Oil + Gas Update - Back-to-School Edition.
The dog days of summer ended with natural gas production on the rise even though prices and rig counts hit low points over the past few weeks. In pipeline news, the major projects experienced some ups and downs from regulatory and litigation perspectives. On the federal regulatory front, the EPA proposed limitations on pipeline reviews, endangered species regulations, and methane emission regulations targeting the O+G industry. In court news in Appalachia and other plays, cases ranged from lease expiration to royalties to zoning and other regulatory squabbles over O+G projects.
Here's a roundup of the last few weeks...
Rig Counts, Spot Prices + Oil Prices
Rigs: National (-904); Marcellus (-52); Utica/Point Pleasant (-13)
Brent Crude: -$57.97/bbl
West Texas Intermediate: -$54.24/bbl
NYMEX: The September 2019 contract expired @ -$2.251/MMBtu. The October 2019 contract opened @ -$2.222/MMBtu.
Spot Prices: Henry Hub (-$2.24/MMBtu); Dominion South (-$1.74/MMBtu); Tenn. Zone 4 (-$1.66/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): Environmental groups filed a petition with the state Department of Environmental Quality to revoke the permit the agency issued last year under Section 401 of the Clean Water Act. Environmental groups responded to ACP and the government’s cert petition challenging the part of the appellate court’s ruling that found the FWS lacked authority under the Mineral Leasing Act to grant the right of way to cross the trail because the land is under exclusive authority of the National Park Service.
Atlantic Sunrise (Northeastern PA to SE Pennsylvania): The Third Circuit dismissed another challenge to the pipeline's environmental permit (see below for more details).
Constitution (Northeastern PA to NY): FERC authorized the Constitution Pipeline project to move forward after concluding that New York took too long to deny a permit that had been blocking construction of the proposed natural-gas line.
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): Earlier this month, residents near Mariner East pipeline sites reported hearing a boom and felt shaking. Agencies investigated. Elected state constables providing security near sinkholes along the Mariner East pipelines were charged with ethics and other violations for using public office for private gain. Chester County Commissioners instructed the county’s Department of Emergency Services to oversee a comprehensive independent evaluation that identifies safety risks and response procedures associated with Mariner East pipelines. Several Cambria Township residents asked Sunoco to reduce noise from a nearby pump station. Gov. Tom Wolf told anti-pipeline activists that he is not going to stop construction or operation of Sunoco’s Mariner East pipelines. DEP issued two penalties to Sunoco totaling $319,461 for violations resulting from construction activities on the Mariner East 2 pipeline project.
Mountaineer XPress (WV): Nothing new to report.
Mountain Valley Pipeline (Northern WV to Southern Va. and NC): MVP opponents sued over the pipeline’s impact on endangered species such as the Roanoke logperch. MVP voluntarily suspended work on parts of the project three days after the new lawsuit raised questions about its impact on endangered species. EPA supported an MVP permit and concluded that changes backed by West Virginia were consistent with the Clean Water Act. FERC approved MVP's request to change crossing methods for nine waterbodies over a conservation group's objections alleging the project is seeking to change conditions of its certificate while circumventing standard review processes.
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): Nothing new to report.
Northern Access (NW PA to Western NY): Nothing new to report.
PennEast (PA to Central Jersey): PennEast resubmitted its application for a wetlands permit from the New Jersey DEP after the agency rejected its original filing as incomplete in February 2018. PennEast also announced plans to minimize the impact of construction through three areas along the route in Pennsylvania that contain Native American artifacts.
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
EPA Seeks to Change Section 401 Certifications for Pipeline Projects. EPA is proposing a change in Clean Water Act regulations to prevent states from exceeding their authority under Section 401 to certify projects.
Antero’s $60 Million Verdict Upheld in Dispute over Gas Prices Under Long-Term GPA. The Tenth Circuit Court of Appeals upheld a decision favoring Antero Resources Company in a dispute with a gas purchaser over an eight-year gas agreement that linked the buyer’s purchase price to the Columbia Appalachia Index, concluding that circumstances surrounding a spike in the index price for a period of time did not materially change the parties’ pricing methodology and therefore could not justify a modification of the contract to relieve the buyer of paying the higher price based on the agreed-upon index. Antero Res. Corp. v. S. Jersey Res. Grp., LLC, --- F.3d ---, No. 18-1163, 2019 WL 3558970 (10th Cir., Aug. 6, 2019).
