Spot prices in the Marcellus last week reached their highest point since 2015, yet they are still trailing the Henry Hub, while oil prices based on the Brent Crude and West Texas Intermediate benchmarks rebounded from last week despite more declines in the national rig count. In Appalachia, the Pennsylvania Superior Court weighs in on the obligation to pay royalties on lost or used gas while the Pennsylvania Department of Environmental Protection makes plans for a policy to streamline inspection and enforcement activities. Elsewhere, the Colorado House says no to a bill authorizing local regulation of oil and gas activities while the Texas courts grapple with more mineral rights disputes. Here’s your week in review:
The Rig Count
- The national rig count is down another 7 units from last week to 443. (Source: BakerHughes).
- The rig count in the Marcellus is flat at 29. (Source: BakerHughes).
- The rig count in the Utica is up at 12. (Source: BakerHughes).
- Natural gas spot prices at the Henry Hub are up from last week at $1.86/MMBtu as of 4/8/2016. (Source: EIA).
- In the Marcellus and Utica region, spot prices are down slightly and still well below the Henry Hub benchmark as of 4/1/2016. At Dominion South in northwest Pennsylvania, spot prices are up at $1.47/MMBtu as of 4/8/2016. On Transco’s Leidy Line in northern Pennsylvania, prices are up at $1.44/MMBtu as of 4/8/2016. (Source: EIA).
- Oil prices are upfrom last week at $40.57/bbl as of 4/8/2016. (Source: WSJ).
Developments in Appalachia
PA Superior Court Denies Bid for Royalties on Lost or Used Gas. In a royalty dispute that brought to the fore the question of whether royalties should be payable on lost or used gas, the Pennsylvania Superior Court held that a royalty clause in an oil and gas lease calling for royalties based on net proceeds from the “sale” of gas foreclosed the lessors’ claims that royalties should be paid on actual volumes at the wellhead that account for the lessors’ proportionate share of lost and used gas. Acknowledging the industry custom in which lessees combine gas production from multiple wells and then use a reasonable method of allocation to calculate the royalties for individual wells to pay royalties, the Court agreed with the lessee that, based on the lease and notwithstanding its silence on authorizing a well-allocation method of royalty payments, the lessors were not entitled to royalties if the gas from wells on their property doesn’t generate any proceeds from the sale. Hall v. CNX Gas Company, LLC, — A.3d —-, No. 1703 WDA 2014 (Pa. Super., Apr. 7, 2016).
PA DEP “Reignites” Policy Initiative for Inspection and Enforcement Activities. The Pennsylvania Department of Environmental Protection issued a press release notifying the regulated community and the public that it plans to revise its policy on inspection and enforcement activities, beginning with an internal review of current practices and policies on inspections, compliance, and enforcement followed by a revised draft policy document that the agency expects to be completed by May 2016 followed by a public comment period. The Department’s press release may be accessed here.
- PA Federal Court Denies Late Bid at Intervention by Landowner in Oil and Gas Royalty Class Action Settlement. A federal court in Pennsylvania denied a landowner’s late bid to intervene in a royalty class action in which the court already preliminarily approved a settlement, reasoning that many years have passed since the inception of the case, and more than two years passed since the extant parties reached a resolution such that they would be prejudiced by the aspiring intervenors’ late effort to join the case. Demchak Partners v. Chesapeake Appalachia, LLC, No. CV 3:13-2289, 2016 WL 1271380 (M.D. Pa., Apr. 1, 2016).
Developments Beyond Appalachia
Colorado House Kills Bill that would Authorize Local Regulation of Oil and Gas Activities. Democrats and Republicans in the Colorado House of Representatives joined to vote down a bill that would authorize local governments within the state to regulate noise, lighting, and traffic associated with oil and gas activities, including hydraulic fracturing efforts, reportedly on the basis that the measure would give ambitious local governments ammunition to ban the activities on a local level despite the state’s exclusive regulatory authority over oil and gas development. The ill-fated bill may be accessed here.
