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At the Well Weekly (v.10.4.2019)

Oil + Gas Update - SCOTUS Takes Pipeline Case, Ohio Courts Crank Out O+G Lease Cases, and PA Supremes Will Hear De Facto Takings Case Involving Subsurface Rights.

Since our last report, the USGS reported that natural gas reserves in Appalachia are much higher than previously estimated while rig counts and gas prices continue to falter. In pipeline news, SCOTUS agreed to weigh in on Atlantic Coast Pipeline's appeal, NYDEC asked FERC to reconsider its decision that the state agency waited too long to deny a 401 certification, Mariner East faces nuisance claims from a local district attorney, and the DC Circuit delayed oral argument in the PennEast case in light of a recent Third Circuit decision. In Appalachia, courts addressed a number of issues ranging from royalty disputes, post-production costs, and lease expiration claims. In other regions, the battle continues over the proper venue (federal or state court) for climate change cases, ONRR misfired on reviewing royalty payments, and a royalty class action in Oklahoma survived a motion to dismiss.

Here's your week in review...

Rig Counts, Spot Prices + Oil Prices

  • Rigs: National (-850); Marcellus (48); Utica/Point Pleasant (12)

  • Brent Crude: -$58.92/bbl

  • West Texas Intermediate: -$53.45/bbl

  • NYMEX: The November 2019 Contract opened @ -$2.247/MMBtu

  • Spot Prices: Henry Hub (-$2.30/MMBtu); Dominion South (-$1.42/MMBtu); Tenn. Zone 4 (-$1.34/MMBtu)

("+" or "-" or blank denotes increase, decrease, or flat. )

WOPL - Appalachia

In our new section, WOPL ("waiting on pipelines"), we provide the latest news on the status of various pipeline projects in Appalachia:

  • Adelphia Project (Greater Philadelphia Region): Nothing new to report.

  • Atlantic Coast (W. Va. to Va. and NC): SCOTUS agrees to hear ACP's appeal from an order that blocked a right of way underlying the Appalachian Trail.

  • Atlantic Sunrise (Northeastern PA to SE Pennsylvania): NextEra Energy Partners LP has agreed to acquire a significant ownership stake in the Atlantic Sunrise Pipeline.

  • Constitution (Northeastern PA to NY): NYDEC asked FERC to rethink its order approving the Constitution pipeline project.

  • Empire Pipeline (NY to PA): Nothing new to report.

  • Leidy South - Benton Loop Expansion (PA): DEP accepted public comments on the expansion project for various environmental permits.

  • Mariner East (Western PA to Eastern PA): The Chester County DA (already investigating crimes against Sunoco) said that instead the office may pursue nuisance claims against Sunoco for sinkholes and water contamination resulting from the Mariner East construction activities. In other news, Commonwealth Court quashed an appeal involving air quality permits for Marcus Hook.

  • Mountaineer XPress (WV): Nothing new to report.

  • Mountain Valley Pipeline (Northern WV to Southern Va. and NC): Virginia Tech students and members of the local community took part in the Global Climate Strike to raise concerns about the environment protection within the Virginia Tech community. Meanwhile, a “raging granny” locked herself to equipment at a Mountain Valley Pipeline construction site and NCDEQ said in a letter to FERC that there’s no demand for and no public benefit arising from MVP’s proposed expansion project in North Carolina.

  • NEXUS (Ohio to Michigan): 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.

  • PennEast (PA to Central Jersey): PennEast asked for more time to re-submit its permit applications following feedback from NJ regulators. The DC Circuit delayed oral arguments in a PennEast appeal following the Third Circuit's recent decision that PennEast can't condemn state-owned property for the project.

  • 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): Nothing new to report.

  • TransCanada Eastern Panhandle Project (PA to WV): Nothing new to report.

Headlines & Holdings - Appalachia

  • Federal Court in PA Denies Bid to Toss Arbitration Award of Delay Rental Payments in O+G Lease Dispute. A federal court in Pennsylvania declined a request from a lessee to overturn an arbitration award in which the panel agreed with the landowners that the lessee owed annual delay rental payments for the duration of the primary term even though the company surrendered the lease during that term. Northeast Natural Energy LLC v. Larson, --- F. Supp. ---, No. 3:18-CV-240, 2019 WL 4575845 (W.D. Pa., Sept. 20, 2019).

