emissions captured and sequestered in a massive Appalachian storage hub.

CNX plans to build a liquefaction plant, according to spokesman Brian Aiello, with the timing yet to be determined. He also said it would produce a “naturally, not mechanically” compressed natural gas product, but the company declined to provide technical details, saying it’s proprietary.

In a fact sheet, the company referenced its “unique autonomous ultra-high-pressure separation technology, which performs consistently in harsh and high-pressure conditions, manages gas streams to be used to generate electricity and power — as well as hydrogen — in the immediate proximity of the wells.”

The timeline for adoption of natural gas derivates isn’t clear yet. Pittsburgh International will loop gas from CNX wells and solar power into its own microgrid, now in place.

“I think it depends on who’s asking, how motivated the engine manufacturers are,” Ms. Cassotis said. “Maybe it’s not an airline. Maybe it’s the snowplow.” She said the airport is looking at its own operations and evaluating ways to use more sustainable fuels. For example, it is pursuing a study of the potential to use organic waste to generate sustainable aviation fuel. “One thing at a time,” she said. “What the new agreement does is it puts some skin in the game for us — and it allows for a little bit of an additional royalty if we help” CNX sign up customers. Specifically, the airport stands to get up to 5% on the sale of any compressed or liquefied gas that it brokers, officials said.

The more immediate impact might come from revising the airport’s existing agreement with CNX — the one signed in 2014 that delivered a $46 million signing bonus and more than $57 million in royalties since the first Marcellus well went into production in 2016.

In exchange for a commitment from CNX to drill new wells, the airport authority has agreed to have post-production costs deducted from its royalties. Such costs include expenses incurred by CNX to get the gas from the wellhead to the point of sale. The airport authority’s original lease specifically prohibited deducting these costs from its 18% royalty, which Ms. Cassotis said has held CNX back from drilling additional wells.

The amended lease now allows for up to $1.60 for each million British thermal units to be withheld from its royalties. For context, the average price that CNX received for its gas last year was $2.57 per million Btu. The cost of gas has increased drastically in recent months. Eric Sprys, the airport’s CFO, estimated this would have the effect of slicing up to 45% from its royalty revenue. But Ms. Cassotis noted that a 45% cut is better than no new drilling and therefore, no new royalties. “We’re each getting something out of the deal,” she said.

According to CNX, the airport authority stands to add $24 million in Marcellus royalties and up to $27 million in Utica royalties by 2030 as a result of these agreements. CNX gas already powers a microgrid at Pittsburgh International Airport, which also includes a solar panel installation.

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See Also: Special Focus: Well Completion Technology ~ “Using data from drilling to guide completion designs,” Kevin Wutherich (Drill2Frac), World Oil, Volume 343, No. 5, May 2022.

Existing but previously unused data obtained during the drilling process can now be used to enhance completion design. The author outlines the available data and discusses how it can be incorporated into the completion design process and ultimately provide economic benefits to an operator.

Drilling & fracking now reaching more properties

Article by Dave McMahon, Co-Founder of WV Surface Owners Rights Organization (WVSORO), March 4, 2022

Methane gas originates in shale formations laid down eons ago. Over the eons some of it creeps towards the surface and is sometimes trapped on its way upward in a porous and permeable sandstone formation that is topped with a denser cap rock formation above it to keep it from migrating further upward. Until about 2008, almost all gas drilling was to the gas trapped in those sandstone formations. A vertical well was drilled through the formation and fractures were put into the formation for the gas to flow more freely to the well bore. Originally these fractures were created by nitroglycerine, but more recently by pumping water (and accompanying chemicals and sand) under enough pressure to crack and lift the above rock, and leave sand in the cracks!

The limitation of this gas extraction method was that the well bore exposed to the rock was only as long as the formation was thick. The other limitation is that the gas trapped in the sandstone formations was somewhat limited because what gas migrated upwards into the sandstone was a lot less than stayed behind in the shale. The shale contains much, much more gas.

Why didn’t drillers drill the shale if it had more gas? Because it has almost no porosity or permeability. In the amount of time gas will flow a kilometer through sandstone, it will only travel one meter through a shale. So, putting a vertical well through the formation will get very little gas flowing out of the shalle into the vertical well bore, to the surface, and to market.

Drillers first tried to get more gas out of shale by increasing the volume of water used to fracture vertical wells. Instead of the conventional practice of using the amount of water that can be held in a tanker truck of water, they started using enough water to fill several olympic swimming pools. That worked somewhat better.

But then along came horizontal drilling. Techniques were developed to put the motor turning the bit drilling the well bore at the bottom, far end of the drill pipe instead of using a motor at the surface to turn the whole drill pipe all the way to the bit. Also highly accurate internal guidance systems were developed. Those two factors coupled with the new large-volume fracturing techniques created a revolution, a tsunami, of horizontal drilling in shale formations like the Marcellus and the Utica.

The new wells cost several million dollars each to drill compared to several hundred thousand dollars for drilling a conventional vertical well. One of these horizontal shale wells, however, produces 60 times the gas of a conventional vertical well, so they are much more economically efficient. You are unlikely ever to see a new conventional well drilled. (And the fact that many of the old wells will likely become orphaned is a separate article.)

The most likely pollution problem from a gas well occurs as it is first drilled vertically down through the water table. (Actually it’s second; the real most likely problem is spills on the well pads during drilling.) So if one well can serve to get the same gas as 60 wells, the chances of groundwater pollution from this first step in drilling is reduced by 60 times.

Also, conventional vertical wells have to be spread far apart, with a different well pad for each. Several horizontal wells, however, can be drilled from one well pad – 6, 8 or even more horizontal wells from one pad. So again, fewer well pads on surface owners (with the danger of spill prevention going bad also reduced). That one pad is much, much bigger, but still it is a huge reduction in surface use and spill risk.

The drilling of horizontal shale wells has greatly increased. There would be even fewer wells drilled (and hopefully fewer well pads) if the horizontal wells could be drilled longer and longer. The greater the length of the bore exposed to the formation (and fractured) the more gas comes up out of one well.

