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At the Well Weekly (v.5.15.2020)

Oil + Gas Update - Texas Supremes Address ORRIs, PA Supremes Poised to Decide O+G Lease-Busting Case, and Army Corps NWP Goes Down.

After a few weeks off we're back at the well. The rig count declined since our last report along with natural gas prices even though oil prices rebounded. In pipeline news, a federal judge knocked out an Army Corps nationwide permit for pipeline projects, causing considerable uncertainty for many pipeline projects until the appeal process plays out, while NY and NJ (not surprisingly) denied water quality certifications for a Transco pipeline expansion project. In Appalachia, lease expiration issues emerged as the Pennsylvania Supreme Court agreed to hear a case involving oil and gas lease abandonment/expiration followed by a Superior Court decision rejecting a lease-busting attempt by lessors who ratified their lease. In other news, the Texas Supreme Court addressed the interplay between overrides and the rule against perpetuities.

Here's a roundup of the last several weeks...

Rig Counts, Spot Prices + Oil Prices

  • Rigs: National (-339); Marcellus (30); Utica/Point Pleasant (8)

  • § Brent Crude: +$33.97/bbl

  • § West Texas Intermediate: +$31.97/bbl

  • § NYMEX: June 2020 @ -$1.616/MMBtu.

  • Spot Prices: Henry Hub (-$1.56/MMBtu); Dominion South (-$1.18/MMBtu); Tenn. Zone 4 (-$1.07/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): FERC denied rehearing requests by environmental groups challenging the PA-DE expansion project.

  • Atlantic Coast (W. Va. to Va. and NC): Nothing new to report.

  • Atlantic Sunrise (Northeastern PA to SE Pennsylvania): Nothing new to report.

  • Constitution (Northeastern PA to NY): Nothing new to report.

  • Empire Pipeline (NY to PA): National Fuel Gas and its sub Empire Pipeline filed their brief in the Second Circuit regarding Section 401 certifications (see below for more details).

  • Leidy South - Benton Loop Expansion (PA): Nothing new to report.

  • Mariner East (Western PA to Eastern PA): Nothing new to report.

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

  • Mountain Valley Pipeline (Northern WV to Southern Va. and NC): The Mountain Valley Pipeline is still targeting a completion date of late this year despite the setback regarding the Army Corps nationwide permit.

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

  • NFG (PA): Nothing new to report.

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

  • Northeast Supply Enhancement Project (NJ/NY): NY and NJ both denied a Section 401 water quality certification for the $1 billion Transco Northeast Supply Enhancement Project sponsored by Williams.

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

  • Norther Supply Access Project (Appalachia to Gulf Coast): FERC approved a partial vacancy of a 2016 authorization granted to Texas Gas Transmission for a natural gas pipeline expansion after Texas Gas filed a motion requesting the vacancy for part of its Northern Supply Access Project to flow gas from the Marcellus shale in Appalachia south towards the Gulf coast. Most of the construction has been finished but Texas Gas has been unable to market the remaining 96mn cf/d of unsubscribed capacity after a previously contracted shipper filed for bankruptcy. The company will no longer construct part of its initial request because of the unsubscribed capacity.

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

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

  • Revolution Pipeline (PA): 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

  • PA Supreme Court Agrees to Hear O+G Lease Expiration Case. The Supreme Court of Pennsylvania agreed to hear an appeal involving claims that a lessee abandoned its oil and gas lease and couldn't exercise its retained acreage rights for falling short of a drilling commitment and for lack of payments or production in paying quantities for an extended period. SLTHoldings, LLC v. Mitch-Well Energy, Inc., 217 A.3d 1258 (Pa. Super. 2019), petition for allowance of appeal granted, --- A.3d ---, No. 6 WAP 2020, 2020 WL 1862111 (Pa.) (pending).

