Oil + Gas Update | Cases on PA EHB Jurisdiction over NGA Projects, TX Royalty Disputes, Implied Covenants in OH and WV, and PA NatGas Thieves Usher in the New Year.
Since our last report, the new year brought with it a cold snap that engendered the fourth-largest withdraw of storage gas in history, according to the EIA, together with a relatively short-lived but significant increase in spot and index prices around the country and particularly in Appalachia and the Northeast. In Pipeline news, MVP revised its proposed Southgate expansion project and submitted it to FERC for approval. In Appalachia, courts addressed arbitration waivers; forced pooling; royalties and PPCs; BFPs of oil and gas rights; gas storage; implied covenant; recusals; PA EHB jurisdiction over Natural Gas Act projects; gas thieves; DRBC’s frac ban; and horizontal wells. In other regions, courts tackled deed reservations; FERC and pipeline projects; assignments; royalties and PPCs; fixed vs. floating NPRIs; shut-in royalties; BLM-issued oil and gas leases; gross proceeds royalties vs. market value royalties; rejection of gathering agreements in bankruptcy; “paying quantities”; LNG-by-rail regulations; JOA disputes; and ORRIs.
Rig Counts, Spot Prices + Oil Prices
Rigs: National (586); Marcellus (23); Utica/Point Pleasant (11)
Brent Crude: $74.669/bbl
West Texas Intermediate: $71.00/bbl
NYMEX: March 2025 @ $3.360/MMBtu; 12-Month Strip @ $3.905/MMBtu
Spot Prices: Henry Hub @ $3.22/MMBtu
Headlines & Holdings - Appalachia
Fed. Ct. in PA Says O+G Co. Waived Arbitration of Class Action. In a case of first impression, a federal court in Pennsylvania concluded that the defendant in a royalty class action waited too long to file a post-class-certification motion to compel arbitration, holding that that the defendant in a class action waives the right to arbitrate when it actively litigates the class through class certification when only unnamed class members have contracts that contain an arbitration provision and reasoning that the defendant for years administered the leases, produced gas and paid royalties under the leases; had knowledge of the class leases since at least that time; and was on notice that some claims could be arbitrable because some leases contained arbitration provisions. Salvatora v. XTO Energy, Inc., --- F. Supp. 3d ----, No. 2:19-CV-01097-WSS-CBB, 2024 WL 5118465 (W.D. Pa. Dec. 16, 2024).
Ohio App. Ct. Upholds Forced Pooling Order. A court of appeals in Ohio rejected a landowner’s claims that the state’s gas commission acted unlawfully or violated constitutional rights by issuing a pooling order after a lessee let the landowner’s lease expire and made a take-it-or-leave it offer that the landowner rejected, holding that the landowner filed an untimely appeal and otherwise failed to demonstrate any due process or equal protection concerns. Simballa v. Ohio Dep’t of Nat. Res., --- N.E.3d ----, No. 23AP-695, 2024 WL 5135848 (Ohio Ct. App. December 17, 2024).
Colo. App. Ct. Remands Fight Between Water Co. and O+G Co. over WV Treatment Facility. In a dispute over a facility designed to treat wastewater from frac operations in West Virginia, a court of appeals in Colorado rejected a trial court ruling that the “economic loss” rule bars the gas company’s intentional tort fraud claims against the water company because its common law tort duties are independent of contractual duties and of the implied duty of good faith and fair dealing that exists in every contract.. Veolia Water Techs., Inc. v. Antero Treatment LLC, --- P.3d ----, No. 23CA0897, 2024 WL 5161427 (Colo. Ct. App. December 19, 2024).
Ohio Ct. App. Rejects O+G Royalty Claims. A court of appeals upheld a trial court order scrapping a bid for breach of contract based on claims that a lessee shorted landowners by deducting post-production costs before paying royalties, concluding that the lessee properly accounted for gathering, storing, transporting, separating, treating, dehydrating, compressing, processing, or marketing fees charged to the lessee before paying royalties and reasoning that all such costs are authorized by the lease. Dream Big Energy, LLC v. Eclipse Resources-Ohio, LLC, --- N.E.3d ----, No. 24CA00011 (Ohio Ct. App. December 19, 2024).
