Oil + Gas Update | Outline of PA Oil + Gas Litigation in 2020
After some time off we're back at the well. The NYMEX eclipsed $3/MMBtu for the first time in a long time with the Henry Hub just under that benchmark while spot prices in Appalachia tumbled dramatically. The rig count seems to be making a slow comeback although numbers are flat in Appalachia and oil prices have lingered around $40/bbl for a while.
For this week's report, we'll bring you up to speed with summaries of the current status of various pipeline projects along with a link to the annual "Pennsylvania Oil + Gas Litigation Update" presented at PBI's Annual Oil & Gas Law Conference plus summaries of a few recent cases in Appalachia and other regions.
Here's your week in review...
Rig Counts, Spot Prices + Oil Prices
Rigs: National (+287); Marcellus (26); Utica/Point Pleasant (6)
Brent Crude: -$40.78/bbl
West Texas Intermediate: -$38.85/bbl
NYMEX: November 2020 @ +$3.023/MMBtu
Spot Prices: Henry Hub (+$2.86/MMBtu); Dominion South (-$0.75/MMBtu); Tenn. Zone 4 (-$0.62/MMBtu)
("+" or "-" or blank denotes increase, decrease, or flat. )
WOPL - Appalachia
Adelphia Project (Greater Philadelphia Region): Adelphia is in the process of obtaining Section 401 Water Quality Certification and related E&S permits for the Adelphia Gateway Natural Gas Pipeline Project.
Atlantic Sunrise (Northeastern PA to SE Pennsylvania): ASR is plugging away with relatively few issues except that, recently, DEP settled civil penalty assessments with ASR $736K for violations of various permits dating back more than three years.
Dakota Access (Northwest US): Dakota Access faced a shut down order but the D.C. Circuit intervened with a stay to keep the pipeline operator from draining the line pending additional environmental reviews. Numerous groups, states, and federal public officials support the effort to shut down the pipeline. The CEO of Dakota Access has stepped down.
Empire Pipeline (NY to PA): Nothing new to report.
Keystone Pipeline (Canada/US): The Army Corps has scheduled hearings on various Keystone Pipeline permits. Meanwhile, the Saskatchewan First Nation will become a part owner of the pipeline project.
Leidy South - Benton Loop Expansion (PA): Nothing new to report.
Mariner East (Western PA to Eastern PA): Sunoco faces challenges to various aspects of its Mariner East pipelines at the Pennsylvania Public Utility Commission. Recently, the Pennsylvania DEP and other agencies suspended Sunoco’s HDD indefinitely at a site near Marsh Creek State Park after the company reported a spill of about 8,100 gallons of drilling fluid leaked into wetlands and a tributary of Marsh Creek Lake in the Marsh Creek State Park area. Sunoco recently reported an inadvertent return of about 200 gallons of drilling fluid into Snitz Creek in West Cornwall Township on Oct. 19.
Mountaineer XPress (WV): Nothing new to report.
Mountain Valley Pipeline (Northern WV to Southern Va. and NC): MVP targets 2021 for completing construction. The U.S. Fish & Wildlife Service issue a revised report indicating that the pipeline project will not harm certain endangered species. The U.S. Army Corps of Engineers reissued permits that will allow construction to resume on the pipeline route. Thereafter, MVP asked FERC for an extension to complete the project and to lift a major stop-work order that has delayed construction of the final portions of the pipeline. FERC granted the extension and authorized the company to resume construction efforts. However, the Fourth Circuit stayed the order pending appeal.
NEXUS (Ohio to Michigan): FERC issued an order justifying its approval of the company's exports of gas from Ohio to Canada, holding that the company's exports to a free trade partner promotes the “public interest.”
NFG (PA): Nothing new to report.
NFG FM100 Project (NC PA to Transco): Nothing new to report.
Northeast Supply Enhancement Project (NJ/NY): Nothing new to report.
Northern Access (NW PA to Western NY): Nothing new to report.
Norther Supply Access Project (Appalachia to Gulf Coast): Nothing new to report.
PennEast (PA to Central Jersey): PennEast Pipeline is still poised to construct the pipeline in two phases following a determination that doing so would not significantly effect the quality of the environment. PennEast awaits the Supreme Court's decision on whether to accept its appeal from the Third Circuit's decision that the company had no authority to condemn property in which the State of New Jersey had an interest.
Regional Energy Access (NE PA to PA/NJ): Nothing new to report.
Revolution Pipeline (PA): Nothing new to report.
