Oil + Gas Update | The End of 2020.
Welcome back to At the Well Weekly. After a tumultuous 2020, analysts seem optimistic about gas prices in 2021 averaging around $3/MMBtu, although spot prices dipped at the end of 2020 through the first part of January 2021 while oil prices remained steady alongside a slightly climbing rig count. Our first installment in 2021 summarizes cases decided at the end of 2020 and the first part of 2021 in both Appalachia and other regions. Here's your review:
Rig Counts, Spot Prices + Oil Prices
Rigs: National (+378); Marcellus (30); Utica/Point Pleasant (+5)
Brent Crude: -$55.41/bbl
West Texas Intermediate: -$52.27/bbl
NYMEX: February 2021 @ -$2.539/MMBtu
Spot Prices: Henry Hub (-$2.42/MMBtu); Dominion South (-$2.18/MMBtu); Tenn. Zone 4 (-$2.13/MMBtu)
WOPL - Appalachia
Mariner East (Western PA to Eastern PA): A Pennsylvania judge dismissed bribery and other charges filed more than a year ago against a representative of a security firm that hired state constables to work as guards along the Mariner East Pipeline project in Chester County, PA.
Mountain Valley Pipeline (Northern WV to Southern Va. and NC): At the federal level, FERC gave MVP the green light to restart construction efforts. Appalachian Mountain Advocates, a law firm that represents various environmental groups, thereafter asked the D.C. Circuit to review FERC’s decision. Meanwhile, the U.S. Forest Service approved MVP's proposed route through part of the Jefferson National Forest in West Virginia and Virginia. At the state level, the Virginia Department of Environmental Quality is seeking public comments on MVP’s proposed compressor station. As to permits, Virginia’s DEQ stated that a Fourth Circuit decision prevents MVP from using the U.S. Army Corps' proposed 2020 Nationwide Permits to cross streams for 36"-plus pipelines.
PennEast (PA to Central Jersey): PADEP held hearings on PennEast permits in January 2021, drawing support from most business stakeholders but opposition from individuals and residents. FERC recently punted on an amended proposal for part of the project.
Headlines & Holdings - Appalachia
SWN Prevails in Briggs Remand. After remand from the Pennsylvania Supreme Court reinstating the rule of capture, the Pennsylvania Superior Court affirmed the trial court’s original order granting SWN’s summary judgment motion based on the rule of capture, concluding that the plaintiffs did not meet pleading standards to allege a trespass, but in the process, the court included dicta and other commentary about how plaintiffs might be able to do so in the future. Briggs v. Southwestern Energy Production Co., --- A.3d ---, No. 1351 MDA 2017, 2020 WL 7233111 (Pa. Super. Dec. 8, 2020).
TX Federal Court Says CHK Bankruptcy Stays OAG UTPCPL Appeal in PA Supreme Court. A bankruptcy court in Texas declined the Commonwealth of Pennsylvania’s request to proceed against CHK in the controversial appeal before the Pennsylvania Supreme Court in which the Attorney General accuses CHK and Anadarko of violating the state’s consumer protection law by virtue of engaging in oil and gas leasing practices, holding that the “government regulatory action” exception to the automatic stay applies and reasoning that the prospect of CHK losing its “right or franchise” in the appeal “could impose a near insuperable obstacle to a successful plan of reorganization.” In re: Chesapeake Energy Corporation, --- F. Supp. 3d ---, No. 4:20-CV-02725, 2020 WL 7212165 (S.D. Tex. Dec. 4, 2020).
Ohio Supremes Say Dormant Mineral Act and Marketable Title Act May Coexist. The Ohio Supreme Court held that, as a matter of first impression, there is no irreconcilable conflict between the Marketable Title Act and Dormant Mineral Act and both remained in effect to determine whether severed oil and gas interests had been reunited with the surface estate. West v. Bode, --- N.E.3d ---, No. 2019-1494, 2020-Ohio-5473, 2020 WL 7049820 (Ohio December 2, 2020).
