The national rig count posted its first gain in a long time – up 4 units since our last report – while the Henry Hub spot prices “soared” past $2 (“soared” being a relative term these days). The Brent Crude and West Texas Intermediate benchmarks hovered just below $50/bbl as of Friday amidst the spike in the rig count. In Appalachia, the Third Circuit held that trucking companies hauling frac water can’t dodge overtime pay while a federal judge shut down a another lease busting attempt. Elsewhere, the Texas Supreme Court issued a couple of anticipated decisions – one involving a trade secret battle and another involving a dispute over the relative rights of surface owners and owners of water rights under the accommodation doctrine. The North Dakota Supreme Court denied a landowner’s bid to sue in court for royalties owed on flared gas in violation of regulatory statutes, and California regulators made headlines with their proposed methane regulations for the oil and gas sector on the heels of EPA’s recent regulatory initiatives. Here’s your week in review:

The Rig Count

  • The national rig count is up 4 units to 408. (Source: BakerHughes).
  • The rig count in the Marcellus is down at 24. (Source: BakerHughes).
  • The rig count in the Utica is up at 11. (Source: BakerHughes).

Commodity Prices

  • Natural gas spot prices at the Henry Hub are up at $2.26/MMBtu as of 6/3/2016. (Source: EIA).
  • In the Marcellus and Utica region, spot prices are up but still trail the Henry Hub benchmark as of 6/3/2016. At Dominion South in northwest Pennsylvania, spot prices are up at $1.55/MMBtu as of 6/3/2016. On Transco’s Leidy Line in northern Pennsylvania, spot prices are up at $1.42/MMBtu as of 6/3/2016. (Source: EIA).
  • Oil prices are up at $49.64/bbl as of 6/3/2016. (Source: WSJ).

Developments in Appalachia

  • Frac Water Trucking Companies in PA on the Hook for Overtime. The Third Circuit Court of Appeals upheld a trial court’s ruling that a trucking company lacked evidence to meet its burden of proving that transporting fresh and frac water to and from well sites before and after operations (and then presumably out of state for treatment) qualified as continuous movement of water in interstate commerce as required for the exemption under the Motor Carrier Act to pay overtime otherwise required by the Fair Labor Standards Act and the Pennsylvania Minimum Wage Act. Mazzarella v. Fast Rig Support, LLC, — F.3d —-, No. 15-3116 (3d Cir., May 23, 2016).
  • PA Federal Court Halts Hillbillies’ Lease Busting Effort. A federal court in Pennsylvania held that a group named the Montrose Hillbillies II LP can’t nix an oil and gas lease to which it succeeded when it acquired the property, rejecting claims that the lease expired for the lessee’s failure to record the actual lease or for incorrectly tendering an extension payment to the prior owner of the property. The court first concluded that Pennsylvania’s recording statute authorizes lessees to record a memorandum rather than the lease itself such that the Hillbillies were on notice of the pre-existing lease. In addition, the court relied on the change-of-ownership provision in the lease (along with the court’s prior ruling in Danko Holdings L.P. v. EXCO Resources (PA), LLC, 57 F. Supp. 3d 389, 398 (M.D. Pa. 2014)) to conclude that tendering payment to the prior lessor without knowing that the Hillbillies had acquired the property (and without notifying the lessee) sufficed to save the lease. Montrose Hillbillies II, LP v. WPX Energy Keystone, LLP, — F. Supp. 3d —-, No. 14-2264, 2016 WL 2937504 (M.D. Pa., May 20, 2016).

Developments Beyond Appalachia

  • TX Supremes Say Courts Must Weigh Due Process Rights against Trade Secret Protection Before Excluding Competitors from Open Court During Trade Secret Battles. In a trade secret fight between a Schlumberger unit and National Oilwell Varco, the Supreme Court of Texas held that NOV’s corporate representatives did not have an absolute due process right to participate in open court without first balancing those rights against Schlumberger’s interests to protect potential trade secret information that inevitably would be announced during proceedings and heard by competitors. In re: M-I LLC, — S.W.3d —-, No. 14-1045 (Tex., May 20, 2016).
  • TX High Court Says Accommodation Doctrine Applies to Disputes Between Surface Owners and Water Owners. The accommodation doctrine in the oil and gas context provides that an owner or lessee of a severed oil, gas, or mineral estate has the implied right to use the surface as reasonably necessary to explore for and develop the underlying mineral estate but must do so with due regard to the surface owner. The courts evaluate whether (a) there is an existing use of the surface; (b) lessee’s proposed use would preclude or substantially impair the existing surface use; and (c) lessee has a “reasonable alternative” on the surface estate. In a case of first impression – at least in the water rights context – the Texas Supreme Court held that the accommodation doctrine applies to disputes between surface owners and owners of severed water rights. Coyote Lake Ranch LLC v. Lubbock, — S.W.3d —-, No. 14-0572 (Tex., May 27, 2016).
  • TX Federal Court Says Multiple Drilling Rigs Can’t be Aggregated into a “Single Site of Employment” to Establish Liability for Mass Layoffs under the WARN Act. A federal court in Texas dismissed an action under the Worker Adjustment and Retraining Notification Act (the “WARN Act”) alleging that a drilling company failed to give the required 60-day written before initiating substantial layoffs and scaling back on its rigs following the drop in oil prices, concluding that the plaintiff failed to meet the test to establish that rig locations in the Permian, Anadarko, and Arkoma Basins constituted a “single site of employment” for purposes of establishing WARN Act liability. Meadows v. Latshaw Drilling Company, LLC, — F. Supp. 3d —-, No. 15-1174-D, 2016 WL 3057657 (N.D. Tex., May 31, 2016).
  • Landowner has no Private Right of Action in Court to Recover Royalties on Flared Gas, North Dakota Supreme Court Rules. The North Dakota Supreme Court upheld a trial court’s ruling dismissing a royalty owner’s claim for failure to pay royalties on flared gas in violation of an administrative statute, concluding that the state statue that imposes restrictions on flaring and a corresponding provision authorizing the Industrial Commission to award royalties in violation of that regulatory measure limited the plaintiff to an administrative process. Vogel v. Marathon Oil Co., — N.W.2d —-, No. 2016 ND 104 (N.D., May 31, 2016).
  • California Proposes Oil and Gas Methane Regs. On the heels of the Obama Administration’s recently passed final rules aimed at reducing methane emissions from new and modified oil and gas sources, California regulators posed new regulations that would require oil and gas companies to engage in leak detection and remediation and limit flaring from production and transportation facilities. The proposed regulations can be accessed here.