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At the Well Weekly (v.4.19.2019)

Oil + Gas Update - EQB Accepts Petition to Establish Cap + Trade Program in PA, TX Appellate Court Tackles Post-Production Costs.

Natural gas prices and rig counts continued to decline since our last report while oil prices climbed amidst looming volatility in the coming weeks as predicted by analysts. In pipeline news, local opposition groups request environmental review of a pipeline project near Philly, Mariner East 1 goes back online this week, and ACP's project sponsor describes the negative economic effects of pipeline project delays. In Appalachia, PA's Environmental Quality Board voted to accept a petition requesting that the Commonwealth establish a cap and trade program by regulation. In other news, a court of appeals in Texas reconciled conflicting royalty provisions in a lease and addendum to determine whether the parties must bear their proportionate share of post-production costs or not.

Here's your week in review...

Rig Counts, Spot Prices + Oil Prices

  • Rigs: National (-1012); Marcellus (62); Utica/Point Pleasant (18)

  • Brent Crude: +$71.97/bbl

  • West Texas Intermediate: +$64.07/bbl

  • NYMEX: May 2019 Contract @ -$2.517/MMBtu.

  • Spot Prices: Henry Hub (-$2.56/MMBtu); Dominion South (-$2.23/MMBtu); Tenn. Zone 4 (-$2.10/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): The Bucks County Concerned Citizens Against the Pipeline asked state regulators to establish the current air, soil and water quality before construction of the proposed natural gas pipeline.

  • Atlantic Coast (W. Va. to Va. and NC): Officials of Dominion, sponsor of Atlantic Coast Pipeline, say that more than 4,500 skilled construction workers in West Virginia, Virginia, Pennsylvania and North Carolina have been laid off or have been subject to delayed hiring as a result of the project’s delays, putting more than $4.5 billion in capital expenditures in West Virginia, Virginia and North Carolina in jeopardy and risking more than $28.8 million in annual local property taxes.

  • Atlantic Sunrise (Northeastern PA to SE Pennsylvania): Following resolution of other lien claims, Williams' contractors who worked on the Atlantic Sunrise project sent letters to landowners along the route threatening liens for non-payment of work.

  • 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): Sunoco/ETP issued to the PA Public Utility Commission a notice of intent to resume service on the Mariner East 1 line with enhanced safety measures. PA State Senator Gene Yaw, who supports natural gas development in the Commonwealth, expressed frustration over Mariner East pipeline development activities.

  • 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): Nothing new to report.

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

Headlines & Holdings - Appalachia

  • Pennsylvania Environmental Quality Board Accepts Petition for Rulemaking to Establish Cap + Trade Regulations. The rulemaking body of the Department of Environmental Protection voted to accept a petition filed by several hundred individuals and organizations asking the agency to adopt regulations establishing a cap and trade program, concluding that Pennsylvania law authorizes the Department to establish the program and instructing the DEP to engage in studies as part of the rulemaking process.

  • PA Superior Court Enforces Settlement of O+G Lease Dispute. The Superior Court of Pennsylvania upheld an order granting a motion to enforce a settlement agreement resolving a dispute over oil + gas lease provisions despite the allegations of the landowners that the parties never agreed on material terms and did not intend certain oral representations to bind the parties absent an executed written agreement. SWEPI, LP v. Wood, 508 MDA 2018 (Pa. Super., April 15, 2019).

Headlines & Holdings - Beyond Appalachia

  • TX Court of Appeals OK's Termination of Well Monitoring Software License. A court of appeals in Texas held that a well operator could terminate well-monitoring services under an MSA and license agreement that, read together, gave the well operator an early out, reasoning that the licensor could not read the agreements to establish a perpetual license arrangement that could never be terminated. Polaris Guidance Systems, LLC v. EOG Resources, Inc. --- S.W.3d ---, No. No. 14-17-00717-CV (Tex. Ct. App., April 16, 2019).

  • Fifth Circuit Rejects Claim that Insurer Waived Subrogation Rights under MSA. The Fifth Circuit concluded that an insurer could arbitrate subrogation claims against a frac company after the insurer covered costs of the operator stemming from an incident at an Ohio well site. Halliburton Energy Servs., Inc. v. Ironshore Specialty Ins. Co., No. 17-20678, 2019 WL 1649668 (5th Cir., Apr. 17, 2019).

  • TX Court of Appeals Addresses Conflicting Royalty Provisions in O+G Lease and Addendum to Allocate Post-Production Cost Obligations. In a thorough opinion, a court of appeals in Texas concluded that a lease form with a royalty clause establishing a market-value-at-the-well royalty (using a net-back method to establish the royalty burden) conflicted with a royalty provision in the parties' addendum that said the lessee must calculate royalties based on the "gross value received" such that the lessee should bear all post-production costs per the addendum rather than share proportionately with the lessor per the lease form. Bluestone Natural Resources II v. Randle, --- S.W.3d ---, No. 18-00271, 2019 WL 17164515 (Tex. Ct. App., April 18, 2019).

  • Texas Appellate Court Says Pipeline Easements did not Merge with Roadway License. A court of appeals in Texas rejected claims that pre-existing pipeline easements merged with a subsequent roadway license executed by the same parties for similar areas such that the pre-existing easements expired upon expiration of the roadway license, concluding instead that the easements and roadway license created separate interests in land and therefore the pipeline company could access the properties via the easements to conduct maintenance ("pigging") operations. Murphy Land Group, LLC v. Atmos Energy Corp., --- S.W.3d ---, No. 12-18-00138-CV, 2019 WL 1716359 (Tex. Ct. App., April 17, 2019).


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