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At the Well Weekly (v.2.11.2022)

Oil + Gas Update | Tx. Supremes Say O+G Royalties Payable in the "Pipeline" are Subject to Post-Production Costs.

Oil prices verge on $100/bbl alongside an increase in the rig count while natural gas prices dropped from highs last week. MVP lost another permit fight, bonus payments and royalty conversion claims hit the courts in Appalachia, and the Texas Supremes weighed in on whether oil and gas royalties payable "in the pipeline" are subject to costs incurred at and after the interconnection with a gathering line.

Rig Counts, Spot Prices + Oil Prices

  • Rigs: National (­635); Marcellus (­35); Utica/Point Pleasant (­12)

  • Brent Crude: ­$94.44/bbl

  • West Texas Intermediate: ­$93.10/bbl

  • NYMEX: March 2021 @ $4.409/MMBtu

  • Spot Prices: Henry Hub ($4.06/MMBtu); Tenn. Zone 4 (­$3.72/MMBtu); Eastern Gas South (f/k/a Dominion South) (­$3.75/MMBtu)

WOPL - Appalachia

  • Mountain Valley Loses Another Permit Fight. The Fourth Circuit vacated for the second time the U.S. Fish and Wildlife Service’s environmental analysis of the $6 billion natural gas Mountain Valley Pipeline, agreeing with environmental groups that the agency failed to consider climate change and consequences the pipeline could have on protected species. Appalachian Voices v. United States Dep’t of Interior, --- F.4th ----, No. 20-2159, 2022 WL 320320 (4th Cir. Feb. 3, 2022).

Headlines & Holdings - Appalachia

  • WV Fed. Ct. Says O+G Lease Docs = Valid Contract but no Breach for Failure to Tender Bonus Conditioned on Management Approval. In a lease dispute, a federal court in West Virginia held that an oil and gas lease, memorandum, and order of payment read together constituted a valid and enforceable agreement but concluded that the lessee did not breach for failure to pay a bonus conditioned on management approval of the leases. Benson v. High Road Operating, LLC, --- F. Supp. 3d ----, No. 5:20-CV-00229, 2022 WL 264548 (N.D.W. Va. Jan. 27, 2022).

  • Federal Court in Ohio OK’s Claim for Conversion of O+G Royalties. In a royalty dispute, the true owners of mineral rights prevailed on their claim for conversion of royalty payments after the defendants falsely represented themselves as the true owners and accepted royalties, rejecting the defendants’ argument that Ohio does not permit a conversion claim with respect to real property given that royalty interests are interests in personal property and the defendants exercised dominion and control over the payments (as opposed to subsurface property interests). Gorsha v. Clark, --- F. Supp. 3d ----, No. 2:18-CV-508, 2022 WL 278973 (S.D. Ohio Jan. 31, 2022).

Headlines & Holdings - Beyond Appalachia

  • DC Federal Judge Throws Out Biggest Offshore O+G Lease Sale, Citing Climate Change. D.C. District Judge Rudolph Contreras vacated Lease Sale 257 covering roughly 80 million acres in the Gulf of Mexico — considered the largest sale of offshore oil and gas resources in U.S. history — because the Bureau of Ocean Energy Management failed to take into account the full impact of the sale on the climate and greenhouse gas emissions. Friends of the Earth v. Haaland, --- F. Supp. 3d ----, No. 21-2317 (D.D.C. Jan. 27, 2022).

  • Prior Owner of Mineral and Royalty Interests Can’t Prevail on Fraud or Negligence Misrepresentation Claims. In a dispute regarding mineral interests and oil and gas operations, a court of appeals in Texas concluded that a plaintiff who assigned his mineral and royalty interests to a third party cannot prevail on claims of fraud and negligent misrepresentation following that assignment. Hughes v. CJM Res., LP, --- S.W.3d ----, No. 11-20-00046-CV, 2022 WL 252033 (Tex. App. Jan. 27, 2022).

  • Texas Supremes Define “Pipeline” in Connection with O+G Royalty Dispute. In a dispute over payment of royalties to an NPRI owner, the Texas Supreme Court held that royalties payable “in the pipeline” as set forth in the deed creating the NPRI are subject to post-production costs downstream of the interconnection with a gathering line, concluding that (a) “a gas gathering pipeline is a ‘pipeline’ in common, industry, and regulatory parlance”; and (b) the deed in question did not limit the delivery location to any specific pipeline nor prohibit delivery to a pipeline at or near the well. Nettye Engler Energy, LP v. BlueStone Nat. Res. II, LLC, --- S.W.3d ----, No. 20-0639, 2022 WL 333368 (Tex. Feb. 4, 2022).

  • Fifth Circuit Backs Unleased Owner’s Claim that Unit Operator Forfeited Right to O+G Well Cost Contribution. In a forced pooling case under Louisiana law, the Fifth Circuit held that a unit operator failed to comply with its disclosure and reporting obligations to an unleased owner and therefore forfeited the right to demand contribution for a proportionate share of the costs of well drilling operations, concluding that the unleased owner’s two letters requesting information put the operator on notice to disclose information in order to seek reimbursement for well costs. B.A. Kelly Land Co., LLC v. Aethon Energy Operating, LLC, --- F.4th ----,No. 20-30090, 2022 WL 417410 (5th Cir. Feb. 11, 2022).

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