Oil + Gas Update - D.C. Circuit Rejects FERC's Approval of Higher Rates for New Shippers Using New Pipeline Facilities.
Natural gas spot prices showed signs of life since our last report even though the rig count plummeted as oil producers shut in production due to falling prices. The pipeline scene is relatively quiet. In Appalachia, courts addressed royalty and implied covenant claims while courts in other regions grappled with challenges to well bond forfeiture orders and shipper rates set by FERC to cover increases in costs of pipeline expansion projects.
Here's the week in review...
Rig Counts, Spot Prices + Oil Prices
Rigs: National (-602); Marcellus (-38); Utica/Point Pleasant (9)
Brent Crude: -$31.20/bbl
West Texas Intermediate: -$22.79/bbl
NYMEX: May 2020 @ +1.783/MMBtu
Spot Prices: Henry Hub (+$1.80/MMBtu); Dominion South (+$1.44/MMBtu); Tenn. Zone 4 (+$1.36/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): A farmer living along the proposed Atlantic Coast Pipeline route is asking Nash County officials to halt appraisers from entering his home during a statewide stay-at-home order meant to slow the spread of COVID-19.
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): The pipeline company had back-and-forth with state regulators over whether Mariner East could resume construction under the PA Governor's order shutting down most businesses in the state.
Mountaineer XPress (WV): Nothing new to report.
Mountain Valley Pipeline (Northern WV to Southern Va. and NC): MVP backer Equitrans’ in-house lawyer fired back at attempts to shut down construction allegedly based on COVID-19 fears when the groups backing the push – Sierra Club and the like – are using the crisis to push their misguided environmental agenda.
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): Nothing new to report.
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
Fed. Judge Denies SWN’s Summary Judgment on Continuous Development Claim. The federal court in the Middle District of PA denied a summary judgment bid filed by SWN, holding that the plaintiffs raised issues of fact regarding SWN’s continuous drilling schedule and reasoning that there remains a question of whether SWN proceeded with due diligence. Butters Trust v. SWN, --- F. Supp. 2d ---, No. 4:17-CV-797, 2020 WL 1503657 (M.D. Pa. Mar. 30, 2020).
Ohio Federal Court Dismisses Royalty Class Action. A federal court in Ohio dismissed a royalty class action alleging CHK and Total improperly charged royalty owners their proportionate share of gathering, transportation, and processing costs given that the parties agreed to calculate royalties at the wellhead. Zehentbauer Family Land LP v. Chesapeake Exploration, LLC, --- F. Supp. 3d ---, No. 4:15CV2449, 2020 WL 1514559 (N.D. Ohio Mar. 30, 2020).
Sixth Circuit Rejects Emotional Distress Damages in Pipeline Easement Dispute. The Sixth Circuit reversed an order that awarded emotional distress damages to a plaintiff alleging breach of an easement agreement for a pipeline company’s failure to restore the easement to its original conditions as much as practical, holding that emotional distress damages aren’t available for breach of contract claims. Nelson v. Columbia Gas Transmission, LLC, --- F.3d ---, No. 19-5641, 2020 WL 1608738 (6th Cir. Apr. 2, 2020).
Sixth Circuit Dismisses Untimely Royalty Claims, Rejects “Fraudulent Concealment” Justification. The Sixth Circuit held that the state’s statute of limitations barred royalty claims that accrued outside the limitations period, rejecting the royalty owners’ claims that the lessee fraudulently concealed both the submarket prices it used to calculate royalty payments and the deductions it made from those payments for production costs to toll the limitations period. Lutz v. Chesapeake Appalachia, L.L.C., --- F.3d ---, No. 19-3315, 2020 WL 1651625 (6th Cir. Apr. 3, 2020).
SWN Dodges Development Covenant Claim. A federal court dismissed without prejudice a claim by landowners that SWN breached an implied covenant of further development while passing on dismissing other implied covenant claims, reasoning that “during the production phase of operations, absent express development terms in the lease, the terms of the habendum clause represent the only bargain of the parties and no implied duty to develop reasonably can be imposed upon the lessee thereafter.” Diehl v. SWN Production Company, LLC, --- F. Supp. 3d ---, No. 3:19-CV-1303, 2020 WL 1663342 (M.D. Pa. Apr. 3, 2020).
Ohio Court Says CHK Off the Hook for Underpaid Royalties. An appellate court in Ohio concluded that CHK “marketed” gas and NGLs at the wellhead and owed royalties based on the wellhead value as required by an oil and gas lease by selling to a third-party affiliate that resold gas downstream and paid CHK proceeds minus post-production costs the affiliate incurred.Gateway Royalty, L.L.C. v. Chesapeake Exploration, --- N.E.3d ---, No. 2020-Ohio-1311, 2020 WL 1671626 (April 3, 2020).
Headlines & Holdings - Beyond Appalachia
Federal Court in California Axes Challenge to Repeal of Frac Regs on Fed/Tribal Lands. A federal court in California granted motions of the federal government and industry groups to dismiss claims by the State of California and environmental groups that the repeal of Obama-era regulations imposed on frac operations taking place on federal and tribal lands, holding that the repeal did not violate the APA, NEPA, or ESA. California v. Bureau of Land Management, --- F. Supp. 3d ---, No.8-CV-00521-HSG, 2020 WL 1492708 (N.D. Cal. Mar. 27, 2020).
Wyo. Supreme Court Says O+G Conservation Commission, not Courts, Should Hear Challenges to O+G Well Bond Forfeitures. The Supreme Court of Wyoming concluded that well operators challenging an order of the Conservation Commission forfeiting well bonds should pursue remedies before the Commission despite statutory authority to challenge certain agency actions in court, reasoning that dec actions authorized by the Conservation Act are reserved for constitutional or other similar preliminary challenges that don't involve courts pre-judging issues that the Commission should resolve first such as the decision to forfeit a well bond. Black Diamond Energy of Delaware, Inc. v. Wyoming Oil and Gas Conservation Commission, --- P.3d ---, No. 2020 WY 45, 2020 WL 1616050 (Wyo. Apr. 2, 2020).
California Appellate Court Rejects State Enviro Challenges to O+G Wells. An appellate court in California rejected challenges brought by community and national environmental groups to well permits approved by the state's department of oil and gas resources, holding that the operator complied with fixed objective standards that delineated the technical specifications for drilling new wells at that particular oil field such that exemptions to the state's environmental review rules applied. Association of Irritated Residents v. Cal. Department of Conservation, Division of Oil, Gas, and Geothermal REsources, --- Cal. Rpt. ---, No. F078460, 2020 WL 1698749 (Cal. Ct. App. Apr. 8, 2020).
D.C. Cir. Rejects "Incremental Plus" Rates Approved by FERC for Pipeline Expansion Project that Went Over Budget. The D.C. Circuit rejected FERC's approval of incremental-plus rates proposed by a pipeline operator to recover increased costs for an expansion project from shippers with long-term contracts using the new facilities while charging existing shippers only a fraction of those costs, concluding that FERC acted arbitrarily and capriciously by treating identical shippers dramatically different rates for the use of the same facilities without any justification in violation of fundamental ratemaking principles. Gulf S. Pipeline Co., LP v. FERC, --- F.3d ---, No. 19-1074, 2020 WL 1814270 (D.C. Cir. Apr. 10, 2020).
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