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At the Well Weekly (v.3.1.2019)

Oil + Gas Update - Texas Supremes Address Overrides and Post-Production Costs.

Natural gas prices climbed since our last report alongside flat oil prices and a relatively flat rig count. In pipeline news, a federal appellate court denied a bid to reconsider an order remanding Forest Service permits for Atlantic Coast Pipeline; Mountain Valley Pipeline gets a win at the Virginia water control board; and Mariner East 2 resumes drilling operations despite ongoing challenges. In Appalachia court news, a federal court in Pennsylvania rejected a royalty complaint alleging improper transactions between company affiliates. In other news, the Fifth Circuit addressed independent contractor status of directional drilling consultants while the Texas Supreme Court held that the phrase "in the pipeline" is similar to the phrase "at the well" for purposes of deciding whether an overriding royalty interest is subject to its proportionate share of post-production costs.

Here's your week in review...

Rig Counts, Spot Prices + Oil Prices

  • Rigs: National (-1038); Marcellus (62); Utica/Point Pleasant (19)

  • Brent Crude: -$66.22/bbl

  • West Texas Intermediate: +$57.30/bbl

  • NYMEX: The March 2019 Contract expired Tuesday @ $2.855/MMBtu. The April 2019 Contract opened @ -$2.799/MMBtu.

  • Spot Prices: Henry Hub (+$2.85/MMBtu); Dominion South (+$2.74/MMBtu); Tenn. Zone 4 (+$2.73/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): As anticipated, the Fourth Circuit denied reconsideration of its order suspending Forest Service permits for the pipeline project (see below for more details). The company reports that it plans to appeal to the U.S. Supreme Court.

  • Atlantic Sunrise (Northeastern PA to SE Pennsylvania): Nothing new to report.

  • Constitution (Northeastern PA to NY). The DC Circuit authorized FERC to review the Constitution Pipeline at the company’s request following another recent decision by the court that confirmed a state’s obligation to review water quality certifications within a reasonable time.

  • Leidy South - Benton Loop Expansion (PA): Nothing new to report.

  • Mariner East (Western PA to Eastern PA): Mariner East 2 is back on the drilling schedule, having been delayed since 2017, while the Chester County commissioners enter the fray in the ongoing PUC dispute over pipeline safety following decision to revoke easements.

  • Mountaineer XPress (WV): FERC authorized TransCanada to commence service on about 21 miles of pipeline in Marshall and Wetzel Counties in WV.

  • Mountain Valley Pipeline (Northern WV to Southern Va. and NC): The Virginia Water Control Board voted to withdraw its decision to hold a hearing to consider revoking a water permit for the Mountain Valley Pipeline, concluding that the board lacked jurisdiction to revoke the permit.

  • NEXUS (Ohio to Michigan): Nothing new to report.

  • Northern Access (NW PA to Western NY): Nothing new to report.

  • PennEast (PA to Central Jersey): 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 Ohio Rejects Bid to Amend Complaint in Royalty Dispute. A federal court in Ohio declined to give royalty owners another shot at amending a complaint alleging that CHK failed to pay proper royalties, concluding that the amendment would defeat diversity jurisdiction. Bounty Minerals, LLC v. Chesapeake Exploration, L.L.C., --- F. Supp. 3d ---, No. 5:17-CV-1695, 2019 WL 928135 (N.D. Ohio, Feb. 26, 2019).

  • Fourth Circuit Denies Reconsideration of its Order Suspending ACP Permits from Forest Service. As anticipated, the Fourth Circuit Court of Appeals denied a request by Atlantic Coast Pipeline to reconsider an order that suspended permits issued by the Forest Service authorizing the pipeline to cross national forests. Cowpasture River Preservation Association v. U.S. Forest Service, --- F.3d ---, No. 18-1144 (4th Cir., Feb. 26, 2019).

  • SWN Prevails in Challenge to Affiliate Transactions. A federal judge in the Middle District of Pennsylvania held that royalty owners failed to state claims that SWN’s affiliate transactions resulted in a breach of royalty obligations to the plaintiff, concluding that the plaintiffs failed to demonstrate how voluntary, arms-length transactions between affiliates satisfied various alter ego theories of enterprise liability. Atlantic Hydrocarbon, LLC v. SWN Production Company, --- F. Supp. 3d ---, No. 4:17-CV-02090, 2019 WL 928996 (M.D. Pa., Feb. 26, 2019).

Headlines & Holdings - Beyond Appalachia

  • Texas Appellate Court Upholds Ouster of Unit Operator. An appellate court in Texas concluded that non-operators properly voted to remove and replace the operator of a unit following mismanagement of operations and finances, reasoning that the non-operators could suffer irreparable harm by subjecting the unit assets to further losses that could not be compensated by the ousted operator based on its financial conditions. Flamingo Permian Oil & Gas, L.L.C. v. Star Exploration, L.L.C., --- S.W.3d ---, No. 08-18-00027-CV, 2019 WL 966619 (Tex. Ct. App., Feb. 28, 2019).

  • Texas Appellate Court Confirms Declaration of Taking for Pipeline Condemnation. An appellate court in Texas confirmed that a pipeline company could proceed with condemnation proceedings after finding that a consent executed by the CEO of the sole member of the general partner of the pipeline company established necessity for the declaration of taking. Graves v. Lone Star NGL Pipeline LP, --- S.W.3d ---, No. 09-18-00173-CV (Tex. Ct. App., Feb. 28, 2019).

  • Fifth Circuit Concludes that Directional Drilling Consultants are Independent Contractors. The Fifth Circuit concluded that drilling consultants are independent contractors and not employees entitled to overtime pay, concluding that the company lacked the necessary control over the workers to classify them as employees based in part on the high skill level of the consultants, their ability to turn away work, and the drilling company's lack of control or direction over how the consultants performed directional drilling calculations. Parrish v. Premier Directional Drilling, L.P., --- F.3d ---, No. 17-51089, 2019 WL 973091 (5th Cir., Feb. 28, 2019).

  • TX Supreme Court Says ORRI Subject to PPC. The Texas Supreme Court held that an overriding royalty is subject to post-production costs based on language in the agreement that the royalty interest arises when delivered "into the pipeline," which the court treated as equivalent to royalty interests payable "at the well," a phrase understood to create a royalty interest that bears its proportionate share of post-production costs. Burlington Resources Oil & Gas Company LP v. Texas Crude Energy, LLC, --- S.W.3d ---, No. 17-0266, 2019 WL 983789 (TX., March 1, 2019).


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