Federal Court in PA Denies Bid to Dismiss Fraud Claims Against Firm in Dispute over Sale of O+G Properties. The Middle District of Pennsylvania denied a law firm’s motion to dismiss claims that lawyers helped their client conceal existing litigation and enforcement actions before the sale of oil and gas properties. Prime Energy & Chemical LLC v. Tucker Arensberg, --- F. Supp. 3d ---, No. 2:18-CV-00345, 2019 WL 3778756 (W.D. Pa., Aug. 12, 2019).
WV Royalty Owners Get Summary Judgment on Royalty Claims. A federal court in West Virginia granted summary judgment in favor of royalty owners suing to prevent the parties from sharing post-production costs, holding that the royalty clauses in the leases at issue did not include the specific magic language under West Virginia Supreme Court precedent to allow cost-sharing. Cather v. EQT Production Company, --- F. Supp. 3d ---, No. No. 1:17-CV-208, 2019 WL 3806629 (N.D.W. Va., Aug. 13, 2019).
Sixth Circuit Upholds Royalty Class Action under Ohio Law. The Sixth Circuit upheld an order certifying a class of Ohio royalty owners in a dispute over whether the lessee could allocate the royalty owners’ proportionate share of costs for post-production activities conducted by affiliated entities using the net-back method, concluding that, under the plaintiffs’ revised theory, liability would be based on the question of whether the lease language is deemed to invoke the at-the-well rule, the marketable-product rule, or a different valuation system entirely such that this question will have a common answer that turns on the court’s interpretation of the lease language under Ohio law. Zehentbauer Family Land, LP v. Chesapeake Expl., L.L.C., --- F.3d ---, No. 18-4139, 2019 WL 3820259 (6th Cir., Aug. 15, 2019).
Third Circuit Rejects Another Attempt by the Riverkeeper to Block Pipeline. The Third Circuit rejected a challenge by the Delaware Riverkeeper to the PADEP’s decision to authorize Transco's Atlantic Sunrise Pipeline to discharge water used to conduct hydrostatic testing of the pipeline following the company’s notice of intent to comply with a general permit, holding that PADEP did not violate any public notice obligations. Delaware Riverkeeper Network v. Pennsylvania Department of Environmental Protection, --- F.3d ---, No. 17-3299, 2019 WL 3822247 (3d Cir., Aug. 15, 2019).
Ohio Federal Court Holds O+G Lessee Didn’t Waive Removal Rights. A federal court in Ohio held that oil and gas leases containing a forum-selection clause to resolve disputes in Ohio state court did not “clearly and unequivocally” waive the lessee's removal rights. Tera II, LLC v. Rice Drilling, LLC, --- F. Supp. 3d ---, No. 2:19-CV-02221-SDM, 2019 WL 3889623 (S.D. Ohio, Aug. 16, 2019).
Third Circuit Holds that Bonuses Paid to Employees of O+G Contractors Might Not Qualify as Remuneration for Employment Under FLSA. The Third Circuit held that incentive bonuses provided by third parties may or may not be remuneration for employment, depending on the understanding of the employer and employee and concluded that the record did not support a finding that all of the incentive bonuses at issue in the case were necessarily remuneration for employment. Sec’y United States Dep’t of Labor v. Bristol Excavating, Inc., --- F.3d ---, No. 17-3663, 2019 WL 3926937 (3d Cir., Aug. 20, 2019).
MVP Scores Win Motion on Expert Testimony. A federal court in West Virginia granted MVP’s motions to exclude expert testimony in a condemnation case that purported to opine on danger and safety issues that weren’t at issue. In re: Mountain Valley Pipeline, LLC, --- F. Supp. 3d ---, No. 7:19-CV-00151, 2019 WL 3945272 (W.D. Va., Aug. 21, 2019).
