Oil + Gas Update - Texas Supremes Tackle Duty of Executive Rights Holder.
During a quiet week, natural gas spot prices remained relatively flat since our last report while oil prices climbed slightly despite a drop in the national rig count. The pipeline scene was also relatively quiet, except for Trump's executive order that aims to prevent states from using Section 401 water quality certifications to stall or prevent pipeline projects and a new lawsuit against Sunoco urging a local court to halt Mariner East 2 construction activities. In Appalachia court news, the Sixth Circuit said the parties to a lease can share post-production costs on NGL sales in "at the well" jurisdictions unless the lease says otherwise. In other news, the Texas Supremes held that the "duty of utmost good faith" applies when the mineral estate's executive-rights holder rejects an offer to lease to the detriment of the non-executive interests in the mineral estate.
Here's your week in review...
Rig Counts, Spot Prices + Oil Prices
Rigs: National (-1012); Marcellus (-62); Utica/Point Pleasant (+18)
Brent Crude: +$71.55/bbl
West Texas Intermediate: +$63.89/bbl
NYMEX: May 2019 Contract @ +$2.700/MMBtu.
Spot Prices: Henry Hub (+$2.69/MMBtu); Dominion South (-$2.44/MMBtu); Tenn. Zone 4 (-$2.39/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): Nothing new to report.
Atlantic Sunrise (Northeastern PA to SE Pennsylvania): Nothing new to report.
Constitution (Northeastern PA to NY): As anticipated, President Trump signed an executive order that aims to limit the ability of states to use Section 401 water quality certifications to slow down or stop pipeline projects.
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): Chester County sued Sunoco to stop construction activities on Mariner East 2.
Mountaineer XPress (WV): Nothing new to report.
Mountain Valley Pipeline (Northern WV to Southern Va. and NC): Nothing new to report.
NEXUS (Ohio to Michigan): Nothing new to report.
NFG FM100 Project (NC PA to Transco): 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.
Rover (OH, WV, PA to Michigan): Nothing new to report.
TransCanada Eastern Panhandle Project (PA to WV): Nothing new to report.
Headlines & Holdings - Appalachia
Sixth Circuit Says Lessee Can Deduct PPC from Royalties on NGL Sales. The Sixth Circuit concluded that the “at the well” rule for royalty calculations (utilizing the net-back method of calculating a wellhead royalty value) applied to NGLs such that the lessee could take deductions for post-production costs, reasoning that the royalty clause is silent as to the market place or price for the sale of NGLs and the parties did not specifically contract around the default “at the well” rule. EQT Production Co. v. Magnum Hunter Production, Inc., --- F.3d ---, No. 18-5372, 2019 WL 1556201 (6th Cir., Apr. 10, 2019).
Headlines & Holdings - Beyond Appalachia
Tenth Circuit Holds that Challenge to Court Order Rolling Back Obama Methane Rule is Moot. The Tenth Circuit dismissed an appeal of a district court order rolling back Obama-era rules restricting emissions from federal and tribal lands in light of a replacement rule that renders the litigation moot. Wyoming v. Department of Interior, --- F.3d ---, No. 18-8027 (10th Cir., April 10, 2019).
ND Federal Court Says that a Promise to Pay Costs of a Well does not Create a Covenant that Runs with the Land. A federal court in North Dakota held that an agreement to pay 10% of the costs of drilling a project well in which the promisor opted to participate was not "made for the direct benefit of the land" for purposes of satisfying state requirements for real covenants that run with the land in North Dakota. Slawson Expl. Co., Inc. v. Nine Point Energy, LLC, --- F. Supp. 3d ---, No. 1:17-CV-106, 2019 WL 1518164 (D.N.D., April 8, 2019).
Texas Court of Appeals Says Timely Pollution Claims Against an Injection Well Operator Survive. A court of appeals in Texas dismissed untimely claims that an injection well damaged oil and gas wells based on an email sent more than two years before filing the lawsuit but allowed similar claims the plaintiff discovered during the two-year limitations period. Swift Energy Operating, LLC, v. Regency Field Services, LLC, --- S.W.3d ---, No. 04-17-00638, 2019 WL 1547608 (Tex. Ct. App., April 10, 2019).
Texas Supremes Say Executive's Duty of Utmost Good Faith Applies when Refusing to Lease. The Supreme Court of Texas concluded that the holder of executive rights in a mineral estate has a duty of utmost good faith to the holder of non-executive of the mineral estate when deciding whether or not to accept a lease offer, rejecting arguments that the executive should be able to refuse a lease to protect the surface estate or hold out for a better deal and reasoning instead that the executive's decision to reject the lease offer qualified as the sort of self-interested dealing that unfairly diminished the value of the non-executive interest. Texas Outfitters Limited, LLC v. Nicholson, --- S.W.3d ---, No. 17-0509, 2019 WL 1575018 (Tex., April 12, 2019).
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