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At the Well Weekly (v.3.29.2019)

Oil + Gas Update - De Facto Taking of a Coal Estate in PA, Recording Overrides in Ohio, and Preferential Rights of Working-Interest Co-Tenants in Texas.

Oil prices climbed since our last report while natural gas spot and contract prices dipped alongside a drop in the rig count. The pipeline scene was relatively quiet. In Appalachia court news, the Commonwealth Court concluded that PennDOT's activities that cut off all surface access resulted in a de facto taking of the underlying coal estate while an Ohio federal judge concluded that assignments of overrides are subject to recording statutes. In other regions, parties to a lease must share production costs charged by the lessee's unaffiliated drilling contractor, BLM failed to account for climate change when issuing oil and gas permits, and a working-interest co-tenant who didn't sign a JOA couldn't exercise preferential rights under the JOA to purchase other working interests.

Here's your week in review...

Rig Counts, Spot Prices + Oil Prices

  • Rigs: National (-1006); Marcellus (65); Utica/Point Pleasant (15)

  • Brent Crude: +$68.61/bbl

  • West Texas Intermediate: +$60.83/bbl

  • NYMEX: The April 2019 Contract expired @ -$2.82/MMBtu. The May 2019 Contract opened @ -$2.719/MMBtu.

  • Spot Prices: Henry Hub (-$2.66/MMBtu); Dominion South (+$2.41/MMBtu); Tenn. Zone 4 (-$2.36/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): Duke Energy, sponsor of Atlantic Coast Pipeline, says the company needs a "Plan B" if the project fails. Meanwhile, activities have been using single-engine aircraft and drones to search for regulatory violations during pipeline construction activities.

  • Atlantic Sunrise (Northeastern PA to SE Pennsylvania): Contractors sued Williams for unpaid work on the Atlantic Sunrise Pipeline project.

  • 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): Partially in response to safety concerns regarding Mariner East pipelines, several legislators introduced a bill to prevent DEP and the PUC from issuing new permits for pipeline construction.

  • 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.

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

  • PennEast (PA to Central Jersey): Nothing new to report.

  • Regional Energy Access (NE PA to PA/NJ): Nothing new to report.

  • Rover (OH, WV, PA to Michigan): Rover received the green light for tree-clearing activities on several parcels to address environmental and safety concerns associated with soils surrounding parts of the pipeline susceptible to slips (see below for case details).

  • TransCanada Eastern Panhandle Project (PA to WV): Nothing new to report.

Headlines & Holdings - Appalachia

  • Rover Pipeline Secures Right to Clear Trees to Prevent Slips. A federal judge in Ohio authorized tree-clearing activities on the pipeline route to address environmental damage and safety issues associated with soil surrounding portions of the pipeline susceptible to slips. Rover Pipeline LLC v. Kanzigg, --- F. Supp. 3d ---, No. 2:17-CV-105, 2019 WL 1367675 (S.D. Ohio March 26, 2019).

  • Ohio Federal Court Says Recording Statutes Apply to Overrides. A federal court in Ohio concluded that the plain language of a recording statute governing the "conveyance or encumbrance" of "lands, tenements, or hereditaments" applies to an oil and gas lease and any assignments or interests related to the lease, including assignments of overriding royalty interests that encumber a landowner's property. Talmage v. Bradley, --- F. Supp. 3d ---, No. 2:17-CV-544, 2019 WL 1384430 (S.D. Ohio, Mar. 26, 2019).

  • Commonwealth Court Confirms De Facto Taking of a Coal Estate. The Commonwealth Court of Pennsylvania concluded that PennDOT activities rendered a coal estate landlocked without alternative access and therefore resulted in a de facto taking of the coal estate regardless of whether the coal was mineable and permittable, reserving those questions for the board of view to decide at the just compensation stage. PBS Coals, Inc. v. Dep't of Transportation, --- A.3d ---, No. 140 C.D. 2018, 2019 WL 1387883 (Pa. Cmwlth., March 28, 2019).

Headlines & Holdings - Beyond Appalachia

  • Bankruptcy Court Says Parties Share Production Costs of Unaffiliated Third Parties. A bankruptcy judge concluded that the parties to an oil and gas lease must share production costs charged by "unaffiliated third parties" in which the lessee does not have a "beneficial interest" and rejected the lessor's claim that the lessee held a "beneficial interest" in lessee's third-party drilling contractor based solely on marketing and contractual relationships. In re: Goodrich Petroleum, --- B.R. ---, No. 16-31975, 2019 WL 1313399 (Bankr. S.D. Tex., March 20, 2019).

  • Federal Court in Kansas Concludes that Royalty Class Actions Consolidated in State Court Met CAFA Threshold. A federal court in Kansas concluded that royalty class actions involving disputes over post-production costs and implied covenants that the plaintiffs consolidated under Kansas law before the defendants removed to federal court met CAFA's $5 million threshold requirement for amounts in controversy, rejecting the plaintiffs' contentions that the court should treat the cases on a contract-by-contract basis for purposes of calculating the amount in controversy. Cooper Clark Foundation v. Oxy USA Inc., --- F. Supp. 3d ---, No. 18-1222-JWB, 2019 WL 1384200 (D. Kan., March 27, 2019).

  • Colorado Federal Court Says BLM Fell Short on NEPA Requirements for O+G Leases. A federal judge in Colorado agreed with plaintiffs challenging BLM-issued leases that the agency failed to take the required "hard look" at reasonably foreseeable indirect impacts of oil and gas leases despite the agency's proper review of other environmental impacts. Citizens for a Healthy Community v. U.S. Bureau of Land Management, --- F. Supp. 3d ---, No. 117CV02519LTBGPG, 2019 WL 1382785 (D. Colo., March 27, 2019).

  • Fifth Circuit Sides with Off-Shore Operator in Dispute over Blowout Preventer. The Fifth Circuit reversed and vacated an order denying breach of contract and warranty claims against Transocean for failure to maintain a continuously malfunctioning blowout preventer. Eni US Operating Co., Inc. v. Transocean Offshore Deepwater Drilling, Inc., --- F.3d ---, No. 18-20115, 2019 WL 1395256 (5th Cir., March 28, 2019).

  • Federal Court in Texas Rejects Working Interest Co-Tenant's Attempt to Exercise Preferential Right. A federal judge in Texas rejected breach-of-contract and breach-of-fiduciary-duty claims and concluded that a 25% working-interest owner that did not sign a JOA is a co-tenant in the working interest with no preferential rights under the JOA to purchase other working interests. Hammerhead Managing Partners, LLC v. Nostra Terra Oil & Gas Co. PLC, --- F. Supp. 3d ---, No. 3:18-CV-1160-N, 2019 WL 1403363 (N.D. Tex., March 27, 2019).


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