Oil + Gas Update - Pipelines, High-Profile Protesters, and Preemption.
Natural gas and oil prices climbed slightly since our last report alongside a flat rig count. In pipeline news, Al Gore joined the opposition to the ACP project, the feds opened a criminal investigation into MVP, and PennEast filed to amend its pipeline route. In Appalachia court news, pipeline projects got a few wins while a federal judge in Pennsylvania kicked a climate-change lawsuit. In other news, SCOTUS is set to weigh in on groundwater and the CWA, the net-back method for royalty calculations survived a challenge in North Dakota federal court, the Fifth Circuit remanded a marketing covenant class action, and a federal court in Mass. confirmed that the NGA preempts local attempts to regulate pipeline activities regulated by FERC.
Here's your two-week review...
Rig Counts, Spot Prices + Oil Prices
Rigs: National (+1047); Marcellus (+62); Utica/Point Pleasant (19)
Brent Crude: +$67.12 /bbl
West Texas Intermediate: +$57.26/bbl
NYMEX: March 2019 Contract @ -$2.636/MMBtu.
Spot Prices: Henry Hub (+$2.71/MMBtu); Dominion South (+$2.43/MMBtu); Tenn. Zone 4 (+$2.52/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): The Fourth Circuit Court pushed back oral arguments to May due to delays associated with the government shutdown. Al Gore entered the pipeline objection fray when he met with residents who oppose the ACP project, calling it a "reckless, racist rip-off."
Atlantic Sunrise (Northeastern PA to SE Pennsylvania): Williams reports strong quarterly earnings driven in large part by Atlantic Sunrise Pipeline.
Constitution (Northeastern PA to NY). Some proponents of pipeline expansion efforts may be looking to the Trump Administration or Congress or FERC for help in the wake of the NYDEC's decision to block pipeline projects like the Constitution Pipeline based on water quality certifications under the CWA.
Leidy South - Benton Loop Expansion (PA): Nothing new to report.
Mariner East (Western PA to Eastern PA): Governor Wolf endorsed PADEP's decision to halt permit reviews for the project and supports pipeline safety bills that are in the works. Residents have questioned several judicial candidates and their alleged ties to law firms representing Sunoco in various disputes over the pipeline.
Mountaineer XPress (WV): TransCanada Corp placed about 45 percent of its Mountaineer XPress natural gas pipeline in West Virginia into service in January and expected to finish the rest of the project in February and March.
Mountain Valley Pipeline (Northern WV to Southern Va. and NC): The feds have launched a criminal investigation into MVP. Despite the challenges it has faced, MVP projects that the pipeline will be online in 2019.
NEXUS (Ohio to Michigan): Environmental groups lost a bid to challenge compressor stations along the pipeline route for lack of standing (see below for more details).
Northern Access (NW PA to Western NY): Following the recent Second Circuit decision remanding NYDEC's denial of the pipeline’s water quality certification, the Northern Access Pipeline project is moving forward with a target completion date sometime in 2022.
PennEast (PA to Central Jersey): A group of homeowners called for an investigation into a possible conflict of interest between an official in Gov. Phil Murphy’s administration and New Jersey Resources. Meanwhile, PennEast applied for an amendment to change the pipeline route to address agency and landowner requests and reduce environmental and landowner impacts.
Rover (OH, WV, PA to Michigan): The Western District of PA confirmed Rover's condemnation authority and set just compensation for landowners affected by the pipeline project (see below for more details).
TransCanada Eastern Panhandle Project (PA to WV): Nothing new to report.
Headlines & Holdings - Appalachia
EQT Royalty Class Action Settlement. EQT tentatively settled a royalty class action challenging post-production-cost sharing with landowners for $53 million. The Kay Company LLC v. EQT Production Company, No. 13-00151 (N.D. W. Va., Feb. 8, 2019).
Antero Settlement with DOJ/WVDEP. Antero agreed to pay a $3.15M penalty and provide mitigation and restoration of affected sites, estimated to cost $8M, related to violations involving unauthorized disposal of materials into local waterways.
SCOTUS to Review Groundwater Contamination Liability under CWA. The U.S. Supreme Court granted certiorari to determine whether liability under the Clean Water Act extends to facilities that pollute groundwater that ultimately connects to waters of the U.S. The circuits are split over the issue. In this case, a municipality’s sewage wastewater injection wells seeped into the Pacific Ocean. The panel held that the injections constituted “point source” discharges that are subject to the CWA’s NPDES permitting requirements even though they didn’t directly discharge the pollutants into the ocean. County of Maui v. Hawaii Wildlife Fund, No. 18-260.
DC Circuit Sides with FERC, Mountain Valley Pipeline. The D.C. Circuit upheld FERC’s order approving the Mountain Valley Pipeline and rejected claims by environmental groups that FERC failed to evaluate the project’s impact on climate change, reasoning that the applicant demonstrated market need (evidence by 100% of confirmed capacity commitments) and that FERC’s method of evaluating upper-level estimates of GHG emissions satisfied NEPA. Appalachian Voices v. FERC, --- F.3d ---, No. 17-1271 (D.C. Cir., Feb. 19, 2019).
