If you're hoping for higher natural gas prices to come around so you can get your minerals leased, don't go spending any of the hoped-for money in advance.
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Many frustrated mineral owners who own rights to natural gas reserves are no doubt wondering when the price for natural gas is going to return to the $5-$10/mmbtu range in which it resided throughout the first decade of this century. The short answer is, it isn’t. Not any time soon, anyway.
Hey, don’t shoot the messenger – I feel your pain. My family owns natural gas-heavy mineral rights in Goliad county. I spend lots of time wondering why my great-great grandfather couldn’t have kept going another 10 miles west in the 1890s before buying some land and settling down. If he had, we’d have been right in the middle of the prolific Austin Chalk and the wet gas portion of the Eagle Ford Shale. Instead, our land hovers over the dry gas portion of the Eagle Ford, at depths of 12,000 to 14,000 feet, too costly to drill for at the current price which as of this writing sits around $2.90/mmbtu.
The simple fact of the matter is that the United States is just awash in natural gas. These gigantic shale plays around the nation contain so much supply that there is little hope for the price to recover even to the $4.00 range for the remainder of my lifetime, and I’m 61 years old.
In 2009, there were more than 1600 rigs drilling natural gas wells in this country;
Today, we have fewer than 200 rigs drilling natural gas wells, yet our overall domestic supply continues to steadily rise.
How does that happen? It’s commonly called “associated gas.” This is the natural gas production that come up along with crude oil from an oil well, and wells in the Eagle Ford, Bakken and the shale formations in the Perimian Basin contain enormous volumes of it. Thus, most of the shale wells currently being drilled that are classified as “oil” wells by regulatory agencies like the Texas Railroad Commission are also producing prodigious volumes of natural gas.
Due to this reality, it is a little-noted fact that the Permian Basin, in addition to being by far the largest oil-producing basin in America, is also the 2nd-largest natural gas producing basin, trailing only the Marcellus Shale in that category.
So, if you’re hoping for higher natural gas prices to come around so you can get your minerals leased, I’m afraid you’re in for a long, frustrating wait.
That concludes the Shale ‘Splainer for May 30, 2018.