Middle District Denies Bid to Establish Common Benefit Fund in O+G Class Action. A federal court in Pennsylvania denied a bid by lawyers to establish a fund to compensate them for services rendered to members of a class that left or settled with the defendants outside the class action, holding that “the Court cannot draw the inferences which Plaintiff argues should be drawn: (1) that the filing of Plaintiff’s lawsuit and its actions thereafter in opposing motions to dismiss and engaging in discovery present a clear nexus between those actions and the individual settlements undertaken by various lessors; (2) so as to allow the conclusion that this lawsuit has conferred a substantial benefit upon the settling lessors which (3) requires the establishment of a common benefit fund.” Slamon v. Carrizo (Marcellus) LLC, --- F. Supp. 3d ---, No. 3:16-CV-02187, 2019 WL 3987770 (M.D. Pa., Aug. 22, 2019).
PA Superior Court Holds Lessee Abandoned O+G Lease After Years of Non-Payment, Inactivity. The Superior Court of Pennsylvania held that a lessee abandoned an oil and gas lease after years of non-production and failing to pay delay rentals or shut-ins or any other payment for 16 years. SLT Holdings, LLC v. McLaughlin, --- A.3d ---, No. 2019 PA Super 258, 2019 WL 3980188 (Pa. Super., Aug. 23, 2019).
Commonwealth Court Upholds Dismissal of HOA’s Zoning Challenges to Mariner East II. The Commonwealth Court upheld a decision by a zoning board that granted zoning, building, electrical, and grading permits for the placement of pipelines on an HOA’s property pursuant to an easement held by Sunoco, holding that the municipality accounted for environmental features of the HOA’s property; the zoning board lacked jurisdiction to decide whether it violated state law by issuing a grading permit; and evidence supported the zoning board’s conclusion that the pipeline company would stay within its easement for construction work. Appeal of Andover Homeowners’ Ass’n, Inc., --- A.3d ---, No. 1214 C.D. 2018, 2019 WL 4007577 (Pa. Cmwlth., Aug. 26, 2019).
WV Federal Court Denies EQT Bid for Judgment NOV in Royalty Row. A federal court in West Virginia denied EQT’s motion for judgment following a jury trial and held that the jury could reasonably conclude that EQT’s net-back method of calculating royalties pursuant to a lease that didn’t include “at the well” language did not yield “market value” as required by the lease and that EQT couldn’t allocate the lessor’s share of severance taxes based on the language of the tax statute. Richards v. EQT Production Company, --- F. Supp. 3d ---, No. 1:17CV50, 2019 WL 4120819 (N.D.W. Va., Aug. 29, 2019).
Headlines & Holdings - Beyond Appalachia
Exxon Faces Stockholder Suit Over Climate Change. Exxon investors sued the company for knowingly misleading investors for years about climate change threats that could and ultimately did affect stock prices. Saratoga Advantage Trust Energy & Basic Materials Portfolio v. Woods, No. 2:19-cv-16380 (D.N.J.) (pending). The New York Attorney General has brought a similar action.
NY State Judge Denies Exxon's Request for Docs from Key Witnesses. A state judge in New York denied Exxon’s bid to receive documents in advance of depositions for several key witnesses in the NY Attorney General’s suit against the company for defrauding investors about climate change threats. People of the State of New York v. ExxonMobil Corp., No. 452044/2018 (N.Y. Super. Ct.) (pending).
EPA Rolls Back ESA Protections. The EPA finalized regulations that now allow for assessing the economic impacts of extending threatened or endangered species protections.
Eighth Circuit Holds that Disputes Over O+G Leases on Trust Lands are Governed by Federal Law, not Tribal Law. The Eighth Circuit affirmed an order enjoining tribal court officials seeking to prevent non-member oil and gas companies from flaring natural gas wells on lands that are allotted to specific tribe members but that also are held in trust by the federal government, holding that suits over oil and gas leases on allotted trust lands are governed by federal law, not tribal law, and the tribal court lacked jurisdiction over the non-member oil and gas companies. Kodiak Oil & Gas (USA) Inc. v. Burr, --- F.3d ---, No. 18-1824, 2019 WL 3540423 (8th Cir., Aug. 5, 2019).
