In the midst of the Inauguration and a Million-Women March, the national rig count jumped a considerable degree since our last report while natural gas spot prices and oil prices remained relatively flat. In Appalachia, PADEP punted on new construction standards for gas wells in coal regions while the courts tackled issues ranging from class action certifications for landowners seeking bonus payments for rejected oil and gas leases in Pennsylvania, FLSA class actions brought by landmen seeking overtime pay in Ohio, and spudding obligations of assignees of oil and gas interests in West Virginia. In other news, courts grappled with royalty class actions involving proper allocation of post-production cost in Oklahoma, attempts by local governments in Texas to tax pooled mineral interests, and the proper venue for challenges to injection well permits issued by the Railroad Commission. Here’s your week in review:
The Rig Count
- The national rig count is up at 694. (Source: BakerHughes).
- The rig count in the Marcellus is up at 40. (Source: BakerHughes).
- The rig count in the Utica is up at 23. (Source: BakerHughes).
- The Henry Hub natural gas spot price is down at $3.25/MMBtu as of 1/20/2017. (Source: EIA).
- In the Marcellus and Utica region, spot prices are down as of 1/20/2017. At Dominion South in northwest Pennsylvania, spot prices are up at $2.95/MMBtu. On Transco’s Leidy Line in northern Pennsylvania, spot prices are flat at $2.69/MMBtu. (Source: EIA).
- Oil prices are up at $55.49/bbl as of 1/20/2017. (Source: WSJ).
Developments in Appalachia
- PADEP Punts on Proposals for New Gas Well Construction Standards Near Coal Areas. Following several years of study prompted by the state’s Coal and Gas Resource Coordination Act, the Pennsylvania Department of Environmental Protection elected to forego changes to 1950s-era standards for the proper size of coal pillars supporting underground coal mining despite changes to technology in both coal and natural gas extraction operations, concluding that the existing standards assure the integrity of gas wells constructed near or through underground coal mine pillars and citing miner safety concerns that proposed standards wouldn’t adequately address. A copy of the “Gas Well Pillar Study Update” may be accessed here.
- PA Superior Court Remands Class Certification Question in Oil and Gas Lease Dispute. The Pennsylvania Superior Court breathed life back into a class action in which landowners alleged that their lessee still owed them bonus payments after failing to reject oil and gas leases in a timely fashion, reasoning that the class members may have common questions about the timeliness of the lessee’s rejection of the leases rather than individual questions about whether the lessee properly rejected each lease based on specific geological or title concerns. Cardinale v. R.E. Gas Development, LLC, — A.3d —, Nos. 1186 and 1187 WDA 2015, 2017 WL 164485 (Pa. Super., Jan. 17, 2017).
- Federal Court in OH Blesses FLSA Collective Action by Landmen Seeking Overtime Pay. A federal judge in Ohio conditionally certified a collective action by Ohio- and Kentucky-based landmen seeking overtime pay and authorized notice to additional putative plaintiffs, concluding that landmen performing services for their leasing agency in Kentucky and Ohio within the last three years are “similarly situated” to the named plaintiffs for purposes of conditional certification and notice requirements under FLSA. Stanley v. Turner Oil & Gas Properties, Inc., — F. Supp. 3d —, No. 2:16-CV-386, 2017 WL 127481 (S.D. Ohio, Jan. 13, 2017).
- Fourth Circuit Says Assignee of Marcellus Interests in WV Still Has Spudding Obligations under PSA. The Fourth Circuit Court of Appeals held that the assignee of certain Marcellus interests in West Virginia maintained spudding obligations under a purchase-sale agreement despite a claim that those obligations extended to the assignee’s predecessor in interest only, reasoning that the “successor and assigns” clause in the PSA imposed those obligations on subsequent purchasers. Statoil USA Onshore Properties, Inc. v. Pine Resources, LLC, — Fed. Appx. —, No. 15-2099, 2017 WL 203378 (4th Cir., Jan. 18, 2017).
Developments Beyond Appalachia
- Class Counsel in Arkansas Oil and Gas Lease Dispute Gets $1 Million-Plus Fee Award Over Class Plaintiff’s Objections. A federal judge in Arkansas confirmed a $1 million fee award to class counsel over the objection of a class plaintiff alleging that the fee should be no more than 10% of the award, concluding that counsel’s fee is reasonable in light of extensive litigation costs that would’ve resulted in a similar fee award had counsel billed by the hour. Looney v. Chesapeake Energy Corp., — F. Supp. 3d —, No. 2:15-CV-02108, 2017 WL 132850 (W.D. Ark., Jan. 13, 2017).
- Federal Court Certifies Class Claiming Underpaid Oil and Gas Royalties. An Oklahoma federal judge certified a narrow class of royalty owners claiming that their lessee underpaid royalties by charging post-production costs in violation of the states “marketable product” rule of royalty clause interpretation (which says that lessees have an implied duty to market and therefore should bear all the post-production costs until oil or gas is first “marketable”), concluding that the plaintiffs raised common questions about the implied covenant to market and the leases at issue are sufficiently similar to avoid piecemeal litigation over lease language specific to each class member. Naylor Farms, Inc. v. Chaparral Energy, LLC, — F. Supp. 3d —, No. 11-0634, 2017 WL 187542 (W.D. Okla., January 17, 2017).
- TX Appellate Court Rejects Local Government’s Bid to Double Tax Pooled Oil and Gas Interests. An appellate court in Texas concluded that San Augustine County could not assess taxes on a lessee’s pooled interests located in both Shelby County and San Augustine County, concluding that the lessee’s interests are located in and already taxed by Shelby County and that the pooling of those interests within a unit located in part in San Augustine County did not create a cross-conveyance of those interests sufficient to give San Augustine County the ability to impose another tax. Chambers v. San Augustine Cty. Appraisal Dist., — S.W.3d —, No. 12-15-00201-CV, 2017 WL 192917 (Tex. App., Jan. 18, 2017).
- TX Court of Appeals Says Plaintiff Can Seek Injunction of Injection Well Permit Outside of Travis County Despite Venue Rules. A Texas appellate court held that plaintiffs seeking to enjoin injection well permits issued by the Railroad Commission may do so outside of Travis County and before the permittee engages in operations, departing from the usual understanding that plaintiffs had one place to challenge permits in Texas (Travis County) and couldn’t do so until the matter was ripe for review. Ring Energy Inc. v. Trey Resources Inc., — S.W.3d —, 08-15-00080-CV (Tex. Ct. App., January 18, 2017).