By Nils P. Johnson Jr.
Johnson & Johnson Law Firm
YOUNGSTOWN, Ohio – Much has happened in the oil and gas industry since our last update — internationally, regionally and locally. Globally, the International Energy Agency forecasts that oil supply in 2025-2026 will increase by 5 million barrels per day.
Demand growth, however, is modest, and it is anticipated that there will be a surplus of roughly 4 million barrels per day by the end of next year. Because the price of oil is largely set by the marginal few percent of supply, this level of oversupply is significant.
This developing oversupply is reflected in the prices paid to Ohio landowners for their royalties. In 2022, the price was approximately $81 per barrel; in 2023, $73.50; in 2024, $69; and in 2025, $57. With economies slowing around the world, it is conceivable that prices could fall into the mid-40s by the middle of next year. And if the United States enters a recession, there is a meaningful chance prices could slip into the 30s.
Natural gas, by contrast, has been buoyant since midsummer. Several years ago, the price paid to landowners was in the mid-2 dollar range. More recently, the futures price has been in the mid-4s. Contributing factors include a warm summer (increasing air-conditioning demand) and stronger demand from abroad. A cold winter would further support prices.
The Nord Stream pipeline, which transported Russian gas through the Baltic Sea to Western Europe, was sabotaged at the beginning of the war in Ukraine. At the start of the war, Europe received about 40% of its gas from Russia; today that number is around 15%. Europe has since turned to the United States to fill the gap with liquefied natural gas (LNG).
In the past several years, two new LNG export terminals have come online, three more have been approved, and over a dozen additional facilities have been proposed.
In Ohio, the Utica/Point Pleasant and Marcellus shale plays have matured. As hydraulic fracturing techniques have improved over the past dozen years, counties along the Ohio River and their neighboring areas have experienced renewed activity.
In Columbiana County, for example, wells drilled by Chesapeake in 2010 that were once considered mediocre are now being offset by wells three or four times more productive. Recent wells in the western part of the county have produced over 60,000 barrels in less than six months. Wells farther south — such as those in western Carroll, Harrison, Belmont, and Noble Counties — have been even more productive.
If these trends are any indication, the western portion of Mahoning County should also perform well.
For landowners, the location of one’s acreage within the basin largely determines the likelihood of near-term drilling. Two years ago, the “oily” trend saw active development, while landowners in the gas window saw little activity. That trend has now reversed and is likely to continue for the next year or two.
Because of consolidation in the drilling sector, the leasing “feeding frenzy” among oil companies has subsided. In early fall, EOG Resources purchased Encino, its principal competitor, which significantly cooled the market. EOG now holds well over 1 million acres under lease in Ohio and can afford to take its time developing them. A helpful map showing its acreage position and the various hydrocarbon trends — dry gas, wet gas, volatile oil and heavy oil — appears on its website under the investor presentation
section.
In light of the above, landowners should temper expectations. It is highly likely that much of the eastern portion of the state will eventually be drilled, but the timing and location will depend on which hydrocarbon product is most attractive at the moment.
Legal Strategies is sponsored content from the law firm of Johnson & Johnson in Canfield.