Oil + Gas Update | Summer 2024 Roundup
Since our last report, natural gas prices remain sluggish alongside relatively flat oil prices and a sliding rig count. In court news, the U.S. Supreme Court scrapped Chevron deference, stripping away the influence that administrative agencies have exerted over questions of statutory interpretation since the New Deal. Courts in Appalachia grappled with lease-busting bids; disputes over pipelines and related infrastructure; ORRIs and depth severances; and title disputes. In other regions, courts addressed various FERC approvals, environmental reviews, and pipeline rates; surface use; royalties, post-production costs, and statutory interest claims; forced pooling of riverbed oil and gas rights; disputes over LNG projects; arbitration provisions in JOA disputes; and challenges to new PHMSA regulations.
Rig Counts, Spot Prices + Oil Prices
Rigs: National (585); Marcellus (25); Utica/Point Pleasant (9)
Brent Crude: $79.02/bbl
West Texas Intermediate: $74.83/bbl
NYMEX: August 2024 @ $2.177/MMBtu; 12-Month Strip @ $2.978/MMBtu
Spot Prices: Henry Hub @ $2.12/MMBtu
Headlines & Holdings - Appalachia
Ohio Landowner Gets $0 for Pipeline ROW Impact on Mineral Estate. A federal court in Ohio adopted a report and recommendation issued by a commission to determine the just compensation owed to a mineral owner for impacts of a pipeline project on the mineral estate, holding that the landowner failed to prove special damages to the mineral estate. In re: Columbia Gas Transmission, LLC, --- F. Supp. 3d ----, No. 2:17-CV-70, 2024 WL 3023598 (S.D. Ohio June 17, 2024).
Ky. Fed. Ct. Denies Lease Busting Bid. A federal court in Kentucky concluded that fact issues preclude summary judgment in a case involving whether an oil well produced in paying quantities sufficient to hold the lease, holding that the lessor did not have to plead lease expiration or prove notice of the claim before filing suit. Burkesville Hardwoods, LLC v. Coomer, --- F. Supp. 3d ----, No. 1:18-CV-00018-GNS-HBB, 2024 WL 3205414 (W.D. Ky. June 27, 2024).
Ohio Fed. Ct. Says Mineral Owner Stated Takings Claim after Permit Denial. A federal court in Ohio concluded that the denial of a conditional use permit for surface mining constituted a regulatory taking that entitled it to compensation, remanding the case to determine the property interests in (1) the mineral estate (including any reversionary interest); (2) the surface estate; and (3) the payments provided for in the mineral lease (e.g., bonus, delay rental, and/or royalty). State of Ohio ex rel. Sahbra Farms, Inc., --- N.E.3d ----, No. 2023-P-0062, 2024 WL 3220367 (Ohio Ct. App. June 28, 2024).
Ky. Fed. Ct. Dismisses Claim that Pipeline Op. is an Ultra-Hazardous Activity. In a case involving claims that odors from a pipeline compressor station caused harm to the plaintiffs, a federal court in Kentucky held that a natural gas pipeline is not an ultra-hazardous activity giving rise to strict liability and that, even if it were ultra-hazardous, the public-function exception would exempt a natural gas pipeline from strict liability under state law. Brackett v. Columbia Gulf Transmission, --- F. Supp. 3d ----, No. 1:20-CV-00168-GNS-HBB, 2024 WL 3205416 (W.D. Ky. June 27, 2024).
Third Circuit Says EHB has Jurisdiction to Review Interstate Pipeline Permits. The Third Circuit held that the Pennsylvania Environmental Hearing Board has authority to review a pipeline company’s permit application for upgrades, holding that federal courts aren’t the exclusive forum to hear challenges to permits under the Natural Gas Act. Transcontinental Gas Pipe Line Co., LLC v. PA EHB, --- F.4th ----, No. 23-2052, 2024 WL 3322106 (3d Cir. July 8, 2024).
