Natural gas prices a concern for local leaseholders

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After two years in a mineral rights lease with Vantage Energy, Westcliff West resident Clif Overcash said he’s not yet sure whether or not he will opt to renew his contract with the company. Although Overcash’s lease is set to expire within the next 12 months, he said he feels it’s too early to make a decision based on fluctuating energy prices.

“Gas prices could do anything between now and then,” he said.

He is not alone. The fluctuation of natural gas prices has been an issue for members of the Westcliff West Neighborhood Association since 2008. Overcash said when residents of neighborhoods in the 109 were approached to sign leases more than two years ago, homeowners in Westcliff West, that he knows of, signed with Chesapeake or Vantage.

According to data from the U.S. Energy Information Administration, prices for natural gas, per 1,000 cubic feet, peaked at $11.32 in July 2008, but plummeted within four months to $4.75 in November of the same year. The latest figures from June 2010 put prices at $4.25, up from $3.45 at the same time last year, but less than half of the all-time peak rate.

Ed Ireland, executive director of the Barnett Shale Energy Education Council, said residents, like Overcash, who are worried about a future repeat of pricing instability could take comfort in knowing more about the factors that contributed to 2008’s unstable prices. He said industry forecasters say natural gas prices are not predicted to drop below current levels in the foreseeable future, but should experience a slow increase over time.

“That dramatic drop (in 2008) was the result of a dramatic increase— that was when the price of crude oil shot up to $150 a barrel and gasoline was $4 or more at the pump,” he said.

According to the council’s website, the group is headed up by seven Barnett Shale operators and focuses on energy education and the promotion of responsible practices within the industry.

Ireland said two years ago the root cause of the ups and downs in natural gas prices, which had doubled within 12 months, was related to the perceived instability of the Middle Eastern oil and gas market. With worries about future availability of foreign fuels in the energy market, Ireland said, oil traders drove up the price of gas.

“There was a lot of speculative trading that was going on,” he said. “I think there were a lot of worries about…‘Is Middle East oil going to be shut off because of turmoil in those countries?’”

This “trading frenzy,” as Ireland described it, is not something that will likely happen again now, unless war or other turmoil continues to be an issue in those Middle Eastern countries. With the abundance of shale gas in Texas and other areas, supply is stable and demand should remain relatively stable, as well.

Overcash, president of the Westcliff West Neighborhood Association, said he thought it was this drastic fall in gas rates, among other things, that initially kept some area residents from signing leases with Vantage. He said when the “bottom fell out of the market,” Vantage officials pulled offers to lease mineral rights from Westcliff West residents, and others, off the table.

Although he was able to sign a lease and receive bonus payment money, Overcash said others in his neighborhood had different luck. Some residents, he said, may have been kept out of leases because they were on vacation on the seemingly random sign-up dates set by the gas companies. Even after the neighborhood association’s best efforts to educate its members, a number never signed contracts.

“We figured the best thing we could do was just have some meetings, have people from the gas companies there (and) have people not from the gas companies there,” Overcash said, “just to give everybody as much information as possible.”

During the process of negotiating leases with Vantage and its land partner, the Caffey Group, a different timing issue posed problems for residents, Overcash said. Because the order in which homeowners were offered leases was randomized by neighborhood area, groups of potential lessees were unable to sign contracts before gas prices plummeted.

At the time, Vantage officials issued an apology and made efforts to inform area homeowners who had expected, but were unable, to pen lucrative deals before the mid-October cease in lease signings. In a letter to members of the Southwest Fort Worth Alliance, a grassroots coalition of area neighborhood associations that negotiated terms with Vantage, company leaders acknowledged what they called an “inconvenience.”

Vantage Chairman and CEO, Roger Biemans, and the company’s vice president of business development, John Wehrle, signed the letter dated Oct.14, 2008. The notice also made specific reference to the Southwest Fort Worth Alliance negotiating committee, saying it was “not responsible in any way for this outcome.”

Vantage representatives were unavailable for specific comment at the time of publication, but the company does have an office here in Fort Worth. Overcash said, to his knowledge, Vantage has not established a drill site within the city.

With condolences and missed contracts in the past, residents like Overcash are still faced with an energy market where, although no longer in freefall, gas prices are at a steady minimum.

Overcash said Westcliff West has no plans to take a united stance on gas drilling, out of respect for residents’ freedom to choose, but that each of the 600 homeowners would be able to approach signing a lease independently. Since 2008, Overcash said those who signed with Vantage have not been approached with competing lease offers from other companies because they are still under contract.
 

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