Oil + Gas Update - PA Supreme Court Hears from Industry on the Rule of Capture.
Natural gas prices dropped slightly since our last report amidst flat oil prices and a spike in the national rig count. In pipeline news, Atlantic Coast fights back in court but predicts delays and increased costs resulting from litigation and regulatory challenges, Mariner East faces challenges to temporary easements, and investigators are calling a fire set to equipment at MVP's construction site arson while the company defends its condemnation authority in the DC Circuit. In Appalachia court news, the Pennsylvania Supreme Court received briefs from the appellant (Southwestern Energy Company) and its many amici urging the court to reinstate the rule of capture while the Sixth Circuit upheld Ohio's pooling statute. In other regions, an appellate court in TX says a husband can't undo a 50-50 split of the mineral estate following divorce and a federal court in Idaho orders a re-do on a forced pooling and integration order.
Here's your week in review...
Rig Counts, Spot Prices + Oil Prices
Rigs: National (-1045); Marcellus (63); Utica/Point Pleasant (19)
Brent Crude: +$61.90/bbl
West Texas Intermediate: +$53.69/bbl
NYMEX: February 2019 Contract @ -$2.854/MMBtu.
Spot Prices: Henry Hub (-$2.96/MMBtu); Dominion South (+$2.94/MMBtu); Tenn. Zone 4 (+$2.92/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 pipeline projects in Appalachia:
Adelphia Project (Greater Philadelphia Region): Nothing to report.
Atlantic Coast (W. Va. to Va. and NC): ACP seeks a full-court review of the three-judge panel's decision to invalidate permits issued by the U.S. Forest Service to cross national forests (see below for more). The company anticipates startup in 2020. Dominion projects that ACP costs could reach $7.5 billion or higher, and a piece of legislation adding restrictions on Dominion's ability to pass along costs of transporting gas from the ACP to its Virginia-based power stations could reduce the potential revenues of a project even more.
Atlantic Sunrise (Northeastern PA to SE Pennsylvania): Nothing new to report.
Constitution (Northeastern PA to NY). Nothing new to report.
Leidy South - Benton Loop Expansion (PA): Nothing new to report.
Mariner East (Western PA to Eastern PA): A local developer filed a lawsuit to force Sunoco off four of its properties where it is still constructing the pipeline, alleging that the temporary easements acquired by Sunoco have expired. The PUC has asked Sunoco to work with county emergency officials and some school districts to plan evacuation drills in case of a leak in the Mariner East pipelines. Meanwhile, Sunoco reported a butane leak at the Marcus Hook plant.
Mountain Valley Pipeline (Northern WV to Southern Va. and NC): The DC Circuit heard oral argument on challenges by environmental groups to FERC's vote authorizing the MVP. Protesters stayed in their tree stands along the pipeline route despite blustery winter conditions. A local sheriff arrested a protester who shackled herself to a drilling platform at an MVP site. In other news, a fire that caused $500,000 in damage to equipment at an MVP construction site is being investigated as arson.
NEXUS (Ohio to Michigan): Nothing new to report.
PennEast (PA to Central Jersey): Following court rulings confirming PennEast’s authority, the pipeline company commenced survey work along the pipeline route in New Jersey amidst lingering landowner concerns and resistance.
Rover (OH, WV, PA to Michigan): Nothing new to report.
TransCanada Eastern Panhandle Project (PA to WV): Nothing new to report.
Headlines & Holdings - Appalachia
Briggs and the Rule of Capture. In Briggs v. SWN, the Superior Court held that the rule of capture does not preclude an action for trespass for damages resulting from hydraulic fracturing operations on the leased premises that allegedly drain adjacent unleased tracts. The Superior Court declined to rehear the case en banc, but the Pennsylvania Supreme Court allowed a discretionary appeal. On January 30, 2019, SWN and many amici filed opening briefs urging the court to reverse the Superior Court’s decision and reinstate the rule of capture. The amici supporting SWN include the Marcellus Shale Coalition, the Pennsylvania Independent Oil & Gas Association, a number of individual royalty owners, the American Petroleum Institute, the Pennsylvania Chamber of Business & Industry, the U.S. Chamber of Commerce, the Washington County Chamber of Commerce, Geologist and Professor Terry Engelder from Penn State University, Geologist Tom Gillespie, Washington County, Pennsylvania, and the Independent Petroleum Producers Association.
Federal Court in PA Relieves EQT of Liability for Faulty Rig. A federal court in Pennsylvania concluded that EQT did not breach its drilling contract when it stopped using a rig that suffered from faulty and unsafe conditions and, although EQT breached the contract by not using other rigs per the agreement, the drilling contractor also breached the deal by failing to maintain its equipment in safe conditions such that the contractor could not recover liquidated or other damages for EQT’s breach. Orion Drilling Co. LLC v. EQT Production Co., No. 2:16-cv-1516 (W.D. Pa., January 29, 2019).
Sixth Circuit Upholds Constitutionality of Ohio Forced Pooling Statute. The Sixth Circuit concluded that Ohio’s pooling statute does not violate the Fifth Amendment’s prohibition on taking private property for public use without just compensation, reasoning that the plaintiffs did not allege any surface or subsurface property interests “taken” by the state by issuing a pooling order. Kerns v. Chesapeake Exploration, L.L.C., --- F.3d ---, No. 18-3636, 2019 WL 423140 (6th Cir., Feb. 4, 2019).
Federal Judge Combines Royalty, PPC Class Actions. A federal judge transferred a pending royalty dispute to another federal judge in West Virginia presiding over a class action given that plaintiffs in this case are members of a subclass of lessors involved in the pending class action. Leggett v. EQT Production Company, --- F. Supp. 3d ---, No. 1:13CV4, 2019 WL 418427 (N.D.W. Va., Feb. 1, 2019).
Headlines & Holdings - Beyond Appalachia
TX Court Says Husband Can't Undo 50-50 split of Mineral Interests in Divorce Action. An appellate court in Texas denied a husband's bid to undo a 50-50 split of the mineral estate following his decision to skip a prior hearing distributing marital property and rejecting a number of theories (such as estoppel, adverse possession, etc.) the husband propounded in an effort to keep 100% of the mineral estate. Ronald Keith Moore v. Zuzanna E. Moore, --- S.W.3d ---, No. 11-16-00282-CV (Tex. App. 2019).
Idaho Federal Court Orders Re-Do on Forced Pooling Order. A federal court in Idaho concluded that the state conservation commission should hold a new hearing to determine whether landowners integrated into a unit received a "just and reasonable" lease agreement as part of a unit and spacing order, rejecting claims that landowners don't have a property interest at stake in the unit or spacing order and the landowners are entitled to a new hearing to spell out the terms of their deemed leases pursuant to the statutory scheme. Citizens Allied for Integrity and Accountability, Inc. v. Schultz, --- F. Supp. 3d ---, No. 1:17-CV-00264-BLW, 2019 WL 418406 (D. Idaho, Feb. 1, 2019).