What has limited the full exercise of long horizontal well bore drilling technology is that the driller should have at least 640 acres of leased mineral acreage to drill these wells. If the driller can find one 640-acre mineral tract, that is all that is needed. But ownership of much of West Virginia, particularly in the area of the state being drilled by horizontal Marcellus Shale wells, is broken up into much smaller tracts. So the driller needs to get leases from the owner (or owners, there can be scores of heirship owners of a single mineral tract) of several separately owned, neighboring mineral tracts to put in a 640 acre “unit” for the drilling of the horizontal wells.

If the owner(s) of the mineral tract towards the end of a planned horizontal well bore will not sign a lease (or cannot be identified or located because there are so many heirs) then the driller has to make the horizontal bore shorter than the driller would otherwise make it. And remember the longer the bore the better, as noted before. So the driller wants to be able to force tracts into their units so they can drill longer bores. That is why the drillers want SB 694. It allows a commission to force tracts into a unit for drilling longer bores.

WV Surface Owners Rights Organization (WV-SORO) respects the views of those who want to leave any possible stumbling block in the way of hydrocarbon energy production. But our position has always been that, for the reasons above, as long as horizontal methane gas wells are going to be drilled, legislation that will allow longer bores from fewer wells to be drilled from potentially fewer well pads is a good idea. And the reality is that these horizontal shale wells are being drilled now and will be for the foreseeable future. So a good forced unitization bill is a good idea. (Note that this is commonly called forced “pooling.” But variations of the root word “pool” are used for three different concepts in the existing statutes so we use the term forced “unitization”.)

The problem has been that the forced unitization legislation introduced in the past has done the good things such legislation can do for the drillers, but not done good things for surface owners, and has not been fair to forced mineral owners in determining how much the mineral owners will get paid up front and for royalties. SB 694 is far from the best possible bill, but it is OK, and does have some significant benefits for surface owners.

1. First, the driller will still have to get the permission of the surface owner to drill one of their big horizontal wells pads. Though the drillers would like that to be something that could be forced upon the surface owner, the bill does not provide for it. The driller has to get the surface owner’s agreement. And, we advise surface owners to ask for $640,000 from the driller to agree to the placement of the pad on their surface!

2. Second, remember how one tract of minerals can have the ownership shared by scores of heirs? Sometimes it is not possible to find those heirs in order to pay them the royalty payments and signing bonuses. Under SB 694, if the mineral owners do not show up in five years, the surface owner gets not only all the back royalties for those five years, they also get title to that share of the minerals, plus all future royalties.

3. Third, there are legislative findings in the bill recognizing surface owners rights added into the Code that can be used by courts in interpreting and carrying out the bill.

4. Fourth, about one-third of WVSORO members also own the minerals, or a share of the minerals, under their land. So if their minerals (but not surface) are forced into a unit they will get very fair royalties paid to them and they will get paid very fair up front money calculated off a weighted average of what the drillers paid to owners who did sign leases.

That is not to say that SB 694 is perfect. We could have drafted something even better in the devilish details. Considering the political climate at the current legislature, and the unpredictability of the future, we believed it was the wise thing to say that we were OK with this bill.

>>> Update: SB 694 has passed the Senate, the House Energy and Manufacturing Committee, and House Judiciary Committee and is heading to the House floor.

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SEE ALSO: West Virginia University study finds natural gas pooling law could spark economic boom | WV News | Charles Young, March 9, 2021

This study examines the potential economic impact of instituting a unitization law in West Virginia. We define two scenarios whereby drilling activity in West Virginia is assumed to increase by either 5 percent or 10 percent above current levels. We then estimate the additional economic activity from three major sources: well construction, spending due to ongoing production, and royalties paid to rights-holders within the state.

The estimated cumulative economic impacts over a five-year period from construction, drilling, and completion would be between $1.1 billion and $2.1 billion, with employment between 4 thousand and 8 thousand job-years. Operational impacts are between $12.8 million and $25.6 million over five years. And impacts from royalties are expected to yield between 500 and 1,000 job-years.

Download the 29 page WVU Business Report here.

Solar Holler people are active all four seasons

From the Article by Fred Pace, Huntington Herald Dispatch, July 18, 2021

HUNTINGTON — A 376-solar panel project at Coalfield Development’s West Edge Factory in the Westmoreland area of Huntington is the largest for a nonprofit organization in West Virginia.

“The installation of these 376 panels is the culmination of many years of collaboration between Solar Holler and Coalfield Development,” said Coalfield Development CEO Brandon Dennison. “Our conservation coordinator, Jacob Hannah, worked with Dan Conant and his team at Solar Holler to make this a reality, and our community is better off for it.”

Dennison called it “much more than a simple solar installation project.” “This was a workforce development, community engagement and green infrastructure project all wrapped into one,” he said.

Hannah said the total cost of the project is $184,000. It will generate 122.2 kilowatts of power with 150,500 kilowatt hours in annual production.

“We had been looking around for funding opportunities to put solar on the building,” Hannah explained. “We had been distributing solar as a solar installer to houses and businesses, but in as a nonprofit we couldn’t afford to put solar on our own building. We reached out to the Alex Honnold, a world-famous rock climber. He is the first person to ever free climb El Capitan, the largest granite monolith in the world, located Yosemite National Park, in central California’s rugged Sierra Nevada Mountain Range. He sets aside a third of his income to a foundation for installing solar in developing regions. We made the case that Appalachia is a developing region, especially with the coal transition. He loved the project and we received a $100,000 grant.”

Solar Holler recent finished the solar panel installation portion of the project. “It took them about three or four weeks,” Hannah said. “Now we are waiting on the final interconnections with everything coming down to a meter, which will read the saving being generated. We have been working closing with AEP to make sure our power is going into their grid and it’s being metered correctly.”

Hannah said a ribbon-cutting ceremony is being planned for late August or early September.

“Of all the amazing work that has happened at Coalfield Development these past 11 years, being part of the solar movement has been one of the biggest surprises and also one of the most rewarding parts of our effort,” Dennison said. “In 2014, Dan Conant called me and asked if we wanted to partner on training the new solar workforce of West Virginia’s future. I’m so glad we said yes. That yes led to the creation of what was then called Rewire Appalachia, a wholly owned subsidiary of Coalfield Development.”

