The national rig count continues to climb while oil and natural gas prices dipped slightly since our last report. In Appalachia, the West Virginia Supreme Court denied a partition by a co-owner of oil and gas interests who sought to develop the shallow rights himself while blocking the co-tenants from developing the deep rights. In other news, Trump’s recent flurry of executive actions provide some insight into his vision for energy policy, and his pick for SCOTUS – a judge from an energy producing region – has penned a few noteworthy oil and gas decisions. In other regions, courts in Texas and Wyoming made a splash last week throwing out multi-million dollar judgments while a federal court in Texas weighs in on WARN Act applicability in the oil patch for rig closings. Here’s your week in review:
The Rig Count
- The national rig count is up at 729. (Source: BakerHughes).
- The rig count in the Marcellus is flat at 39. (Source: BakerHughes).
- The rig count in the Utica is flat at 23. (Source: BakerHughes).
- The Henry Hub natural gas spot price is down at $3.12/MMBtu as of 2/3/2017. (Source: EIA).
- In the Marcellus and Utica region, spot prices are down as of 2/3/2017. At Dominion South in northwest Pennsylvania, spot prices are down at $2.90/MMBtu. On Transco’s Leidy Line in northern Pennsylvania, spot prices are down at $2.75/MMBtu. (Source: EIA).
- Oil prices are up at $56.81/bbl as of 2/3/2017. (Source: WSJ).
Developments in Appalachia
- WV Supremes Deny Bid for Partition of Oil and Gas Rights. The West Virginia Supreme Court denied a co-tenant’s bid to force a sale of the surface and oil and gas rights he co-owned with others so that he could develop the shallow rights himself while joining his co-tenants in their attempt to lease the deep rights to Antero Resources, concluding that although the trial court erred when it required the landowner to show an “inability of the mineral owners to agree on how to develop the mineral estate” (an element that is not required by statute to force a sale), the landowner never met the statutory requirements to force a partition of the oil and gas rights anyway. Bowyer v. Wyckoff, — S.E.3d —, No. 15-1139, 2017 WL 393988 (W. Va., Jan. 26, 2017).
Developments Beyond Appalachia
- Tracking the Trump Effect on Energy Development. In each installment of At the Well Weekly, we briefly summarize President Trump’s actions as they relate to the energy industry. Since January 20, 2017, President Trump has signed executive orders paving the way for the formerly derailed Keystone XL and Dakota Access oil pipelines, implemented a “one in, two out” regulatory policy for federal agencies engaged in rulemakings, signaled an intent to withdraw from the Paris Deal on climate change, and issued a memorandum instructing EPA to freeze pending regulations promulgated under the Obama Administration that are set to take effect between January and March of this year. The President’s executive orders and memoranda may be accessed here.
- Gorsuch on Oil and Gas. President Trump’s pick for SCOTUS, an eloquent writer who incorporates a healthy dose of storytelling into his legal analysis, is not a stranger to oil and gas disputes, having penned decisions during his tenure on the Tenth Circuit that involve a wide range of issues, including liability under oilfield anti-indemnity statutes (Lexington Insurance Co. v. Precision Drilling Co., 830 F.3d 1219 (10th Cir. 2016)); the rights of severed surface owners overlying government-owned oil and gas interests leased under the Mineral Leasing Act (Entek GRB, LLC v. Stull Ranches, LLC, 763 F.3d 1252 (10th Cir. 2014)); and oil and gas royalty disputes between Indian Tribes and the feds (Fletcher v. United States, Department of the Interior, 730 F.3d 1206 (10th Cir. 2013)).
- Federal Judge Says Dispute with BLM over Resource Management Plans Stays in Montana Federal Court. Over the objections of the Bureau of Land Management, a federal judge in Montana agreed with environmental groups that combined a number of their NEPA challenges to the BLM’s approval of multiple “Resource Management Plans” in a single “Record of Decision” chose the right venue in Montana federal court, holding that a substantial part of the events that led to BLM’s single ROD occurred in Montana even though the ROD involved decisions that affected land in Wyoming as well. Org. of Res. Councils v. U.S. Bureau of Land Mgmt., No. — F. Supp. 3d —, No. CV 16-21-GF-BMM, 2017 WL 374705 (D. Mont., Jan. 25, 2017).
