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At the Well Weekly (v.5.12.2023)

Oil + Gas Update | Ninth Circuit Scraps Local Ban on NatGas Hookups in Buildings.

Natural gas prices are way down alongside a drastic reduction in the rig count as producers pull back amidst abundant supply. In pipeline news, the Fourth Circuit dealt another blow to MVP but the company received approvals from various other agencies following a nod from the Biden Administration in support of the project. In Appalachia, courts addressed oil and gas permit regulations, reasonable development claims, arbitration, and pre-suit notice provisions in oil and gas leases. In other regions, the Ninth Circuit issued its closely watched decision on local government attempts to ban natural gas hookups in new buildings. In other news, courts addressed force majeure, arbitration, adverse possession of non-op working interests in leases, and how to calculate deadlines in oil and gas agreements.

Rig Counts, Spot Prices + Oil Prices

  • Rigs: National (731); Marcellus (39); Utica/Point Pleasant (10)

  • Brent Crude: $74.69/bbl

  • West Texas Intermediate: $70.50/bbl

  • NYMEX: June 2023 @ ­$2.191/MMBtu

  • Spot Prices: Henry Hub (­$2.12/MMBtu); Tennessee Zone 4 ($1.11/MMBtu)

WOPL - Appalachia

  • Mountain Valley Pipeline. The U.S. Forest Service approved the pipeline to pass through Jefferson National Forest along the West Virginia-Virginia border from. The agency issued it's record of decision. The U.S. Fish & Wildlife Service said the pipeline project won't harm endangered species, but West Virginia and other environmental groups have filed a lawsuit challenging FWS's finding. Senator Joe Manchin will reintroduce his environmental permitting reform legislation that will help MVP. Environmental groups criticized the Biden administration after it signaled support for the project.

Headlines & Holdings - Appalachia

  • PA Supremes Uphold DEP’s Chapter 78a “Public Resources” Regs under ERA. Relying in part on Article I, sec. 27 (“Environmental Rights Amendment”), the Pennsylvania Supreme Court upheld Chapter 78a’s regulations that require an evaluation of impacts an unconventional well might have on “public resources,” including publicly and some privately owned property, holding that (a) the General Assembly intended to give the Agencies the leeway to promulgate the challenged regulations and that those regulations are reasonable; and (b) the Environmental Rights Amendment supports DEP’s regulation of public resources even if privately owned or man-made. The Marcellus Shale Coalition v. DEP, --- A.3d ----, No. 69 MAP 2021, 2023 WL 2994948 (Pa. Apr. 19, 2023).

  • WV Supreme Court Requires Redo of O+G Abstractor’s Damage Claim. The Supreme Court of West Virginia remanded a dispute over unpaid fees for oil and gas title work, holding that the trial court should have taken evidence on liability and damages and failed to support findings with evidence. Warrior Oil & Gas, LLC v. Blue Land Servs., LLC, --- S.E.3d ----, No. 21-0506, 2023 WL 2727628 (W. Va. Mar. 31, 2023).

  • Fourth Circuit Scraps CWA Permit for MVP. The Fourth Circuit dealt the latest blow to the Mountain Valley Pipeline project, concluding that West Virginia DEP arbitrarily and capriciously certified MVP’s pipeline's construction under the Clean Water Act, and holding that the DEP’s reasonable assurance determination suffers from four interrelated failures: “It did not (1) sufficiently address MVP's violation history, (2) include conditions requiring compliance with the O&G CGP and SWPPP, (3) provide a reasoned basis for relying on EPA’s upland CGP, or (4) articulate an adequate explanation for forgoing location-specific antidegradation review.” Sierra Club v. WV DEP, --- F.4th ----, No. 22-1008, 2023 WL 2746769 (4th Cir. Apr. 3, 2023).

  • WV Fed. Ct. Says Conventional Well-Plugging Class Action not Barred by Prior Settlement with State Regulators. In a class action alleging well operators created nuisances by failing to plug a number of conventional wells, a federal court in West Virginia held that the class plaintiffs are not barred from bringing the action based on a prior settlement agreement between the companies and state regulators. McEvoy v. Diversified Energy Company PLC, --- F. Supp. 3d ----, No. 5:22-CV-171, 2023 WL 2762028 (N.D.W. Va. Apr. 3, 2023).

