Oil + Gas Update - Mid-Summer Roundup.
After a few weeks off, we're back at the well with a mid-summer roundup. Since our last report, oil, gas, and rigs continued to decline, with gas prices across indices hovering between $2.00-$2.30 In pipeline news, protesters continue their efforts despite facing criminal charges while a couple of pipeline cases await SCOTUS's decision on cert petitions. In court news, SCOTUS overruled the "state litigation requirement" for regulatory takings cases. In Appalachia, courts grappled with oil and gas conveyances, pooling, shut-in clauses, subsurface trespass, royalties, MSA indemnity obligations, and environmental rights. In other regions, courts addressed estoppel-by-deed issues, royalties, class actions, lien rights, gas purchase agreements, and farmout assignments.
Here's your several-week review...
Rig Counts, Spot Prices + Oil Prices
Rigs: National (-954); Marcellus (-58); Utica/Point Pleasant (-17)
Brent Crude: -$62.47/bbl
West Texas Intermediate: -$55.76/bbl
NYMEX: August 2019 Contract @ -$2.304/MMBtu.
Spot Prices: Henry Hub (-$2.38/MMBtu); Dominion South (-$2.14/MMBtu); Tenn. Zone 4 (-$2.10/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): ACP's request for review is pending before the U.S. Supreme Court with U.S. Solicitor General support. Despite different views of Virginia lawmakers, mayors from six counties and towns along the proposed path of the ACP project offered their support given the importance of the project to revitalize the economy and help support public schools, enhance community services, and lower the tax burden on citizens.
Atlantic Sunrise (Northeastern PA to SE Pennsylvania): A Lancaster County judge dismissed trespassing charges against seven protesters who blocked construction of the Atlantic Sunrise natural gas pipeline almost two years ago.
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): Union workers rallied in support of Mariner East activities while county officials push the state's PUC to require public safety and awareness meetings as part of the agency's rulemaking proceedings.
Mountaineer XPress (WV): Nothing new to report.
Mountain Valley Pipeline (Northern WV to Southern Va. and NC): More protesters chained themselves to equipment at MVP sites on separate occasions over the past few weeks. Police arrested a protester accused of assaulting a pipeline worker. In court and regulatory news, landowners asked the U.S. Supreme Court to review their challenge to condemnation authority while FERC requested information on a coating used to prevent corrosion of the pipe.
NEXUS (Ohio to Michigan): Pipeline restoration activities are underway to address against unusually high rainfall events.
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): The company has completed restoration work and continues to monitor the right-of-way for any issues associated with unusually high rainfall events. Meanwhile, Energy Transfer Partners is weighing the sale of its 33% stake in the pipeline.
TransCanada Eastern Panhandle Project (PA to WV): Nothing new to report.
Headlines & Holdings - Appalachia
Deed Conveying the Surface Tracts did not Reserve Oil and Gas. The Superior Court held that a grantor conveying the “surface tracts” including “all the property” described in the deed, without expressly reserving oil and gas, conveyed the entire fee and did not reserve the oil and gas. Three Rivers Royalty v. Lorraine Canestrale Trust, --- A.3d ---, No. 1302 WDA 2018 (Pa. Super., June 21, 2019).
Federal Courts have Jurisdiction over Regulatory Takings Claims. The U.S Supreme Court overruled the “state litigation requirement” and held that plaintiffs can bring takings claims directly to federal court. Knick v. Township of Scott, --- S.Ct. ---, --- U.S. ---, No. 17-647 (U.S., June 20, 2019).
Ohio Court Says Statutory Pooling OK Despite Lack of Clause in Oil + Gas Lease. A court of appeals in Ohio upheld an order authorizing a well operator to pool the plaintiff’s lease by statute despite the parties’ having agreed to delete a voluntary pooling provision in their oil and gas lease, reasoning that the parties’ agreement to delete the pooling clause rendered the lease silent and rejecting the plaintiff’s claim that the parties’ decision to delete that provision prohibited pooling of any kind, statutory or otherwise. Paczewski v. Antero Resources Corp., --- N.E.3d ---, No. 18 MO 0016 (Ohio Ct. App., June 18, 2019).
