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At the Well Weekly (v.5.29.2020)

Oil + Gas Update | Montana Supreme Court Says Dinosaur Fossils are not "Minerals."

The rig count tumbled again since our last report alongside sluggish spot prices while oil prices climbed to more than $30/bbl. The pipeline scene is quiet. In Appalachia, royalty issues predominate. In other regions, the Montana Supreme Court held that dinosaur fossils don't qualify as "minerals" in a deed; various federal courts shot down multiple bids by majors to keep climate change cases in federal court; and the Texas Supreme Court gets ready to reconcile competing provisions in an oil and gas lease and its addendum to determine whether the parties agreed to share post-production costs.

Here's your weekly review...

Rig Counts, Spot Prices + Oil Prices

  • Rigs: National (-301); Marcellus (-28); Utica/Point Pleasant (+8)

  • Brent Crude: +$38.16/bbl

  • West Texas Intermediate: +$35.40/bbl

  • NYMEX: July 2020 @ -$1.886/MMBtu

  • Spot Prices: Henry Hub (-$1.72/MMBtu); Dominion South (+$1.46/MMBtu); Tenn. Zone 4 (+$1.38/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): 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): Nothing new to report.

  • 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): Nothing new to report.

  • 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): Nothing new to report.

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

  • Norther Supply Access Project (Appalachia to Gulf Coast): 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.

  • 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

  • Third Circuit Sends Senators Back to Establish Article III Standing in DRBC Dispute. The Third Circuit remanded an appeal from an order denying an intervention bid by three state senators aligned with challengers to the DRBC’s regulations that prohibit oil and gas well “projects” within the basin, concluding that the senators must establish standing to bring a claim that the Delaware River Basin Compact among Pennsylvania and other states cannot be interpreted as conferring authority on DRBC to regulate hydraulic fracturing in basin. Wayne Land & Mineral Grp., LLC v. Delaware River Basin Comm’n, --- F.3d ---, No. 19-2354, 2020 WL 2530823 (3d Cir. May 19, 2020).

  • Federal Court in PA OK’s Royalty Owners’ Class Action. A federal judge from the Middle District of Pennsylvania certified a class of landowners alleging that their lessee improperly accounted for their share of post-production costs before paying royalties and appointed class counsel to handle the case. Slamon v. Carrizo (Marcellus) LLC, --- F. Supp. 3d ---, No. 3:16-CV-2187, 2020 WL 2525961 (M.D. Pa. May 18, 2020).

  • WV Federal Judge Enjoins Surface Owner from Blocking Well Site Access Road and Staging Area. A federal judge in West Virginia granted a temporary injunction against a landowner that blocked Arsenal’s right to use an access road and staging area for oil and gas production, holding that Arsenal demonstrated irreparable harm and would likely succeed on its breach-of-contract claim because the landowner prevented Arsenal from using the access road and staging area. Arsenal Resources LLC v. Crim, --- F. Supp. 3d ---, No. 1:20-CV-84, 2020 WL 2529399 (N.D.W. Va. May 18, 2020).

  • Federal Judge in PA Denies Request for Royalty Statements. A federal judge in Pennsylvania denied access to third-party royalty statements in a dispute over wellhead sales, holding that those documents would contain information regarding downstream sales, not the wellhead sales that are at issue in the lease. Elbow Energy, LLC v. Equinor USA Onshore Properties, Inc., --- F. Supp. 3d ---, No. 4:19-CV-01873, 2020 WL 2526008 (M.D. Pa. May 18, 2020).

  • KY Federal Judge Denies Request to Split Discovery in Royalty Class Action. A federal judge in Kentucky denied a bid by Chesapeake to bifurcate class discovery and merits discovery in a royalty class action challenging post-production costs. Back v. Chesapeake Operating, LLC, --- F. Supp. 3d ---, No. CV 7:16-192-KKC, 2020 WL 2537479, at *2 (E.D. Ky. May 19, 2020).

  • Sixth Circuit Rejects Landowners’ Challenge to Sharing Post-Production Costs. The Sixth Circuit held that a lessee properly paid royalties net of post-production costs by selling oil and gas at the well to its marketing affiliate and paying royalties to the landowners based on the proceeds received from that sale. Henceroth v. Chesapeake Exploration, LLC, --- F.3d ---, No. 19-3942, 2020 WL 2569356 (6th Cir. May 21, 2020).