SCOTUS Passes on Religious Challenge to Pipeline. The U.S. Supreme Court denied a writ of certiorari in a case in which a Catholic religious group challenged FERC’s approvals for a Transco pipeline under the Religious Freedom Restoration Act.
PA Federal Judge Tosses Kids’ Climate Tort Lawsuit. A federal judge in the Eastern District of Pennsylvania dismissed a lawsuit brought by kids who claim the federal government isn’t doing enough to counteract climate change, holding that an alleged right to life-sustaining climate systems is not a fundamental liberty interest protected by the Constitution and criticizing a federal judge in Oregon who claimed otherwise to keep a similar case alive. Clean Air Council v. U.S., No. 2:17-cv-04977 (E.D. Pa., Feb. 19, 2019).
PA Federal Court Sets Just Compensation for Rover Landowners. A federal judge in Pennsylvania adopted just compensation set by a three-member commission for Rover Pipeline’s condemnation of permanent and temporary easements and work spaces for the project. Rover Pipeline LLC v. Rover Tract No. PA-WA-HL-004.500T, No. 17-CV-0170, 2019 WL 803902 (W.D. Pa., Feb. 21, 2019).
Citizen Groups Lack Standing to Challenge Air Permits for NEXUS Pipeline Compressor Stations. The Sixth Circuit rejected a bid by three citizen groups, Protecting Air for Waterville, Neighbors Against NEXUS, and Sustainable Medina County, to challenge air permits issued to NEXUS Gas Transmission for two natural gas compressor stations along NEXUS’s natural gas pipeline, reasoning that the citizen groups lack standing to challenge the permits. Protective Air for Waterville v. Ohio Environmental Protection Agency, No. 18-3025, 2019 WL 852061 (6th Cir., Feb. 21, 2019).
Headlines & Holdings - Beyond Appalachia
Federal Court in Mass. Holds that Federal Law Preempts Local Ordinance Regulating Gas Pipeline Activities. A federal judge in Massachusetts concluded that the NGA and FERC's order granting a pipeline operator a certificate of public convenience preempted a local ordinance purporting to regulate pipeline activities affecting wetlands, reasoning that FERC's NEPA analysis covers environmental impacts and there is no room for local ordinance under the Coastal Zone Management Act as the township claimed. Algonquin Gas Transmission, LLC v. Town of Weymouth, No. CV 18-10871-DJC, 2019 WL 538192 (D. Mass. Feb. 11, 2019).
Michigan Court Says Pipeline Company Can't Remove Trees for Pipeline Route. An appellate court in Michigan concluded that a pipeline company holding an easement on the burdened estate for pipeline activities could not remove 13 maple trees along the route, deferring to the trial court's findings that the pipeline company had no need to remove the trees for access to the right-of-way and the pipeline, the ability to respond to emergencies as they arise or abating the roots as they grow into the pipeline. Pichulo v. Buckeye Pipeline Co., No. 341264, 2019 WL 638063 341264 (Mich. Ct. App., Feb. 14, 2019).
Federal Court Concludes that Net-Back is OK in ND. A federal court rejected challenges to oil and gas leases with royalty clauses that incorporate a the net-back method of calculating a lessor's proportionate share of post-production costs, concluding that the net-back method of valuing the gas in is consistent with North Dakota law and the terms of the lease. Ness v. Samson Resources Investments, --- F. Supp. 3d ---, No. 4:15-CV-00063, 2019 WL 653799 (D.N.D. Feb. 15, 2019).
TransCanada Keystone Pipeline Hits NEPA Snag in Montana. A federal court in Montana concluded that, although TransCanada might suffer irreparable harm if it were prevented from pursuing certain off-right-of-way activities for construction camps and storage yards, those activities would occur in areas that had not been surveyed for cultural resources and were not a part of a 2014 SEIS such that the public's interest in a full NEPA review including these areas outweighed any harm to the company. Indigenous Envtl. Network v. United States Dep't of State, --- F. Supp. 3d ---, No. CV-17-29-GF-BMM, 2019 WL 652416 (D. Mont., Feb. 15, 2019).
Fifth Circuit Remands Marketing Covenant Class Action. Following a prior decision upholding a class action by royalty owners alleging breach of the marketing covenant and diluted royalty payments, the Fifth Circuit remanded for further proceedings to determine whether breach of the marketing covenant and resulting damages could be determined on a class-wide basis and whether the applicable statute of limitations and potential tolling questions would raise individual issues. Seeligson v. Devon Energy Production Co. LP, --- F.3d ---, No. 17-10320 (5th Cir., Feb. 20, 2019).
TX Court Confirms that Prior Agreement to Settle Invoiced Amounts Extinguished O+G Lien. A court of appeals in Texas concluded that parties to a stipulation for payment of a specified amount to satisfy unpaid invoices extinguished pre-existing oil and gas liens owed by the debtor, concluding that the reservation of rights in the stipulation did not give the lien-holder further rights to collect the balance owed beyond the stipulated amount. Endeavor Energy Resources, L.P., v. Staley, --- S.W.3d ---, No. 08-17-00146-CV, 2019 WL 850891 08-17-00146-CV (Tex. Ct. App., February 21, 2019).