  • Ohio App. Ct. Upholds Interest under MTA. A court of appeals in Ohio held that landowners claiming oil and gas rights had their interests preserved by the state’s Marketable Title Act. Dougherty v. Abarta Oil & Gas Co., --- N.E.3d ----, No. 22CA000019, 2023 WL 3019693 (Ohio Ct. App. April 18, 2023).

  • Ohio Fed. Ct. Dismisses Reasonable Development Claim for Released O+G Acreage. A federal court in Ohio dismissed a lessor’s claims alleging that his lessee breached an oil and gas lease’s reasonable-development clause for failing to drill an offset well before releasing acreage, holding that the lessee did not have a duty to drill an offset well because it released the property within a six-month deadline in the lease and thereby “relieved itself of all obligations” under the release clause. Lehman v. Gulfport Energy Corp., --- F. Supp. 3d ----, No. 2:20-CV-3053, 2023 WL 3168316 (S.D. Ohio May 1, 2023).

  • PA Superior Court Sends O+G JDA, JOA, GGA Dispute to Arbitration. The Superior Court of Pennsylvania held that parties to a JDA, JOA, and GGA with disputes over changes the operator made to nominations for in-kind gas taken by the non-operator for transport through a gathering system should arbitrate all their claims, rejecting the trial court’s conclusion that separate arbitration agreements in related the documents could not be reconciled to resolve all claims in one consolidated arbitration. PennEnergy Resources, LLC v. Winfield Resources, LLC, --- A.3d ----, No.979 WDA 2022, 2023 WL 3216761 (May 3, 2023).

  • Commonwealth Court Reduces ME1 Civil Penalty. The Commonwealth Court reduced a $2K penalty levied by the PA PUC against Sunoco Pipeline for its Mariner East 1 pipeline, denying the PUC’s motion to dismiss the appeal as moot based on Sunoco's decision to discontinue transporting HVLs through ME1, reversing the PUC’s finding that Sunoco violated federal pipeline regulations because none of the plaintiffs raised those issues in the adjudication below, and upheld a $1,000 fine because Sunoco’s public awareness program failed to meet the reasonable service standard required by the Public Utility Code. Sunoco Pipeline, L.P v. PA PUC, --- A.3d ----, No. 1415 C.D. 2021, 2023 WL 3262649 (Pa. Cmwlth. May 5, 2023).

  • Fed. Ct. Says O+G Lease Required Pre-Suit Notice. A federal court in Ohio dismissed a purported class action alleging breach of an oil and gas lease for failure to pay proper royalties, holding that the lease required “pre-suit” notice that none of the plaintiffs provided and rejecting the argument that filing and serving the complaint constituted notice because service did not occur until after the lessors already filed suit. Kirkbridev. Antero Res. Corp., --- F. Supp. 3d ----, No. 2:22-CV-2251, 2023 WL 3321223 (S.D. Ohio May 9, 2023).

Headlines & Holdings - Beyond Appalachia

  • Fifth Circuit Says States Lack Standing to Challenge Biden’s GHG Social Cost Calculations. The Fifth Circuit rejected a group of Republican-led states’ claims that they’re suffering under the Biden administration’s calculations of the social cost of greenhouse gas emissions, holding the states could only point to a “chain of hypotheticals” to prove an injury, and that is not enough to confer standing under Article III. Louisiana by & through Landry v. Biden, --- F.4th ----, No. 22-30087, 2023 WL 2780821 (5th Cir. Apr. 5, 2023).

  • Alaska Supreme Court Remands Challenge to O+G Bond Requirement. The Supreme Court of Alaska rejected bids by an oil and gas exploration company to challenge a bond increase imposed by state regulators but remanded to the agency to determine whether the terms of the new bonding regulation apply and whether application of the new regulation is precluded by the statute’s rules on retroactivity. Alaskan Crude Corp. v. Alaska Oil & Gas Conservation Comm’n, --- P.3d ----, No. S-18290, 2023 WL 2784583 (Alaska Apr. 5, 2023).

  • Alaska Supreme Court Rejects Request to Create ORRIs on State O+G Leases. The Alaska Supreme Court rejected attempts to create overriding royalty interests by owners of oil and gas leases covering state lands, holding that the Alaska Department of Natural Resources properly withheld approval because additional royalty burdens jeopardized the state’s interest in sustained oil and gas development. AVCG, LLC v. Alaska, --- P.3d ----, No. S-18170, 2023 WL 2818540 (Alaska Apr. 7, 2023).