Ohio Ct. App. Upholds BFP's Purchase of O+G Rights. A court of appeals in Ohio upheld a conveyance of oil and gas rights to a bona-fide purchaser and its successor, rejecting claims from the plaintiff seeking to void the sale that the grantee breached a promise to record a purchase agreement and deed and holding that neither alleged failures constituted fraud in the execution that would render the deed void. Johnston v. Shale Play Land Services, Inc., --- N.E.3d ----, No. 24 JE 0003 2024 WL 5182841 Case (Ohio Ct. App. December 17, 2024).
WV App. Ct. Says Gas Storage Defeats Development Covenant Claim. In a case involving a claim for partial rescission of a lease for breach of the implied development covenant by maintaining only one storage well on the leased premises and no other producing wells, a court of appeals in West Virginia held that (a) a lease modification granted the lessee the express right to store gas to maintain the lease without mentioning further development; and (b) the express purpose of that lease modification trumped any implied covenant to develop the leased premises. Bleigh v. Dominion Energy, --- S.E.3d ----, No. 23-ICA-435, 2024 WL 5201003 (W.V. App. Ct. December 23, 2024).
Ohio Fed. Ct. Rejects Accounting + Injunction Claims re: Royalty Payments. In a royalty dispute, a federal court in Ohio rejected claims for equitable accounting of royalties and a request for an injunction to assure proper payments in the future, holding that the lessee does not have a fiduciary relationship with its lessor for purposes of equitable accounting and the request for an injunction for future royalty payments is economic in nature such that an equitable remedy is improper. Grace E. Moore Great-Grandchildren Trust of 2006 v. Gulfport Appalachia, LLC, --- F. Supp. 3d ----, No. 2:24-CV-2231, 2024 WL 5237678 (S.D. Ohio Dec. 27, 2024).
Pa. Super. Ct. Says Local Judge Should Recuse in O+G Dispute. The Pennsylvania Superior Court said that a local judge with oil and gas interests in the county implicated in this trespass-by-frac and other cases over which the judge presides, should recuse because personal and pecuniary interests in the case present the appearance of impropriety. Irish Holdings LLC v. EQT Production Co., --- A.3d ----, No. 451 WDA 2024, 2025 WL 209459 (Jan. 16, 2025).
PA Supremes Say EHB has Jurisdiction over NGA-Permitted Projects. The Supreme Court of Pennsylvania held that the Environmental Hearing Board has jurisdiction to review DEP’s permitting decisions under the federal Clean Air Act and PA Air Pollution Control Act, concluding that EHB appeals are not “civil actions” under the NGA such that the Third Circuit’s exclusive jurisdiction over such civil actions does not preempt EHB’s review and reasoning that DEP's decisions are not final until the opportunity for EHB review has passed, aligning with Pennsylvania's statutory framework and the federal Clean Air Act’s delegation of authority to state agencies. Justice Mundy concurred but acknowledged that the decision could lead to delays for energy infrastructure projects, with a risk of dual-track litigation and of state permitting decisions possibly bouncing between the DEP and EHB. Justice Dougherty said the decision is consistent with recent Third Circuit rulings from July 2024 that the NGA does not preempt the EHB from considering a challenge to a permit that Pennsylvania approved for pipeline projects. Cole v. DEP, --- A.3d ----, No. 21 EAP 2023, 2025 WL 259053 (Pa. Jan. 22, 2025).
Pa. Super. Ct. Upholds Sentence for Gas Thief. The Superior Court of Pennsylvania upheld a conviction of an individual who tapped into a gathering line to steal natural gas valued at about $1.7 million. Commonwealth v. Rapp, --- A.3d ----, No. 814 WDA 2023, 2025 WL 286595 (Pa. Super. Jan. 24, 2025).
