Insights

Land Management

The outlook for Railroad Districts 1-6 remains promising as we look at the decision by OPEX and non-OPEX countries to cut production, combined with the new political climate in the New Year.  Much needed relief has been provided to the gas market this winter with prices nearing $3.50 mcf.  The Texas gas market trends upward as we continue to see increasing quantities of gas shipping to Mexico and to Gulf Coast LNG facilities.  Contributing to this trend, the news of Raven Petroleum’s refinery project in Duval County, Texas with the capacity to process 50,000 barrels/day and store up to 4MM barrels of crude on site. Once complete it will be the first refinery built in the US since early 1970s and it will bring many jobs to South Texas.  In other recent Texas news, TOTAL exercised its preferential right to purchase 75 percent of Chesapeake’s stake in their Barnett holdings where they were originally a 25% non-op joint venture partner prior to this election.  More great news for Texas, Wildhorse Resource Development Corp. successfully raised $400MM in its initial public offering and bought Clayton Williams leasehold in the Giddings field.   Anadarko sold its East Texas assets comprising 160,000 acres and midstream assets to Castleton Commodities for $1 bln.   We have also seen a significant decrease in the number of companies filing Chapter 11 in the last several months.  Many of the companies that previously filed for bankruptcy protection have now reemerged and are shedding their noncore assets while other companies selling assets in RR Districts 1-6 are raising money to invest in their core areas.

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Land Management

The current activity in Railroad Districts 1-6 should be described by the number of companies filing for bankruptcy protection rather than the normal metric of the number of rigs running.   To bring this illustration into further focus, I believe that more companies will file for bankruptcy protection in Texas this year than there will be rigs currently active in the Eagle Ford.  The number of these Chapter 11 companies will be overwhelming and for the companies that were fortunate enough to not file for bankruptcy, they will be a mere shadow of their former self.  Take Chesapeake, the largest and most active producer in the Barnett shale since its inception just announced the sale of their Barnett shale properties to private equity backed Saddle Barnett Resources.  Chesapeake’s market capitalization in just 2 years has fallen from $20.4Bln to $4.7Bln.  The fallout from these bankrupt and zombie companies continues to have a devastating impact on landmen, our families and our industry.  You need only to read the posts on AAPL LandNews in order to gain huge insight on how landmen are faring after 2 years of falling oil prices.  The impact is intense and far-reaching with AAPL and NAPE both experiencing dramatic declines in event attendance and making necessary cuts in order to maintain a balanced budget.

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Land Management

Since writing my last report, the price of oil has increased by 37%.  The pundits say that we have reached the bottom and that the price of oil will stabilize somewhere above $50/bbl.  Regardless of the price today, damage has already been done to majority of E&P companies and the impact is staggering. Industry experts forecast that as many as 150 E&P companies will file for bankruptcy protection in 2016.  As of the time of this writing, I count 10 companies that have filed since January 1, 2016.  If the expert’s forecasts are correct, we may be counting 140 more this year.  In other somber news, this past March lost a landman and visionary in our industry, Aubrey McClendon, who died in a car crash in Oklahoma City. Whether or not you are in agreement with his beliefs or business approach, industry consensus would say that Aubrey was ‘one-of-a-kind’ and no matter where any of us has been in the industry, we have all been touched at some point by Aubrey or one of his companies – that is one heck of a footprint to leave.

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Land Management

Drilling activity in RR Districts 1-6 continues to slow as oil settles to below $30/bbl. today.  Companies are drilling required wells only and deferring completions until prices rise, which adds to the already growing number of DUC wells.  E&P companies have gone into a heighten state of capital conservation which means that the only money they are spending is on essentials to keep their enterprises alive, like debt service, payroll, and royalties to name a few.  The M&A activity in the Texas area this quarter has been marginal and there are only a few companies with property packages on the market in the Eagle Ford, Eaglebine and Haynesville regions.  These companies include Real O&G, Clayton Williams, AWE Ltd., and VirTex Operating.   At this time most buyers are staying on the sideline until they find out ‘where the bottom is’ for the price of oil, but this sideline activity may change significantly in the months to come as companies will face a redetermination of their borrowing base. Any company that is out of compliance with their loan covenants will be forced to either sell their properties, merge, or seek bankruptcy protection.  The good news is that this activity will generate work for landmen as the properties change hands.

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Land Management, Leasing

Many landmen, companies and operators mistakenly assume that the application of oil and gas law is the same throughout all of the United States but when buying leases or researching title, it is extremely important to understand that every state has its own idiosyncrasies.  Pennsylvania is no exception, with relatively modern technical legislation and regulation, a backlog of pending litigation and existing precedent on many issues Pennsylvania is at odds with the law of most modern producing states.  Pennsylvanian law is full of potential leasing and title pitfalls, this article will discuss three such oddities: the Dunham rule, the apportionment rule, and how seated vs. unseated land affects title washing.

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