Dennison said Rewire provided labor for Solar Holler’s installations for several years. “Then, in 2019, Solar Holler actually acquired Rewire and Coalfield Development became a minority share owner in the Solar Holler business,” he said. “If you would have told me back when Coalfield started in 2010 that of all the different businesses we started, our solar enterprise would be one of the fastest growing, I would have laughed you off. But Solar Holler keeps pushing the envelope of what’s possible for renewable energy here in West Virginia. We are genuinely honored to be along for the ride and to do our part to mine the sun.”

At the West Edge Factory there is a sticker design painted on one of the inside walls that says, “Solar Keeps the Lights On.”

“One component of the installation was the foundation wanted to do a sticker design to commemorate the project and sell as a fundraiser,” Hannah said. “It’s a play of the term ‘Coal Keeps the Lights On’ that we usually hear. Well, these are reskilled coal-impacted folks selling solar that are keeping the lights on as well.”

A new report from global wealth management company Morgan Stanley projects coal-fired power generation is likely to disappear from the U.S. power grid by 2033 and will largely be replaced by renewable energy resources.

The report from Morgan Stanley said renewable energy such as solar and wind power will provide about 39 percent of U.S. electricity by 2030 and as much as 55 percent in 2035.

According to the U.S. Energy Information Administration, coal currently makes up about 20 percent of U.S. electricity generation and could rebound to as much as 22 percent this year due to higher prices for natural gas. Morgan Stanley forecasts, however, that the slight increase will be short-lived and coal will experience a “constant decline thereafter.”

Dennison says coal’s decline is one reason the project is important to the Westmoreland and Wayne County community. “It carries importance for our entire Appalachian region,” he said. “I’ve heard so many different arguments from so many different skeptics about why solar can’t work in West Virginia. But the reality is it keeps working. The solar sector keeps growing and creating new jobs. A new economy really is possible here, and this project proves that point. And this new economy can be better for our people than the booms and busts of the old economy ever were.”

West Virginia Shale Development Falls Short of Economic Promise

By Sean O’Leary, WV Center on Budget & Policy, February 7, 2019

The nearly six-fold increase in West Virginia’s natural gas production in the last decade, due largely to shale development, or fracking, has fallen short of expectations for economic growth, job creation, and tax revenue generation, according to a new report released by the Institute for Energy Economics and Financial Analysis (IEEFA) and the West Virginia Center on Budget and Policy. Read report.

The report, Falling Short: Shale Development in West Virginia fails to deliver on economic promises, finds that the shale industry has underperformed economically due to the falling price of natural gas, which has cut into the industry’s profits and under-delivered state tax revenues. It has also missed expectations of creating jobs, reducing poverty, and spurring wider economic growth.

The paradox of a region rich in natural resources that fails to develop economically is known as the “resource curse.” The report asks how West Virginia, which historically exhibits signs of a “resource curse” in the coal industry, can avoid a similar fate with natural gas.

The report recommends increasing the severance tax rate from 5 to 10 percent on all minerals, or at least natural gas, natural gas liquids, and oil that are mostly coming from shale development. Proceeds would finance a Future Fund to diversify economic development and promote state initiatives that rely less on resource extraction and the vagaries of energy markets.

Key findings include:

>> The economic development gains of the shale industry have underperformed initial projections partly due to exaggerated early claims made by the industry and industry-funded studies.

>> Planners failed to anticipate the significant and sustained collapse in natural gas prices resulting from large increases in production.

>> Severance tax revenues grew through Fiscal Year 2015 and then fell off. Fiscal Year 2018 natural gas severance tax revenues were only 15% higher than FY 2008 revenues, adjusted for inflation.

The growth in employment from 2008 to 2017 has been in natural gas pipeline construction, largely temporary jobs while jobs in drilling and related activities have actually declined—about 40% of pipeline construction jobs are held by out-of-state workers.

Natural gas production is concentrated in six of the state’s 55 counties which produce 80% of West Virginia’s natural gas.

Early studies failed to anticipate the collapse of coal mining, driven in large part by the glut of inexpensive shale gas.

“Today, the natural gas industry is again promising significant economic benefits from what it sees as the next big opportunity: Appalachian petrochemical development,” said IEEFA energy analyst Cathy Kunkel, adding, “We find that such claims are likely to be overstated.”

West Virginia has a long history of economic boom-and-bust tied to coal extraction. Despite its vast natural resource wealth, the state has consistently ranked among the poorest in the nation.

“We are looking at how West Virginia can avoid repeating the same mistakes it has with the coal industry and use its natural gas and other resources to contribute to lasting in-state wealth,” said Ted Boettner, Executive Director of the West Virginia Center on Budget & Policy.

See the report here:
http://ieefa.org/wp-content/uploads/2019/02/West-Virginia-Shale-Development-Falls-Short_February-2019.pdf

Beth Walker and other Justices now in impeachment process due to excess spending

From an Article by Ken Ward Jr., The Charleston Gazette-Mail & ProPublica, August 20, 2018

The Republican-led West Virginia House of Delegates received national attention last week for impeaching all four of the state’s sitting Supreme Court justices. Lawmakers cited a swirling scandal over court spending that ranged from using state cars for personal business to extravagant office renovations that included a $32,000 couch.

Among the targets was Beth Walker, who was impeached over allegations of irresponsible spending and poorly managing the court’s administrative affairs.

But left unmentioned in the impeachment and the debate around it has been a peculiar vote by Walker that benefited the natural gas industry. In one of her earliest votes, Walker made a highly unusual decision to reopen a case and then reverse a Supreme Court ruling that would have forced drillers to pay more in profits to residents. Walker voted to reopen the case around the time her husband owned stock in a variety of energy companies, including those participating in West Virginia’s growing gas boom.

The case focused on whether natural gas companies are allowed to deduct a variety of expenses — for the transportation and processing of gas, for example — when they calculate payments for West Virginia residents or companies that lease them drilling rights to their gas. Millions of dollars in gas royalty payments, the riches from the industry’s dramatic growth in West Virginia over the past decade, were at stake.