Ohio Fed. Ct. Says Lessee on the Hook for ORRIs but not Damages for Breach of Implied Development Covenant. A federal court in Ohio entered default judgment against a lessee bound to pay overrides to the plaintiff but stopped short of entering default judgment on a claim alleging breach of the implied covenant, holding that although the Ohio Supreme Court would likely apply the implied covenant of reasonable development to agreements granting only royalty interests, the lessee here developed more wells than ordinarily required to fully develop the leased premises. Three Gold Res., LLC v. Energex Power, Inc., --- F. Supp. 3d ----, No. 2:23-CV-3495, 2025 WL 315876 (S.D. Ohio Jan. 28, 2025).
Ohio App. Ct. Says Lack of Service Dooms Claim to Abandoned Minerals. A court of appeals in Ohio reversed a trial court’s decision finding that mineral owners abandoned their rights in approximately 280 acres of property, holding instead that the judgment is void in part because the parties claiming abandonment failed to serve the mineral owners with complaints as required by local rules. Menge v. Strunk, --- N.E.2d ----, No. 24 BE 0018, 2025 WL 326866 (Ohio Ct. App. January 28, 2025).
Ohio Ct. App. Resolves O+G Royalty Interest Dispute under MTA. A court of appeals in Ohio held that the Marketable Title Act in Ohio did not extinguish a conveyance of royalty interests in the residuary clause of two wills. Claugus Family Farm & Forests, L.P. v. Piatt, --- N.E.2d ----, No. 24 MO 0015, 2025 WL 343378 (Ohio Ct. App. January 29, 2025).
Fed. Ct. in PA Dismisses Longstanding Challenge to DRBC Frac Ban. A federal court in Pennsylvania granted a motion filed by the Delaware River Basin Commission and Delaware Riverkeeper Network dismissing a years-long challenge to the DRBC’s exercise of jurisdiction over the plaintiffs proposed natural gas development, holding that the DRBC’s regulations banning hydraulic fracturing in the river basin rendered the case moot. Wayne Land & Mineral Group, LLC v. DRBC, --- F. Supp. 3d ----, No. 3:16-CV-00897, 2025 WL 376052 (M.D. Pa. Feb. 3, 2025).
Ohio App. Ct. Says H-Well Traveling Under Leased Property is “On the Premises” for Purposes of Royalty Deed. In a dispute over a deed granting a royalty interest on production “from future wells drilled on these premises,” a court of appeals in Ohio held that a horizontal well traversing beneath the surface qualifies as a well drilled “on the premises” for purposes of the royalty deed. Mineral Development, Inc. v. SWN Production (Ohio), LLC, --- N.E.3d ----, No. 24 MO 0013, 2025 WL 429418 (Ohio Ct. App. February 6, 2025).
Headlines & Holdings - Beyond Appalachia
Tex. App. Ct. Addresses Reference in Deed to Prior O+G Reservation. A court of appeals in Texas interpreted a deed containing the phrase “all Oil, Gas and other Minerals have been excepted and reserved by former owners” essentially as a reference to a prior reservation that exempted the grantors from their warranty of title and did not operate as a new exception or reservation. Valence v. Davidson, --- S.W.3d ----, No. 06-23-00090-CV, 2024 WL 5180100 (Tex. App. Dec. 20, 2024).
D.C. Cir. Upholds FERC Order Conditioning Abandonment of Pipeline. The D.C. Circuit rejected a bid to challenge a FERC order conditioning a pipeline company’s abandonment services after a hurricane caused damage to part of the line, holding that FERC acted reasonably and consistent with the administrative record by requiring that the company restore the damaged segment to service or reach an agreement with the only shipper that experienced service disruptions. Stingray Pipeline Co., L.L.C. v. FERC, --- F.4th ----, No. 23-1288, 2024 WL 5176487 (D.C. Cir. Dec. 20, 2024).
