At the Well Weekly (v.7.24.2020)

Oil + Gas Update | Mid-Summer Roundup.

After two months off, we're back at the well for our mid-summer roundup. The oil and gas industry has faced challenges over the past several months, battling the effects of the COVID-19 outbreak on the U.S. and global economies, dealing with depressed markets, and defending an ever increasing number of suits sponsored by environmental organizations that are waging war on natural gas development nationwide. The headlines since our last report:

  • Oil prices tanked and then "rebounded" to just above $40/bbl as of last week.

  • The rig count hit a record low in early July.

  • Gas prices on the spot market haven't consistently exceeded $2/MMBtu for some time. The monthly average for the first half of the year lingered around $1.80/MMBtu and prices in June averaged around $1.60/MMBtu. Prices in Appalachia fared no better, dropping to $1.15/MMBtu at one location as of last week.

  • Chesapeake Energy, a pioneer in shale gas development, filed for Chapter 11.

  • The Atlantic Coast Pipeline project is no more after project sponsors pulled the plug due to significant cost overruns and regulatory/litigation expenses, calling into question the future of other projects like the Mountain Valley Pipeline and PennEast Pipeline, although those companies have vowed to move forward.

  • Federal judges have issued decisions affecting major pipelines like Dakota Access and Keystone XL based on alleged shortcomings in the environmental protection category.

  • The Pennsylvania Office of Attorney General has taken an aggressive approach towards the industry by issuing a Grand Jury Report on the alleged failures of regulatory oversight in the Commonwealth and pursuing criminal prosecutions against gas companies for conduct traditionally regulated by DEP.

Meanwhile, courts in Appalachia and elsewhere have grappled with the usual oil and gas lease issues, regulatory issues, climate change, and a blend of other types of cases.

Here's your mid-summer roundup...

Rig Counts, Spot Prices + Oil Prices

  • Rigs: National (-251); Marcellus (-25); Utica/Point Pleasant (6)

  • Brent Crude: -$43.34/bbl

  • West Texas Intermediate: -$41.29/bbl

  • NYMEX: August 2020 @ -$1.681/MMBtu.

  • Spot Prices: Henry Hub (-$1.64/MMBtu); Dominion South (-$1.24/MMBtu); Tenn. Zone 4 (-$1.15/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 issued a certificate of public convenience to construct the pipeline company's expansion project, and the federal court in Philadelphia issued condemnation orders for properties along the route to begin construction.

  • Atlantic Coast (W. Va. to Va. and NC): Following a win at the U.S. Supreme Court and ensuing attacks by environmental groups alleging that agencies should conduct further environmental impact reviews, the Atlantic Coast Pipeline sponsors cancelled the project, citing significant cost overruns and delays engendered by legal, litigation, and regulatory challenges.

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

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

  • Dakota Access (Northwest US): A federal court ordered that Dakota Access shut down pending additional and more rigorous environmental reviews. The company managed to secure a stay pending appeal from the circuit court such that the pipeline can operate while the appellate court hears the appeal.

  • Empire Pipeline (NY to PA): Nothing new to report.

  • Keystone Pipeline (Canada/US): A federal court enjoined the Army Corps' Nationwide Permit that many pipeline project sponsors secure for water crossings, holding that the longstanding permit doesn't adequately protect endangered species. The U.S. Supreme Court stayed the order as it relates to existing projects but not as to Keystone.

  • Leidy South - Benton Loop Expansion (PA): FERC approved Transco's Leidy South expansion in Northeastern Pennsylvania.

  • Mariner East (Western PA to Eastern PA): Sunoco faces more challenges as sinkholes emerged along the Mariner East pipeline route this month.

  • Mountaineer XPress (WV): The Mountaineer XPress pipeline in West Virginia returned to service and boosted gas production.

  • Mountain Valley Pipeline (Northern WV to Southern Va. and NC): Despite the challenges facing many pipeline projects, MVP is moving forward with construction and planned operations.

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

  • NFG (PA): The Pennsylvania Attorney General filed criminal charges against NFG and its sub for a spill that previously only led to a $6K penalty from the Pennsylvania Department of Environmental Protection.

  • 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): The briefing closed on PennEast's bid to have the Supreme Court upend a Third Circuit ruling that prohibits pipeline companies from condemning properties in which states have an interest. PennEast vows to move forward with its project despite the legal and regulatory challenges that pipeline projects around the country face.

  • 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 Superior Court Says Lessee not Liable for Lease Broker’s Activities. The Pennsylvania Superior Court upheld a trial court’s order granting summary judgment in favor of a lessee and rejected arguments that the lessee’s broker improperly backdated and notarized the parties’ lease outside the lessor’s presence, holding that the jury would be speculating about vicarious liability because there was no dispute that the lessee ultimately had to approve the lease and therefore could not be liable for any alleged misconduct of the broker based on a master-servant or other agency theory. Wiedenhoft v. Chief Exploration & Development LLC, --- A.3d ---, No. 910 WDA 2019, 2020 WL 3057989 (Pa. Super. June 8, 2020).