In November 2016, the court — before Walker joined it — voted in favor of the residents, ruling that producers weren’t allowed to take such deductions.

Two months later, just weeks into her term, Walker provided the pivotal vote to have the court reconsider the ruling. The court then overturned it, siding with the industry and against the residents.

The decision has been a source of significant dispute. This year, lawmakers passed a bill to reverse the court’s second decision. That prompted EQT Corp., the state’s second-largest gas producer, to file a lawsuit in federal court challenging the Legislature’s action, as well as a 36-year-old state law that sets minimum royalty payments for new gas wells. The company said the state law “infringes on EQT’s vested drilling rights” under its leases.

That case is pending in U.S. District Court in Clarksburg and is among the major battles playing out amid the economic shift in West Virginia from coal to natural gas.

Land ownership across West Virginia has often been complex and confusing. Someone may own the surface land, while someone else owns the the coal, oil or gas underneath it. Tracts such as natural gas reserves become divided among multiple owners, as land and minerals are passed down across generations.

Much of the natural gas in West Virginia is produced under leases that are decades or more than a century old. When they were signed in the early 1900s, paying residents and mineral owners $100 to $300 a year for gas was considered reasonable, maybe even generous. Most drillers at the time were after oil. Gas was mostly an undesirable byproduct.

When the market for natural gas increased, it became more common for leases to pay a share of the sales. Residents and others owning the mineral rights would make more money as production increased.

But many West Virginians were stuck with older leases paying a set amount per year, regardless of production. The Legislature decided to step in with a bill in 1982 to increase royalty payments for new wells drilled under older leases. While existing wells were grandfathered in, new wells drilled under those old leases would now have to pay the gas owner at least 12.5 percent of the gas sales price.

It was one of these leases, signed in 1906, that governed the deal between Patrick and Katherine Leggett and EQT, and that led to the case involving Walker.

The Leggetts were supposed to be getting a 12.5 percent royalty on the gas produced from the new wells on their land. But they were actually getting much less, because EQT was taking deductions from their payments for expenses incurred after the gas was extracted.

The Leggetts and their lawyers thought the law was clear: West Virginia courts had already ruled that gas firms couldn’t take deductions unless leases explicitly allowed them. And the 1982 royalty law didn’t mention allowing deductions. (The Leggetts were represented by Charleston lawyer Marvin Masters, who is among a group of local investors who bought the Charleston Gazette-Mail this year.)

EQT, though, argued that the Leggett case was different, because the court was interpreting the 1982 statute, rather than simply deciding a dispute over the language of a gas lease.

So EQT and the Leggetts went to court, and the case ended up before the state Supreme Court — at a very unusual time.

In May 2016, Walker, a Morgantown lawyer, had just won a seat on the five-member Supreme Court. Still, Walker wasn’t scheduled to take her seat until Jan. 1 and wouldn’t be hearing the Leggett case.

The case was decided in November 2016 by a 3-2 opinion written by Brent Benjamin, the justice Walker had defeated a few months earlier. It affirmed that gas companies couldn’t take post-production costs out of the royalties they paid to people like the Leggetts. The ruling was published on Nov. 17, 2016, the last day of the court’s fall term that year.

When Walker was sworn in a few weeks later, one of her first acts was to join the two justices who had voted against the Leggetts — Allen Loughry and Menis Ketchum — to rehear the case, at the request of EQT. The court rarely agrees to rehear cases, and the court’s own rules say this can only be done in “exceptional cases,” where the court has “overlooked or misapprehended” points of law or fact.

The Leggetts’ lawyers argued that Walker should not be involved in the case and should never have voted on whether to rehear the case because of her husband’s holdings in industry stock.

Mike Walker had loaned his wife’s campaign $525,000 during the 2016 election, according to campaign finance reports. Financial disclosures Beth Walker filed as a candidate for the court indicated that Mike Walker owned stock in many natural gas and energy companies, including Chevron, Columbia Pipeline Group, ConocoPhillips, Dominion Resources, Duke Energy, General Electric, Portland General Electric and ExxonMobil, whose subsidiary, XTO Energy, has significant operations in West Virginia. (State disclosure forms do not provide dollar amounts or ranges for such holdings.)

In court filings, the Leggetts’ lawyers said the loans from Walker’s husband accounted for 70 percent of her campaign funds, and that his energy stocks created a conflict of interest for her in the royalties case. The decision on whether a justice should be recused is left up to the justice, and Walker declined to recuse herself.

First, she issued an April 26 memo that said she found “no basis for my disqualification” because “neither I nor my husband has an economic interest in the subject matter in controversy.”

Then, five days later, just a day before an oral argument to rehear the case, Walker issued a second memo that said, “Out of an abundance of caution, my husband has divested himself of ownership of shares of stock of any company engaged in the business of producing coal, oil and gas, wind or solar energy.”

At the time, Walker declined through a court spokeswoman to say exactly when her husband sold his energy stocks or if he sold them before she voted to rehear the case. On Friday, Walker’s attorney declined to answer that question or otherwise comment.

In later court filings, EQT lawyers noted that it wasn’t clear how much energy stock Mike Walker owned and said his holdings represented a “diverse stock portfolio, with investments in many different industries.”

Lawyers for the Leggetts describe the stock sale as having taken place after Beth Walker voted to rehear the case. EQT lawyers said what mattered was that the stock divestiture occurred before Beth Walker took part in the oral arguments and decided on the merits of the case.

Three weeks after the new oral arguments, the court sided with EQT over the Leggett family: Post-production costs could be taken from leases covered by the 1982 law.

After that ruling, lawyers for the Leggetts tried to take the issue of Walker’s involvement to the U.S. Supreme Court. But that court declined to hear the matter, as it does with the vast majority of appeals filed every year.

When West Virginia justices reversed the decision in the Leggett case, they acknowledged that they had created a situation in which some gas owners would have post-production costs deducted from their royalties and others would not, based on when their leases were written and when their wells were drilled.