  • Tex. Fed. Ct. Says Winter Storm Uri was a Force Majeure Event. A federal court in Texas held that Chevron properly declared force majeure during Winter Storm Uri and is absolved from missing deliveries to LNG Americas Inc., thereby rejecting LNG’s massive $84.5 million suit. LNG Americas, Inc. v. Chevron Natural Gas, Inc., --- F. Supp. 3d ----, No. CV H-21-2226, 2023 WL 2920940 (S.D. Tex. Apr. 12, 2023).

  • Texas Supremes Say Arbitrator Decides Well Re-Entry Cost Dispute. The Texas Supreme Court held that an arbitrator, not a court, should decide the arbitrability of a dispute over the costs of re-entering a well. TotalEnergies E&P USA, Inc. v. MP Gulf of Mexico, LLC, --- S.W.3d ----, No. 21-0028, 2023 WL 2939648 (Tex. Apr. 14, 2023).

  • Texas Supreme Court Addresses Force Majeure Clause in O+G Lease. The Supreme Court of Texas concluded that an oil and gas lease expired for lack of operations despite claims that drilling delays beyond the lessee’s control caused the problem, holding that a force majeure clause that would save the lease from expiration if “[l]essee’s operations are delayed by an event of force majeure” did not cover any delays of a “necessary drilling operation already scheduled to occur after the deadline for perpetuating the lease.” Point Energy Partners Permian, LLC v. MRC Permian Co., --- S.W.3d ----, No. 21-0461, 2023 WL 3028100 (Tex. Apr. 21, 2023).

  • Landowner Challenge to Eminent Domain under NGA Gets Another Look. The U.S. Supreme Court told the D.C. Circuit to take another look at the Mountain Valley Pipeline case involving landowner challenges to the constitutionality of the NGA’s delegation of eminent domain authority to private companies in light of the Court’s recent ruling in Axon Enterprise Inc. v. FTC, which explains where such challenges need to be filed. Cletus Woodrow Bohon v. FERC, No. 22-256 (U.S. 2023).

  • Ninth Circuit Strikes Down Local NatGas Ban. In a closely watched case regarding local natural gas bans, the Ninth Circuit held that the City of Berkeley’s ordinance banning natural gas hookups prohibited the installation of natural gas piping within newly constructed buildings and thereby “waded into a domain preempted by Congress” such that the city’s ordinance is expressly preempted by the Energy Policy and Conservation Act (“EPCA”), 42 U.S.C. § 6297(c). The court stated that “[i]nstead of directly banning those appliances in new buildings, Berkeley took a more circuitous route to the same result. It enacted a building code that prohibits natural gas piping into those buildings, rendering the gas appliances useless. … By its plain text and structure, EPCA’s preemption provision encompasses building codes that regulate natural gas use by covered products. And by preventing such appliances from using natural gas, the new Berkeley building code does exactly that.” Cal. Rest. Ass'n v. City of Berkeley, --- F.4th ----, No. 21-16278, 2023 WL 2962921 (9th Cir. Apr. 17, 2023).

  • Tex. App. Ct. Holds Non-Op Working Interest can be Adversely Possessed. A court of appeals in Texas concluded that a non-operating working interest in an oil and gas lease may be adversely possessed, holding that the holder of the claimed working interest paid operating expenses, royalties and retained revenues from the sale of the minerals (less expenses, royalties, and taxes) for more than 25 years and thereby acquired the interest. The dissenting opinion pointed out that adverse possession requires actual physical possession of minerals as opposed to controlling a contract right to property or proceeds and therefore would have denied adverse possession of the non-operating working interest. PBEX II LLC v. Dorchester Minerals, L.P., --- S.W.3d ----, No. 07-21-00212-CV, 2023 WL 3151830 (Tex. App. Apr. 28, 2023).

  • Texas Supremes Calculation of Time in PSA Dispute. The Texas Supreme Court held that, in a dispute over whether a certain aspect of a purchase-sale agreement expired, (a) the default rule is that any period measured in years “from” or “after” a measuring date ends on the anniversary of the measuring date and not on the day before the anniversary; (b) the parties are free to contract around that default rule; and (c) because the parties did not do so here, the default rule applied. Apache Corp. v. Apollo Expl., LLC, --- S.W.3d ---, No. 21-0587, 2023 WL 3134243 (Tex. Apr. 28, 2023).

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