Oil + Gas Update | Congress Steps in for the Mountain Valley Pipeline Project.
The rig count has dropped alongside steady oil prices while natural gas spot prices remain in the $2.50/MMBtu range. In pipeline news, Congress intervened and paved the way for Mountain Valley Pipeline to obtain all remaining permits. In Appalachia court news, SCOTUS upheld a PA statute requiring out-of-state companies to consent to personal jurisdiction in the Commonwealth while other courts addressed privilege and work-product protection for expert reports involving a pipeline incident; a number of jurisdictional issues involving pipeline permits and related approvals; and insurance coverage for faulty workmanship at well sites. In other regions, a Texas appellate court addressed production sharing agreements, pooling, and allocation wells approved by the RRC while other courts grappled with royalty disputes; interest payments on unpaid royalties; ORRIs; PHMSA pipeline standards; lease-busting bids; risk penalties; antitrust claims in oil + gas leasing efforts; and drilling cost disputes.
Rig Counts, Spot Prices + Oil Prices
Rigs: National (674); Marcellus (35); Utica/Point Pleasant (13)
Brent Crude: $75.19/bbl
West Texas Intermediate: $70.39/bbl
NYMEX: August 2023 @ $2.668/MMBtu
Spot Prices: Henry Hub @ $2.70/MMBtu
WOPL - Appalachia
Mountain Valley Pipeline. The debt ceiling bill passed by Congress paved the way for MVP obtaining all remaining permits to complete the pipeline project. Project sponsors expect the pipeline to be completed by the end of 2023. Environmental groups opposing the project derided the Biden Administration's backing of the project and already are taking steps to disrupt the completion of the pipeline.
Headlines & Holdings - Appalachia
PA Superior Court Says Engineering Reports Submitted to Government Agencies are not Protected by Privilege or Work Product. The Superior Court of Pennsylvania held that engineering reports required by governmental agencies and prepared at the direction of corporate in-house counsel as part of a government investigation are not privileged work product and may be disclosed in separate litigation, reasoning that the pipeline company compelled to produce the reports prepared them predominately for use in the government investigation and not in anticipation of litigation. Cardinal Midstream II, LLC v. Energy Transfer LP, --- A.3d ----, No. 609 WDA 2022, 2023 WL 3471529 (May 16, 2023).
Commonwealth Court Says PUC, not Courts, have Primary Jurisdiction over Claims against Sunoco. Commonwealth Court sent a slew of tort and related claims to the PA Public Utility Commission for resolution, holding that the agency has jurisdiction over service related claims filed by the landowners in connection with the Mariner East pipeline construction project, but the court stopped short of sending claims under the PA Unfair Trade Practices and Consumer Protection Law, holding off on those claims until after the PUC decides the case. Kerslake v. Sunoco Pipeline, L.P., --- A.3d ----, No. 1342 C.D. 2021, 2023 WL 3515832 (Pa. Cmwlth. May 18, 2023).
Ohio Appellate Court Denies O+G Ownership Claim under DMA. An appellate court in Ohio held that surface owners failed to exercise reasonable diligence in their efforts to locate successors or assigns of the original owner of a one-half oil and gas interest before serving notice of abandonment by publication, concluding that the record reflected an oil and gas lease and related contact information in another county that could have put the surface owners in touch with other owners before seeking to quiet title under the state’s Dormant Mineral Act. Tatum v. Dawson, --- N.E.3d ----, No. 22 HA 0005, 2023 WL 3637948 (Ohio Ct. App. May 24, 2023).
Federal Court in PA Says NatGas Well Owner Stated Claim Against Data Mining Co. A federal court in Pennsylvania said a well operator stated claims for breach of agreements to supply natural gas for data mining operations at well sites, holding that that well operator stated claims for breach of a gas purchase agreement and a related oral services contract by engaging in site preparation and other services. Big Dog Enery, LLC v. Primeblock Operations, LLC, --- F. Supp. 3d ----, No. 3:22-cv-203, 2023 WL 3645960 (W.D. Pa. May 25, 2023).