Tex. App. Ct. Rejects Challenge to Failed Assignment of O+G Lease. A court of appeals in Texas rejected claims of tortious interference with a letter of intent to assign a lease brought by the would-be assignee against the would-be assignor and its lessor, concluding that the lessor’s failure to give consent and ensuing decision by the would-be assignor to back out of the assignment did not rise to the level of tortious interference with the LOI. Segundo Navarro Drilling, Ltd. v. Chilton, --- S.W.3d ----, No. 05-23-00096-CV, 2024 WL 5153239 (Tex. App. Dec. 18, 2024).
Tenth Circuit Upholds Dismissal of Royalty Claims based on Settlement. In a class action alleging breach of a settlement agreement between the parties that obligated the lessee to pay royalties on 100% of proceeds received from gas and NGL sales and on half of the proceeds retained by third-party gatherers providing post-production services, the Tenth Circuit held that (a) the lessee paid royalties on proceeds the lessee “received” as required by the settlement and (b) the lessors were not entitled to further royalties on a $17.5M promise from the third-party gatherer to invest in its infrastructure because the lessee never received any monetary compensation for that promise on which the lessee could pay royalties. Phelps Oil & Gas, LLC v. Noble Energy, Inc., --- F.4th ----, No. 24-1005, 2024 WL 5250417 (10th Cir. Dec. 31, 2024).
Texas Supremes Tackle Fixed vs. Floating NPRI. In a case involving whether a non-participating royalty interest is subject to and reduced by a lessor’s royalty in a subsequent lease, the Texas Supreme Court held that (a) an NPRI is a fixed share of production rather than a fraction of a royalty; (b) a separate ratification of the lease at issue did not transform the NPRI from fixed to floating; but (c) a stipulation and cross-conveyance between the NPRI owner and the lessor reduced the NPRI such that the lessee properly paid the NPRI-holder’s share of production. ConocoPhillips Co. v. Hahn, --- S.W.3d ----, No. 23-0024, 2024 WL 5249570 (Tex. Dec. 31, 2024).
Texas Supremes Say Early Shut-in Payment Extends O+G Lease. In a case involving a shut-in royalty provision that says the lessee “may pay as royalty $50.00 per well per year,” the Texas Supreme Court held that two shut-in payments in the same year (within one month of each other) held the lease for an additional two years, reversing and rejecting an appellate court’s decision that the second shut-in payment reset the anniversary date and a third payment tendered after that anniversary was too late to hold the lease. Scout Energy Mgmt., LLC v. Taylor Properties, --- S.W.3d ----, No. 23-1014, 2024 WL 5249490 (Tex. Dec. 31, 2024).
Tex. App. Ct. Says Tax Foreclosure Doesn’t Affect Severed Mineral Interest. A court of appeals in Texas held that a tax sale did not affect a one-half mineral interest on foreclosed property, holding that the mineral interest was not included in the scope of the foreclosure judgment and the suit is not otherwise barred by legal and equitable defenses. Bush v. Yarborough Oil & Gas, LP, --- S.W.3d ----, No. 08-23-00261-CV, 2024 WL 5248434 (Tex. App. Dec. 30, 2024).
Wyo. Fed. Ct. Issues Mixed Ruling on BLM’s Decision to Pass on Federal Leases Sales in 2021-2022. In a case challenging BLM’s decision to forgo lease sales at certain times in 2021 and 2022, a district court in Wyoming concluded that industry petitioners lacked standing to challenge some of BLM’s decisions, BLM properly exercised its discretion to forgo leasing at times in 2021, but BLM acted arbitrarily when it passed on lease sales in 2022. Wyoming v. DOI, --- F. Supp. 3d ----, No. 22-CV-247-SWS, 2024 WL 5264647 (D. Wyo. Dec. 31, 2024).
