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At the Well Weekly (v.3.22.2019)

Oil + Gas Update - Regulatory Takings, Climate Change Considerations for BLM-Issued Oil + Gas Permits, and Royalty Offsets for Fuel Gas.

Natural gas prices climbed since our last report alongside a drop in the rig count while analysts brace for oil prices to slide amidst fears of a recession. On the pipeline front, the Third Circuit pressed paused on PennEast construction activities pending the NJ Attorney General's appeal. In Appalachia court news, an Ohio appellate court nixed a regulatory takings claim brought by a UIC well operator against oil and gas regulators while a federal court in West Virginia denied a bad-faith pooling claim. In other regions, the DC District Court dinged BLM for failing to account for climate change when issuing oil and gas permits, the First Circuit confirmed that federal law preempted local requirements for a compressor station, and a federal magistrate judge in Oklahoma issued mixed decisions in a bid to dismiss a claim that royalty owners are entitled to payment for fuel gas used off the lease.

Here's your week in review...

Rig Counts, Spot Prices + Oil Prices

  • Rigs: National (-1016); Marcellus (65); Utica/Point Pleasant (+15)

  • Brent Crude: -$66.75/bbl

  • West Texas Intermediate: +$59.04/bbl

  • NYMEX: April 2019 Contract @ $2.82/MMBtu.

  • Spot Prices: Henry Hub (+$2.83/MMBtu); Dominion South (+$2.60/MMBtu); Tenn. Zone 4 (+$2.60/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): PADEP indicated it will soon issue a Section 401 permit for the project.

  • Atlantic Coast (W. Va. to Va. and NC): Gov. Roy Cooper’s handing of the permit process for the Atlantic Coast Pipeline is under scrutiny. ACP received a condemnation win for pipeline easements (see below for more details).

  • Atlantic Sunrise (Northeastern PA to SE Pennsylvania): The Canada Pension Plan Investment Board and Williams have entered into a $3.8 billion joint venture to hold pipeline assets in the Marcellus and Utica.

  • Constitution (Northeastern PA to NY): Following court decisions on states waiving their right to conduct Section 401 reviews of interstate pipeline projects, FERC invited additional pleadings from the parties in the Constitution Pipeline case to determine the effect of those decisions.

  • 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): Protestors gathered in Harrisburg to protest Mariner East pipelines.

  • Mountaineer XPress (WV): Nothing new to report.

  • Mountain Valley Pipeline (Northern WV to Southern Va. and NC): Virginia Delegate Chris Hurst is asking for an immediate stop work order for the construction of the Mountain Valley Pipeline. FERC expects to issue a final environmental impact statement for the Mountain Valley Pipeline Southgate Project by the end of this year. Mountain Valley Pipeline is suing two landowners denying company representatives access to easements for pipeline activities.

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

  • NFG FM100 Project (NC PA to Transco): Nothing new to report.

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

  • PennEast (PA to Central Jersey): The Third Circuit stayed construction activities for PennEast Pipeline pending review of the NJ Attorney General’s appeal challenging the condemnation of publicly owned property but allowed other activities (siting, etc.) to proceed.

  • Regional Energy Access (NE PA to PA/NJ): 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 Court Says Suspension of UIC Well Operations Not a Taking. A court of appeals in Ohio concluded that the Division of Oil and Gas Resource Management did not unlawfully take a UIC well owner’s property without just compensation in violation of the state and federal Takings Clauses as a result of indefinite suspension-of-operations orders following a seismic event (earthquake) in connection with the UIC well’s operation, concluding that the well operator did not prove that (1) the character of the regulation, in light of the circumstances, was unreasonable or unfair; or that (2) the regulation interfered with the operator’s objectively reasonable investment-backed expectations. State ex rel. AWMS Water Solutions, L.L.C. v. Zehringer, --- N.E.3d ---, No. 17AP-145 (Ohio Ct. App., March 18, 2019).