  • SCOTUS Says Clean Water Act Covers Some Discharges to Groundwater. The Supreme Court narrowed the circumstances in which liability under the Clean Water Act attaches to facilities that pollute groundwater that ultimately connects to waters of the U.S., reversing a Ninth Circuit decision. In this case, a municipality’s sewage wastewater injection wells seeped into the Pacific Ocean through groundwater. The Ninth Circuit held that the injections constituted “point source” discharges that are subject to the CWA’s NPDES permitting requirements even though they didn’t directly discharge the pollutants into the ocean. The Supreme Court didn’t foreclose the possibility for a permit requirement under the Clean Water Act, but the Court held that the Ninth Circuit used too broad a standard when it found that permits were required for wastewater wells in Hawaii that discharged contaminants to the Pacific Ocean through groundwater. County of Maui v. Hawaii Wildlife Fund, 590 U.S. --- (U.S. 2020).

  • FERC Denies Rehearing on Adelphia Pipeline’s Project Approval. FERC denied a rehearing request from the Riverkeeper and upheld the approvals for Adelphia’s new pipeline system in Delaware and Pennsylvania. Adelphia Gateway, LLC, 171 FERC ¶ 61049, 2020 WL 1915911 (FERC Apr. 17, 2020).

  • WV Supreme Court Says Grantor Reserve Royalty Interest, not O+G Interest. The Supreme Court of West Virginia interpreted a 1907 deed that said the grantor reserved “one half of all the royalty of oil (which royalty shall not be less than the usual one-eighth), and one half of the proceeds of all gas which may be produced from said tract of land” as reserving a one-half royalty interest as a matter of law and not a real property interest in the oil and gas in place. Haught Family Tr. v. Williamson, --- S.E.3d ---, No. 19-0368, 2020 WL 1911459 (W. Va. Apr. 20, 2020).

  • PA Federal Court Switches Course to Keeps Proctor Claims Alive. Despite an earlier ruling to the contrary, a federal court in Pennsylvania denied cross-motions for summary judgment, including the Game Commission’s bid for summary judgment against the Proctor Heirs, who the Game Commission contends had lost title to their oil and gas rights by “title wash,” holding instead that fact issues such as the nature of the interests sold at the 1908 tax sale that purportedly washed out title as well as whether the successor’s agent acquired the property interests at that tax sale. Pennsylvania Game Comm’n v. Thomas E. Proctor Heirs Trust, ---F. Supp. 3d ---, No. 1:12-CV-1567, 2020 WL 1922628 (M.D. Pa. Apr. 21, 2020).

  • Second Circuit Poised to Decide Section 401 Certification Issue. National Fuel Gas and its sub Empire Pipeline filed their brief in the Second Circuit regarding Section 401 certifications (see below for more details). in a case in which NY’s DEC didn’t timely accept or deny a Section 401 water quality certification for pipeline projects subject to the Natural Gas Act, arguing that the agency can’t use the threat of a denial to force an applicant into a “reasonable extension” of the one-year statutory maximum. New York State Department of Environmental Conservation v. Federal Energy Regulatory Commission, No. 19-1610 (2d Cir.) (pending).

  • Kentucky Court Upholds “Diligence” under State’s Dormant Oil and Gas Act for Unknown/Unlocatable Mineral Owners. A court of appeals in Kentucky interpreted its version of a dormant oil and gas statute (similar to Pennsylvania’s) that gives lessees the opportunity to lease minerals from unknown or unlocatable owners upon application with the court and appointment of a trustee if a “diligent” investigation fails to locate those owners, holding that the lessee engaged in a diligent search to locate the missing owners by contacting last-known record owners, publishing notice in periodicals, and other similar measures and rejecting the plaintiffs’ attempt to claim ownership seven years after the lessee’s efforts. Levatino v. United States, --- S.W.3d ---, No. 2019-CA-000553-MR, 2020 WL 2095896 (Ky. Ct. App. May 1, 2020).

