mineral rights

The pace of multibillion-dollar acquisitions in the upstream sector may have eased a bit after a frenetic couple of years, but M&A among E&Ps is still happening. And, just as important, producers just coming off big deals are divesting assets that don’t fit their strategies, or reaching agreements to buy “bolt-on” acreage and production in key basins. There’s a lot of M&A “fun, fun, fun” going on, though many of the deals don’t make big headlines because there are only nine or 10 numbers after the dollar sign, not 11. In today’s RBN blog, we look at a variety of recent upstream M&A and divestment announcements and what they tell us about the production end of U.S. energy markets.

A question we get asked all the time these days is whether or not U.S. crude output has begun to decline yet and if so by how much? We don’t actually think the answer makes a lot of difference to the market - especially when you consider changing imports and inventory. But ever since the OPEC meeting last November (2014) failed to take action to reduce  output to support oil prices - market watchers have placed a lot of emphasis on when U.S. shale producers would respond by cutting production. So regardless of the merits of the question we are all living in a marketplace where knowing the “real” state of U.S. production – and whether it is up or down – has become a big deal. To that end today we look at crude production data from the Energy Information Administration (EIA).

Can it make sense for a producer to drill a well in today’s low price environment even if the rate of return on that well is below zero?  Surprisingly the answer is yes, and the issue has important implications for the impact lower prices will ultimately have on U.S. oil and gas production volumes.   Factors such as lease requirements can incentivize drilling and cause production levels to continue growing, even when spot prices don’t seem to support it.  As the new economics of lower oil, NGL and natural gas prices suggest that production declines are just down the road,  the market’s quest to nail down when and how much production will decline  has brought the role of “hold by production” (HBP) drilling into the spotlight. Questions about HBP status and its role in producers drilling strategies have been a staple in the latest round of earnings calls.Today we take a closer look at HBP drilling.

Natural gas and oil development, especially in shale plays that require a lot of wells and a lot of activity, can be inconvenient and noisy.  There are also, of course, various criticisms and protests around some of the processes used, such as hydraulic fracturing, and around the overall level of activity, such as truck traffic.  The gas and oil producing industry values strong relationships with the communities where it needs to work, and can use all the friends it can get as it takes the lead in developing the nation’s vast energy resource.  Bringing big economic benefits to those communities, which are often rural or industrial areas hard-hit by economic downturns, is clearly really important in the efforts to build those relationships and friendships.  There are a lot of different kinds of economic benefits deriving from supply development, but by far the most important to the affected landowners are the royalties resulting from private mineral rights.  Today we continue our examination of the inner workings of oil and mineral rights issues, this time considering some common oil and gas royalty disputes.