Federal Court in PA Axes O+G Payment Dispute for Lack of Prosecution. A federal court in Pennsylvania involuntarily dismissed a case for lack of prosecution after a landowner failed to proceed with her case and did not show up at her deposition, concluding that the oil and gas company’s bonus payment obligation would be discharged by a title defect in the underlying oil and gas rights; an express reservation of oil and gas rights in another individual’s chain of title demonstrated a defect; and the landowner did not voluntarily dismiss her case after repeated requests despite that conclusive evidence of a title defect. Warner v. SWEPI, LP, --- F. Supp. 3d ----, No. 1:19-CV-326, 2023 WL 3689598 (W.D. Pa. May 26, 2023).
Third Circuit Says Insurance Policy Doesn’t Cover Faulty O+G Workmanship. The Third Circuit held that an insurance policy issued to an oilfield service company does not cover property damage caused by the company’s own faulty workmanship during frac operations, holding that the damage to the wells did not qualify as an “occurrence” under the policy and that the UREC endorsement did not eliminate the “occurrence” requirement in the policy. Am. Home Assurance Co. v. Superior Well Servs., Inc., --- F.4th ----, No. 22-1498, 2023 WL 3732541 (3d Cir. May 31, 2023).
Federal Court Says NGA Doesn’t Limit PA’s Permit Review Authority. A federal court in Pennsylvania held that the Natural Gas Act does not prevent the Environmental Hearing Board from reviewing permit approvals for Transcontinental Gas Pipeline Co., concluding that environmental groups could challenge several runoff and water-pollution permits for pipeline upgrades via appeal to the EHB. Transcontinental Gas Pipeline Co., LLC v. PA EHB, --- F. Supp. ----, No. 1:23-CV-463, 2023 WL 3827676 (M.D. Pa. June 5, 2023).
Federal Court in PA Says Energy Co.’s Suit Against Law Firm Time Barred. A Pennsylvania magistrate judge held that an energy company’s suit accusing a law firm of fraud in an oil and gas property transaction was time-barred because the suit was filed over two years after the alleged event. Prime Energy & Chem., LLC v. Tucker Arensberg, P.C., --- F. Supp. 3d ----, No. CV 18-345, 2023 WL 3867205 (W.D. Pa. June 7, 2023).
CHK O+G Royalty Class Action Settlements Upended. The Fifth Circuit held that the bankruptcy court lacked post-confirmation jurisdiction to handle settlements of pre-bankruptcy royalty class actions, concluding that none of the class members filed proofs of claim and the settlements conflict with CHK’s plan and disclosure statement in bankruptcy. Matter of Chesapeake Energy Corp., --- F.4th ----, No. 21-20323, 2023 WL 3882721 (5th Cir. June 8, 2023).
Fed. Ct. in PA Says No Class Action in Gas Storage Rights Dispute. A federal court in Pennsylvania declined to certify a class of plaintiffs alleging EQT stored gas under their properties without compensation, holding that the plaintiffs can’t rely on their own sworn written to support the elements for class certification. Asbury v. EQT Corp., --- F. Supp. 3d ----, No. CV 18-1005, 2023 WL 4206239 (W.D. Pa. June 26, 2023).
PA Super. Ct. Says no Immediate Appeal Dismissing O+G Title Claims. The Superior Court of Pennsylvania upheld a trial court’s refusal to certify an appeal for immediate review and denied a separate request for permission to appeal, holding that although the trial court disposed of all claims against several defendants, the order was neither final nor subject to permissive appeal because there remained a question over a scrivener’s error in a deed and that question involves one of fact and not of “controlling law” that the appellate court could resolve to advance the litigation. Avallo Mineral Partners, LLC v. EQT Production Company, --- A.3d ----, No.834 WDA 2022, 2023 WL 4167875 (Pa. Super. June 26, 2023).
SCOTUS Upholds PA Law Requiring Foreign Corporations to Consent to Personal Jurisdiction. In a split decision, the U.S. Supreme Court held that PA’s law requiring out-of-state defendants to consent to personal jurisdiction in Pennsylvania courts as a condition of doing business in the Commonwealth did not violate the company’s due process rights. Mallory v. Norfolk S. Ry. Co., --- S.Ct. ----, --- U.S. ----, No. 21-1168, 2023 WL 4187749 (U.S. June 27, 2023).