Fourth Circuit Reverses PI Against Landowner Blocking Pipeline Access. In a dispute over a midstream company’s access to its pipeline for maintenance work in anticipation of coal mining operations, the Fourth Circuit reversed a district court order enjoining the landowners from blocking access, holding instead that the midstream company failed to demonstrate irreparable harm to justify the injunction. Williams Ohio Valley Midstream, LLC v. Kittle, --- F.4th ----, No. 23-2185, 2024 WL 3325532 (4th Cir. July 8, 2024).
D.C. Circ. Denies Complaint About Texas Eastern Pipeline Pressure Obligations. The D.C. Circuit upheld FERC’s decision and denied petitions for review filed by a natural gas producer and an interstate pipeline company asking FERC to ensure its pipeline system’s operating pressure is sufficiently high to move the gas into Columbia Gulf’s pipeline system, upholding FERC’s decision that the petitioners failed to demonstrate in their complaints that Texas Eastern had any minimum delivery pressure obligation. Columbia Gulf Transmission, LLC v. FERC, --- F.4th ----, No. 22-1151, 2024 WL 3381915 (D.C. Cir. July 12, 2024).
WV App. Ct. Says O+G Interests Didn’t Forfeit to State. In a dispute over title involving a tax sale, a court of appeals in West Virginia held that the oil and gas did not automatically revert to the state in 1947 for nonentry on the land books such that the state could not by tax deed convey the rights. Northeast Natural Energy, LLC v . LT Realty Unlimited, LLC, --- S.E.2d ----, No. 23-ICA-154, 2024 WL 3384948 (W. Va. Ct. App. July 12, 2024).
PA Supremes Say Enviro-Group Challenge to RGGI is Moot. The Pennsylvania Supreme Court held that an appeal from an order granting a preliminary injunction against the Pennsylvania Department of Environmental Protection’s RGGI regulation is moot given the entry of a permanent injunction precluding the Commonwealth from joining RGGI. Shirley v. PA Legislative Reference Bureau, --- A.3d ----, No. 85 MAP 2022, 2024 WL 3450536 (Pa. July 18, 2024).
Pa. Cmwlth. Ct. Sends Impact Fee Dispute to PUC. The Commonwealth Court of Pennsylvania dismissed, for failure to exhaust administrative remedies, a petition filed by a well operator claiming that its predecessor in interest is on the hook for past due impact fees, holding that the legal issues are complex and should be decided on a concrete factual record developed before the Pennsylvania Public Utility Commission (the agency in charge of administering and collecting the impact fee). Repsol Oil & Gas USA, LLC v. Pennsylvania Pub. Util. Comm’n, --- A.3d ----, No. 613 M.D. 2022, 2024 WL 3507258 (Pa. Cmwlth. July 23, 2024).
Ohio App. Ct. Says ORRI Limited to Shallow Rights. A court of appeals in Ohio upheld a depth limitation in an assignment and concluded that a related 2.5% override applied to production from shallow formations, rejecting claims for compensation based on production from deeper formations pursuant to a separate and subsequent sublease of deeper rights. Hogue v. PP&G Oil Co., LLC, --- N.E.3d ----, No. 23 MO 0021 and 0022, 2024 WL 3634236 (Ohio. Ct. App. August 1, 2024).
WV Appellate Court Says BFPs have Title to Oil and Gas. In a dispute over oil and gas ownership, a court of appeals in West Virginia held that landowners had no actual or constructive notice of an unrecorded deed on which a gas company relied to claim title, holding that the landowners met their burden of proof as bona fide purchasers and rightful owners of the disputed oil and gas. Occidental Petroleum v. Tustin, --- S.E.3d ----, No. 23-ICA-375, 2024 WL 3579341 (W. Va. Ct. App. July 30, 2024).
D.C. Circuit Tosses FERC’s Approval of Transco NE Extension. The D.C. Circuit reversed FERC’s approval of Transco’s Northeast pipeline expansion project, holding that the agency erred by overlooking GHG emissions and failed to properly consider the lack of market need for additional pipeline capacity in the region. New Jersey Conservation Found. v. FERC, --- F.4th ----, No. 23-1064, 2024 WL 3573637 (D.C. Cir. July 30, 2024).