Rover (OH, WV, PA to Michigan): State regulators approved Rover’s reconstruction efforts following a hiatus that ensued after safety incidents shut down the pipeline more than two years ago.
TransCanada Eastern Panhandle Project (PA to WV): Nothing new to report.
Headlines & Holdings - Appalachia
Enviro Group Not Entitled to Records Reflecting Location of Critical Pipeline Systems under PA RTKL. The Pennsylvania Office of Open Records partially denied a request by a lawyer for an environmental group (Clean Air Council) for records of communications and meetings between a municipality, MarkWest Liberty Midstream, and Range Resources, holding that access to certain records would disclose the location of critical systems including public utility and gas systems. In re: Jennifer Clark and the Clean Air Council, 2020 WL 5500539 (Pa. Off. Open Rec. September 11, 2020).
Landowner Can’t Block Pipeline on Leasehold Even if Company Moves Gas Produced from Other Properties. In Walls v. Repsol Oil & Gas USA, LLC, No. 4:20-CV-00782, 2020 WL 5502151 (M.D. Pa. Sept. 11, 2020), a federal court dismissed a claim brought by landowners alleging that the construction and installation of a pipeline on their property was not authorized by their lease with the gas company because they never granted the company the right to construct the pipeline and the lease does not authorize the company to transport gas from non-unitized and non-neighboring lands, holding that the oil and gas lease expressly granted the gas company the right to lay pipelines and move gas from “neighboring lands.”
Ohio Supreme Court Sends Back UIC Well Case to Determine Regulatory Taking. In a case involving Ohio’s oil and gas division suspending a saltwater injection well over earthquake concerns, the Supreme Court of Ohio held that (1) the permittee was justified in pursuing compensation through a takings action and that its claim was ripe at the time it instituted its action; and (2) there was a genuine issue of material fact concerning whether the division’s suspension of operations at the well deprived the permittee of all economically beneficial use of its leasehold. State ex rel. AWMS Water Solutions, LLC v. Mertz, --- N.E.3d ---, No. 2019-0493, 2020 WL 5648287 (Ohio Sept. 23, 2020).
JOA Dispute Untimely, No Operator Negligence/Willful Misconduct. In Bradford Energy Capital LLC v. SWEPI, LP and Rockdale Marcellus, --- F. Supp. 3d ---, No. 17-1231, 2020 WL 5747841 (W.D. Pa. Sept. 25, 2020), a federal court granted summary judgment in favor of the operators under a joint operating agreement for allegedly failing to place a well into production by a certain time, holding that the plaintiffs failed to assert their claim that had accrued more than four years earlier under Pennsylvania’s four-year statute of limitations and that, in any event, the plaintiffs failed to establish the operator’s gross negligence or willful misconduct as required by the JOA in order to recover.
Ohio Court Says No Reservation = No Oil + Gas. A court of appeals in Ohio upheld a finding that a deed referring to prior reservations in coal deeds but lacking a sufficient exception or reservation of oil or gas transferred the entire fee and did not reserve oil and gas rights. Richards v. Hillgas, --- N.E.3d ---, 2020-Ohio-4717, No. CVH-2011-0105, 2020 WL 5843900 (Ohio Ct. App. Sept. 30, 2020).
O+G Abandonment Filings Fall Short Under ODMA. A court of appeals in Ohio rejected claims to oil and gas rights under the state’s Dormant Minerals Act because the abandonment filings did not identify the correct surface owner. Cain Ridge Beef Farm, LLC v. Fisher, --- N.E.3d ---, No 2020-Ohio-4727, 2020 WL 5843841 (Ohio Ct. App. Sept. 30, 2020).
Ohio Court Says County Board Can’t Decide Oil and Gas Ownership Rights. An Ohio appellate court held that a county board lacked subject matter jurisdiction over an administrative appeal because the subsurface owners did not challenge the local auditor’s calculation of the value or assessment of the parcels, but, instead, pursued a determination of their ownership rights in the real property. Hess Oil Developments, LLC v. Belmont County Bd. of Revision, --- N.E.3d ---, No. 2020-Ohio-4729, 2020 WL 5834759 (Ohio Ct. App. Sept. 30, 2020).
Ohio Court Says O+G Lease Doesn’t Grant Title/Possession for Purposes of Exception to Mandatory Arbitration Under Statute. In a dispute involving whether a lessee properly commenced and prosecuted oil and gas operations, a court of appeals in Ohio concluded that an oil and gas lease giving the lessee the right to use the farm property in question does not grant title or possession for purposes of applying the state’s exception to mandatory arbitration over “controversies involving the title to or the possession of real estate” and therefore held that the parties’ lease compelled arbitration because the exception to mandatory arbitration under the statute does not apply. French v. Ascent Resources – Utica, LLC, --- N.E.3d ---, No. 2020-Ohio-4719, 2020 WL 5846079 (Ohio Ct. App. Sept. 30, 2020).
