Oil + Gas Update | Conflict in Ukraine Sparks Discussions for Increased Domestic O+G Production and Infrastructure.
Oil prices sky-rocketed in the wake of the war in the Ukraine alongside an increase in the rig count while natural gas prices are expected to dip amidst reports of mild weather in March. The Russian invasion of Ukraine also triggered new debates among policymakers over the global significance of domestic oil and gas production, with some vigorously promoting more oil and gas production at home to reduce dependence on foreign energy sources and others calling for a transition away from fossil fuels entirely to establish a greener energy system in the country. In pipeline news, Mariner East is done, MVP still faces challenges and delays (prompting Sen. Manchin of W. Va. to encourage the President to invoke the Defense Production Act to finish the project in the wake of the war), and SCOTUS denied cert. in Dakota Access. In Appalachia, courts addressed environmental rights in PA, lease-busting disputes, and arbitration of delay-rental and bonus claims. In other regions, courts grappled with environmental reviews of pipeline projects, mineral liens, fractured mineral interests, and statutory oilfield anti-indemnity issues.
Rig Counts, Spot Prices + Oil Prices
Rigs: National (663); Marcellus (36); Utica/Point Pleasant (12)
Brent Crude: $111.00/bbl
West Texas Intermediate: $107.10/bbl
NYMEX: April 2021 @ $4.526/MMBtu
Spot Prices: Henry Hub ($4.56/MMBtu); Tenn. Zone 4 ($4.06/MMBtu); Eastern Gas South (f/k/a Dominion South) ($4.08/MMBtu)
WOPL - Appalachia
Mariner East . Energy Transfer reported that Mariner East is done.
Mountain Valley Pipeline. The MVP in-service date keeps getting pushed back due to steep costs. NextEra Energy disclosed in a filing that it was re-evaluating its Mountain Valley Pipeline investment and had taken an $800 million impairment in the first quarter of 2022. In the wake of the war, Senator Joe Manchin, Chairman of the Senate Energy Committee, called on the Biden administration to use the Defense Production Act if necessary to rush completion of the stalled Mountain Valley Pipeline to help Europe replace Russian natural gas supplies.
Dakota Access. The United States Supreme Court declined to review the D.C. Circuit's invalidation of a key permit for the Dakota Access pipeline.
Headlines & Holdings - Appalachia
Commonwealth Court Denies ERA Challenge to Zoning Ordinance Amendment. Pennsylvania’s Commonwealth Court denied a challenge to a local zoning ordinance authorizing oil and gas development, rejecting claims that the ordinance violated the Environmental Rights Amendment and stating that “there is nothing inherently illegal about unconventional oil and gas drilling, and this Court has rejected any presumption that the activity will have an adverse effect on the environment or the population or that it is incompatible with residential zoning districts.” Murrysville Watch Comm. v. Municipality of Murrysville Zoning Hearing Bd., --- A.3d ----, No. 579 C.D. 2020, 2022 WL 200112 (Pa. Cmwlth. Jan. 24, 2022).
Ohio Supremes Address Life Estates and O+G Interests. The Ohio Supreme Court held that a provision in a deed stating that grantors “except and reserve one half of the royalty of the oil and gas under the above described real estate” did not reserve only a life estate in that interest, holding instead that reservations were limited to lifetimes of reserving parties and later extinguished by Ohio Marketable Title Act. Peppertree Farms, L.L.C. v. Thonen, --- N.E.3d ----, No. 2020-0812, 2022-Ohio-395, 2022 WL 481532 (Ohio Feb. 15, 2022).
Ohio Supreme Court Addresses Mineral Deed Restrictions. The Supreme Court of Ohio held that a county community development corporation violated restrictions on the transfer of property in a deed when it leased and transferred subsurface mineral rights. Siltstone Res., L.L.C. v. Ohio Pub. Works Comm'n, --- N.E.3d ----, No. 2020-0031, 2022-Ohio-483, 2022 WL 533499 (Ohio Feb. 23, 2022).
PA Superior Court Says Dispute Over O+G Delay Rentals, Bonus Belongs in Arbitration. The Superior Court of Pennsylvania held that parties to various lease agreements had a valid agreement to arbitrate causes of action for breach of contract arising from a failure to pay “delay rental” payments and “additional bonus money/rent,” negligent misrepresentation of the continuing existence of a valid lease agreement, and fraudulent misrepresentation of the continuing existence of a valid lease agreement. Monongahela Valley Country Club v. EQT, --- A.3d ----, No. 421 WDA 2021, 2022 WL 575978 (Pa. Super. Feb. 25, 2022).
Fourth Circuit Green-lights Mineral Estate Trespass Case Despite Settlement. The Fourth Circuit declined to enjoin litigation alleging that EQT trespassed into a mineral estate despite a final judgment in a class action settlement. Kay Co., LLC v. Equitable Prod. Co., --- F.4th ----, No. 21-1614, 2022 WL 599320 (4th Cir. Mar. 1, 2022).