  • Commonwealth Court Holds that Boiler Inspections, but not Investigations, are Subject to Disclosure Under the Right to Know Law. The Commonwealth Court held that the Department of Labor & Industry’s records of regular boiler and pressure vessel inspections are subject to public disclosure but its investigation records are non-criminal agency investigations that are exempt from public disclosure. Pa. Dep’t of Labor & Ind. v. Darlington, --- A.3d ---, No. 1583 C.D. 2019, 2020 WL 3053980 (Pa. Cmwlth. June 9, 2020).

  • Gas Purchase Agreement Dispute Survives in PA Federal Court. A federal judge in Pennsylvania denied a bid to dismiss a claim that a hospital breached a gas purchase and supply agreement by not paying for certain agreed-upon quantities of natural gas the hospital received and used during 2018 and 2019. Snyder Bros., Inc. v. East Ohio Regional Hospital at Martin’s Ferry, Inc., --- F. Supp. 3d ---, No. CV 19-1238, 2020 WL 3104056 (W.D. Pa. June 11, 2020).

  • Board of Property has Jurisdiction to Decide “Navigability.” The Commonwealth Court of Pennsylvania held that the Board of Property has jurisdiction to determine the “navigability” of a stream, which determines ownership of streambeds and underlying oil and gas. Beishline v. PADEP, --- A.3d ---, No. 719 CD 2019 (Pa. Cmwlth. June 12, 2020).

  • WV Supreme Court Says EQT Lacks Surface Rights for Developing Neighboring Tracts. The Supreme Court of West Virginia concluded that EQT could not use the surface area of the plaintiffs’ property to drill wells and produce gas from neighboring lands, reasoning that EQT had a bad lease that a court invalidated in a default judgment more than 36 years ago that could not be revived by an ensuing ratification. EQT Prod. Co. v. Brian Taschler, --- S.E.3d ---, No. 19-0370, 2020 WL 3407766 (W. Va. June 18, 2020).

  • PA Federal Court Says Contract Remedies Trump Unjust Enrichment/Quantum Meruit for Pipeline Work. A federal judge in Pennsylvania concluded that a contractor performing work on a pipeline project could not state claims for unjust enrichment or quantum meruit when the parties have an express contract in place. C.J. Hughes Construction Co., Inc. v. EQM Gathering OPCO, LLC, --- F. Supp. 3d ---, No. 2:18-CV-168, 2020 WL 3448383 (W.D. Pa. June 24, 2020).

  • NY Court of Appeals Says NGA Certificate Exempts Pipeline Company from Notice/Hearing Requirements of Eminent Domain Code Despite Lack of Section 401 Water Quality Certification. The New York Court of Appeals held that NFG Supply’s certificate granted by FERC under the Natural Gas Act, which did not condition the company’s eminent domain power on the receipt of a Section 401 water quality certification that the state denied in the interim, exempted the company from public notice and hearing provisions of the state’s eminent domain procedural code. Nat’l Fuel Gas Supply Corp. v. Schueckler, --- N.Y. ---, 2020 N.Y. Slip Op. 03563, 2020 WL 3453939 (N.Y. June 25, 2020).

  • Va. Court Rejects Trespass Claim Against MVP. The Virginia Supreme Court rejected an appeal from an order denying trespass claims against MVP for bringing its surveyors onto property on the wrong day without the landowner's consent. West v. Mountain Valley Pipeline, LLC, No. 191014, 2020 WL 3618943 (Va. July 2, 2020).

  • Value of Oil and Gas Leases Controls Amount in Controversy for Diversity Jurisdiction. A federal court in Pennsylvania denied a motion to remand where the amount in controversy between diverse parties, based on bonus payments and royalties paid, exceeds the statutory minimum. Kopko v. Range Resources – Appalachia, LLC, --- F. Supp. 3d ---, No. 2:20-CV-00423-MJH, 2020 WL 3496277 (W.D. Pa. June 29, 2020).

  • DC Circuit Cans FERC Tolling Orders. The D.C. Circuit invalidated FERC’s tolling order practice that gave the agency more than 30 days to decide rehearing petitions without suffering a deemed denial for failing to act, siding with landowners and other groups who argued that the practice improperly gave project sponsors the ability to proceed with construction until FERC ruled on rehearing requests. Allegheny Def. Project v. Fed. Energy Regulatory Comm'n, No. 17-1098, 2020 WL 3525547 (D.C. Cir. June 30, 2020). FERC asked for and received a stay pending a SCOTUS appeal.

  • Fourth Circuit Sends Back Pipeline Dispute for More Reasoning. The Fourth Circuit remanded a summary decision denying with prejudice a request to amend a trespass complaint after a plaintiff sought leave to seek damages following a project sponsor’s condemnation of disputed areas for pipeline construction. Moore v. Equitrans, L.P., No. 19-1065, 2020 WL 3484067 (4th Cir. June 26, 2020).