Fifth Circuit Addresses Gross Proceeds vs. Market Value Royalty Clause. In a dispute between two lessors and the bank in charge of managing their mineral interests on a tract of property atop the Haynesville Shale, the Fifth Circuit concluded that a lease addendum, which disallowed deductions for post-production costs after determining the lessors’ royalty interest, expressly declined to allocate a share of post-production costs to the lessors, reasoning that the addendum “shall prevail” over the language in the lease form and thereby granted lessors a royalty based on gross proceeds and not market value at the well. Franklin v. Regions Bank, --- F.4th ----, No. 23-30860, 2025 WL 32587 (5th Cir. Jan. 6, 2025).
DC Circuit Rejects Petition Challenging FERC Pipeline Approval. The D.C. Circuit denied a petition for review filed by environmental groups in Indiana challenging FERC’s approval of a natural gas pipeline to run turbines that will assure grid reliability pending a public utility’s move to add more renewable energy sources to its portfolio, rejecting arguments that FERC’s decision is unreasonable and inconsistent with the National Environmental Policy Act and the Natural Gas Act for failing to analyze non-gas alternatives before approving the project. Citizens Action Coal. of Indiana, Inc. v. FERC, --- F.4th ----, No. 23-1046, 2025 WL 37052 (D.C. Cir. Jan. 7, 2025).
Tex. Fed. Ct. Scraps LNG Project Sponsor’s Claim for Consequential Damages. A federal court in Texas dismissed claims for consequential damages brought by an LNG project sponsor against its contractors, enforcing the consequential-damages waiver in various engineering, procurement, and construction contracts and declining to find an exception to the express waiver for “gross negligence.” In re: Zachry Holdings, Inc., --- B.R. ----, No. 24-90377, 2025 WL 46150 (Bankr. S.D. Tex. Jan. 7, 2025).
Tex. Bankruptcy Ct. Says Debtor can Reject GGA. A bankruptcy court in Texas granted a debtor’s request to reject a gas gathering agreement, holding that although the GGA contains real covenants, including easements and a dedication of gas produced from the "subject leases" and other properties owned or controlled by the debtor or its affiliates, the debtor could still reject the GGA under the business judgment rule because of minimum gas production and payment requirements owed to the gatherer. In re: Hilltop SPV, LLC, Debtor, --- B.R. ----, No. 24-60308-MMP, 2025 WL 66433 (Bankr. W.D. Tex. Jan. 6, 2025).
Sixth Circuit Addresses Dormant Commerce Clause Violation and Michigan Electric Power Market Regulations. The Sixth Circuit reversed and remanded a case involving Michigan’s electricity market regulations, holding that regulations expressly restricting where Michigan’s electricity retailers may procure their capacity violates the Dormant Commerce Clause. Energy Michigan, Inc. v. Michigan Pub. Serv. Comm’n, --- F.4th ----, No. 23-1280, 2025 WL 211975 (6th Cir. Jan. 16, 2025).
Ninth Circuit Largely Backs Challengers in NEPA Fight over O+G Lease Sales. The Ninth Circuit said certain lease sales in Wyoming and Nevada violated various aspects of NEPA, the Federal Land Management Policy Act, and the APA, but the district court abused its discretion in vacating some of the lease sales, holding instead that those leases should remain in place upon remand but that all surface-disturbing activity should be enjoined while the agency reconsiders the leasing decisions in compliance with appropriate public participation processes. Montana Wildlife Fed’n v. Haaland, --- F. 4th ----, No. 20-35291, 2025 WL 225388, at *33–34 (9th Cir. Jan. 17, 2025).
Kansas App. Ct. Clarifies Well Operating Costs in “Paying Quantities” Analysis. A court of appeals in Kansas addressed whether a leased expired for lack of production in “paying quantities,” holding that costs for contract labor, chemicals, gas compressors, and repairs and maintenance should factor into the analysis of whether a well yields a profit (however small) over operating costs and instructed the trial court on remand to determine the costs for production and marketing of the gas produced on the lease in question using the method that most accurately reflects the lessee’s actual costs. N&B Enterprises, Inc. v. English --- P.3d ----, No. 126,339, 2025 WL 289235 (Kan. Ct. App. Jan. 24, 2025).
