Oil prices based on the Brent Crude and West Texas Intermediate indices dropped significantly since our last report while natural gas spot prices rose slightly. The national rig count remains steadily climbing except that the count in the Marcellus/Utica region dropped for the first time in several months. In other news, oil and gas lessees go on the attack to send class actions to individual arbitration in Appalachia while Texas courts address lease busting attempts and the confusion over conveyances of mineral interests vs. royalty interests. Here’s your week in review:
The Rig Count
- The national rig count is up at 877. (Source: BakerHughes).
- The rig count in the Marcellus is down at 43. (Source: BakerHughes).
- The rig count in the Utica is flat at 23. (Source: BakerHughes).
- The Henry Hub natural gas spot price is up at $3.09/MMBtu as of 5/5/2017. (Source: EIA).
- In the Marcellus and Utica region, spot prices are down as of 5/5/2017. At Dominion South in northwest Pennsylvania, spot prices are up at $2.76/MMBtu. On Transco’s Leidy Line in northern Pennsylvania, spot prices are up at $2.85/MMBtu. (Source: EIA).
- Oil prices are down at $48.69/bbl as of 5/5/2017. (Source: WSJ).
Developments in Appalachia
- Pennsylvania Supreme Court Denies Review of Water Contamination Complaint. The Pennsylvania Supreme Court denied a petition for allowance of appeal filed by a landowner claiming that hydraulic fracturing activities conducted by a well operator contaminated his private water supply. The case originated in Pennsylvania’s Environmental Hearing Board. On appeal from that Board’s decision, the Commonwealth Court concluded that the landowners did not demonstrate any hydrogeological connection between the well operations and the naturally occurring elements in their private water supply. Kiskadden v. Pa. Dep’t of Environmental Protection, — A.3d —, No. 1167 C.D. 2015 (Pa. Cmwlth., October 26, 2016), petition for allowance of appeal denied, 480 WAL 2016 (Pa., May 2, 2017).
- No Class Arbitration for Oil and Gas Royalty Disputes. The Middle District of Pennsylvania denied class arbitration to landowners claiming that their lessee shorted them on royalty payments by improperly deducting post-production costs, following rulings around the country that a judge decides whether class arbitration is available absent clear and unmistakable evidence that the parties gave that power to the arbitrator, and concluding that the lease contemplated only individual arbitrations to resolve lease disputes. Chesapeake Appalachia, L.L.C., Scout Petroleum, — F. Supp. 3d —, No. 14-0620, 2017 WL 1541659 (M.D. Pa., April 28, 2017).
- Oil and Gas Lessees Seek to Unravel Mass Actions for Royalty Litigation. Oil and gas lessees are seizing on a number of recent federal decisions in which the courts have concluded that oil and gas lease disputes with arbitration clauses are not subject to civil actions in court and are seeking to send to individual arbitration a number of “mass actions” filed in federal courts alleging RICO and other claims for improper deductions of post-production costs from landowner royalty payments. Arnold et al. v. Chesapeake Energy Corp. et al., No. 4:16-cv-01345 (M.D. Pa.); Ahern et al. vs. Chesapeake Energy Corp. et al., No. 4:16-cv-01347(M.D. Pa.); Abrams et al. vs. Chesapeake Energy Corp. et al., No. 4:16-cv-01343 (M.D. Pa.); Abrams et al. vs. Chesapeake Energy Corp. et al., No. 4:16-cv-01346 (M.D. Pa.).
- Well Operator Dodges Zoning Appeal. The Commonwealth Court recently upheld a local zoning board’s decision to grant a well operator’s application for a special exception for gas well drilling and related activities on two properties in Washington Township, PA, concluding that the landowner waived challenges to the decisions of the local zoning officer regarding conditions on the zoning permit upon which the zoning board relied to issue the permit. Justkowich v. Washington Township Zoning Hearing Board, — A.3d —, No. 535 C.D. 2016 (Pa. Cmwlth., May 1, 2017).
Developments Beyond Appalachia
- Tracking the Trump Effect on Energy – Prez’s Proposed 30% EPA Budget Cut Shrinks to 1% Budget Cut. Although the President called for a roughly 30% cut to EPA’s budget, the proposed budget only cuts the agency’s purse by 1%.
- Railroad Commission’s Jurisdiction over Contamination Claims Isn’t Exclusive. The Texas Supreme Court recently concluded that the Railroad Commission does not have exclusive or primary jurisdiction over claims for environmental contamination that would preclude suits for damages and other judicial relief in the courts. Forest Oil Corporation v. El Rucio Land & Cattle Company, Inc., — S.W.3d —, No. 14-0979, 2017 WL 1541086 (Tex., April 28, 2017).
- TX Supremes Say Lack of Evidence of “Paying Quantities” Killed Top-Lessee’s Claim that Oil and Gas Lease Expired in Secondary Term. The Supreme Court of Texas concluded that a top-lessee failed to introduce evidence that a gas well didn’t produce in paying quantities to support a claim that the lease expired, reasoning that shut-in royalty clause in the lease preserved the lease as a substitute for actual production upon tender of the negotiated annual shut-in royalty within a year after the last gas is “sold or used” from a well capable of producing gas. BP Am. Prod. Co. v. Red Deer Res., LLC, — S.W.3d —, No. 15-0569, 2017 WL 1553112 (Tex., Apr. 28, 2017).
- TX Appellate Court Confirms Conveyance of Mineral Interest. A court of appeals in Texas concluded that a 1942 deed that conveyed to the grantees “an undivided one-fourth (1/4) interest in and to all of the oil, gas and other minerals in and under and that may be produced from the following described lands” but also stripped some (but not all) rights associated with mineral ownership from the grantees nevertheless conveyed a 1/4 mineral interest, not a 1/4 royalty interest, reasoning that the language stripping the grantee of rights associated with mineral ownership would be redundant because a royalty interest owner has no such rights to take away. Reed v. Maltsberger, — S.W.3d —, No. 04-16-00231-CV, 2017 WL 1683717 (Tex. App., May 3, 2017).