  • Supremes Grant Allowance in Case Involving De Facto Taking of Coal Estate. The Pennsylvania Supreme Court granted allowance of appeal from a Commonwealth Court decision that PennDOT activities rendered a coal estate landlocked without alternative access and resulted in a de facto taking of the coal estate regardless of whether the coal was mineable and permittable, reserving those questions for the board of view to decide at the just compensation stage. The Commonwealth Court decision is PBS Coals, Inc. v. Dep't of Transportation, --- A.3d ---, No. 140 C.D. 2018, 2019 WL 1387883 (Pa. Cmwlth., March 28, 2019).

  • Federal Court in PA Concludes that Non-Party Royalty Owners are not Indispensable/Necessary Parties in Accounting Action. A federal judge in Pennsylvania denied a bid to dismiss an action in which the plaintiffs seek an accounting of royalties paid to non-party lessors pursuant to leases in which the plaintiffs did not consent, holding that the company already paid them royalties and would not be subject to double payment of royalties. Kave Consulting v. Chesapeake Appalachia, L.L.C., --- F. Supp. 3d ---, No. 4:19-CV-00196, 2019 WL 4687765 (M.D. Pa., Sept. 26, 2019).

  • SCOTUS Agrees to Hear Atlantic Coast Pipeline Case. SCOTUS will hear the Atlantic Coast Pipeline case involving the U.S. Forest Service’s authority under the Mineral Leasing Act to grant rights of way through federal lands. The Fourth Circuit concluded that the Service could not grant rights of way because the right-of-way in question crosses a small portion of the Appalachian Trail which is part of the National Parks System.

  • Ohio Federal Court Confirms Lessee's Royalty Allocation. A federal court in Ohio concluded that a lease providing for a royalty of 1/8 of the proceeds received from the sale of oil or gas authorized the lessee to sell gas to an affiliate before the affiliate gathered and marketed gas downstream for a better price, holding that the language is plain and unambiguous and required the lessee only to pay royalties based on the proceeds received from the sale to its affiliate. Henceroth v. Chesapeake Exploration LLC, --- F. Supp. 3d ---, No. 4:15-cv-02591, 2019 WL 4750661 (N.D. Ohio, Sept. 30, 2019).

  • Fourth Circuit Sends Back Drilling Dispute. The Fourth Circuit held that a settlement agreement requiring a lessee to drill two additional wells before a certain date specified in a settlement agreement meant that the lessee had to drill two more wells between the effective date of the settlement and the deadline and therefore could not rely on several additional wells it already drilled before the settlement to satisfy the new drilling commitment. Lucey v. Chesapeake Appalachia, LLC, --- F.3d ---, No. 19-1150, 2019 WL 4805758 (4th Cir., Oct. 1, 2019).

  • Court Confirms Dominion Condemnation Authority for ACP. A federal court in West Virginia upheld Dominion’s bid to take property and access temporary easements for the Atlantic Coast Pipeline before paying just compensation to landowners. In re: Dominion Energy, --- F. Supp. 3d ---, No. 1:19CV182, 2019 WL 4781872 (N.D.W. Va., Sept. 30, 2019).

  • Commonwealth Court Punts on Appeal from Order on Request for Air Quality Plan Approval for Marcus Hook. The Commonwealth Court quashed an appeal from EHB orders remanding certain aspects of a plan approval application back to the PADEP, holding that EHB’s remand order is not appealable as of right under state appellate rules. Sunoco Partners Mktg. & Terminals, L.P. v. Clean Air Council, --- A.3d ---, No. 145 C.D. 2019, 2019 WL 4758346 (Pa. Cmwlth., Oct. 1, 2019).

  • DC Circuit Delays Oral Argument in PennEast Appeal. The DC Court of Appeals delayed oral argument while proceedings play out in the Third Circuit in which that court held PennEast Pipeline lacked the authority to take state-owned property under the Natural Gas Act.