Baltimore Asks Fourth Circuit to Keep Climate Change Case in State Court. The City of Baltimore argued in its brief that the Fourth Circuit should uphold the district court’s order remanding the city’s climate change case against major oil and gas companies to state court.
Lawyers in Kids Climate Case Get AZ Judge to Stay “Plagiarized” Complaint. The lawyers for the children alleging climate-change harms caused by the federal government’s policies promoting fossil-fuel development received an order from a federal judge in Arizona to stay a case filed in that federal court by a plaintiff who essentially plagiarized the Juliana complaint that’s at issue in the appeal in the Ninth Circuit allegedly after the Juliana team didn’t let him participate in that case.
Ark. Federal Court Denies WI Owner Bid for Proceeds on Gas Production. A federal court in Arkansas denied a claim that an operator failed to pay proceeds on all production from a unit targeting multiple formations in violation of the state's pooling statute, holding that the plaintiff did not enter into a JOA with the operator to share in all production from the unit and that the plaintiff could only receive his 4% share of gas any proceeds from certain wells in which he held an interest rather than all proceeds generated from the sale of the gas. Turner v. XTO Energy Inc., --- F. Supp. 3d ---, No. 2:18-CV-02171, 2019 WL 3577676 (W.D. Ark., Aug. 6, 2019).
Alaska Supreme Court Addresses Rights of Laborers Under Mineral Dump Lien Statute in Context of O+G Development. The Alaska Supreme Court held that the definition of “dump or mass” in a lien statute means that a mineral dump lien may extend only to gas extracted from its natural reservoir; that the lien may cover produced gas contained in a pipeline if certain conditions are met; and that, to obtain a dump lien, laborers must demonstrate that their work aided, broadly, in gas production. All American Oilfield, LLC v. Cook Inlet Energy, LLC, --- P.3d ---, Nos. S-16974, S-17043, 2019 WL 3756723 (Ala., Aug. 9, 2019).
Utah Appellate Court Rejects Late Claim to Mineral Rights. A court of appeals in Utah denied a bid to claim mineral rights after concluding that the plaintiff took too long to assert her rights to the detriment of the current mineral owners who relied on title to the minerals expressed in a deed recorded 47 years earlier. Estate of Price v. Hodkin, --- P.3d ---, No. 21070279-CA, 2019 WL 3759402 (Utah Ct. App., Aug. 10, 2019).
TX Appellate Court Tackles Continuous Development Provision. A court of appeals in Texas interpreted a continuous development provision as a special limitation on the lease and held that the lessee was required to engage in a continuous development program to maintain the lease by spudding-in of a continuous development well within 120 days of completing or abandoning a prior well. HJSA No. 3, Ltd. v. Sundown Energy LP, --- S.W.3d ---, No. 08-18-00113-CV, 2019 WL 3852677 (Tex. Ct. App., Aug. 16, 2019).
Kansas Supremes Hold that Terminable O+G Interest did not Violate Rule Against Perpetuities. The Supreme Court of Kansas interpreted a deed that excepted mineral interests for a period of "20 years or as long thereafter" as minerals may be produced and held that the rule against perpetuities does not apply when a grantor of real property retains a defeasible term-plus-production interest and thereby conveys to the grantee a future interest in the mineral estate. Jason Oil Company v. Littler, --- P.3d ---, Nos. 118,387 118387, 2019 WL 3850651 (Kan., Aug. 20, 2019).
NM Federal Court Finds Ambiguity in Royalty Clause. A federal court in New Mexico addressed a lease provision requiring royalties payable on "the proceeds of gas, as such" and concluded that the the phrase is not synonymous with "at the well" language typically found in royalty clauses but also is not synonymous with royalty clauses requiring payment at some other downstream valuation point where proceeds are actually generated and therefore remanded for further proceedings to develop the record on the intent of the parties. Ulibarri & White River Royalties, LLC v. Southland Royalty Company, LLC, --- F. Supp. 3d ---, No. 16-CV-215-RB-JHR, 2019 WL 3997423 (D.N.M., Aug. 23, 2019).