Commonwealth Court Denies PA Game Commission’s Bid for O+G Rights. In a dispute over title to oil and gas between a private party and the Pennsylvania Game Commission, the Commonwealth Court held that the private party’s predecessor in title did not transfer ownership of coal, minerals, natural gas, and oil to the Commonwealth in a 1920 deed and, consequently, that the private party is now the current owner of those natural resources. Pa. Game Comm'n v. Int'l Dev. Corp. & Atl. Hydrocarbon (Bd. of Prop.), --- A.3d ----, No. 497 C.D. 2021, 2022 WL 628284 (Pa. Cmwlth. Mar. 4, 2022).
Ohio Fed. Court Denies Lease-Busting Bid, Defines “Operations” to Include Back-Office Prep Towards Drilling. In a lease-expiration case regarding commencement of operations, a federal court in Ohio held that the terms and phrases “operations” and “preliminary or preparatory work necessary for drilling” and “conducting internal technical analysis” as used in an oil and gas lease included back-office, technical, or administrative functions that took place in preparation for drilling a well on a unit which included the leased premises, reasoning that physical activity need not take place on a lease or unit to qualify as “operations” in order to prevent a lease from expiring. ScenicView Estates LLC v. Eclipse Resources I, LP, --- F. Supp. 3d ----, No. 2019-039, 2022 WL 715751 (S.D. Ohio March 10, 2022).
Headlines & Holdings - Beyond Appalachia
Fifth Circuit Holds that O+G Contractor’s Indemnity Obligation Capped at Min. Required by Policy. The Fifth Circuit held that a contractor owed no more indemnity to a gas company beyond the contractor’s minimum required by the parties’ MSA even though the contractor obtained more coverage than the minimum amount, reasoning that the minimum required by the policy was “for the benefit of the other party as indemnitee” under the Tex. Oilfield Anti-Indemnity Act and that the contractor’s insurance policy contained a proviso limiting indemnity coverage. Cimarex Energy Co. v. CP Well Testing, L.L.C., --- F. 4th -----, No. 20-50892, 2022 WL 457447 (5th Cir. Feb. 15, 2022).
Ark. Appellate Court Untangles Mineral Interest Dispute. In a case involving a dispute over the percentage ownership in minerals interests, a court of appeals in Arkansas interpreted the phrase “less and except one-half of all oil, gas and other minerals in, on and under the land under examination previously conveyed” as resulting in a 75/25 split based on prior conveyances rather than a 50/50 calculation urged by the plaintiff. Phifer v. Ouellette, --- S.W.3d ----, No. CV-20-733, 2022 WL 469241 (Ark. Ct. App. 2022).
Tex. Appellate Court Says No Lien on O+G Leaseholders to Pay for Unpaid Bills. In a dispute over payments to contractors, a court of appeals in Texas held that the state’s mineral lien statute only permits a mineral lien to attach to the extent that the mineral lease holder has not paid its contractor, but here the contractor was paid in full under its contract and the statutory lien on the oil and gas leaseholder was therefore unavailable. Pearl Resources Operating Co., LLC v. Transcon Capital, --- S.W.3d ----, No. 08-19-00288-CV, 2022 WL 484546 (Tex. App. Feb. 17, 2022).
Eleventh Circuit Holds that Enjoying Nature Gives Environmentalist Standing to Sue. The Eleventh Circuit held that an environmentalist who regularly visits an area of wetlands to recreate and enjoy their natural beauty has standing to complain about the filling of a wetland with outside materials because it has diminished her aesthetic interest in that wetland, reasoning that these allegations suffice to establish an injury in fact for purposes of Article III standing. Glynn Env't Coal., Inc. v. Sea Island Acquisition, LLC, --- F.4th ----, No. 21-10676, 2022 WL 620284 (11th Cir. Mar. 3, 2022).
D.C. Circ. Says FERC Failed to Consider GHG Emissions for Pipeline Project in Mass. The D.C. Circuit held that FERC’s environmental assessment for a pipeline project in Massachusetts failed to account for reasonably foreseeable indirect effects of GHG emissions attributable to burning the gas carried in the pipeline. Food & Water Watch v. FERC, --- F.4th ----, No. 20-1132, 2022 WL 727037 (D.C. Cir. Mar. 11, 2022).
Fed. Ct. Enjoins Biden’s Use of Social Cost of Carbon Metric in Enviro. Review. A Louisiana federal court issued a preliminary injunction preventing federal agencies from using the social cost of carbon metric after concluding that the metric’s application increases regulatory costs. Louisiana v. Biden, --- F. Supp. 3d ---, No. 2:21-CV-01074, 2022 WL 438313 (W.D. La. Feb. 11, 2022).
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