Oil + Gas Update - Long-Eared Bats, Lease Busting Bids, Overrides, and Contracts by Email Exchange (or not).
Since our last report, the January 2020 closing price for the near-month gas contract hit its lowest point since 1999, due in large part to a warmer January weather, increased electric power generation from nuclear sources, and record levels of production and supply, while oil prices continue to drop alongside a relatively steady rig count. In pipeline news, Mariner West is accepting volume dedications to move ethane in Pennsylvania. In Appalachia court news, the D.C. District Court told USFWS that it has failed to protect the long-eared bat; a two-year lapse in production sufficed to bust a lease in Ohio; and a federal judge ordered the DRBC to hand over documents in the fight over the obscure agency's authority to regulate natural gas wells in the Delaware River Basin. In other regions, the Texas Supreme Court issued a pair of decisions separately dealing with contract formation issues by email and conditions; the Louisiana Supreme Court addressed inverse condemnation time limits; and the Eighth Circuit confirmed a washout of overrides that would've burdened top leases.
Here's a two-week review...
Rig Counts, Spot Prices + Oil Prices
Rigs: National (790); Marcellus (-39); Utica/Point Pleasant (11)
Brent Crude: -$54.47/bbl
West Texas Intermediate: -$50.3/bbl
NYMEX: March 2020 @ -$1.861/MMBtu.
Spot Prices: Henry Hub (-$1.85/MMBtu); Dominion South (+$1.53/MMBtu); Tenn. Zone 4 (-$1.51/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): Some opponents of ACP and Mariner East got dinged with trespass convictions.
Atlantic Sunrise (Northeastern PA to SE Pennsylvania): Nothing new to report.
Constitution (Northeastern PA to NY): Nothing new to report.
Empire Pipeline (NY to PA): Nothing new to report.
Leidy South - Benton Loop Expansion (PA): Nothing new to report.
Mariner East (Western PA to Eastern PA): Some opponents of ACP and Mariner East got dinged with trespass convictions. Sunoco is soliciting shipper volume commitments for ethane transportation service on its Mariner West pipeline from origin points at Houston, Darlington, Bulger North, and Bulger South, each in Pennsylvania, to Marysville, Michigan and the International Border near Sarnia, Ontario, Canada for onward transportation.
Mountaineer XPress (WV): Nothing new to report.
Mountain Valley Pipeline (Northern WV to Southern Va. and NC): Nothing new to report.
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 FERC to phase its pipeline project and allow the company to focus on PA construction while it sorts out issues with New Jersey.
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
Ohio Appellate Court Upholds Lease-Busting Attempt for Lack of Production in Paying Quantities. A court of appeals in Ohio applied a 21-year statute of limitations to lease-busting claims and concluded that the lessee’s well failed to produce in paying quantities for more than two years such that the lease expired. Tewanger v. Stonebridge Operating Co., --- N.E.3d ---, No. 2020-Ohio-236, 2020 WL 416290 (Ohio Ct. App. Jan. 24, 2020).
DC District Court Holds that USFWS Didn’t Protect Northern Long-Eared Bat. The federal court for the District of Columbia concluded that the USFWS failed to properly assess threats to the survival of the northern long-eared bats by declining to give the species full protection under the Endangered Species Act. Center for Biological Diversity v. Everson, --- F. Supp. 3d ---, Nos. 477 and 910 2019 (D.D.C. Jan. 28, 2020).
Federal Judge Orders Discovery of DRBC Docs. A federal judge ordered in part the disclosure of documents held by the Delaware River Basin Commission, holding that the developers challenging the DRBC’s decision to prohibit natural gas wells within the basin are entitled to documents reflecting the intent of the parties to the Delaware River Basin Compact and rejecting the agency’s argument that the deliberative process privilege outweighs the need for disclosure. Wayne Land and Mineral Group, LLC v. Delaware River Basin Commission, --- F. Supp. 3d ---, No. 3:16-CV-00897, 2020 WL 527987 (M.D. Pa. Jan. 31, 2020).
Commonwealth Court Rejects PUC’s Imposition of Penalty on Impact Fee. On remand from the Pennsylvania Supreme Court, which held that wells producing below the production threshold every month of the year (as opposed to any one month of the year) are the only stripper wells that are exempt from the state’s impact fee, the Commonwealth Court held that the company on the hook for impact fees on low-producing wells is not responsible for interest and penalties for lack of due process because the statute failed to include “constitutionally necessary provisions allowing companies to challenge assessments or to receive refunds for charges later determined to be invalid.” Snyder Bros., Inc., v. Pa. P.U.C., No. 1043 C.D. 2015, 2020 WL 587012 (Pa. Cmwlth. Feb. 6, 2020).
Headlines & Holdings - Beyond Appalachia
Fifth Circuit Upholds Penalty Against Statoil for Inaccurate Gas Sale Reports. The Fifth Circuit held that Statoil did not "maintain" accurate information about gas sales that the company reports to the federal government and on which the company pays royalties, rejecting the claim that the company did not knowingly or willfully maintain false information stored on a government server and concluding instead that the company had an obligation to keep the information provided to the government in a state of validity. Statoil USA E&P Inc. v. United States Department of the Interior, --- F.3d ---, No. 18-20827, 2020 WL 476394 (5th Cir. Jan. 29, 2020).
Emails Not Enough to Satisfy Statute of Frauds, TX Supremes Say. The Supreme Court of Texas held that a collection of email exchanges between parties negotiating a pipeline easement purchase agreement did not satisfy the state's statute of frauds in order to form an enforceable contract and therefore dismissed claims of breach and tortious interference, reasoning that the emails containing price-per-linear-foot offers and a plat didn't create a written memorandum which is complete within itself in every material detail as required by the statute of frauds. Copano Energy, LLC v. Bujnoch, --- S.W.3d ---, No. 18-0044, 2020 WL 499765 (Tex. Jan. 31, 2020).
Texas Supreme Court Says Contract Conditions Prevail to Preclude Partnership Despite State Partnership Law. The Supreme Court of Texas held that Texas law permits parties to conclusively agree that, as between themselves, no partnership will exist unless certain conditions are satisfied, rejecting claims that the default provisions of the state's partnership law applied to create a partnership. Energy Transfer Partners, L.P. v. Enterprise Products Partners, L.P., --- S.W.3d ---, No. 17-0862, 2020 WL 500259, at *1 (Tex. Jan. 31, 2020).
Louisiana Supreme Court Addresses Time Limits for Inverse Condemnation Claims. The Louisiana Supreme Court held that the statutory three-year prescriptive period for actions for compensation for property taken by the state governed the plaintiffs' inverse condemnation claims. Crooks v. Dep't of Nat. Res., --- S.W.3d ---, No. 2019-0160, 2020 WL 499233 (La. Jan 29, 2020).
Eighth Circuit Holds that Overrides do not Burden Top Leases. The Eighth Circuit Court of Appeals held that overriding royalty interests burdening a number of base leases did not burden any of the top leases upon expiation despite "anti-washout" language that would require the top lessee to pick up the overrides, rejecting arguments that North Dakota's Supreme Court would hold that the top lessee owed the ORRI holder any fiduciary duties and concluding instead that the terms of the base lease and top lease are significantly difference such that the top lease did not qualify as any extension or renewal of the base lease. Pitchblack Oil, LLC v. Hess Bakken Investments II, LLC, No. 18-1734, 2020 WL 582879 (8th Cir. Feb. 6, 2020).
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