Commonwealth Court Rejects Environmental-Rights Challenge to Local Ordinance. Relying in large part on the rationale Frederick, a case that rejected a constitutional challenge to a local ordinance that did not "do more" to protect environmental rights by allowing oil and gas wells in additional zoning districts, the Commonwealth Court likewise rejected a constitutional challenge to a zoning ordinance that authorized oil and gas wells in residential/agricultural zones. Delaware Riverkeeper Network v. Middlesex Township Zoning Hearing Board, --- A.3d ---, No. 2609 C.D. 2015 (Cmwlth. Ct., June 26, 2019).
Shut-in Payments Prevail in Lease Busting Attempt. In Wheeland Family Ltd. Partnership LP v. Rocdkale Marcellus LLC, No. 4:18-CV-01976, 2019 WL 2868937, (M.D. Pa. July 3, 2019), the lessee pooled leases into a unit that included two wells that were not producing and tendered shut-in payments pursuant to a standard shut-in provision. The provision authorized the lessee to tender the payment for a well that is “not producing for any reason whatsoever[.]” The lessor rejected the shut-in payments for unit wells and sued to invalidate several of its leases. The court dismissed the case on the pleadings, reasoning that the lessee complied with the shut-in provision by tendering payment and rejected the claim that the lessee engaged in bad-faith, last-minute pooling to hold the leases with a shut-in payment because the express provision authorized the lessee to shut in wells for any reason.
Federal Court in PA Says Lawsuit Premature under Notice-and-Cure Provision in O+G Lease. In Elbow Energy, LLC v. Equinor USA Onshore Properties Inc., --- F. Supp. 3d ---, No. 4:19-CV-00764, 2019 WL 2868927 (M.D. Pa., July 3, 2019), the lease’s notice-and-cure provision stated that the lessor must notify the lessee of any breach and give the lessee one year to cure before bringing a cause of action. The lessor notified the lessee of alleged underpaid royalties, and before the one-year period expired, sued for breach of contract and an accounting. The lessee moved to dismiss; in response, the lessor argued that the court should ignore the premature filing because the adjudication would occur after the one-year period expired; the notice-and-cure provision did not apply to accounting claims (even though it applied to all damage claims); and the lessor’s violation is immaterial. The court dismissed the case without prejudice, rejecting the plaintiff’s arguments and holding that the lessor violated the plain and unambiguous terms of the lease by suing before the one-year stay-out period expired.
Sixth Circuit Confirms Dismissal of Subsurface Trespass Claim. The Sixth Circuit affirmed an order granting summary judgment in favor of a pipeline company accused of unlawful subsurface trespass, noting that Ohio law requires that trespass plaintiffs show a possessory interest in a subsurface estate in order to prevail and noting that the plaintiffs in this case admitted that they have not used and do not intend to use their subsurface. Baatz v. Columbia Gas Transmission, LLC, --- F.3d ---, No. 18-3233, 2019 WL 3000993 (6th Cir., July 10, 2019).
Middle District Addresses MSA Indemnity Obligations. A federal judge upheld an MSA with mutual indemnity obligations supported by insurance, holding that the parties to the MSA must indemnify one another and concluding that the unspecified coverage amounts for the insurance that supported the mutual indemnity obligations did not render those provisions unenforceable. Williams v. Inflection Energy, LLC, --- F. Supp. 3d ---, No. 4:15-CV-00675, 2019 WL 3202176 (M.D. Pa., July 16, 2019).
Kansas Federal Court Denies Royalty Class Action Challenging Post-Production Costs. A federal court in Kansas denied a motion to certify a royalty class action challenging a lessee's deduction of various processing costs charged by its affiliate, noting that (a) in Kansas, gas may be in "marketable condition" before it is marketed in a good faith transaction; (b) lessors and lessees may share in some of those costs that are incurred; and (c) individual royalty claims were different from plaintiff to plaintiff that they now predominated over issues common to the class. Hitch Enterprises, Inc. v. Oxy USA Inc., F. Supp. 3d ---, No. 18-1030-EFM-KGG, 2019 WL 3202257 (D. Kan., July 16, 2019).