- Eighth Circuit Holds that Insurance Policy Exclusion for Injuries Caused by “Pollution” Bars Coverage for Suit Involving Explosion at Natural Gas Processing Facility. The Eighth Circuit held that an insurance company had no duty to defend or indemnify an operator of a natural gas processing facility after an explosion seriously injured a worker at the site, concluding that the unambiguous policy exclusion for injuries caused by “pollution” precluded the operator’s ability to recover from the carrier and rejecting the operator’s claim that “pollution” didn’t really cause the injuries. Hiland Partners GP Holdings, LLC, v. National Union Fire Insurance Co. of Pittsburgh, — F.3d —, No. 15-3936, 2017 WL 405645 (8th Cir., Jan. 31, 2017).
- Admin Appeal of $1.7 Million Royalty Demand From Feds was Timely. The D.C. Circuit Court of Appeals revived a challenge to BLM’s seven-figure demand for additional royalties on production from leases on federal lands, concluding that the statutory appeal period ran 180 days from the date the lessee received notice of BLM’s final decision and the lessee appealed within that time frame despite the government’s claim that the lessee received constructive notice of its decision before it received actual notice. Continental Resources, Inc. v. Jewell, — F.3d —, No. 15-5333, 2017 WL 406183 (D.C. Cir., Jan. 31, 2017).
- TX Appellate Court Wipes Out $27 Million Judgment in Farmout Dispute. A court of appeals in Texas threw out a jury verdict in favor of a company claiming that it lost a $27-million opportunity to assign its rights to a third party under a farmout agreement, concluding that the production company that farmed out the rights to the plaintiff properly withheld its consent to assign the farmout under the unambiguous terms of the consent-to-assignment clause. Carrizo Oil & Gas, Inc. v. Barrow-Shaver Resources Company, — S.W.3d —, No. 12-15-00083-CV, 2017 WL 412892 (Tex. App., Jan. 31, 2017).
- Nevada Supreme Court Confirms Split of Oil and Gas Assets Held in Competing Trusts. The Supreme Court of Nevada divided up oil interests held by competing trusts in a 65/35 split after rejecting claims that one of the trusts held 100% of the interests based on past distribution of royalty payments, reasoning that the beneficiary claiming 100% of the interest didn’t refute any evidence demonstrating an intent to split up the oil interests 65/35. In re: Connell Living Trust Litigation, — S.W.3d —, No. 66231, 2017 WL 398516 (Nev., Jan. 26, 2017).
- Wyoming Supreme Court Wipes Out $30 Million Overriding Royalty Judgment. The Wyoming Supreme Court threw out a $30 million jury verdict after concluding that a lessee didn’t owe overriding royalties after a prior lease expired and the lessee re-leased the same lands, reasoning that the prior lease never contained an anti-washout clause that would perpetuate the overriding royalty rights after lease expiration. Questar Exploration & Production Co. v. Rocky Mountain Resources, LLC, — P.3d —, No. S-16-26, 2017 WL 430316, 2017 WY 10 (Wyo., Feb. 1, 2017).
- TX Court Tackles WARN Act Applicability to Rig Workers. A federal judge in Texas dismissed a WARN Act claim for lack of evidence that a drilling company ordered a mass layoff or plant closing under the statute given that the plaintiff couldn’t establish that (a) the drilling company’s reduction of employees at any of its rigs resulted in the loss of employment of 50 workers at a single site and (b) the driller’s sites could or should be aggregated based on reasonable geographic proximity to one another or under the “common operational purpose” theory of liability. Sisney v. Trinidad Drilling, LP, — F. Supp. 3d —, No. 15-CV-132 (RCL), 2017 WL 436048 (W.D., Tex. Jan. 30, 2017).
- No Sherman Act Violations in Colorado Pipeline Transport Agreement Dispute, Tenth Circuit Holds. The Tenth Circuit denied a bid to establish Sherman Act violations by co-owners of a pipeline that demanded a certain price to move the plaintiffs’ gas, reasoning that the plaintiff couldn’t establish that the pipeline company refused to provide reasonable access to the pipeline system in violation of antitrust laws that prohibit conspiracies in restraint of trade and monopolies. Buccaneer Energy (USA) Inc. v. Gunnison Energy Corporation, — F.3d —, No. 15-1396, 2017 WL 460969 (10th Cir., Feb. 3, 2017).
- TX Supremes Hold that Neighboring Landowners with no Claimed Interests in Lease Dispute Aren’t Necessary Parties. The Texas Supreme Court held that neighboring landowners allegedly claiming royalty interests in several mineral tracts near the leased premises at issue in the case are not indispensable parties to a lease dispute absent evidence that the neighboring landowners actually claimed ownership of, or royalty interests in, the mineral tracts. Crawford v. XTO Energy, Inc., — S.W.3d —, No. 15-0142, 2017 WL 461361 (Tex., Feb. 3, 2017).