  • Commonwealth Court Shuts Down Zoning Challenge to Gas Wells. The Commonwealth Court rejected various arguments by environmental groups that zoning approvals subject to numerous conditions violated Article I, sec. 27 of the Pennsylvania Constitution. Protect PT, Appellant v. Penn Twp. Zoning Hearing Bd. & Olympus Energy LLC, --- A.3d ---, No. 575 C.D. 2019, 2020 WL 3640001 (Pa. Cmwlth. July 6, 2020).

  • Enviros Lack Standing to Compel EPA COVID-19 Monitoring Policy. A federal judge in New York’s southern district dismissed a petition for a rulemaking that would compel any regulated entity that suspended environmental monitoring requirements during the pandemic to report to EPA and the public, concluding that the petitioners sought only to vindicate a procedural right and therefore the petitioners lacked Article III standing. Natural Resources Defense Council v. EPA, --- F. Supp. 3d ---, No. 20 CIV. 3058 (CM), 2020 WL 3838017 (S.D.N.Y. July 8, 2020).

  • NY Federal Judge Says Town’s Building Permit Requirement Preempted by NGA. A federal judge in New York held that the Town of Pendleton’s building permit requirements are preempted by the Natural Gas Act and FERC’s approval of the gas pipeline project. Empire Pipeline, Inc. & NFG Supply Corp. v. Town of Pendleton, --- F. Supp. 3d ---, No. 17-CV-141S, 2020 WL 3972315 (W.D.N.Y. July 14, 2020).

  • Federal Court Declines to Dismiss Royalty Claims. A federal court in Ohio denied a motion to dismiss a claim alleging improper royalty payments, holding that industry customs should inform how to calculate royalty payments on certain unencumbered acreage and that the lessee had no right to withhold payment based on the lack of a division order because it would force the plaintiff to agree to a change in its percentage share. Profit Energy Co. v. Gulfport Energy Corp., No. 2:19-CV-3487, 2020 WL 4226508 (S.D. Ohio July 23, 2020).

Headlines & Holdings - Beyond Appalachia

  • Midstream Docs are Fair Game for Discovery in OK Royalty Row. A federal court in Oklahoma ordered that a lessee facing royalty and post-production claims should turn over documents with midstream service providers regarding marketable condition of gas or marketable products, title transfer points, and off-lease fuel use. Hay Creek v. Roan Resources, --- F. Supp. 3d ---, No. 19-CV-177-CVE-JFJ, 2020 WL 2850902 (N.D. Okla. June 2, 2020).

  • No Transfer of Pipeline Dispute from TX to OK. A federal court in Texas denied a bid to transfer a dispute over pipeline construction to Oklahoma, holding that as between two potential venues, the federal court in Oklahoma is not a clearly more convenient venue than the federal courts in Texas. Venable''s Construction Inc. v. Oneok Arbuckle II Pipeline, LLC, --- F. Supp. 3d ---, No. 2:20-CV-018-Z-BR, 2020 WL 2841398 (N.D. Tex. June 1, 2020).

  • Texas Appellate Court Says O+G Company Need Not Pay Location Damages Under Surface Agreement. A court of appeals in Texas denied a bid for location damages under a surface agreement, holding that under the plain language of the agreement the operator had no obligation to pay location damages until after it completed construction of part of the project. Evans Resources, L.P. v. Diamondback E&P, LLC, --- S.W.3d ---, No. 11-18-00128-CV, 2020 WL 2838529 (Tex. App. May 29, 2020).

  • First Circuit Invalidates Air Permit for Pipeline. The First Circuit held that the Massachusetts DEP did not follow its own established procedures for assessing whether an electric motor was the Best Available Control Technology (BACT) for a pipeline project. Town of Weymouth, Massachusetts v. Massachusetts Dep't of Envtl. Prot., --- F.3d ---, No. 19-1794, 2020 WL 2904672 (1st Cir. June 3, 2020).

  • Sixth Circuit Rejects Challenge to PHMSA Approval of Pipeline Spill Plan. The Sixth Circuit reversed an order in favor of environmental organizations challenging PHMSA's approvals of two oil spill response plans for a pipeline spanning 641 miles from Wisconsin to Canada, holding that the spill plans did not trigger PHMSA's obligations under the Endangered Species Act or NEPA either to consult with environmental agencies before taking action that could affect endangered species or habitat or to prepare an EIS under NEPA to account for environmental issues. National Wildlife Federation v. Secretary of the United States Department of Transportation, --- F.3d ---, No. 19-1609, 2020 WL 3026541 (6th Cir. June 5, 2020).

  • Rhode Island Seizes on Climate Change Orders to Support Remand Bid. Rhode Island told the First Circuit t