Third Circuit Upholds Bottled Water Program after Oil Spill. The Third Circuit upheld an injunction and related bond that residents secured after oil spills at a refinery affected their water supply, holding that the plaintiffs proved their case had merit and that irreparable harm would befall them absent an injunction and rejecting claims that the bond they posted is insufficient to cover the defendants’ cost of the bottled water program. Boynes v. Limetree Bay Ventures LLC, --- F.4th ----, No. 23-2432, 2024 WL 3643774 (3d Cir. Aug. 5, 2024).
WVDEP is not “Indispensable” in Class Action over Abandoned O+G Wells. In a class action lawsuit alleging that abandoned oil or gas wells caused harms, the Fourth Circuit held that the WVDEP is neither necessary nor indispensable to the case, rejecting claims from well operators that the court should dismiss the case because the agency must be joined but cannot be joined due to sovereign immunity. McEvoy v. Diversified Energy Co. PLC, --- F.4th ----, No. 23-1717, 2024 WL 3642431 (4th Cir. Aug. 5, 2024).
NJ Supremes Address Compressor Station Permit Requirements. The New Jersey Supreme Court concluded that a compressor station project is exempt from certain environmental regulations, holding that the statutory exemption applies to routine maintenance and operations and upgrades (among others) and reasoning that “routine” only modifies “maintenance and operations” such that non-routine upgrades such as the ones planned for the compressor station satisfy the exemption. In re: Compressor Station (CS327), --- A.3d ----, No. 088744, 2024 WL 3659132 (N.J. Aug. 6, 2024).
Sixth Circuit Says ORRI Limited to Shallow Zones. In a case involving a dispute over overriding royalty interests, the Sixth Circuit concluded that an assignment limited the scope of the ORRI to shallow formations such that the plaintiff could not recover overrides on production from deep horizontal wells targeting the Utica Shale. Sabre Energy Corp. v. Gulfport Energy Corp., --- F.4th ----, No. 23-3684, 2024 WL 3723103 (6th Cir. Aug. 8, 2024).
Ohio App. Ct. Tackles DMA Compliance in O+G Title Dispute. A court of appeals in Ohio held that landowners claiming rights to oil and gas interests did not fully comply with the state’s Dormant Mineral Act in having those interests declared abandoned such that title vested in them as the surface owners, concluding that the claimants did not include known names of mineral holders in public notices as required by the statute. Henderson v. Stadler, --- N.E.3d ----, No. 23 MO 0017, 2024 WL 3738717 (Ohio Ct. App. August 9, 2024).
Headlines & Holdings - Beyond Appalachia
FERC’s Climate Change Review Upheld by DC Circ. The D.C. Circuit upheld FERC’s approval of a pipeline project and rejected the claims of an environmental group that the agency’s environmental impact statement did not consider climate change properly, holding instead that FERC did not shirk its duties by failing to quantify greenhouse-gas emissions from upstream drilling for the extra gas, quantify ozone emissions from its downstream burning, or categorize emissions impacts as either significant or insignificant as urged by the plaintiffs. Food & Water Watch v. FERC, --- F.4th ----, No. 22-1214, 2024 WL 2983833 (D.C. Cir. June 14, 2024).
Iowa Supremes Uphold $4.75 Award for Voltage from Pipeline Affecting Cattle. The Supreme Court of Iowa upheld a multi-million-dollar jury award in favor of a family claiming that stray voltage from a cathodic protection system, which runs an electrical current through a pipeline to prevent corrosion, distressed their dairy herd and caused them damages, rejecting the company’s claims that the trial court failed to instruct the jury on nuisance without including negligence as an element of the claim and erred in denying a remitter motion. Vagts v. Northern Natural Gas Co., --- N.W.3d ----, No. 23-0537, 2024 WL 3075432 (Iowa June 21, 2024).
D.C. Circ. Denies Petition Challenging FERC Order Approving Oil Pipeline Co.’s Market-Based Rates. The D.C. Circuit upheld FERC orders approving a pipeline company’s market-based rates for oil shipping services, denying a petition filed by two customers alleging that FERC adopted an arbitrary and capricious definition of the relevant geographic destination market for the pipeline’s services when analyzing whether it had market power or not. Husky Mktg. & Supply Co. v. FERC, --- F.4th ----, No. 23-1042, 2024 WL 3077184 (D.C. Cir. June 21, 2024).