Headlines & Holdings - Beyond Appalachia
Texas Appellate Court Says Executed Division Order Didn’t Prevent Suit for Unpaid O+G Royalties. A Texas court of appeals held that Devon Energy couldn’t avoid a statutory suit for unpaid royalties even though it paid putative interest owners and retained no benefit from the incorrect payments, reasoning that Devon could not have relied to its detriment on a division order not executed by the proper payees. Perdido Properties LLC on Behalf of Bremer v. Devon Energy Prod. Co., L.P., --- S.W.3d ----, No. 11-21-00060-CV, 2023 WL 3511234 (Tex. App. May 18, 2023).
Tex. Supremes OK’s Payment of O+G Production Payments Without Interest. The Texas Supreme Court held that a joint operator could withhold production payments without paying interest, reasoning that a separate dispute regarding the payee’s title satisfied the “safe harbor” provisions of the state statute requiring interest on late production payments. Freeport-McMoRan Oil & Gas LLC v. 1776 Energy Partners, LLC, --- S.W.3d ----, No. 22-0095, 2023 WL 3556695 (Tex. May 19, 2023)..
N.D. Fed. Ct. Denies Cert. of Class in Dispute over Interest on Unpaid Royalties. A federal court in North Dakota denied a motion to certify a class of plaintiffs claiming interest on untimely paid royalties, holding that a class action wouldn’t be proper because the court would be compelled to inquire into each members’ case to determine whether any safe harbor provisions in the statute on interest payments would apply individually. Ceynar Minerals, LLC v. Whiting Oil and Gas Corp., --- F. Supp. 3d ----, No. 1:22-CV-138, 2023 WL 3467461 (D.N.D. May 15, 2023).
Court of Appeals in Texas Rethinks ORRI Decision. Rethinking its prior decision, a court of appeals in Texas held that a reservation of an overriding royalty interest was binding and effective under the estoppel-by-deed doctrine even if the assignor held no title in the leases in question when the assignor executed the assignment. Armour Pipeline Company v. Sandel Energy, Inc., --- S.W.3d ----, No. 14-20-00412-CV, 2023 WL 3470426, at *1 (Tex. App. May 16, 2023).
D.C. Circ. Rejects Enviro Group’s Challenge to LNG Project in Alaska. The D.C. Circuit rejected challenges to a FERC-approved LNG project in Alaska, holding that FERC properly reviewed the project; the agency had no obligation to employ a social cost-of-carbon metric to measure GHG emissions or to address environmental effects of natural gas exports or imports; and otherwise acted reasonably and consistent with the NEPA, the APA, and the NGA. Ctr. for Biological Diversity v. FERC, No. 20-1379, 2023 WL 3470860 (D.C. Cir. May 16, 2023).
D.C. Circ. Rejects PHMSA Safety Standard for Gathering Lines. The D.C. Circuit granted a petition for review challenging a safety standard requiring gathering companies to install remote-controlled valves or automatic shut-off valves in some types of new or replaced gas, holding that “PHMSA said nothing about the practicability or the costs and benefits of the standard for gathering pipelines until promulgating the final rule, even though the law required it to address those subjects when publishing the proposed rule for public comment and peer review” and that the agency “failed to make a reasoned determination that the benefits of regulating gathering pipelines would exceed the costs, and that doing so would be practicable, as required by law.” GPA Midstream Ass'n v. United States Dep't of Transportation, --- F.4th ----, No. 22-1148, 2023 WL 3471113 (D.C. Cir. May 16, 2023).
Indiana Court Says Production Kills Lease-Busting Bid. A court of appeals in Indiana rejected an affidavit purporting to cancel an oil and gas lease, holding that the purported affidavit did not comply with a state statute governing lease cancellations for lack of production, the habendum clause of the lease is not divisible such that the landowner could cancel a portion of the lease, and in any event production on the leased premises maintained the lease in effect. Mega Oil, Inc. v. Citation 2004 Inv., LLC, --- N.E.3d ----, No. 22A-MI-1275, 2023 WL 3487065 (Ind. Ct. App. May 17, 2023).
