Oil + Gas Update | Texas Supremes Say Accepting Unit Royalties ≠ Consent to Pooling.
In recent weeks, natural gas prices hovered above $3/MMBtu alongside increases in oil prices and rigs, but spot prices in Appalachia still struggle to stay above $2/MMBtu. In pipeline news, TC Energy officially abandoned the Keystone XL Pipeline project. In Appalachia, courts addressed notice-and-cure provisions, the "stranger to the deed" rule in WV, and federal/state jurisdictional issues when PA regulators approve projects pursuant to federal law. In other regions, the North Dakota Supreme Court interpreted a royalty clause as calling for payments at the well while the Texas Supreme Court held that a lessor did not provide express written consent to pooling by accepting unit royalties.
Rig Counts, Spot Prices + Oil Prices
Rigs: National (470); Marcellus (27); Utica/Point Pleasant (9)
Brent Crude: $73.57/bbl
West Texas Intermediate: $71.76/bbl
NYMEX: July 2021 @ $3.251/MMBtu
Spot Prices: Henry Hub ($3.17/MMBtu); Eastern Gas South (f/k/a Dominion South) ($2.11/MMBtu); Tenn. Zone 4 ($1.92/MMBtu)
WOPL - Appalachia
Keystone Pipeline. Following President Biden's order rescinding a permit and loads of legal challenges, TC Energy has abandoned the Keystone Pipeline Project.
Adelphia Pipeline. Adelphia Gateway, LLC received a from FERC a "Notice to Proceed" with the second phase of the pipeline project in the greater Philadelphia region.
Nexus Pipeline. In an ongoing lawsuit, an Ohio city told the D.C. Circuit that gas intended for foreign markets should not be used by FERC as a reason to grant the Nexus Pipeline developer eminent domain authority for its construction under the Natural Gas Act.
Headlines & Holdings - Appalachia
PA Federal Court Declines to Enforce Notice-and-Cure Provision in O+G Lease. A federal court in Pennsylvania denied a bid to dismiss a claim that a lessee underpaid royalties after a glitch in its accounting system inadvertently switched royalty owners from receiving gross royalties to net royalties, rejecting the lessee’s claim that the lessor had an obligation to follow the notice-and-cure provision in the lease even if the lessee had actual knowledge of the problem before the lessor filed a lawsuit. Brusamonti v. XTO Energy, Inc., --- F. Supp. 3d ---, No. CV 20-652, 2021 WL 2209120 (W.D. Pa. June 1, 2021).
Bankr. Ct. Upholds PA OAG/CHK/Royalty Class Certification and Settlement. The bankruptcy court in Texas upheld a bankruptcy judge’s order certifying the class and approving the settlement among CHK, the PA Attorney General, and royalty owners, holding that the record supports the conclusion that the terms of the settlement are fair and reasonable. In re: Chesapeake Energy Corp., --- F. Supp. 3d ---, No. BR H-20-33233, 2021 WL 2270167 (S.D. Tex. June 3, 2021).
W. Va. Supremes Address "Stranger to the Deed" Rule. The West Virginia Supreme Court upheld a deed that included a clause giving a third party to a deed a right of first refusal, holding that although the "stranger to the deed" rule invalidates a purported conveyance to a third-party who is neither grantor nor grantee, a right of first refusal is neither a reservation nor an exception and therefore the rule did not apply to invalidate the deed at issue in the case. Klein v. McCullough, --- S.W.3d ---, No. 19-0888, 2021 WL 2284071 (W. Va. June 4, 2021).
Federal Court in PA Dismisses PA Senators’ Suit against DRBC. A federal court in the eastern district of Pennsylvania (Philly area) dismissed a lawsuit filed by PA lawmakers and local governments, holding that neither have standing to challenge DRBC’s moratorium on natural gas production but giving the local governments a chance to re-file and explain exactly how they’ve been harmed. Senator Gene Yaw v. Delaware River Basin Commission, --- F. Supp. 3d ---, No. 21-119, 2021 WL 2400765 (E.D. Pa. June 11, 2021).
Shale Gas Advocacy Group is a WV PAC. The Supreme Court of West Virginia held that Shale Energy Alliance petitioner is a political action committee under West Virginia Code § 3-8-1a(21). Shale Energy All., Inc. v. Mac Warner, W. Virginia Sec'y of State, --- S.W.3d ---, No. 20-0270, 2021 WL 2411324 (W. Va. June 14, 2021).