Mont. Supremes Say no Injunction to Prevent Removal of Fence Surrounding O+G Wells. The Montana Supreme Court denied a bid to stop a well operator from removing a fence around its oil and gas well operations, holding that the company had no statutory, common law, and contract duties to fence all of its oil and gas production sites to protect the landowners’ cattle from harm. Bye v. Somont Oil Co., --- P.3d ----, No. DA 22-0707, 2024 WL 3045185 (Mont. June 18, 2024).
ND Federal Court Allows Royalty/PPC Row to Proceed. A federal court in North Dakota concluded that lessors stated a claim for breach of their oil and gas lease by deducting compression and transportation costs from royalty payments, rejecting the lessee’s bid to dismiss the claim for lack of specificity. Phelps Min. Holdings, LLC, v. Cont'l Res., Inc., --- F. Supp. 3d ----, No. 1:23-CV-219, 2024 WL 3161112 (D.N.D. June 24, 2024).
Supreme Court Overrules Chevron Deference. In a long-anticipated decision, the U.S. Supreme Court overruled the Chevron doctrine that compelled courts to defer to agency interpretations of enabling statutes, holding that courts need not, and under the Administrative Procedure Act may not, defer to an agency’s interpretation of the law simply because a statute is ambiguous. Loper Bright Enterprises v. Raimondo, --- U.S. ----, No. 22-1219, 2024 WL 3208360 (U.S. June 28, 2024).
La. Supreme Court Says Negotiorum Gestio does not Apply to Oil + Gas Unit Operators. In a class action involving claims that a unit operator improperly deducted post-production costs from royalty payments, the Supreme Court of Louisiana answered a certified question from the Fifth Circuit and held that the doctrine of negotiorum gestio – i.e., when a person without authority interferes in the affairs of another without consent – is incompatible with the state’s forced pooling statute because unit operators have statutory authority to sell unit production such that the ancient doctrine cannot be a basis for a unit operator’s liability. Self v. BPX Operating Co., --- S.W.3d ----, No. 2023-CQ-01242, 2024 WL 3218657 (La. June 28, 2024).
Supreme Court Extends APA SOL. The U.S. Supreme Court extended the six-year deadline for challenges to agency actions under the Administrative Procedure Act, holding that a cause of action accrues when a plaintiff is injured by a regulation and not upon publication of the regulation. Corner Post v. Board of Governors, Federal Reserve System, --- U.S.----, No. 22-1008, 2024 WL 3237691 (July 1, 2024).
Wisconsin Fed. Ct. Allows Gas Stove Claim to Proceed. In a class action involving claims that gas stove manufacturers sell defective and harmful gas products, a federal court in Wisconsin concluded that the Energy Policy and Conservation Act did not preempt the plaintiffs’ state law tort claims. Bankhurst v. Wolf Applicance, Inc., --- F. Supp. 3d ----, No. 23-CV-253-JDP, 2024 WL 3273322 (W.D. Wis. July 2, 2024).
La. Fed. Ct. Stays Biden’s LNG Ban. A federal court in Louisiana stayed the Biden Administration’s ban on LNG exports to countries without a free trade agreement. State of Louisiana v. Joseph R. Biden, Jr., --- F. Supp. 3d ----, No. 2:24-CV-00406, 2024 WL 3253103 (W.D. La. July 1, 2024).
Texas Supremes Tackle Forced Pooling of Riverbed O+G. In a case involving forced pooling of oil and gas under streambeds, the Supreme Court of Texas upheld the Railroad Commission’s decision to deny a lessee’s application under the Mineral Interest Pooling Act to force-pool its mineral interest beneath a river with adjacent oil wells operated by another company, affirming the Commission’s conclusion that the lessee had failed to make a fair and reasonable offer to voluntarily pool minerals. Ammonite Oil & Gas Corp. v. R.R. Comm’n of Texas, --- S.W.3d ----, No. 21-1035, 2024 WL 3210180 (Tex. June 28, 2024).