“We therefore implore the Legislature to resolve the tensions as it sees fit,” the court said. In their 2018 annual session, which began in January, legislators wasted no time in taking the court’s advice and approving a bill to undo the court’s second Leggett decision.

The state Senate approved the bill unanimously, and the House did so by a vote of 96-2. Gov. Jim Justice signed it on March 9, with an effective date of May 31.

Before the bill took effect, though, lawyers for EQT filed suit in Clarksburg challenging the measure and seeking to have the entire royalty statute thrown out. The state is seeking the suit’s dismissal.

“The state is meddling in private contracts because the Legislature prefers one party to the other,” EQT lawyers wrote in a legal brief. “In other words, West Virginia decided that the lessors had not made lucrative enough deals and simply shifted the fruits of the bargain to them.”

The Senate will hold a trial in coming weeks to determine if Walker and the other justices should be removed from office. Walker is mentioned in only one of the formal articles of impeachment approved by the House, which lists all of the justices and summarizes complaints about the court’s use of public funds.

A more specific impeachment article outlining Walker’s own spending on office renovations was rejected by the GOP-controlled House. Another amendment, to add a specific charge about Walker hiring an outside lawyer to write a court opinion, was also rejected by the House. An effort to remove Walker’s name altogether failed.

The five-member court already has lost two members; another has been suspended. Ketchum retired last month, and he subsequently agreed to plead guilty to one federal count of wire fraud. He was charged with using a state vehicle to take multiple trips to a golf club in Virginia.

Then, last week, after the House impeachment vote, Justice Robin Davis announced that she was retiring. Davis criticized the impeachment process, saying House Republican leaders were attempting “to dismantle a separate branch of government.”

Loughry, whose spending practices prompted investigations of the court in the first place, was indicted in June on federal charges of fraud, making false statements and witness tampering. Loughry has pleaded not guilty, and his criminal trial has been set for early October. In the meantime, he has been suspended from the court.

Whatever the ultimate composition of the court, additional natural gas cases await it.

Another group of West Virginia residents is asking the court to overturn the dismissal of a major lawsuit alleging that the state’s largest producer, Antero Resources, is creating a nuisance with its natural gas operations — with unbearable traffic, mountains of dust, constant heavy-equipment noise and bright lights that shine into their homes day and night.

Oral arguments are scheduled for September 5th.

Monthly Natural Gas Production 2008 - 2016

Mineral owners seek information about gas well laws

From an Article by David Beard, Morgantown Dominion Post, May 26, 2017

Mineral owners gathered Thursday evening to learn about some potential changes in gas well law that could diminish property rights, and to toss around ideas for action. Most of the talk in the meeting room at the Ramada Inn focused on a state Supreme Court Case called the Leggett Case and an industry-backed Senate bill that may rise from the dead, SB 576.

About 20 people turned out to hear from Tom Susman, representing West Virginians for Property Rights; Tom Huber, vice president of the West Virginia Royalty Owners Association; and Steve Butler, administrator of the West Virginia Farm Bureau.

Leggett Case

In the Leggett case, the Doddridge County plaintiffs sued EQT Corp., alleging it has been wrongly deducting post-production expenses from their royalty checks, amounting to 25-30 percent of their rightful income, since 2010.

Last November, the Supreme Court ruled in favor of the plaintiffs. But on Jan. 1, new Justice Beth Walker replaced Brent Benjamin and the court decided to take up the case again. Rethinking a case is rare, Huber and Susman said, and may indicate the court plans to reverse itself.

The case hinges on state code language mandating royalties be paid on gas extracted “at the wellhead.” As Huber explained, changes in the way gas is sold have clouded the issue. Instead of being sold where it exits the well, gas is now shipped to hubs and sold there. So the court seeks to resolve ambiguity in the meaning of “at the wellhead.”

Huber said that the practice of post-production deductions not only deprives the mineral owner of due income, it can and does lead to negative royalty checks where the company indicates expenses exceed the royalty. The Dominion Post previously wrote about this occurring across the country and described some of the lawsuits that ensued.

“We really feel that this is one of the biggest thefts for royalty owners in the state,” Huber said.

Lewis County mineral owner Tom Kopp further explained to The Dominion Post about his situation. His land has three vertical wells owned by three companies, just a few hundred feet apart. The same amount of gas is produced from each, which gets shipped the same distance. Two companies pay full royalties, but one stopped two years ago, claiming transportation expenses were too high.

When Kopp attempted to dispute the charges, the company threatened to start issuing negative royalties — essentially charging them to take the gas they own.

Huber said that if the court does reverse itself, then mineral owners and their supporters in the Legislature will need to make a full-court press to get some protective legislation pass-ed next session.

“We are at a disadvantage,” he said. “We don’t have the deep pockets. We don’t have the fleets of lawyers.”

WV State Senate Bill 576

SB 576 dealt with two topics. One is cotenancy — owners of a single natural gas tract. It allowed the owners of 75 percent of the royalty interest to consent to a lease, in the face of unconsenting or unlocatable cotenants. This part posed few problems for stakeholders.

The other part did. It dealt with joint development, or forced pooling as some call it. It allowed whole tracts to be pooled into a unit unless a lease specifically forbids it. This gained little support outside of the industry.

The bill passed the Senate, but died in the House. Huber said some fear it may be added to the call of the current special session, or another later this summer. Many agree it will return next January.

Opponents regard joint development as a kind of privatized eminent domain — taking land for commercial gain instead of public benefit.

On the other hand, area gas development companies have been posting Facebook advertisements touting a resurrected version of SB 576 as a way to create jobs and boost the economy.

Butler said that the bill contained no real protections for surface owners. It required compensation, but allowed the owner no say in the location of the well — which could disrupt or destroy the production of a farm.

Huber, Susman and Butlers said they aren’t opposing gas well development. They want fair treatment for royalty owners and surface owners. Susman said this was the fourth meeting they’ve held and they plan more around the state.

They plan to work on a package of bills to protect property owner rights and to develop some educational materials to inform property owners and legislators about the issues and needed legislation.

