Why Is Oil or Gas Production Being Delayed on My Property?

Posted September 10, 2019

When Nancy Deucker first leased the mineral rights on her Harrison County, Ohio, property to an oil and gas company, she thought drilling and production would begin immediately. But that’s not exactly how things worked out.

Nancy was part of a with her neighbors. The oil and gas company built a pad on her property and then … nothing. Eventually, their leases were sold to another company. That company started working in the surrounding region—even using her pad as a staging area—but they still weren’t drilling or producing from her unit.

Weeks, months and, soon, years passed. By this time, the second company had sold its Utica Shale assets to yet another company.

“From the time we signed the original leases until something really started happening, we waited, impatiently, for seven to eight years,” Nancy said. “And although they have drilled now, we don’t know what the production’s going to be and none of us have received any royalty checks.”

Nancy’s story is not an uncommon one. In the oil and gas industry, delays in development, drilling, and production happen all the time. That’s part of the reason why, when it comes to mineral royalties, you never really know how much you’re going to get or when you’re going to get it.

 

3 common reasons oil & gas production may be delayed

If you’ve leased your mineral rights to an oil and gas company and they haven’t started drilling or producing yet, you may be wondering “what’s the holdup?” The reality is oil and gas production can get delayed for a variety of reasons. Here are a few of the most common ones:

 

1. Low prices

Low oil and gas commodity prices are a major factor when it comes to delays in production. These low prices can cause drilling to be put on hold or canceled altogether.

What generally happens is when gas or oil prices drop to a certain level, it means that the demand for those products is low because supplies are high. As a result, oil and gas companies will stop production until supplies decrease and demand rises again. We saw this happen with natural gas prices at the beginning of the summer.

 

2. Lack of infrastructure

Another challenge that can cause delays in oil or gas production is if a company does not have pipelines set up. If a company is working in a new area, setting up this infrastructure can take a significant amount of time.

This is the reason oil and gas companies prefer working in areas where pipelines are already established, as opposed to venturing into new terrain. As we recently noted in this post, lack of natural gas pipelines is one of the biggest pieces of infrastructure currently holding up development in Ohio.

 

3. Budget changes

There are also things that happen with oil and gas companies—and the industry as a whole—that can influence how much they decide to develop, drill, or produce in a given year.

Even after leasing properties, companies may make the decision for budgetary reasons to pull back and delay efforts in certain areas. This happens somewhat frequently. Just earlier this year, some of the nation’s biggest gas producers said they plan on drilling less in 2019 because they want profits to outweigh spending.

 

Unpredictability of oil & gas production is why many landowners choose to sell their mineral royalties

There are no sure things in the oil and gas industry. Even after you sign a lease, a number of different factors can contribute to when drilling and production actually begin. Continued delays were one of the reasons Nancy Deucker ultimately decided to sell a portion of her mineral royalties to Gateway Royalty for an upfront payment.

“One can sit on it and wonder what’s gonna happen when they drill, or one can invest it in other places so that you’re not depending on the oil and gas drilling being successful,” Nancy stated.

Tired of waiting for your mineral royalties? Talk to Gateway Royalty today about the option of selling your royalties for an upfront payment.

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Gateway 2019 Outlook

We expect this year to be a big one for Gateway Royalty. Learn more about our continued investment in purchasing the mineral rights and royalties of local landowners, and our ongoing commitment to making a positive impact in the community.

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