D.C. Circuit Scraps LNG-by-Rail Regulation. The D.C. Circuit addressed challenges to PHMSA’s rule authorizing the transportation of LNG in newly designed tank cars without a permit, largely agreeing with the challengers that PHMSA did not sufficiently consider the safety risks of transporting LNG by rail and that NEPA required PHMSA to prepare an EIS but failed to do so. Sierra Club v. United States Dep't of Transportation, --- F.4th ----, No. 20-1317, 2025 WL 223869 (D.C. Cir. Jan. 17, 2025).
Tex. Ct. App. Says Operator on the Hook for Refusing to Drill Wells. In a dispute over whether an operator must commence wells to which non-operators elected to participate, a court of appeals in Texas held that the JOA compelled the operator to “actually commence” an operation to which all JOA parties elected to participate within a stated deadline; the JOA did not excuse the operator’s refusal to commence operations; and the JOA’s exculpatory clause did not absolve the operator from actually commencing a proposed operation in which all JOA parties elected to participate. Texas Crude Energy, LLC v. Burlington Resources Oil & Gas Co., LP, --- S.W.3d ----, No. 13-23-00072-CV, 2025 WL 339035 (Tex. App. Jan. 30, 2025).
Wyo. Supreme Court Says Operator Improperly Adjusted JOA Interests and Costs. In a dispute between operator and non-operator over adjustments to the non-operator’s interests and share of production proceeds and costs, the Wyoming Supreme Court concluded that the operator breached the contract by adjusting the non-operator’s ownership interest and billing for costs beyond the twenty-four-month limitation period specified in the 1985 COPAS Form attached to the JOA. Chesapeake Exploration, LLC v. Morton Production Co., --- P.3d ----, No. S-24-0123, 2025 WL 352648 (Wyo. Jan. 31, 2025).
Tex. App. Ct. Rejects Bid to Change ORRI Based on Alleged “Scrivener’s Error.” A court of appeals in Texas reversed a trial court order enforcing changes in an assignment to reflect a conveyance of a 100% interest in certain overriding royalties rather than a 65% interest as originally drafted, finding that not all parties signed the modification of the assignments and rejecting arguments that the original assignments were the product of “scrivener’s error and inadvertence.” Callon (Permian) LLC v. KWF Enterprises, LP, --- S.W.3d ----, No. 08-24-00043-CV, 2025 WL 322862 (Tex. App. Jan. 28, 2025).
Ark. Fed. Ct. Says Deducting PPCs from O+G Royalties is not Deceptive. In a dispute over royalty payments and deductions for post-production costs, a federal court in Arkansas rejected claims that the lessee violated a state statute calling for the payment of a blended royalty rate and authorizing deductions for post-production costs off of that blended rate, holding instead that the lessee is authorized to take deductions and taking deductions before paying royalties without more therefore is not “deceptive” under the state’s consumer protection laws. Flowers vs. Flywheel Energy Production, LLC, --- F. Supp. 3d ----, No. 4:21-CV-00330-LPR, 2025 WL 331329 (E.D. Ark. Jan. 29, 2025).
ND Fed. Ct. Says White House Council Lacks Authority to Issue NEPA Regs. A federal judge in North Dakota scrapped a rule purporting to govern environmental reviews for infrastructure projects, saying the White House Council on Environmental Quality lacks authority to issue regulations. Iowa v. Council on Environmental Quality, --- F. Supp. 3d ----, No. 1:24-cv-00089 (D.N.D. February 4, 2025).
Utah Fed. Ct. Says Enviro Challenge to O+G Leases is not Ripe. A federal court in Utah dismissed challenges to oil and gas leases issued by BLM in Utah, holding that the claims are not ripe and noting that the environmental “will have ample opportunity later to bring its legal challenge at a time when harm is more imminent and more certain” such as after BLM completes its NEPA analysis. Southern Utah Wilderness Alliance v. DOI, --- F. Supp. 3d ----, No. 2:23-CV-00804-TC-DBP, 2025 WL 385251 (D. Utah Feb. 4, 2025).
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