  • PA Federal Judge Gives Plaintiffs Leave to Amend Complaint Alleging Improper Use of Cross-Unit Laterals. In a case challenging the practice of drilling cross-unit laterals, a federal judge in Pennsylvania granted the landowners leave to amend their complaint again to allege breach of implied covenants of good faith and fair dealing as part of their contract claims. Hordis v. Cabot Oil & Gas Corporation, --- F. Supp. 3d ---, No. 3:19-CV-296, 2020 WL 2128968 (M.D. Pa. May 5, 2020).

  • DC Federal Court Denies Bid for Nationwide Injunction Against MVP and All Pipeline Approvals. The district court in D.C. dismissed constitutional challenges to FERC’s enabling statute seeking as relief a nationwide injunction ending the existing FERC pipeline-approval process and voiding all pipeline certificates, including the one issued to MVP, holding that FERC has the first crack at deciding all claims regarding the MVP project, including constitutional challenges. Woodrow v. FERC, --- F. Supp. 3d ---, No. CV 20-6 (JEB), 2020 WL 2198050 (D.D.C. May 6, 2020).

  • Third Circuit Rejects Inflated Value of Condemned Pipeline Property. The Third Circuit reversed a special commission order on market value for a pipeline because its pre-taking estimate erroneously assumed that the farm property through which the pipeline would traverse could be developed in ways barred by local zoning rules and therefore inflated the fair market value. In re Rover Pipeline LLC, --- F.3d ---, No. 19-1613, 2020 WL 2214132 (3d Cir. May 7, 2020).

  • No Whistleblower Claims Against Rice. Rice Energy (EQT) dodged whistleblower claims from an employee alleging the company engaged in securities violations. Wutherich v. Rice Energy, --- F. Supp. ---, No. 2:18-cv-00200 (W.D. Pa. May 8, 2020) (magistrate judge report and recommendation).

  • PA Superior Court Denies Lease-Busting Attempt.The Pennsylvania Superior Court upheld an order denying claims that an oil and gas lease expired, holding that the lessee properly made annual delay rental payments, the parties ratified the lease before drilling and production ensued, and the lessor had no evidence that the wells failed to produce in paying quantities during the secondary term.Wilson v. Snyder Bros., Inc., --- A.3d ---, 2020 PA Super 113, 2020 WL 2313813 (Pa. Super. May 11, 2020).

Headlines & Holdings - Beyond Appalachia

  • SCOTUS Says State Law Environmental Claims May Proceed Despite Superfund Settlement. The U.S. Supreme Court held that state plaintiffs suing under Montana law for environmental remediation and related costs can proceed with their claims despite the EPA’s settlement with the defendant under CERCLA, subject however to EPA’s review and approval of the remedial action, given that the residents are “potentially responsible parties” under CERCLA that need approval to take any remedial action resulting from the lawsuit. Atl. Richfield Co. v. Christian, 590 U.S. ---, No. 17-1498, 2020 WL 1906542 (U.S. Apr. 20, 2020).

  • Montana Judge Creates Chaos with NWP Decision. A federal judge in Montana held that the Army Corps' nationwide discharge permits for oil and gas pipeline projects violated the Endangered Species Act. The judge later modified the ruling to apply prospectively for new pipeline projects, not previously approved projects involving other activities. The feds have appealed and asked for an immediate stay, but the Ninth Circuit denied that request. The case is scheduled for expedited briefing.

  • City's Denial of Application for Well Permits Constitutes Inverse Condemnation. A Montana appellate court held that an applicant for oil and gas well permits suffered inverse condemnation when the city rejected the approvals, rejecting the city's claim that the lessee's lease had expired and therefore had no "valuable property right" that could be taken and remanding for additional proceedings. JTC Oil Co., Inc. v. City of Grandview, No. WD 82859, 2020 WL 1918700 (Mo. Ct. App. Apr. 21, 2020)

  • Illinois Appellate Court Says Challenge to Frac Regs Isn't Ripe. An appellate court in Illinois upheld a trial court’s decision to grant the Illinois Department of Natural Resources’ motion for judgment on the pleadings because the oil and gas company failed to apply for a permit to conduct high-volume, horizontal hydraulic fracturing on its oil and gas leases and, therefore, its regulatory takings claim was not ripe for adjudication. Next Energy v. DNR, --- N.E.3d ---, 2020 IL App (5th), No. 180582-U, 2020 WL 1933792 (Ill. Ct. App. April 22, 2020).

