Commodity prices remained relatively flat since our last report despite another healthy bump in the national rig count. President Trump delivered on a promise to begin the process of rolling back clean energy and climate change initiatives of the Obama Administration by issuing his “Energy Independence” Executive Order. In Appalachia, a federal judge addressed implied duties in oil and gas leases in the context of a claim alleging breach of the marketing covenant while a Pennsylvania appellate court and a court of appeals in Ohio issued curious decisions that seem to cut against well-understood rules of interpreting oil and gas leases. Elsewhere, a Michigan Court of Appeals blessed an order authorizing operators targeting the Antrim Shale to operate wells under vacuum over objections that the recovery technique might infringe on correlative rights over others within the “common pool.” Here’s your week in review:
The Rig Count
- The national rig count is up at 809. (Source: BakerHughes).
- The rig count in the Marcellus is up at 44. (Source: BakerHughes).
- The rig count in the Utica is flat at 22. (Source: BakerHughes).
- The Henry Hub natural gas spot price is down at $2.98/MMBtu as of 3/24/2017. (Source: EIA).
- In the Marcellus and Utica region, spot prices are essentially flat as of 3/24/2017. At Dominion South in northwest Pennsylvania, spot prices are down at $2.82/MMBtu. On Transco’s Leidy Line in northern Pennsylvania, spot prices are flat at $2.77/MMBtu. (Source: EIA).
- Oil prices are down at $50.94/bbl as of 3/24/2017. (Source: WSJ).
Developments in Appalachia
- Divided PA Superior Court Holds that Deep Rights in Oil and Gas Lease are Severable from Shallow Rights Based on Lease Language. A divided Superior Court of Pennsylvania recently concluded that an assignment dividing the shallow rights and the deep rights with specific language that says the lessee can “subdivide” the leased premises means the lease rights may be severed such that the shallow rights in the lease expired for lack of production from the shallow formations. The dissenting opinion disagreed, concluding that the majority’s decision conflicts with Pennsylvania Supreme Court precedent and that the lease language does not demonstrate that the original parties meant to treat the shallow formations differently from the deeper formations. Montgomery v. R. Oil & Gas Enterprises, Inc., — A.3d —, No. 1164 WDA 2015, 2017 WL 1048113 (Pa. Super., Mar. 17, 2017).
- Old Tax Sale of “Mineral Rights” includes Oil and Gas Rights. The PA Superior Court concluded that a landowner acquired the oil and gas rights by tax sale in 1932 and could lease them over the objection of a competing landowner claiming title to the subsurface, holding that “mineral rights” included oil and gas rights for purposes of a tax sale despite the state’s “Dunham Rule” (which says that the word “minerals” in a regular conveyance generally does not include “oil and gas”). Cornwall Mountain Investments, L.P. v. Thomas E. Proctor Heirs Trust, — A.3d —, 2017 WL 1057496, 1706 MDA 2017, 2017 PA Super 74 (Mar. 21, 2017).
- OH Appellate Court Seemingly Reads a Pugh Clause into Oil and Gas Lease. In a curious decision, a court of appeals in Ohio read what appears to be a pretty standard pooling clause as though the lease contained a Pugh clause, concluding that the pooling clause only worked to hold a portion of the leased premises included in a unit and did not hold the remainder of the leased premises excluded from the unit. Burke v. Excalibur Expl., Inc., — N.E.3d —, 2016-A-0041, 2017 WL 1054794, 2017-Ohio-999 (Ohio App. Ct., March 20, 2017).
- DC Circuit Rejects Claim of FERC Bias Over PennEast Pipeline Approvals. The D.C. District Court dismissed a complaint filed by the Delaware Riverkeeper Network against FERC, rejecting the environmental group’s claim that the FERC is inherently biased and cannot evaluate the PennEast pipeline project given that FERC issues assessments to regulated entities that help fund the agency. Delaware Riverkeeper Network v. Federal Energy Regulatory Commission, — F. Supp. 3d —, No. 16-416 (D.D.C. March 22, 2017).
- PA Judge says Implied Marketing Covenant Claim Survives in Oil and Gas Lease Dispute. A federal judge in Pennsylvania dismissed all the claims in a class complaint except for one alleging breach of the implied marketing covenant, noting some disparities in Pennsylvania law defining the scope of implied duties in oil and gas leases and concluding that the putative class plaintiff nevertheless stated a claim that the sale of gas to an affiliate may result in a breach of the marketing covenant. Canfield v. Statoil USA Onshore Properties Inc., — F. Supp. 3d —, No. CV 3:16-0085, 2017 WL 1078184 (M.D. Pa., Mar. 22, 2017).
Developments Beyond Appalachia
- Tracking the Trump Effect on Energy: Rollback of Clean Power Plan. President Trump issued an executive order as a first step towards rolling back the Obama Administration’s focus on clean energy initiatives and climate change. Among other things, the order seeks to green light coal leasing on federal lands and suggests that the Interior Department rescind its hydraulic fracturing rules for operations on federal and Indian lands. A copy of the order may be accessed here.
- TX Appellate Court Holds that Railroad Company Owns Easement, Not Minerals, Underlying Tracks. An appellate court in Texas concluded that a deed conveying “that strip of land” for “laying tracks” and removing timber on the surface together with a “right of way” to cross the property conveyed only and easement and not the underlying minerals under that strip of land even though the deed conveyed the interest as a “fee simple.” BNSF Railway Company v. Chevron MidContinent, L.P., — S.W.3d —, No. 08-16-00119-CV, 2017 WL 1076540 (Tex. App., Mar. 22, 2017).
- Michigan Court of Appeals OK’s Commission’s Order Approving Production for Antrim Shale Under Vacuum. The Court of Appeals of Michigan affirmed an order of the state’s public service commission authorizing operators targeting the Antrim shale to operate wells under vacuum, concluding that the agency’s order promoted efficient development and reduced wasteful operations and rejected the argument of opposing parties that the recovery technique infringed on the correlative rights of adjoining mineral owners. Riverside Energy Michigan v. Michigan Public Service Commission, — N.W.3d —, No. 327723, 2017 WL 1100717 (Mich. Ct. App., Mar. 21, 2017).