Headlines & Holdings - Beyond Appalachia
SCOTUS Says Atomic Energy Act Doesn't Preempt Va.'s Ban on Uranium Mining. The Supreme Court upheld a state law banning uranium mining, rejecting a mining company's arguments that the Supremacy Clause and other federal statutes preempted state laws and concluding that Congress gave regulatory authority to the Nuclear Regulatory Commission under the Atomic Energy Act after uranium is removed from land, leaving mining regulation on private land to the states. Virginia Uranium, Inc. v. Warren, --- S.Ct. ---, --- U.S. ---, No. 16-1275 (U.S., June 17, 2019).
TX Supremes Reject Estoppel by Deed and Duhig. The Texas Supreme Court upheld an interest in property the plaintiffs inherited from their mother despite claims that their father later sold those interests to the defendants, rejecting the arguments that estoppel by deed divested the plaintiffs' interests before the sale or that the Duhig rule validated the father's sale and holding instead that the plaintiffs acquired their interest independently from their mother before the father's purported sale. Trial v. Dragon, --- S.W.3d ---, No. 18-0203, 2019 WL 2554130 (Tex., June 21, 2019).
Antero Prevails in Marcelus Gas Purchase Dispute. A jury in Colorado awarded Antero Resources $96 million after a gas utility failed to purchase all of Antero's West Virginia production. Antero Resources Corp. v. Washington Gas Light Co. No. 2017-CV-33930.
TX Supremes Enforce Right to Refuse Consent of Farmout Assignment. The Texas Supreme Court reversed a $27 million judgment for breach of contract arising from an offer to purchase an assignment of a farmout, holding that the defendant had the unambiguous right to refuse its consent to to the proposed assignment and rejecting the plaintiffs' reliance on oral statements regarding the owner's consent. Barrow-Shaver Resources Co. v. Carizzo Oil & Gas, Inc., --- S.W.3d ---, 17-0332, 2019 WL 2668317 (Tex., June 28, 2019).
Federal Court in Texas Denies Royalty Class Certification. A federal court in Texas denied certification of a class of royalty plaintiffs, holding that conflicts among royalty owners who were overpaid and/or underpaid along with differences among the leases rendered class-wide treatment of their claims regarding post-production costs improper. Regumund v. Talisman Energy USA, Inc., --- F. Supp. 3d ---, No. 4:16-CV-02960, 2019 WL 2863926, at *9 (S.D. Tex., July 2, 2019).
Eighth Circuit Holds that Employees Have No Lien Rights under ND Statute. The Eighth Circuit upheld an order quieting the plaintiff's title to an oil pipeline after a worker purported to place a lien on the property for non-payment of wages, holding that the worker is an employee that cannot claim lie rights under North Dakota's lien statute. Oil & Gas Transfer L.L.C. v. Karr, --- F.3d ---, No. 18-1461, 2019 WL 2932197 (8th Cir., July 9, 2019)
ND Supreme Court Holds that Lessee Can't Deduct PPC from State's Royalty. Interpreting a "gross proceeds" lease, the North Dakota Supreme Court held that a lessee of state-owned property could not reduce the state's royalty by its proportionate share of costs to make natural gas "marketable" incurred after the buyer purchased gas at the well and reduced the payment by the percentage of processing costs, rejecting the lessee's claim that the lessee paid royalty on gross proceeds received despite the reduction for processing costs and concluding that the lessee benefits from those activities and therefore lessee bears the burden of those costs alone, whether directly or indirectly incurred. Newfield Exploration Company v. State ex rel. North Dakota Board of University and School Lands, --- N.W.2d ---, No. 20190088, 2019 WL 3024639, (N.D., July 11, 2019).
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