Exhibit to Deed Reserving One-Half Mineral Estate Prevails in TX Mineral Ownership Tussle. Noting that it could go either way, the Court of Appeals in Texas concluded that a warranty deed incorporated a reservation of a one-half mineral interest identified in an exhibit attached to the deed such that the grantor and its successors (including the lessee of the oil and gas) had rights to one half of the mineral estate. Alford v. McKeithen, — S.W.3d —, No. 12-14-00262-CV, 2016 WL 1253902 (Tex. App., Mar. 31, 2016).
Warranty of Title Provision in TX Mineral Deed did not Reserve Mineral Interests, TX Appeals Court Holds. The Texas Court of Appeals concluded that a grantor failed to reserve mineral interests by identifying prior reservations in a warranty provision, concluding that the warranty provision contained exceptions to the covenant of granting good title and did not reserve the grantor’s interest; instead, the deed conveyed the interests to the grantee such that the trial court on remand should remove the cloud on the grantee’s title, including oil and gas leases that the grantor executed for those un-reserved mineral interests. Bounds v. Prud’Homme, — S.W.3d —-, No. 12-15-00177-CV, 2016 WL 1254072 (Tex. App., Mar. 31, 2016).
Federal Court in Utah Dismisses Most of Environmental Group’s Challenges to Oil and Gas Leases Issued by the Feds but Grants Leave to Amend. The Southern Utah Wilderness Alliance and other groups have been given another shot at attempting to state claims for relief against the Bureau of Land Management for issuing oil and gas leases purportedly in violation of the Federal Land Policy and Management Act, the National Environmental Policy Act, and the Administrative Procedure Act. Denying the claims in their court form, the court concluded that that (1) the FLPMA claim isn’t ripe for review because the alleged increase of emissions from operations pursuant to the oil and gas leases is speculative and uncertain to occur; (2) the groups failed to state a NEPA violation based on conclusory statements that the BLM didn’t take a hard look at the possible effects on air quality resulting from oil and gas operations; and (3) the groups couldn’t state an APA for alleged violations of a non-binding BLM policy as opposed to violations of specific federal statutes. Southern Utah Wilderness Alliance v. Department of Interior, Bureau of Land Management, — F. Supp. 3d. —-, No. 215CV00194JNPEJF, 2016 WL 1261064 (D. Utah, Mar. 30, 2016).
Federal Court in New York Says it Lacks Jurisdiction Over Statoil ASA in Oil Futures Manipulation Suit. The U.S District Court for the Southern District of New York concluded that it lacks subject-matter jurisdiction under the Foreign Sovereign Immunities Act over price manipulation claims asserted against Statoil ASA, concluding that the “commercial activities” exception to foreign sovereign immunity did not apply despite arguments that Statoil’s U.S. trades on the NYMEX and ICE exchanges and U.S. oil imports sufficed to bring the Norway-owned oil company within the jurisdiction of the federal courts. In re: N. Sea Brent Crude Oil Futures Litig., — F. Supp. 3d —-, No. 1:13-MD-02475(ALC), 2016 WL 1271063 (S.D.N.Y. Mar. 29, 2016).
Oklahoma Surface Owners Can’t Avoid Sovereign Immunity Defense to Alleged NEPA, APA Violations. An Oklahoma federal court dismissed an action alleging “programmatic” violations of NEPA brought by surface owners in Osage County, whose property has been subject to oil and gas leases, assignments, concession agreements, and drilling permits since 1979, concluding that the federal government has sovereign immunity from such general claims and that the APA didn’t give the plaintiffs any standing to challenge the federal government’s leasing practices if the plaintiffs couldn’t identify any “final agency action” that might give them APA standing. Donelson v. United States, — F. Supp. 3d —-, No. 14-CV-316-JHP-FHM, 2016 WL 1301169 (N.D. Okla. Mar. 31, 2016).