  • Federal Court in W. Va. Denies Bad Faith Pooling Claim. A federal court in West Virginia concluded that pooling modifications to oil and gas leases precluded a bad faith claim that a lessee improperly used horizontal drilling to pool and produce the plaintiffs’ oil and gas interests with other leases, reasoning that the pooling modifications are valid and applied to the plaintiffs’ reformed deeds in which they acquired their oil and gas interests. Packard v. Antero Resources Corp., --- F. Supp. 3d ---, No. 1:18CV04, 2019 WL 1245793 (N.D.W. Va., Mar. 18, 2019).

  • Atlantic Coast Gets Order Granting Access for Pipeline Project. A federal court in Virginia confirmed ACP’s condemnation of lands for pipeline construction activities and authorized immediate possession of properties upon payment of just compensation to non-appearing landowners. Atlantic Coast Pipeline, LLC, v. 1.52 Acres, More or Less, in Nottoway County, Va., --- F. Supp. 3d ---, No. 2:18-CV-00058-JAG, 2019 WL 1258835 (E.D. Va., Mar. 19, 2019).

Headlines & Holdings - Beyond Appalachia

  • Federal Court in New Mexico Court Denies Bid to Axe Expert Report on Royalty Class Certification. In a royalty class action, a federal court in New Mexico denied a motion to exclude expert reports demonstrating that, based on lease differentials, industry custom, well production, market conditions, and related issues, royalty claims require individual assessments, rejecting the class plaintiffs' claims that the expert's report amounts to improper legal conclusions. Ulibarri v. Southland Royalty Co., LLC, --- F. Supp. 3d ---, No. 1:16-CV-215-RB-JHR, 2019 WL 1226962 (D.N.M., Mar. 15, 2019).

  • ND Supreme Court Confirms Probate Court's Jurisdiction over Valuation of Oil and Gas Estate. The Supreme Court of North Dakota confirmed that the language of a deed granting oil and gas rights subject to a life estate generated revenues payable to the life tenant during her lifetime and rejected claims by other heirs that the probate court lacked jurisdiction to order cash payments and to include the oil, gas, and mineral interests as estate property for valuation purposes. In re: Estate of Brandt, --- N.W.2d ---, No. 20180160, 2019 WL 1233445 (N.D., March 18, 2019).

  • First Circuit Confirms that Federal Regulation Preempts Local Ordinance Requirements for Compressor Project. The First Circuit concluded that a FERC certificate issued to Algonquin Gas Transmission, LLC for a compressor station in Weymouth, Massachusetts preempted compliance with state requirements conditioned on obtaining permits from the municipality. Algonquin Gas Transmission, LLC v. Weymouth, Massachusetts, --- F.3d ---, No. 18-1686, 2019 WL 1252856 (1st Cir., Mar. 19, 2019).

  • DC District Court Says BLM Failed to Consider Climate Change when Issuing Oil + Gas Permits. The D.C. District Court concluded that BLM did not sufficiently consider climate change when making decisions to issue oil and gas permits, reasoning that although BLM summarized the potential on-the-ground impacts of climate change in the state, the region, and across the country, BLM failed to provide the information necessary for the public and agency decision makers to understand the degree to which the leasing decisions would contribute to those impacts. WildEarth Guardians v. Zinke, --- F. Supp. 3d ---, No. CV 16-1724 (RC), 2019 WL 1273181 (D.D.C., Mar. 19, 2019).

  • Okla. Federal Court Addresses Bids to Dismiss Claims that Royalty Owners are Entitled to Payment for Fuel Gas. A federal magistrate judge in Oklahoma issued mixed decisions in several cases involving royalty payments owed on fuel gas used off the lease, concluding in one case that the express language of a net-proceeds royalty clause did not obligate the lessee to pay royalty on gas consumed off the leased premises as fuel gas but finding issues of fact about off-premises use of fuel gas that precluded summary judgment in another set of cases. Reirdon v. Cimarex Energy Co., --- F. Supp. 3d ---, No. CIV-16-445-SPS, 2019 WL 1302550 (E.D. Okla., Mar. 21, 2019); Reirdon v. Cimarex Energy Co., --- F. Supp. 3d ---, No. CIV-16-445-SPS, 2019 WL 1302552 (E.D. Okla., Mar. 21, 2019).


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