Oil + Gas Update | TX Supremes Reconcile Royalty Clauses.
Natural gas prices dropped as warm weather forecasts drove down demand while the rig count lost a few units and oil prices dipped slightly. In pipeline news, the Biden Administration backed PennEast's bid before the United States Supreme Court to overturn a decision that foreclosed the company's condemnation of properties in which the state of New Jersey holds interests. In Appalachia, Chesapeake ended its longstanding battle with the Pennsylvania Attorney General's Office by settling lease and royalty disputes. In other regions, the Texas Supreme Court addressed competing royalty clauses in an oil and gas lease.
Here's your week in review:
Rig Counts, Spot Prices + Oil Prices
Rigs: National (402); Marcellus (30); Utica/Point Pleasant (9)
Brent Crude: $68.66/bbl
West Texas Intermediate: $65.09/bbl
NYMEX: April 2021 @ $2.692/MMBtu
Spot Prices: Henry Hub ($2.60/MMBtu); Dominion South ($2.03/MMBtu); Tenn. Zone 4 ($1.91/MMBtu)
WOPL - Appalachia
PennEast Pipeline. In an encouraging move, the Biden Administration backed PennEast Pipeline’s bid before the U.S. Supreme Court to upend a Third Circuit decision prohibiting PennEast - a FERC-certificated gas pipeline company - from condemning property interests held by the state of New Jersey based on Eleventh Amendment immunity, arguing the Natural Gas Act was written in part to stop states from blocking such projects. Congresswoman Bonnie Watson Coleman (D-12) and Congressman Tom Malinowski (D-7) criticized the Biden DOJ for defending the PennEast Pipeline and called on the Biden Administration to reverse support.
Mountain Valley Pipeline. The Institute for Energy Economics and Financial Analysis, an outfit dedicated to a sustainable energy future, wrote in a “report” that the Mountain Valley Pipeline is unnecessary because the demand for gas is lower and pipeline capacity is higher than originally thought when MVP was first conceived.
Headlines & Holdings - Appalachia
CHK Settles OAG Challenges to O+G Leasing and Royalties. Chesapeake settled the OAG’s challenges to the company's leasing and royalty practices for a $5.3M price tag and other concessions while the appeal against co-Defendant Anadarko involving the OAG's claims under the state consumer protection statute remains pending before the Pennsylvania Supreme Court.
Ohio Federal Court Upholds Prior Decision on O+G Royalties and PPC. A federal judge in Ohio doubled down on a prior decision that dismissed a challenge to deductions for post-production costs from royalties payable on the "wellhead price," holding again that the "at-the-well" rule of interpretation applies such that the lessor is responsible for a proportionate share of post-production costs even if there is no market at the wellhead and the lessee uses the net-back analysis to arrive at a wellhead price on which to pay royalties. Eaton v. Ascent Resources, --- F. Supp. 3d ---, No. 2:19-CV-3412, 2021 WL 858517 (S.D. Ohio Mar. 8, 2021).
Fourth Circuit Asks for More Details re: NC’s Decision Denying MVP’s Water Quality Certification. The Fourth Circuit upheld North Carolina’s decision on Mountain Valley Pipeline’s Clean Water Act certification as consistent with the state’s regulations and federal Clean Water Act but remanded for additional explanation in light of the administrative record. Mountain Valley Pipeline, LLC v. NC DEQ, --- F.3d ---, No. 20-1971, 2021 WL 922110 (4th Cir. Mar. 11, 2021).
Headlines & Holdings - Beyond Appalachia
TX Supreme Court Reconciles Competing Royalty Clauses in O+G Lease. The Supreme Court of Texas held that a lease provision requiring the lessee to "compute and pay royalties on the gross value received" trumped another provision requiring royalties to be "computed at the mouth of the well" and therefore rejected the lessee's deductions for post-production costs while remanding for more information about whether the lessee’s use of gas off the lease for running equipment is subject to the royalty burden. BlueStone Natural Resources II v. Randle, --- S.W.3d ---, No. 19-0459, 2021 WL 936175 (Tex. Mar. 12, 2021).
TX Appellate Court Says "Subject To" Clause is not a Reservation. A court of appeals in Texas concluded that a deed conveying an entire estate "subject to" oil, gas, minerals, and other encumbrances of record did not reserve the oil, gas, and other minerals, holding instead that the "subject to" clause does not constitute clear language of reservation nor does it identify, with reasonable certainty, property excepted from the larger conveyance. Ross v. Flower, No. 03-19-00516-CV, 2021 WL 904864 (Tex. App. Mar. 10, 2021).
Fifth Circuit Denies Sierra Club's Bid to Bust LNG Project Based on Harm to Ocelot, Jaguarundis. The Fifth Circuit denied a petition to overturn FWS's decision to green-light an LNG project in Texas, holding that after years of review the agency met its obligations under the Endangered Species Act and concluding that although the project posed potential harm to one ocelot or jaguarundi it wouldn't jeopardize the continued existence of either cat. Sierra Club v. United States Dep't of Interior, No. 20-60299, 2021 WL 911184 (5th Cir. Mar. 10, 2021).
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