Engineering Firm’s Employees Get Class Certified for Overtime on Pipeline Projects. A federal court in Pennsylvania conditionally certified a class of employees who allege that their engineering firm shorted them on overtime for work on pipeline projects under FLSA and PA and KY state minimum wage laws. McConnell v. EN Engineering, --- F. Supp. ---, No. 20-153 (W.D. Pa. October 8, 2020).
Commonwealth Court Addresses PA's Oil + Gas Lease Fund under Environmental Rights Amendment. The Commonwealth Court addressed multiple claims at the summary judgment stage brought by an environmental group under the so-called "Environmental Rights Amendment" in the Pennsylvania Constitution by (a) upholding several statutes that did not facially violate the constitution; (b) calling the Commonwealth to task for potentially maintaining inaccurate records of the Lease Fund and failing to track monies constituting the trust principal as part of its trustee duties; (c) concluding that the Lease Fund money, including trust principal, may be expended on environmental conservation initiatives beyond the Marcellus Shale region; (d) deferring on whether the Commonwealth's use of the trust is wholly consistent with its Section 27 trustee responsibilities; and (e) deferring on whether or not the Commonwealth must have affirmative legislation to carry out its obligations under the ERA. PEDF v. Commonwealth, --- A.3d ---, No. 358 M.D. 2018, 2020 WL 6193643, (Pa. Cmwlth. Oct. 22, 2020).
PA Records Office Can't Disclose Pipeline CSI. The Commonwealth Court concluded that the Pennsylvania Public Utility Commission, not the Office of Open Records, administers a special act prohibiting disclosure of critical pipeline infrastructure and safety information such that the OOR acted outside of its authority when it ordered the disclosure of that information under the state's more general "Right to Know Law." Pa. PUC v. Friedman --- A.3d ---, No. 980 C.D. 2019, 2020 WL 6156677 (Pa. Cmwlth. Oct. 21, 2020).
Headlines & Holdings - Beyond Appalachia
BLM Director Unlawfully Served in Acting Capacity; Court Tosses Director's Actions. A Montana federal court invalidated actions by the acting Director of BLM, holding that he served in that capacity in violation of the Appointments Clause of the U.S. Constitution, the Federal Vacancies Reform Act of 1998, and the Administrative Procedure Act. Bullock v. United States Bureau of Land Mgmt., No. 4:20-CV-00062-BMM, 2020 WL 5746836 (D. Mont. Sept. 25, 2020).
NM Appellate Court Upholds Horizontal Well Regs. An appellate court in New Mexico upheld the state's efforts to “comprehensively revise the rules governing horizontal wells,” including revised well spacing, infill horizontal wells, and transitional provisions, declining to find that the regulations are arbitrary or capricious or contrary to law. Jalapeno Corp. v. New Mexico Oil Conservation Commission, --- N.W.3d ---, No. A-1-CA-37449, 2020 WL 5743659 (N.M. Ct. App. Sept. 23, 2020).
Texas Appellate Court Says O+G Co. Breached Offset Well Obligation. A court of appeals in Texas held that a lessee had the obligation to protect un-drilled acreage from drainage by spudding an offset well or else it risked losing the acreage under its lease with the landowner. Martin v. Rosetta Resources Operating, LP, --- S.W.3d ---, No. 13-19-00431-CV, 2020 WL 5887566 (Tex. App. Oct. 1, 2020).
Okla. Supreme Court Answers Questions re: Operators, Non-Ops, and Liens for Bankruptcy Court. At the request of the bankruptcy court in a proceeding involving lien claims, the Oklahoma Supreme Court concluded that (1) funds which must be held in trust for payment of lienable claims pursuant to the state's general lien statute are not exclusively limited to joint-interest billing payments received by operators for services rendered by the lienholders; and (2) the Oil and Gas Owners' Lien Act does not grant operators and non-operating working interest owners a lien in proceeds from the sale of oil and gas which is prior and superior to any claim of the holder of a mechanic's and materialman's lien asserted under the general lien statute. White Star Petroleum, LLC v. MUFG Union Bank, N.A., --- S.W.3d ---, No. 2020 OK 89, 2020 WL 6142712 (Okla. Oct. 20, 2020).
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