Fourth Circuit OKs Equinor/SWN Deductions for Post-Production Costs. The Fourth Circuit held that lessees satisfied the rebuttable presumption under West Virginia law that they bear all post-production costs, holding that Equinor and SWN properly took deductions because the leases (1) expressly provide that the lessor shall bear some part of the costs incurred between the wellhead and the point of sale; (2) identify with particularity the specific deductions the lessee intends to take from the lessor's royalty; and (3) indicate the method of calculating the amount to be deducted from the royalty for such post-production costs. Young v. Equinor USA Onshore Properties, Inc., No. 19-1334, 2020 WL 7039733 (4th Cir. Dec. 1, 2020).
PA Superior Court Rejects O+G Owner’s Claim to More Acreage. The Pennsylvania Superior Court rejected claims by Southersby Development Corporation that it owned more than 114 acres subject to an oil and gas lease with EQT, holding that publicly available deeds and Southersby’s own concessions on the record foreclosed a dispute over material fact that the landowner only held 27 acres subject to the lease. Southersby Dev. Corp. v. EQT Production Company, --- A.3d ---, No. No. 421 WDA 2020, 2020 WL 7312197 (Pa. Super. Ct. Dec. 11, 2020).
Federal Court in PA Denies Bid to Dismiss Riverkeeper’s Challenge to New Section 401 Certification Rule. A federal judge in Philadelphia denied the government’s motion to dismiss the Delaware Riverkeeper’s challenge to EPA’s new water certification rule under Section 401, which the environmental group claims is a rewrite of the Clean Water Act, holding that the Riverkeeper has standing and the matter is sufficiently ripe for a decision on the merits. Delaware Riverkeeper Network v. U.S. EPA, --- F. Supp. 3d ---, No. CV 20-3412, 2020 WL 7488962 (E.D. Pa. Dec. 18, 2020).
Ohio Court Says O+G Lease Dispute Subject to Arbitration. A court of appeals in Ohio sent a dispute over an oil and gas lease to arbitration over the objection of the landowner, holding that although a lease creates an interest in real estate, it does not necessarily involve issues concerning title to or possession of real estate in order to qualify as an exception to mandatory arbitration. French v. Ascent Resources – Utica, LLC, --- N.E.3d ---, 2020 WL 7587121 (Ohio Ct. App. Dec. 22, 2020).
Coal Owner in Ohio Prevails in Subsidence Dispute with Pipeline. A court of appeals in Ohio concluded that a coal owner has the right to mine coal underlying a pipeline without liability for damage to the surface pursuant to a deed waiver in the coal owner’s title despite the pipeline company’s contention that pipeline safety regulations invalidated the deed waivers. Columbia Gas Transmission v. Ohio Valley Coal Co., --- N.E. 3d ---, No. 2020-Ohio-6787, 2020 WL 7501965 (Ohio Ct. App. Dec. 22, 2020).
OH Federal Court Denies Bid for Acreage Payment under PSA. A federal court in Ohio dismissed a bid to recover $5,000 per acre on 26,000 acres under a PSA after the counterparty refused to close the deal, holding instead that the plaintiff pled enough facts to survive the motion as to about 4,000 acres but not as to the remainder. Stonebridge Operating Co. LLC v. Antero Resources Corp., --- F. Supp. 3d ---, No. 2:19-CV-1714, 2020 WL 7767627 (S.D. Ohio Dec. 30, 2020).
Federal Judge Denies DRBC’s Bid for Summary Judgment Regarding “Project” Authority over Oil + Gas Wells. A federal judge denied the Delaware River Basin Commission’s bid for summary judgment as to the agency’s authority over certain aspects oil and gas development within the river basin, concluding that fact and credibility issues precluded early disposition and stating that “[w]ith this determination, the Court does not decide that a discrete aspect of a planned natural gas development undertaking could not be considered a ‘project’ reviewable under § 3.8 of the Compact. The Court simply finds that such a determination is not appropriate on summary judgment.” Wayne Land and Mineral Group, LLC v. DRBC, --- F. Supp. 3d ---, No. 3:16-CV-897, 2021 WL 54209 (M.D. Pa. Jan. 6, 2021).