ND Supremes Says Claim for Interest on Unpaid Royalties is Time-Barred. The Supreme Court of North Dakota held that the state’s six-year statute of limitations barred an unleased mineral owner’s claim for statutory interest for unpaid royalties, holding that the claim accrued no later than when the unleased mineral owner was actually aware of the non-payment of royalties. Dorchester Mins., L.P. v. Hess Bakken Invs. II, LLC, --- N.W.3d ----, No. 20230326, 2024 WL 3308153 (N.D. July 5, 2024).
ND Supreme Court Upholds Denial of Tax Refunds for Separators. In the context of a dispute over sales-tax refunds for tangible personal property used to compress or gather natural gas recovered from in-state wells, the North Dakota Supreme Court held that separators on well pads are part of the production process and not used to gather or compress natural gas for purposes of the tax exemption. Equinor Energy LP v. State by & through Tax Comm’r, --- N.W.3d ----, No. 20230225, 2024 WL 3308501 (N.D. July 5, 2024).
Sierra Club Lacks Standing to Challenge TX LNG Facility. In a case involving an order from the Department of Energy removing restrictions for LNG exports from a Texas facility to non-free-trade-agreement countries, the D.C. Circuit held that the Sierra Club lacked Article III standing to challenge the order, rejecting as too speculative the argument that the increased flexibility to sell LNG to non-FTA countries will increase exports that will then increase shipping traffic that will then harm the aesthetic and recreational interests of a Sierra Club member who lives near the export facility. Sierra Club v. United States Dep’t of Energy, --- F.4th ----, No. 22-1218, 2024 WL 3418836 (D.C. Cir. July 16, 2024).
D.C. Circ. Says FERC Fell Short in LNG Facility Review. In a case involving a challenge to FERC’s order authorizing the construction of an LNG facility in Louisiana, the D.C. Circuit held that FERC inadequately explained its evaluation of greenhouse gas emissions and failed to assess the cumulative effects of the project’s nitrogen dioxide emissions but satisfied its obligation to consider alternatives to the project. Healthy Gulf v. FERC, --- F.4th ----, No. 23-1069, 2024 WL 3418863 (D.C. Cir. July 16, 2024).
D.C. District Court Stays O+G Leases in Wyoming Pending Supplemental NEPA. The D.C. district court concluded that the BLM can’t issue new oil and gas leases for or authorize any surface disturbance on more 120,000 acres in Wyoming until the agency supplements its decision with a proper assessment of environmental impacts of future drilling. Wilderness Society v. Department of Interior, --- F. Supp. 3d ----, No. 22-CV-1871 (CRC), 2024 WL 3443754 (D.D.C. July 16, 2024).
CA8 Upholds SUA for Pipeline Construction. The Eighth Circuit held that, under North Dakota law, a surface use agreement guaranteeing additional payments “for any additional, future right of way containing pipeline(s) for salt water, fresh water, air, and/or power line(s)” constituted a grant that authorized the well operator to install water pipelines beyond those included in a plat attached to the SUA. Mikkelson Land, LLLP v. Cont’l Res., Inc., --- F. 4th ----, No. 23-2628, 2024 WL 3504658 (8th Cir. July 23, 2024).
Fed. Ct. in Tex. Dismisses Qui Tam Action for Unpaid Royalties. A federal court in Texas dismissed a qui tam action filed by the plaintiff against gas storage operators alleging that they never paid the federal government royalties, holding that the plaintiff didn’t allege specific facts demonstrating that the storage operators knowingly concealed or knowingly and improperly avoided their payment obligations. United States ex rel. Jameson v. WBI Energy Transmission, Inc., --- F. Supp. 3d ----, No. 3:20-CV-00172, 2024 WL 3512126 (S.D. Tex. July 22, 2024).
D.C. Circ. Says FERC Failed to Follow Procedures for Oil Pipeline Rate Increase. The D.C. Circuit vacated FERC’s five-year review of oil pipeline maximum rate increases, holding that the agency was obligated to – but did not – adhere to notice-and-comment procedures when resetting the index on rehearing. Liquid Energy Pipeline Ass'n v. FERC, --- F.4th ----, No. 22-1045, 2024 WL 3546007 (D.C. Cir. July 26, 2024).