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West Virginia Top Court Reverses Ruling on Gas Royalties

Uncompleted Well Pad in State Forest

Gas Company Wants New Ruling on W.Va. Royalties

From an Article of the Associated Press, WV Public Broadcasting, December 22, 2016

A Pittsburgh-based natural gas producer has asked West Virginia’s top court to reconsider its recent ruling that gas companies cannot take deductions for post-production costs from royalty payments to the state’s landowners for mineral rights.

The State Journal reports EQT Production Co. wants the Supreme Court to withdraw its November ruling and rehear the case.

The ruling was requested by the U.S. District Court for the Northern District of West Virginia, where Patrick Leggett and several other mineral rights owners sued EQT, arguing the company was improperly deducting fees from royalty payments.

Leggett owns a farm in Doddridge County where EQT has about 20 wells. He says the company deducted 25 to 30 percent from royalty payments for years.

EQT’s lawyers argue the court misinterpreted state law.

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Pa. still fighting over royalty money from forest drilling

From an Article by Marie Cusick, PA StateImpact NPR, December 19, 2016

Photo: An uncompleted well pad in the Loyalsock State Forest.

The Commonwealth of Pennsylvania continues to haggle with natural gas companies over royalty money it believes it’s owed from drilling on state land.

There are 386,000 acres of publicly-owned forest land leased to gas companies, and like private landowners, the state has had problems getting paid properly.

In September StateImpact Pennsylvania reported the Department of Conservation and Natural Resources (DCNR), which manages state forests, recovered $1.3 million in royalty money over the past year, after ramping up auditing efforts and hiring a new accountant to oversee the issue.

In the past three months, the department has recovered another $150,000.  “As the DCNR identifies discrepancies in the amounts received, it works toward a resolution,” department spokesman Terry Brady writes in an email. “Pending audits and resolutions may result in the collection of additional corrected royalty amounts. ”

The department has repeatedly declined to say how much money it believes it’s still owed.

A 2014 report by StateImpact Pennsylvania shows DCNR has spent years disputing payments made by some drillers. Internal emails show the agency complaining about inaccurate or murky reporting on everything from how much gas is produced at wells, to its selling price.

See also: www.FrackCheckWV.net

No Forced Pooling or Eminent Domain

Ritchie lawmaker pushing ‘forced pooling’ no stranger to gas industry

From an Article by Andrew Brown, Charleston Gazette Mail, February, 6, 2016

As the West Virginia Legislature prepares to take up the issue of forced pooling once again, the lawmaker at the center of that gas leasing legislation is expected to have at least six new gas wells drilled on his property. Delegate Woody Ireland, R-Ritchie, has never been shy about sharing his experience as a land and mineral owner. In public meetings and interviews, the chairman of the House Energy Committee has often described himself as a cattle farmer who knows first hand what it’s like to negotiate with gas companies.

Now, as Ireland hopes to wrangle the controversial gas leasing law through the Legislature, public records show that Antero Resources, one of the state’s largest gas companies, intends to drill at least six new Marcellus gas wells on the edge of Ireland’s farm, adding to one existing horizontal well that was drilled through part of his minerals and completed in 2014. The newly permitted gas wells don’t mean Ireland will benefit from the forced pooling law, which would require holdout mineral owners to sign a lease if 80 percent of the neighboring owners have already agreed to drill. All of his neighboring mineral owners have already signed with Antero.

“Whether this bill goes through or not, it’s not going to have a financial impact on me,” said Ireland, who filed the bill on Friday. But the new wells would mean that Ireland can expect to receive additional royalty checks from Antero, a company involved in the pooling debate, once the wells are completed. Depending on gas prices, how much of Ireland’s acreage is included in each well and his agreed-upon royalty rate, Ireland could make tens of thousands or hundreds of thousands of dollars from the wells in a year. If Antero drills the horizontal wells on his property, Ireland would own a significant share of the royalty profits from four of the wells that would run southeast through a large part of his mineral holdings.

Public records show that Ireland’s share of production from the well that was finished in 2014 equals roughly 1 cent for every dollar of gas produced from the well. In six months in 2014, that well — the Ireland 1H — produced around 1.3 billion cubic feet of gas, according to state production data. There is no average price available for what producers were receiving for gas during those months. Al Schopp, Antero’s regional senior vice president, said he couldn’t comment on Ireland’s leases or the newly permitted wells. “Unfortunately, we are unable to discuss any particular wells, royalty owners, owner royalties per well or any details about specific wells,” Schopp said. “As a company, we have made it a policy that we don’t make any comment on our operations of any wells.”

The wells planned for Ireland’s property, which have been largely permitted by the state Department of Environmental Protection in the past year, illustrate Ireland’s direct participation in the development of the state’s gas resources and highlights his intimate knowledge of the industry. Since 2011, Ireland’s financial disclosure reports with the state Ethics Commission show that at least 20 percent of his income has come from oil and gas exploration and development, including previous leases with Key Oil and the newer gas leases that Ireland signed with Antero in 2012.

According to the secretary of state’s website, Ireland has not filed for reelection in 2016. The bill Ireland is sponsoring for the second year in a row is meant to ensure that no mineral owner is stranded from a gas well, unable to profit from their property — like he stands to — just because a small minority of owners refuses to sign a lease. At a time when the West Virginia state government is struggling with a significant budget shortfall, Ireland said the pooling bill would ensure that the state doesn’t waste valuable gas minerals and the severance taxes they can provide. West Virginia is going to pay its bills from severance taxes on energy production, Ireland said, not from whitewater rafting.

“My focus in this thing is to try to do what’s right for all West Virginians,” he said. Ireland said his mineral and land ownership is no different than many property owners in West Virginia. Most of the gas under his farm is partially owned by other people, he said. Many of the mineral tracts in his area of the state have older conventional gas wells drilled through them already. And almost all of the minerals near his farm, including much of his own, have a confusing history of ownership that makes it more difficult for gas companies to lease enough mineral acreage to drill. The lease that Ireland signed with Antero in 2012 also incorporates many of the same protections that he is proposing for unwilling property owners in his bill, including legal clauses requiring companies to negotiate for surface rights, banning deductions in royalty payments to cover “post production costs” and mandating unused acreage to be returned to the mineral owner.