Yaw et al. Sue DRBC Alleging Takings. Senator Yaw and other Pennsylvania lawmakers along with Damascus Township have invoked their status as trustees of public natural resources within the basin under the Environmental Rights Amendment to sue the Delaware River Basin Commission, alleging the agency’s moratorium/ban on frac’ing in the basin violates the interstate compact that created the DRBC and amounts to a taking of private property without just compensation.
Commonwealth Court Denies ERA as Basis to Force PFOA Rulemaking. The Commonwealth Court denied in part the Delaware Riverkeeper’s bid to compel DEP to respond to a petition for rulemaking to propose an MCL for PFOAs per the agency’s duty under the Environmental Rights Amendment to ensure clean water, holding that the if the statute does not impose a mandatory duty on DEP to promulgate the rule, neither does the ERA. Delaware Riverkeeper Network v. DEP,--- A.3d ---, No. 285 M.D. 2019, 2021 WL 96887 (Pa. Cmwlth. Jan. 12, 2021).
D.C. Circuit Won’t Stay O+G Methane Monitoring Rollback Pending Appeal. The D.C. Circuit Court of Appeals rejected requests from environmental groups to stay (pending appeal) the EPA regulatory policy that relaxed oil and gas methane monitoring requirements. Environmental Defense Fund v. Wheeler, Nos. 20-1360 and 20-1357 (D.C. Circ. 2021).
EQT Requests Recusal in Royalty Row. EQT moved to recuse Judges Timothy Sweeney and David W. Hummel Jr. from cases involving royalty disputes with the company given the judges did not disclose that they and their families have or may have personal and financial interests in oil and gas leases. Goff v. EQT; Richey v. EQT, Nos. 16-C-22, 20-C-23 (Circuit Court of West Virginia, Ritchie County); Huey v EQT, No. 17-C-43 (Circuit Court of West Virginia, Wetzel County).
DC Circ. Vacates Affordable Clean Energy Rule. The D.C. Circuit held that EPA unlawfully promulgated the 2019 Affordable Clean Energy Rule, a rule that upended the Obama Administration’s Clean Power Plan, because the agency misconstrued the Clean Air Act and acted arbitrarily and capriciously by slowing the process for reducing emissions. Am. Lung Ass’n v. EPA, --- F.3d ---, No. 19-1140, 2021 WL 162579 (D.C. Cir. Jan. 19, 2021).
PA Open Records Office Denies FracTracker Request for Pipeline Company Info. The Pennsylvania Office of Open Records denied a public-records request from Erica Jackson, on behalf of FracTracker Alliance, seeking records related to a pipeline company, including records regarding layoffs, firings, and possible investigations, holding that records are part of ongoing non-criminal investigations and therefore exempt from public disclosure under the FOIA-like statute. In re: Erica Jackson v. PADEP, 2021 WL 194818 (Pa. Off. Open Rec. Jan. 19 2021).
PA Supremes Say De Facto Taking of Coal Estate Hinges on Ability to Obtain Mining Permit. The Pennsylvania Supreme Court held that PennDOT did not engage in a de facto taking by cutting off all access to the surface overlying a coal estate, thus preventing access to the coal estate, holding that a de facto taking depends upon whether the companies could have received a permit to mine the coal, and the evidence suggested the coal companies’ ability to obtain a permit from PADEP would be too speculative to support a de facto taking. The court remanded for a determination on consequential damages. PBS Coals, Inc. v. PennDOT, --- A.3d ---, No. 41 WAP 2019, 2021 WL 190970 (Pa. Jan. 20, 2021).
Federal Court Says Expert can Testify About O+G Marketing, PPC, and Market Enhancement Issues in Royalty Dispute. A federal court in West Virginia held that a gas company’s expert could testify about industry terms of art and their custom and usage within the oil and gas industry; various marketing issues, including the purpose of market-enhancement royalty clauses; and post-production activities but could not opine on legal questions reserved for the court. Romeo v. Antero Res. Corp., --- F. Supp. 3d ---, No. 1:17CV88, 2021 WL 215494 (N.D.W. Va. Jan. 21, 2021).
Headlines & Holdings - Beyond Appalachia
Colorado Beefs Up Oil and Gas Regs. Colorado's Conservation Commission adopted new rules for oil and gas wells, including a 2,000-foot buffer from homes and schools and limitations on venting and flaring from gas wells.