Bank. Ct. in Tex. Says Gas Purchase Agreements did not Create Covenant Running with Land. A bankruptcy court in Texas evaluated various gas purchase agreements and held that they did not create covenants that ran with the land burdening the debtor’s sales proceeds and therefore the plaintiff seeking payment from the bankruptcy estate had no claim to them. In re: Alta Mesa Resources, --- B.R. ----, No. 19-35133, 2024 WL 3556809 (Bankr. S.D. Tex. July 25, 2024).
Fifth Circuit Says Employee Exempt from FLSA Overtime Provisions. The Fifth Circuit held that an employee transporting crude oil in Texas that is mostly bound for interstate commerce and subject to the Motor Carrier Act such that he is exempt from overtime provisions under FLSA. Escobedo v. Ace Gathering, Inc., --- F.4th ----, No. 23-20494, 2024 WL 3588358 (5th Cir. July 31, 2024).
Fed. Ct. in Louisiana Denies SJ Bid in Royalty Dispute. A federal district court in Louisiana denied a lessee’s bid for summary judgment in a case involving claims for underpaid royalties to landowners, holding that fact issues remain as to whether the well operator paid royalties based on the “market value at the well.” Flat River Farms, LLC v. MRC Energy Co., --- F. Supp. 3d ----, No. CV 19-1249, 2024 WL 3570341 (W.D. La. July 29, 2024).
ND Supremes Uphold Surface Use on O+G Leased Property. In a case involving a dispute over competing surface use on well pads, the North Dakota Supreme Court held that oil and gas leases and a separate surface use agreement gave the lessee the right to install layflat hoses on the property at issue to pump water during well operations, holding that the leases unambiguously gave the lessee such rights to use the surface in this manner and a subsequent holder of a similar layflat easement had notice that the well operator had the same rights. N.D. Energy Servs., LLC v. Lime Rock Res. III-A, L.P., --- N.W.3d ----, No. 20240096, 2024 WL 3615116 (N.D. August 1, 2024).
Tex. App. Ct. Says No Arbitration of JOA Dispute. In a case involving an arbitration provision in a standard JOA, a court of appeals in Texas held that the proponent of arbitration impliedly waived the right to pursue it by substantially invoking the judicial process to the detriment of its counterparty. Power Exploration LLC v. Sun Exploration, Inc., --- S.W.3d ----, No. 13-23-00291-CV, 2024 WL 3616540 (Tex. App. Aug. 1, 2024).
D.C. Circ. Rejects FERC LNG Approvals for Lackluster Enviro. Reviews. After issuing orders reauthorizing two LNG projects, the D.C. Circuit held that FERC failed to comply with certain NEPA and Natural Gas Act requirements by declining to issue supplemental environmental impact statements addressing its updated environmental justice analysis for each project, failing to adequately consider a carbon capture and sequestration system for one of the LNG terminals, and failing to explain why the agency declined to consider air quality data from a nearby air monitor. City of Port Isabel v. FERC, --- F.4th ----, No. 23-1174, 2024 WL 3659344 (D.C. Cir. Aug. 6, 2024).
N.D. Fed. Ct. Scraps Statutory Interest Claim in O+G Royalty Class Action. A federal court in North Dakota granted a motion to strike claims for statutory interest on unpaid royalties in a class action lawsuit, holding that the court lacks jurisdiction over class members that lack standing to pursue statutory interest claims. Penman v. Hess Bakken Invs. II, LLC, --- F. Supp. 3d ----, No. 1:22-CV-097, 2024 WL 3792011 (D.N.D. Aug. 13, 2024).
DC Circuit Says PHMSA Regs Fail Cost-Benefit Analysis. The D.C. Circuit granted petitions filed by a natural gas trade group challenging PHMSA’s new pipeline safety regs, holding that the agency failed to explain how the benefits of four out of the five new standards outweighed their significant compliance costs. Nat. Gas Assoc. of Am. v. Pipeline & Hazardous Materials Safety Admin., --- F.4th ----, No. 23-1173, 2024 WL 3837458 (D.C. Cir. Aug. 16, 2024).
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