  • Judge Needs More Evidence to Decide Allocation of JOA Marketing Expenses. A federal judge needs more evidence to decide whether marketing agreements between EXCO and Chesapeake allowed EXCO to charge a marketing fee, holding that the answer depends on EXCO’s marketing of oil over which Chesapeake had a right of first refusal and denying summary judgment for lack of evidence on that issue. In re EXCO Resources, Inc., --- F. Supp. ---, Nos. 18-30167 and 18-30155, 2020 WL 1951582 (S.D. Tex. Bankr. April 22, 2020).

  • Federal Court in North Dakota Says Statutory Interest on Late Royalty Payments Inapplicable to Overrides. A federal court in North Dakota held that the state's late-royalty-payment statute, providing that if an operator fails to pay royalties to a mineral owner or their assignee within 150 days of the oil or gas being marketed, the operator owes interest on late payments at a rate of 18 percent per year, did not apply to holders of overriding royalty interests, holding instead that the statute applies to royalties payable to "mineral owners" or their "assignees" and owners of overrides aren't mineral owners or their assignees. SunBehm Gas, Inc., v. Equinor Energy, LP, --- F. Supp. 3d ---, No. 1:19-CV-94, 2020 WL 2025355 (D.N.D. Apr. 27, 2020).

  • BP Scores Refund of Interest on Overpaid Royalties. The Federal Court of Claims held that the federal government owes BP $1,323,721.86 in overpayment interest on royalty payments despite revisions to the statute that eliminated the interest-payment fund and the obligation to pay interest on overpaid royalties, holding that the revisions did not apply retroactively. BP America Production Co. v. United States, --- F. Supp. 3d ---, No. 18-607C, 2020 WL 2029262 (Fed. Cl. Apr. 28, 2020).

  • OK Federal Court Says Well Operator May Be Subject To Accounting Claim. A federal court in Oklahoma concluded that a lessor stated a claim against a well operator for an accounting after alleging sufficient facts that the operator is part of the underlying oil and gas lease and in any event operates the well that generates royalties for the plaintiff. Spindletop Exploration Co., Inc. v. Trinity Operating (USG), LLC, No. CIV-19-310-RAW, 2020 WL 2114925 (N.D. Okla. May 4, 2020).

  • Tenth Circuit Iffy on Whether Climate Change Cases Belong in Federal Court. Despite Exxon’s urging that the Fourth Circuit decision remanding climate change claims back to state court, the judges on the Tenth Circuit seemed reluctant to overturn a district court’s order remanding Colorado cases back to state court.

  • Colorado Leans on Fourth Circuit Decision to Keep Climate Change Suit in State Court.Boulder Colorado argued in its brief that the Ninth Circuit should follow the Fourth Circuit’s lead and send the city’s climate change lawsuit against the majors back to state court.

  • Eighth Circuit Says Bankruptcy Precluded CA Local Governments’ Climate Change Claims. The Eighth Circuit held that Peabody is not subject to public nuisance and other common law climate change claims brought by California local governments, holding that the claims are not environmental in nature. Peabody Energy Corp., --- F.3d ---, No. 18-3242 (8th Cir. 2020).

  • Texas Supreme Court Says ORRI is Real Property Interest Subject to RAP Despite Anti-Washout Clause. The Supreme Court of Texas held that an overriding royalty interest is an interest in real property that can violate the state's rule against perpetuities even if the conveyance includes anti-washout language, but the court left open the possibility that the parties could reform the conveyance to comply with the RAP in accordance with a Texas statute. Yowell v. Granite Operating Co. & Apache Corp., --- S.W.3d ---, No. 18-0841, 2020 WL 2502141 (Tex. May 15, 2020).

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