People who took part in the stakeholder meetings that helped develop that legislation say Ireland’s lease terms are proof of the quality of the bill. Those stakeholders have publicly celebrated Ireland as the great mediator between the gas companies and the participating mineral owner’s associations. “The fact that he has those in his own lease shows how important they are, especially the deductions,” said Thomas Huber, the vice president of the West Virginia Royalty Owners Association. “He definitely has our confidence. He has prioritized what real people go through in a lease negotiation.” “He didn’t get any type of sweetheart deals,” he added. “They are good deals, but they are not special.”

The one detail where Ireland’s lease diverges from the bill is his royalty rate — the percentage of gas profits owed to participating mineral owners. The lease that Ireland signed guarantees him an 18 percent share of every cubic foot of gas pulled from his minerals. The pooling bill would provide a minimum royalty rate of 12.5 percent for those who are forced in. His 18 percent rate, Ireland said, was the result of negotiations with Antero, in which he actually gave up a higher royalty in order to get surface protections for his farm. “It all depends on how much leverage you have in any negotiation,” he said, adding that the size of his acreage gave him more pull with the company.

Southwestern Energy paid $5 billion for Marcellus & Utica holdings from Chesapeake Energy in December of 2014

Times are tough financially for frackers (and not very good for the rest of us either).

Essay by S. Tom Bond, Retired Chemistry Professor & Resident Farmer, Lewis County, WV

Seeking Alpha, an investment newsletter, carried an article called “Natural Gas: Death By One Thousand Paper Cuts… Then A Huge Axe Wound.” That author was thinking about the problems of investors who speculate on natural gas, trying to buy low and sell high. For them it has been coming out the other way around, buying high and selling low, all last year, but especially in the fall. The article was written at the end of October, when gas was at $2.281 per mmbtu. It had been $3 in May. Marcellus Gas.org gives November cloud sourced prices to royalty owners of $1.73/Mcf. (The Mcf in this case having slightly more energy than the mmbtu unit.)

The real hit though is being felt by the over-extended companies that find and produce natural gas. The case of Chesapeake is familiar, the flamboyant Aubry McClendon, who started the company got it seriously in trouble and they eventually kicked him out. The new CEO has said more than half of the deals Chesapeake had when he arrived were clear losers. They are still in trouble. Chesapeake stock lost 22% in 2014 and the CEO compensation was $14.7 million, earning it the position of 25th in Yahoo finance list of worse-performing CEO’s for that year.

That list is interesting. Looking further at it, Nabors, a company that actually does the drilling, made it at 24th; Weatherford at 19th, Kosmos 17th; Continental Resources, 14th; Southwestern (which bought Chesapeake’s old office in Jane Lew, my Post Office town), 13th at a 30% price decrease; Range Resources, 10th, with a loss of 35% in stock value; WPX, a big fracker at 8th; Whiting Petroleum Corporation, 6th; Cobalt International Energy, 4th, Ensco PLC (an offshore company), 3rd with a 47% loss; and in first place, Linn Energy, with a drop of 67% in 2014. Then an 80 % drop in 2015. Linn CEO compensation was $10 million in 2014!

“Energy companies” were the worst performing sector of the S&P. Real Money, an investment site, recently had an article “Balance Sheet Worries Spell Doom for These 4 Energy Names.”

The first on the Real Money list was – Chesapeake! It was the worst performing stock in the S&P 500 in 2015. (List above was for 2014.) As of the third quarter, Chesapeake Energy has $3.6 billion in current assets but it has $4.6 billion in current liabilities.

Second on the list was Southwestern, also mentioned above. The article says, “This Texas-based company proved that one company’s trash is another company’s, well, trash. Late in 2014, Southwestern Energy acquired Chesapeake Energy’s wells in the Marcellus and Utica shales.” The stock fell 74% in 2015. “As of third-quarter earnings, the company has $570 million in current assets to cover $782 million in near-term liabilities. While the company does not have any debt coming due in 2016, it does have a hefty debt load coming due in 2018, which includes two notes that total $950 million and a term loan the company announced in November for $750 million.

Ultra Petroleum is third, its shares fell 82% in 2015.

Fourth is Consol Energy. It bought the exploration and production business of Dominion Resources in 2010 (including drilling rights under the Lost Creek Storage Field, where my surface lies). The article states, “Fortunately, the company does not have any significant debt obligations coming due until 2022. However, Consol Energy has $970 million in current assets to cover $1.9 billion in short-term liabilities, as of the third quarter. Shares of the company were down 77% in 2015.”

As I mentioned in a previous article, somewhere in the high 30′s of exploration and production companies (out of a total of somewhere in the 50′s ) have taken out Chapter 11 bankruptcy. This allows reorganization. Chapter 7  (liquidation) bankruptcy causes the company to disperse its holdings to creditors and that  is the end of it.

Public opinion is slowly coming around, too. According to Leslie Stahl in 60 minutes, “Taking short cuts and human error are endemic to this industry.” “Natural gas has been the ugly step child of the national energy debate, never getting the political muscle of coal or oil.” Except in West Virginia, of course.

The fracking industry doesn’t want federal regulation. You’d think dealing with one set of rules for all states would make it far easier for them. But the federal government is capable of research and is somewhat less subject to direct political influence. It is easy to get the puff pieces that influence people who never see fracking from legislators and their support for favorable legislation. Some of it is pretty obvious. Recently a legislator published a favorable article, and subsequently a permit was published for a well on his property.

Another problem for frackers is the regular appearance of new research that contradicts their pretense that “fracking never hurt anyone.” Research on health hazards, property value declines, public water contamination, and other nuisances has been coming out for years.

Some recent health research titles are: “Fracking plays active role in generating toxic metal wastewater, study finds,” “Fracking’ Linked to Low Birth Weight Babies,” and “New study connects fracking with lower sperm count.” Some are quite ominous: “Malignant human cell transformation of Marcellus Shale gas drilling flow back water.”