Commonwealth Court Says Challenge to DEP Actions Under Federal go to EHB, Not Third Circuit. In companion cases, the Commonwealth Court held that challenges to a DEP approval for a pipeline compressor station issued pursuant to the federal Natural Gas Act need not be lodged with the Third Circuit Court of Appeals but may be challenged before the EHB first because the EHB proceeding is not a "civil action" under the federal statute: "Section 717r(d)(1) vests within the federal circuit courts of appeals exclusive jurisdiction over civil actions challenging certain state permitting decisions that fall within the scope of the statute. The term 'civil actions' in the federal statute does not include state administrative agency reviews of state permitting decisions. Such collateral administrative reviews remain available, if desired, and are not preempted by the federal jurisdictional statute." Cole v. PADEP, --- A.3d ---, No. 1577 C.D. 2019, 2021 WL 2420667 (Pa. Cmwlth. June 15, 2021); W. Rockhill Twp. v. PADEP, --- A.3d ---, No. 1595 C.D. 2019, 2021 WL 2426014 (Pa. Cmwlth. June 15, 2021).
Headlines & Holdings - Beyond Appalachia
North Dakota Supreme Court Says Oil Royalties Payable at the Well. Answering a certified question from the federal court, the Supreme Court of North Dakota held that a royalty clause in which the lessee agreed "[t]o deliver to the credit of the Lessor, free of cost, in the pipeline to which Lessee may connect wells on said land, the equal [fractional] part of all oil produced and saved from the leased premises" unambiguously sets a valuation point at the well. Blasi v. Bruin E&P Partners, LLC, --- N.W.2d ---, No. 20200327, 2021 ND 86, 2021 WL 2006233 (N.D. May 20, 2021).
Tenth Circuit Addresses Frac Sand Royalty. The Tenth Circuit held that a frac sand mining company owes royalty only on sand mined from the landowner's property, not on all sand processed at the facility on the property. Hicks v. FG Minerals, LLC, --- F.3d ---, No. 20-7048, 2021 WL 2155412 (10th Cir. May 27, 2021).
Texas Appellate Court Holds that O+G Lease Expired for Lack of Production. A court of appeals in Texas concluded that an oil and gas lease expired after a period of non-production for 12 consecutive months under the habendum and cessation-of-production clauses. Gramrich Oil & Gas Corp. v. Meng, --- S.W.3d ---, No. 11-19-00022-CV, 2021 WL 2174339 (Tex. App. May 28, 2021).
Biden's Permit Revocation does not Moot Keystone Pipeline Battle. A federal court in Montana declined to dismiss the Keystone Pipeline battle on mootness grounds, holding that although President Biden revoked the 2019 Permit, the possibility remains that he, or a future president, could issue unilaterally another permit. Indigenous Envt. Network v. Trump, --- F. Supp. 3d ---, No. 4:19-CV-00028-BMM, 2021 WL 2187286 (D. Mont. May 28, 2021).
Bankruptcy Court Says Debtor can Reject Interests and Dedications in MSA. A bankruptcy court in Delaware held that dedications and other interests in an MSA are not stand-alone contracts, nor are they severable, such that a debtor could reject the entire MSA including the interests and dedications. In re Nine Point Energy Holdings, Inc., --- B.R. ---, No. 21-10570 (MFW), 2021 WL 2212007 (Bankr. D. Del. June 1, 2021).
Law of the Case Doctrine Dooms Lease Busting Attempt. The North Dakota Supreme Court held that the law of the case doctrine precludes lessors from challenging a trial court order that upheld oil and gas leases despite claims from the lessors that those leases expired. Pennington v. Cont'l Res., Inc., --- N.W.2d ---, No. 20200318, 2021 ND 105, 2021 WL 2368230 (N.D. June 10, 2021).
Idaho Judge Says Feds Didn't Consider Impact of O+G Leases on Sage Grouse. A federal judge in Iowa blocked new oil and gas leases in parts of Wyoming and Montana because the federal government failed to adequately consider the impact on the sage grouse. Western Watersheds Project v. Bernhardt, --- F. Supp. 3d ---, No. 1:18-CV-00187-REB, 2021 WL 2366092 (D. Idaho June 9, 2021).
Divided TX Supreme Court Says Accepting Unit Royalties is not Written Consent for Pooling. The Supreme Court of Texas held that a lessee couldn't justify pooling based on a lessor's acceptance of unit royalties because the lease called for the lessor's "express written consent" before pooling her property into a unit and she never gave it. BPX Operating Co. v. Strickhausen, --- S.W.3d ---, No. 19-0567, 2021 WL 2386141 (Tex. June 11, 2021).
Biden’s Attempt to "Pause" O+G Leases on Fed. Lands Blocked by Federal Judge. A federal judge in Louisiana enjoined President Biden’s pause of new federal oil and gas leasing on on-shore and off-shore public lands, holding that "millions and possibly billions" of dollars are at stake and that state governments challenging Executive Order 14008 that implemented the "pause" are likely to succeed in their suit. Louisiana v. Biden, --- F. Supp. 3d ---, No. 2:21-CV-00778, 2021 WL 2446010 (W.D. La. June 15, 2021).
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