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At the Well Weekly (v.6.7.2019)

Oil + Gas Update - WV Supreme Court Addresses Extent of a Production Company's Surface Rights to Develop Adjacent O+G Interests

Natural gas prices dropped since our last report alongside flat oil prices and declining rig counts. The pipeline scene was relatively quiet except for NJ's decision to deny state water quality certifications for the Transco Northeast Supply Enhancement Project. In Appalachia court news, West Virginia's Supreme Court issued a pair of decisions, one addressing whether production companies can use a severed surface estate to produce oil and gas from adjacent properties and one addressing the proper calculation of operating expense deductions when calculating ad valorem taxes; the Third Circuit green-lighted a claim for damages against the U.S. government for blocking surface access in a national forest; the PA Supremes passed on the constitutionality of a civil penalty issued by the state's utility commission; and Commonwealth denied standing to challenge zoning permits for oil + gas wells. In other news, a federal court in Texas dismissed a royalty non-payment claim; the Kansas Supreme Court confirmed the rule for adverse possession of a mineral estate; and the DC Circuit signaled to FERC that its climate-change review efforts for infrastructure projects might be lacking.

Here's your week in review...

Rig Counts, Spot Prices + Oil Prices

  • Rigs: National (-975); Marcellus (-58); Utica/Point Pleasant (-18)

  • Brent Crude: +$63.29/bbl

  • West Texas Intermediate: +$53.99/bbl

  • NYMEX: June 2019 Contract @ ­-$2.378/MMBtu.

  • Spot Prices: Henry Hub (-$2.39/MMBtu); Dominion South (-$2.08/MMBtu); Tenn. Zone 4 (-$2.02/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 FM100 Project (NC PA to Transco): Nothing new to report.

  • Northeast Supply Enhancement Project (NJ/NY): NJ regulators denied state water quality certifications for Transco pipeline expansion projects in NJ and NY, concluding that the company did not fully demonstrate how it would avoid or minimize adverse impacts to surface water quality but allowing the company to reapply to address the agency’s concerns.

  • Northern Access (NW PA to Western NY): 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.

  • 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 Says Operator Can Seek Damages from Government for Blocking Surface Rights in Allegheny Forest. In this case, an oil and gas company sued the United States for interfering with surface access to develop underlying oil and gas interests in the Allegheny National Forest. The Third Circuit denied the government’s motion to dismiss under the economic loss doctrine, holding instead that the company had surface rights by virtue of its interest in the underlying oil and gas estate under settled Pennsylvania law, and the company could pursue damages for tortious interference with a servitude despite the economic loss doctrine because surface rights are property rights derived from the common law, not a contract. Duhring Resource Co. v. United States, --- F.3d ---, No. 18-1289, 2019 WL 2359392 (3d Cir., June 4, 2019).

  • PA Supreme Court Says Company Waived Challenge to Constitutionality of PUC’s Civil Penalty. In a case in which an electricity distributor challenged as unconstitutional a $1.8 million fine from the PA PUC for breaking price guarantees during the 2014 polar vortex, the PA Supreme Court held that the company waived its constitutional challenge to the civil penalty, the penalty was not imposed as a punishment against the company for opting to litigate its case, and that the PUC’s conclusions in support of imposing the penalty were supported by substantial evidence. HIKO Energy, LLC v. Pa. Pub. Util. Comm’n, --- A.3d ---, No. 39 EAP 2017, 2019 WL 2365110 (Pa., June 5, 2019).

  • WV Supreme Court Says Companies Can’t Use Severed Surface Area to Produce Oil + Gas from Adjoining Lands Without Agreement. In a case in which a well operator used the severed surface area overlying a severed/leased mineral estate that the lessee pooled into a unit, the West Virginia Supreme Court confirmed the longstanding rule that a mineral owner or lessee has an implied right to use the surface of a tract in any way reasonable and necessary to develop the minerals underlying the tract but also concluded that a mineral owner or lessee does not have the right to use the surface to benefit operations on other lands in the absence of an express agreement with the surface owner permitting those operations. EQT Production Company v. Margot Beth Crowder, --- S.E.3d ---, No. 17-0968 (W. Va., June 5, 2019).

  • WV Supreme Court Addresses Ad Valorem Taxes on Oil + Gas Wells. In a case involving the calculation of ad valorem taxes on natural gas wells, the West Virginia Supreme Court held that (a) the state’s tax department improperly imposed a cap on the operating expense deductions; (2) the tax department properly included post-production expenses in the calculation of the annual industry average operating expenses; and (3) rejected an unlimited percentage deduction for operating expenses in lieu of a monetary average. The Honorable Dale W. Steager v. Consol Energy, Inc., --- S.E.3d. ---, Nos. 18-0121, 18-0122, 18-0123, 18-0124, 18-0125, 18-0227 & 18-0228 (W. Va., June 5, 2019).

  • Commonwealth Court Holds that Objector Lacks Standing to Challenge Oil + Gas Well Approved Near Granddaughter’s School. The Commonwealth Court of Pennsylvania concluded that an objector who lived more than three miles from a proposed well site in a township lacked standing to challenge a conditional-use approval based on her general concerns that the oil and gas well is too close to her granddaughter’s school. Worthington v. Mount Pleasant Twp., --- A.3d ---, No. 1149 C.D. 2018, 2019 WL 2374919 (Pa. Cmwlth., June 6, 2019).

Headlines & Holdings - Beyond Appalachia

  • Federal Court in TX Says Dispute over Title Absolves Lessee of Statutory Royalty Payment Requirements. A federal court in Texas dismissed a claim by royalty owners for non-payment under Section 91.404(c) of the Texas Natural Resources Code because a "dispute over title" created a "reasonable doubt" that the royalty owner had good title such that the lessee could withhold payments until the royalty owner resolved title. Verde Minerals, LLC v. 1893 Oil & Gas, Ltd., --- F. Supp.3d ---, No. 2:16-CV-463, 2019 WL 2329864 (S.D. Tex., May 31, 2019).

  • DC Circuit Questions FERC's Climate Change Evaluations for Pipelines. In a case in which the D.C. Circuit ultimately denied a petition for review from a FERC order authorizing a gas compression facility without considering alteranatives, the court signaled to FERC that it should beef up its review of projects under NEPA for their impact on climate change. Birckhead v. Fed. Energy Regulatory Comm'n, --- F.3d ---, No. 18-1218, 2019 WL 2344836 (D.C. Cir., June 4, 2019).

  • Colo. Appellate Court Confirms Oil + Gas Permits Issued by Commission. A court of appeals in Colorado concluded that citizens and environmental groups had standing to challenge permits issued by the state's conservation commission but rejected their challenges to the agency's decision to issue permits given that the agency considered public comment on the permit applications, the wells complied with setback requirements, and state law did not require an alternative site analysis before granting the permits. Weld Air & Water v. Colorado Oil and Gas Conservation Commission, --- P.3d ---, No. 18CA1147, 2019 WL 2375889 (Colo. Ct. App., June 6, 2019).

  • Kansas Supremes Address Adverse Possession. In a case in which a production company asked the courts to determine the owner of a one-half mineral interest pooled into a unit and claimed by a severed surface owner, the Kansas Supreme Court concluded that the rightful owner of the disputed one-half interest in the minerals is the fee owner of the surface property, held that the misappropriation of royalties on mineral interest is not enough to establish adverse possession, and confirmed that adverse possession of a mineral estate requires actual invasion of the mineral estate for the statutory period. Oxy USA Inc. v. Red Wing Oil, LLC, --- P.3d ---, No. 111,973, 2019 WL 2402505 (Kan., June 7, 2019).


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