The recent connection between fracking and earthquakes is very bad publicity, since these people have a clear claim to monetary damages. The huge waste of gas by the fracking industry is under attack. The Porter Ranch leak going on for months in California is bad news for the industry. It is comparable to the Deepwater Horizon spill in the Gulf of Mexico. The article “Why are Range Resources executives selling their stock?” created considerable interest. “Texas Fracking Zone Emits 90% More Methane Then EPA Estimated” ties government complicity to corporate interest, as did the Public Herald’s report finding that the Pennsylvania DEP fracking complaint investigations are “Cooked & Shredded.” All the articles about divestment of oil and gas stocks by large owners must have hurt also.

Times are tough, fellows. When your costs for removing fracked oil and gas are $20 to $40 more per barrel or barrel-of-oil-energy-equivalent, you face serious competition from the Saudis, Russians (who have five and a half times as much gas, all conventional gas. compared to all the U. S. reserves, including fracked gas) and others overseas. That $20 to $40 difference doesn’t count the damage you do in the fracking fields, either. When the general public catches on to this, it is going to be worse, too. With the cost of wind energy decreasing by 60% in the last six or seven years and the unlimited sun power being captured with greater and greater efficiency, it’s going to be real tough. Fellows, your political activities are not enough to overcome your cost disadvantages now in the near term.  So what will the future hold?

There is Deceit in Leasing as Practiced Yesterday, Today, and Tomorrow?

Essay by S. Tom Bond, Retired Chemistry Professor and Resident Farmer, Lewis County, WV

We are learning that our society, at the top and now working down, goes on the old principle of “anything I can get away with.” Standards of ethics and behavior, which applied a generation or two previously, are largely forgotten. There has always been a crust of this at the top and a lager at the bottom of the social scale which practiced this ethic, but the middle is more and more crowded by them. One must be more self-protective.

Nowhere is this more conspicuous than in mineral leasing, both in what is written in the contract and how lease taking is done. The first John D. Rockefeller was quite religious, but his brand of Christianity didn’t have much, if any, sense of fairness. It involved a sort of social darwinism. He said, “The growth of a large business is merely a survival of the fittest.” Born the son of a con artist, his Standard Oil gained control over 90% of the U. S. oil business.

Standard Oil was broken up by the federal government as a trust (illegal monopoly). Five year later it was reorganized as a holding company (which owned the fragments of the previous Standard Oil) and had to be broken up again. Some of the worst features go back to that time and his company. One in particular is the habit of leasing not only the drilling target layer but also “all oil and gas” as long as any of either is produced on the leased property.

As a friend once described it to me, from “heaven high to hell deep.” Such leases, taken originally as much as 100 or more years ago still hold today, although the land ownership and the company ownership have changed and the original owners are beyond memory – only names on paper in the courthouse.

Then the idea of separating estates came into existence so the children of the original owners of the lands could receive the “royalty” from oil and gas extracted, but the surface was sold to someone else. The royalty was pure gravy and usually was divided among the original owner’s children, and they divided it when giving to the next generation, which causes several kinds of headaches, both for mineral owners and for producing companies.

If a lease runs out, mineral ownership is still divided. And all mineral owners must be looked up if it is to be leased again. Royalty checks get smaller each generation when divided this way, and have gotten difficult to handle. Record keeping and taxation are a headache for the state.

The situation on my farm is instructive. It was leased in 1934 by my predecessor’s predecessor, a highflying physician in Buckhannon. He was an absentee landlord who had gone broke, but whose father in law, one of the wealthy Bennett family in Lewis county, bought it back at the courthouse steps. I called his daughter, who was the spokesman for the ones who inherited it. She could not even figure out which of the farms her father owned that I was talking about!

This rentier (as the economists call it) mentality cares no more about what happens to the land or community than the blind investor who only cares about increase on his investment. There is a single value in their system of thinking. They will sign about anything the company puts in front of them to keep that easy money coming. Bad for the future, for the environment, for the community and bad for the present surface owner.

Friends and I thought about this situation many years ago and decided it might be a good thing anyway. If it hadn’t, northern West Virginia might have become like much of the southern part of it. There the land has few areas suitable for farming, so coal companies bought it all, and today there are many large company-owned land holdings, and in places the ordinary citizen can’t even find a place to have a residence.

Another long-standing complaint is leases that include other features than oil and gas extraction, particularly for pipeline rights of way. They need to be able to drive along the pipeline, but the description of their need is sufficient so if they need to put in a pump station later, they have a road to it along the right of way. They sometimes call for waterlines, telephone, telegraph and electricity lines!

The lease man is at the bottom rung of the corporate ladder. If you want something outside the company plan, such as to go around a spring, he has to go back to his boss, and he to his boss who knows how far. Time consuming at best, this is more like a screening your request has to go through. Minor changes in a lease can be made, though. Write it on the contract and the lessor and the leaseman must initial it. Beware of the lease man who claims to make a verbal agreement; if it is not written on the contract, they will just laugh at you later when you try to get what you were promised.

One of the big complaints now is what is called “pooling” A company will decide on a drilling plan that includes several tracts. Laws proposed by the industry would allow it to take the rest after getting a minimum of 80%. This is effectively the same as eminent domain used for private gain. If the supply of drillable land was running out, there might be some public good, but leased land is abundant at this time. If it has to be condemned should the driller be allowed to put the well on the condemned land for his convenience, too?

There are endless horror stories about how the leases are executed. Pipelines are laid at a bad time of the year, spoiling hay harvest, or finished up in the fall too late for ground cover to be established before the winter rain. Fences are not replaced, animals are killed. I know of one case where they broke the pelvis of a nursing cow, which, of course could not be sold or utilized and had to be shot and buried. The calf had to be sold immediately, rather than as a weanling. You hear about roads not rocked because the work was done in warm, dry weather is a common complaint. Wells drilled so close to schools the noise and odor is strong. Children are apt to be more vulnerable to toxic substances, too.

Lessors do it once in a lifetime, leasemen do it several times a day. Lawyers are constantly looking to get more for the company. People engaging with a drilling company need to talk to other people who they know are knowledgeable, and if they can find one that is not biased for the companies, consult a lawyer. It’s tricky business, and risky from top to bottom!

See also the recent article on the XTO landman who defrauded West Virginians.