Wednesday, November 14, 2012

After the Natural Gas Boom...

One of thedailylawblog's readers forwarded this New York Times Article, which contains a great discussion of the state of domestic natural gas shale development during record low gas prices.  The article tells the story about how the gas market affects natural gas producers.  For the visual learners, these charts depict the story perfectly.

Essentially, gas prices must reach $4.00 per MMBtu in order for a newly drilled well to be minimally profitable. You can see on the US. Energy Information Administration's website where the gas prices were during the natural gas boom period.

As a result of the current low prices, natural gas drilling in most places, including the Fayetteville Shale in Arkansas and Haynesville Shale in Louisiana and Texas, has nearly halted.  Those new wells that are being drilled are being drilled at a loss.

The gas companies aren't the only ones noticing the difference.  Royalty owners surely have seen their royalty checks dwindle. The royalty checks are certainly much less than when we were all enjoying gas prices in excess of $9.00 to $10.00.

Some royalty owner's checks may have stopped altogether. This does not necessarily mean that the gas wells have stopped producing, however. It just means that the gas royalties are below the statutory minimum.   In Arkansas, if the royalty payment is below $100.00, then the producer can postpone payment until the royalties reach $100.00, or the end of the calendar year. Ark. Code Ann. 15-74-604.

C. Michael Daily is an attorney with the long-established law firm of Daily & Woods, P.L.L.C.  Mr. Daily can be contacted by telephone at 479-242-3953, by email at mdaily@dailywoods.com, or by regular post at 58 South 6th Street, Fort Smith, Arkansas 72902.  You can follow Mr. Daily via social network using any of the social network links in the right hand column of the page.  Disclaimer:  This blog is for informational purposesis certainly not to be considered legal advice and is absolutely not substitute for any of the benefits that are associated with the attorney-client relationship.