  • Federal Court in Ohio Says Forum Selection Clause Doesn’t Trump Removal Rights. A federal court in Ohio held that a defendant had the right to remove a state-court case despite a forum selection clause that picked state courts to commence actions, reasoning that forum selection clauses cannot waive the right of removal without explicitly mentioning either removal or the party seeking to remove. Tera II, LLC v. Rice Drilling D, LLC, --- F. Supp. 3d ---, No. 2:19-CV-2221, 2019 WL 4871432 (S.D. Ohio, Oct. 3, 2019).

  • Ohio State Court Rejects Bids to Bust Lease. An Ohio appellate court recently held, among other things, that (a) a lease can’t expire for failure to pay royalties; (b) lessors have a duty of good faith to comply with conditions on payment and to alert lessees of a a change in ownership; and (c) a lease can’t expire for lack of production in paying quantities for a one-year temporary cessation of production. Jacobs v. Dye Oil, LLC, --- N.E.2d ---, No. 18 MO 0020, 2019 WL 4898488 (Ohio Ct. App., Sept. 30, 2019).

  • Ohio Courts Address Interplay Between Marketable Title Act and Dormant Mineral Act. In two cases, courts of appeal in Ohio addressed the interplay between the Marketable Title Act and the Dormant Mineral Act, holding in one case that the Marketable Title Act and DMA are different and require different analyses when dealing with extinguishment vs. abandonment of mineral interests, and holding in another that the Marketable Title Act saved mineral interests from extinguishment. West v. Bode, --- N.E.3d ---, No. 18 MO 0017; 2019 WL 4894916 (Ohio Ct. App., September 30, 2019; Warner v. Palmer, --- N.E.3d ---, No. 18-0012, 2019 WL 4894 (Ohio Ct. App., Sept. 30, 2019).

  • Ohio Court Says Adverse Possession of Mineral Estate Requires Physical Possession. A court of appeals in Ohio rejected a surface owner’s claim for adverse possession of a mineral estate for failing to prove actual physical possession of the severed mineral interests for the statutory period. Miller v. Mellot, --- N.E.3d ---, No. 18 MO 0004, 2019 WL 4894090 (Ohio Ct. App., Sept. 30, 2019).

Headlines & Holdings - Beyond Appalachia

  • Fifth Circuit Sends Back Dispute Over Revenues from Trespassing Pipeline. The Fifth Circuit held that landowners should receive profits by accession from activities on property in which they are in possession under Louisiana law, including pipelines that are on the property by mistake even if placed there in good faith. Mary v. QEP Energy Co., --- F.3d ---, No. 18-31107, 2019 WL 4581475 (5th Cir., Sept. 20, 2019).

  • Okla. Federal Court Keeps Royalty Class Action Alive. A federal court in Oklahoma denied a motion to dismiss parts of a class action involving claims that a lessee improperly reduced royalty payments by allocating the royalty owners' share of gathering, compression, marketing and other post-production activities despite a lack of any facts in the pleading about whether or not the gas at issue is in "marketable form" and therefore of the type that lessees can sell downstream and allocate back to the royalty owners their proportionate share of post-production costs under Oklahoma law. Kunneman Properties, LLC v. Marathon Oil Company, --- F. Supp. ---, No. 17-CV-00456-GKF-JFJ, 2019 WL 4658362 (N.D. Okla., Sept. 24, 2019).

  • DC District Sends Back ONRR Determination on Royalty Valuation for Lack of Reasoned Decision. The district court for the District of Columbia sent back an ONRR determination for additional proceedings in a dispute over whether the lessee of oil and gas on federal lands properly deducted post-production costs charged by affiliates in a non-arm's-length transaction before paying royalties to the government. Continental Resources, Inc. v. Gould, --- F. Supp. 3d ---, No. CV 14-65 (RDM), 2019 WL 4889273 (D.D.C., Oct. 3, 2019).

  • Majors Ask SCOTUS to Stay Fourth Circuit Appeal Pending Resolution of Climate Change Remand Orders. BP and other major oil producers asked the US Supreme Court to stay a climate change case pending the Fourth’s Circuit’s ruling on whether to uphold a remand to state court given the irrevocable consequences of letting an inherently federal case involving federal issues proceed in state court.


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