E&P Companies are Going to Drill Less in 2019

What Oil & Gas Companies Cutting Spending in 2019 Means for Landowners

There’s been some chatter in recent months about gas producers cutting back on their drilling budgets this year. We’ve heard from a few landowners who are wondering what this might mean if they have leased their land to an oil company or are considering selling their mineral rights or royalties. So we thought we’d share some basic info on the topic with you here today.

Will Oil & Gas Companies Be Drilling Less in the Coming Years?
The answer to this question seems to be “yes”. According to this report from Oil & Gas 360, some of the nation’s biggest gas producers have recently said that they plan on spending less on drilling in 2019 than they did last year. The big reason noted in the article for this shift is that investors in the major exploration & production (E&P) companies want profits to outweigh spending moving forward (whereas in the past, the focus was more on business growth).

While the article states “gone are the days of multibillion-dollar budgets for drilling”, that doesn’t mean companies won’t be spending any money on drilling this year. While drilling budgets won’t be as high as they have been in recent years, companies will still be investing in the mid-to-high hundred millions in drilling. Mostly, these budget changes mean companies will be shifting their focus in terms of how they drill over the next couple years.

We’re forecasting 2019 is going to be a big year for completion. That means companies are going to be getting a lot of the wells that are called DUC (Drilling UnCompleted) online. Some of the E&P companies have drilled a lot of wells over the past few years, and now a lot of their capital this year is going to be spent completing those wells. So they may be slowing down the permitting and drilling of new wells to complete the wells that they already have in production.

What Does This Mean for Landowners Who Have Already Leased Their Land to Oil Companies?

If you are a landowner who has already leased your land to a oil and gas company, you may be reading this and thinking: Less land exploration and development, and fewer rigs running on a smaller budget—won’t this mean a longer period of time until I receive my royalties? That’s definitely a possibility. But it’s hard to really predict what the impact of these budgetary changes will be on your timeline for receiving royalties or if they will in any way impact how much you will receive in royalties.

Part of it depends on how far along in development the E&P company has come on your land. If they’ve already started drilling and your property is a DUC sight, then there’s a chance things could start speeding up a little in the coming year. If the company has not begun much exploration or development on your land, then there’s a chance progress could be delayed further in the next couple years.

The Hard Truth Is, There’s Always an Unknown When It Comes to Oil & Gas Development.

Oil and gas development doesn’t happen overnight, it’s a trend that takes time.Budgets change every year. One company may put a lot of money into Utica, while another may pull back. One company may focus on one specific area and move away from another. Part of the process with receiving royalties is the uncertainty involved. In most cases, you just really don’t know what you’re going to get and if/when you’re going to get it.

The length of time oil and gas development can take—which for some pieces of land can be years or never ultimately end up happening—is one of the big reasons why landowners decide to sell mineral rights or royalties. Rather than wait and see what happens, some individuals choose to mitigate their risks and get money upfront.Other individuals would just prefer to get their money in one lump sum rather than getting smaller checks over a longer period of time.

Whether drilling budgets go up or down from year to year, the bottom line is you never know what’s going to happen with oil and gas development—or, more importantly, when it’s going to happen.

Are you interested in learning more about the potential of selling your mineral rights or royalties? Reach out to Gateway Royalty today and we’d be happy to help you explore your options.