OK Supreme Court Dissolves Injunction in Favor of Surface Owner under SDA. The Oklahoma Supreme Court dissolved an injunction in favor of a surface owner pursuant to the state's surface damages statute, concluding that the surface owner who intended to build expensive luxury homes purchased its surface estate subject to the outstanding mineral estate held by the gas company and is therefore servient to that of the gas company's mineral estate. Revolution Resources v. Annecy, --- S.W.3d ---, No. 118708 (Okla. November 24, 2020).
Wyoming Supreme Court Says no Force Majeure for Failure to Deliver Helium. The Wyoming Supreme Court upheld a $35 million damage award despite the failure of defendant's contractor to complete a natural gas processing plant and problems plugging wellbores, holding that none of those circumstances constitute force majeure events that would have excused performance. Denbury Onshore, LLC v. APMTG Helium LLC, --- P.3d ---, 2020 WY 146, 2020 WL 7090119 (Wyo. Dec. 4, 2020).
Del. Bankruptcy Court Blesses Rejection of Transportation Service Agreements. A bankruptcy court held that a debtor in bankruptcy could reject certain transportation service agreements, holding the agreements did not create covenants that run with the land. In re: Extraction Oil & Gas Inc., --- B.R. ---, No. AP 20-50833 (CSS), 2020 WL 7186847 (D. Del. Dec. 7, 2020).
Bankr. Ct. Says Net Profits Interests is Covenant that Runs with the Land under Wyoming Law. A bankruptcy court in Texas concluded that, according to a judgment in Wyoming interpreting Wyoming law, a net-profits interest is a covenant running with the land that cannot be affected by a debtor's plan of bankruptcy. In re: Vanguard Natural Resources, LLC, --- B.R. ---, No. 17-30560, 2020 WL 7332890 (Bankr. S.D. Tex. Dec. 11, 2020).
Texas Supreme Court Tackles Continuous-Development Clause. The Supreme Court of Texas rejected an attempt to bust a lease for failing to comply with a continuous development clause, finding an ambiguity in the clause and concluding that, given the ambiguity, the clause cannot operate as a special limitation resulting in a forfeiture of lease interests for lack of compliance. Endeavor Energy Res., L.P. v. Energen Res. Corp., --- S.W.3d ---, No. 18-1187, 2020 WL 7413727(Tex. Dec. 18, 2020).
TX Mineral Owner Sued Solar Surface Owner Too Soon. A court of appeals in Texas held that the owner of a mineral estate must wait until active extraction of minerals before bringing an accomodation-doctrine claim for damages against a solar company engaged in surface uses that might interfere with oil and gas operations. Morrison v. Midway Solar, LLC, --- S.W.3d ---, No. 08-19-00216-CV, 2020 WL 7769632 (Tex. App. Dec. 30, 2020).
TX Appellate Court Finds No Ambiguity in O+G Reservation. A court of appeals in Texas interpreted a deed reserving one-half of one-eighth of a mineral estate as unambiguously reserving 1/16th of the mineral and mineral rights and conveyed 15/16th of the minerals and mineral rights to the grantee. Van Dyke v. The Navigator Group, --- S.W.3d ---, No. 11-18-00050-CV, 2020 WL 7863330 (Tex. App. Dec. 31, 2020).
SCOTUS Won’t Hear Minn. Case Upholding Local Frac-Sand Mining Ban. The U.S. Supreme Court denied certiorari in a case in which a mining company challenged a Minnesota county’s local ordinance that banned frac sand mining activities that exported sands to other states for frac operations. Minnesota Sands, LLC v. County of Winona, MN, --- U.S. ---, No. 20-441 (U.S. January 11, 2021).
No Mechanic's Lien on Production for Halliburton. A bankruptcy court in Delaware held that, under Wyoming law, Halliburton could not obtain a lien on the debtor's production of oil, natural gas liquids, or the proceeds thereof. In re: Southland Royalty Company, LLC, --- B.R. ---, No. 20-10158 (KBO), 2021 WL 225785 (Bankr. D. Del. Jan. 22, 2021).
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