D.C. Circ. Sends Back FERC’s MVP Approval for Supp. EIS. The D.C. Circuit held that FERC did not adequately explain its decision to forgo the need for a supplemental environmental impact statement addressing severe erosion and sedimentation along Mountain Valley Pipeline’s right-of-way and remanded without vacatur for FERC to do a supplemental EIS or better explain why one is unnecessary. Sierra Club v. FERC, --- F.4th ----, No. 20-1512, 2023 WL 3667435 (D.C. Cir. May 26, 2023).
Federal Court in Ark. Asks the State Supreme Court for Guidance on PPC/Royalty Issue. A federal court in Arkansas certified a question for the state’s supreme court regarding whether the “Arkansas Code Annotated section 15-72-305 allow the deduction of post-production expenses from proceeds earned by the sale of ‘royalty gas,’ as that term is used in section 15-72-305(a)(3), notwithstanding the fact that a recipient of the resulting royalty payment has entered into an oil-and-gas lease that would disallow such deductions if said royalty payment had arisen directly from that oil-and-gas lease.” Hurd v. Flywheel Energy Production, --- F. Supp. 3d ----, No. 4:21-CV-01207-LPR, 2023 WL 3687166 (E.D. Ark. May 26, 2023).
ND Supremes Uphold O+G Pooling Risk Penalty. The Supreme Court of North Dakota held that the owner of an unleased oil and gas interest pooled into a unit is subject to a statutory risk penalty because the well operator made a good-faith invitation to lease or participate in the wells and the non-op didn’t respond. Blue Steel Oil & Gas, LLC v. N. Dakota Indus. Comm’n, --- N.W.2d ----, No. 20220359, 2023 WL 3701365 (N.D. May 30, 2023).
Tenth Circuit OK’s Antitrust Class Action Challenging Leasing Efforts. The Tenth Circuit upheld a district court’s order certifying a class of landowners holding thousands of acres in Wyoming challenging Anadarko’s “intracompany practice of leasing its mineral interests to its affiliated operating company, including its 30% royalty rate” and alleging that the company “maintained and furthered its dominant position in the market for leasing oil and gas mineral interests in violation of the Sherman Act § 2 and Wyoming antitrust laws,” holding that the district court applied the proper standard to further define the class as owners of “oil and gas mineral interests that were not under lease to drill and operate wells” during the class period within the geographic area. Black v. Occidental Petroleum Corp., --- F.4th ----, No. 22-8040, 2023 WL 3856038 (10th Cir. June 7, 2023).
N.D. Fed. Ct. Says Industrial Comm’n Resolves Disputes over O+G Drilling Costs. In a dispute over drilling costs, a federal court in North Dakota held that a gas company failed to exhaust administrative remedies and dismissed a complaint filed in court because the state’s industrial commission has jurisdiction to resolve those disputes in the first instance, not the courts. Equinor Energy L.P. v. Sunny Acres, LLC, --- F. Supp. 3d ----, No. 1:21-CV-082, 2023 WL 3981101 (D.N.D. June 13, 2023).
Tex. App. Court Addresses Pooling, Allocation Wells, and “Good Faith” in O+G Well Permit Dispute. In a dispute challenging an allocation well permit approved by the Texas Railroad Commission, a divided appellate court in Texas held that (a) the Commission need not consider an “anti-pooling” clause in an oil and gas lease as part of the permit-application process; (b) a production-sharing agreement is different than a pooling clause for purposes of deciding when to approve an allocation well; but (c) the permittee did not establish its right to drill the well despite filing a certification that 65% or more of mineral and other working-interest owners in the unit agreed to the well pursuant to written consents or production sharing agreements. Texas Railroad Commission vs. Opiela, --- S.W.3d ----, No. 03-21-00258-CV, 2023 WL 4284984 (Tex. App. June 30, 2023).
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