  • Ohio Court Says Deed Created Oil + Gas Reservation. A court of appeals in Ohio interpreted a deed that said “the 1/4 of oil Royalty and one half of the gas is hereby reserved and is not made part of this transfer” as a reservation, not merely an exception from the grant, that created newly severed oil and gas interests.Peppertree Farms, LLC v. Thonen, --- N.E.3d ---, No. 2020-Ohio-3042, 2020 WL 2563411 (Ohio Ct. App. May 20, 2020).

Headlines & Holdings - Beyond Appalachia

  • Montana Supreme Court Says "Minerals" in a Conveyance does not Include Dinosaur Fossils. At the request of a federal appellate court, the Montana Supreme Court held that the word "minerals" in a mineral reservation does not include dinosaur fossils under the states three-part test to determine what subsurface materials constitute "minerals" for purposes of conveyances and reservations. Murray v. BEJ Minerals, LLC, --- P.3d ---, 2020 MT 131, 2020 WL 2553091 (Month. May 19, 2020).

  • JOA Controls vs. Okla. Pooling Statute. A federal court in Oklahoma concluded that a 1971 JOA controlled the drilling, completion and operation of a proposed horizontal well such that the joint operator's interest could not be subject to a forced pooling order. Crawley Petroleum Corp. v. Gastar Exploration, Inc., --- F. Supp. 3d ---, No. CIV-17-1365-SLP, 2020 WL 2545327 (W.D. Okla. May 19, 2020).

  • Fifth Circuit Blesses Royalty Class Certification in Marketing Covenant Dispute. The Fifth Circuit upheld a district court's determination after remand that a class of royalty owners met the commonality and predominance elements for class certification in a case alleging that Devon and its affiliates violated the implied marketing covenant by colluding to inflate profits of the parent company at the expense of royalty owners. Seeligson v. Devon Energy Production Company, L.P., --- F.3d ---, No. 20-90011, 2020 WL 2517089 (5th Cir. May 15, 2020).

  • Ninth Circuit Remands Climate Change Cases to State Court. In a pair of cases, the Ninth Circuit rejected attempts by major oil and gas companies to keep climate change claims out of state courts in California, holding in one case that the companies failed to meet their burden of establishing the “federal officer” removal standard, and in another that public nuisance claims aren’t inherently federal enough to keep them in federal court. Cty. of San Mateo v. Chevron Corp., --- F. 3d ---, No. 18-15499, 2020 WL 2703701 (9th Cir. May 26, 2020); City of Oakland v. BP PLC, No. 18-16663, 2020 WL 2702680 (9th Cir. May 26, 2020).

  • Mass. Federal Judge Declines Remand of Exxon Climate Change Fraud Claims. A federal judge in Massachusetts said that the state’s attorney general pled “mundane theories of fraud” such that the case involves state claims that shouldn’t be removed to federal court under various removal theories merely because they involve global climate change issues. Commonwealth of Mass. v. Exxon Mobil Corporation, --- F. Supp. 3d ---, No. CV 19-12430-WGY, 2020 WL 2769681 (D. Mass. May 28, 2020).

  • Texas Supremes Poised to Decide Royalty Claims Involving PPC Deductions, Use of Plant Fuel. The Supreme Court of Texas will soon address how to reconcile a base lease provision that makes royalties payable "at the well" and thus allowing post-production-cost-sharing with an addendum that seems to prevent the parties from sharing those costs, along with whether a lessee can use fuel for plant and compressor operations on or off the leased premises. The decision on appeal is Bluestone Natural Resources II v. Randle, --- S.W.3d ---, No. 18-00271, 2019 WL 17164515 (Tex. Ct. App., April 18, 2019).

  • Ark. Supreme Court Upholds Reduced Royalties for Non-Consent Parties. The Supreme Court of Arkansas upheld an order of the Arkansas Oil & Gas Commission amending integration orders that reduced royalties payable to landowners that went non-consent, rejecting the landowners' claims that the commission exceeded its statutory authority. Hurd v. Ark. Oil & Gas Commission, --- S.W.3d ---, No. 2020 Ark. 210, 2020 WL 2763927 (2020).

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