Oil & Gas Update for 3/25/2016 – Storage Rights Save PA Oil and Gas Lease, PHMSA’s Proposed Pipeline Safety Rules Target More Gathering Lines, and the TX Court of Appeals Upholds a Washout

The national rig count dropped 12 units since last week, while the Marcellus and Utica rig counts remained relatively flat.  Natural gas spot prices increased slightly while oil prices based on the Brent Crude and West Texas Intermediate benchmarks ebbed and flowed during the week before dipping below $40/bbl. In Appalachia, storage rights prevail in a lease-busting attempt in Pennsylvania while an Ohio federal judge denies a motion to dismiss plaintiffs’ claims that their lessee and its midstream counterpart committed RICO violations for deducting post-production costs from royalty payments. Elsewhere, PHMSA is poised to expand its pipeline safety jurisdiction while the Texas Court of Appeals upholds a “washout.”  Here’s your week in review:

The Rig Count  oil
  • The national rig count is down another 12 units from last week to 464.  (Source: BakerHughes).
  • The rig count in the Marcellus is down at 30.  (Source: BakerHughes).
  • The rig count in the Utica is flat at 10.  (Source: BakerHughes).
 Commodity Prices oil-prices
  • Natural gas spot prices at the Henry Hub are up from last week at $1.80/MMBtu as of 3/25/2016.  (Source: EIA).
  • In the Marcellus and Utica region, spot prices are up slightly but still well below the Henry Hub benchmark as of 3/25/2016.  At Dominion South in northwest Pennsylvania, spot prices are up at $1.15/MMBtu as of 3/25/2016. On Transco’s Leidy Line in northern Pennsylvania, prices are up at $1.15/MMBtu as of 3/25/2016.  (Source: EIA).
  • Oil prices are down from last week at $39.78/bbl as of 3/25/2016.  (Source: WSJ).
Developments in Appalachia mountains
  • Storage Operations Sufficient to Survive Lease Busting Attempt in PA.  The Superior Court of Pennsylvania denied a bid to bust a lease for lack of production, concluding that storage operations on the leased premises are sufficient to maintain the lease beyond the expiration of the primary term despite a claim that a subsequent assignment of the production rights severed the lease.  Loughman v. Equitable Gas Company, LLC,  — A.3d —-, No. 155 WDA 2015, 2016 WL 1117232 (Pa. Super., Mar. 22, 2016).
  • Federal Court in PA Tosses Negligence Claim against Well Site Operator. A federal judge in Pennsylvania granted a motion for summary judgment against a plaintiff who claimed that a well site operator should be liable for alleged injuries sustained after a dumping incident covered the plaintiff with soot, concluding that the well site operator the did not owe the plaintiff any duty as a possessor of the well site or as employer of the contractor and finding that the well site operator neither retained control over the site nor subjected the plaintiff to any peculiar risk of harm.  Maghakian v. Cabot Oil & Gas Corp., No. 12-2346, 2016 WL 1076918 (M.D. Pa., Mar. 18, 2016). 
  • Plaintiffs in Ohio Federal Court Survive Motion to Dismiss Royalty RICO Claims.  In a “close call,” a federal judge in Ohio denied bids to dismiss an action under RICO in connection with claims that royalty owners paid inflated post-production costs out of their royalty share, concluding in part that the plaintiffs could rely on newspaper articles and other anecdotal information to state a claim for relief as opposed to conducting their own investigation before filing a lawsuit but could not rely on opinions from competitors and others to articulate factual allegations.  Kovach v. Access Midstream Partners, L.P., No. 5:15-CV-616, 2016 WL 1162061 (N.D. Ohio, Mar. 23, 2016).
  • Injunction Imposed while Parties Battle over Pipeline Easement Rights in WV. In a dispute over a pipeline company’s easement rights, a federal court in West Virginia issued a preliminary injunction to assure that the pipeline company maintain responsibility for the maintenance and safety of the pipeline while the case is pending and deferred on the ultimate issue of whether the plaintiff can compel the operator to relocate or stop moving gas through the line.  Scott Hutchison Enterprises, Inc. v. Cranberry Pipeline Corp., No. CV 3:15-13415, 2016 WL 1072070 (S.D.W. Va., Mar. 16, 2016).
Developments Beyond Appalachia us-map
  • New PHMSA Rules Would Apply to Previously Unregulated Gathering Lines.  The Pipeline and Hazardous Materials Safety Administration (PHMSA) issued a notice of proposed rulemaking as a first step in making major revisions to pipeline safety regulations first enacted in the 1970s.  Although the new regulations would cover lots of ground, PHMSA is proposing to issue new requirements for “certain currently unregulated gas gathering pipelines that are intended to prevent the most frequent causes of failure—corrosion and excavation damage—and to improve emergency response preparedness.”  To that end, the proposed rules changes the definition of on-shore gathering lines and would establish jurisdiction over many additional miles of pipe.  The NPRM may be accessed here.
  • TX Appeals Court Upholds Washout Leases. The Court of Appeals of Texas upheld “washout” leases that extinguished the original lessee’s claim to a 5% override that would apply to any future top leases, concluding that the lessors and the sub-lessee executed new leases, not top leases, and the delay between the execution of the new leases and the filing of a surrender wasn’t enough to demonstrate that the lessors intended to execute top leases.  Anadarko Petroleum Corp. v. TRO-X, L.P., — S.W.3d —-, No. 08-15-00158-CV, 2016 WL 1073046 (Tex. App., Mar. 18, 2016).
  • Arkansas Supreme Court Denies Claim for Damages Based on Fraudulently Notarized Oil and Gas Leases. The Supreme Court of Arkansas upheld a summary judgment in favor of a county court clerk alleged to have notarized stacks of leases despite the fact that none of the lessors signed in her presence, concluding that the lessors did not claim the leases themselves were fraudulently procured and they failed to allege and prove any harm.  Lipsey v. Giles, Docket No. No. CV-15-785, 2016 Ark. 124, 2016 WL 1072699 (Ark., Mar. 20, 2016).
  • States Lose Battle over Revenue Allocations under Outer Continental Shelf Lands Act and Submerged Lands ActLouisiana and Alabama challenged the Interior Department’s demand for refunds after it revised its approach to calculating oil and gas revenues paid to coastal states under the Outer Continental Shelf Lands Act and Submerged Lands Act. The federal district court concluded that the Interior Department’s revised allocation of revenues equally between adjacent states (as opposed to proportionately based on acreage positions) was proper but remanded the case back to the agency because the Interior Department’s collection efforts didn’t comport with due process requirements under the federal Debt Collection Act.  Louisiana v. Salazar, — F.3d —-, No. 11-2253 (RBW), 2016 WL 1060193 (D.D.C., Mar. 15, 2016).
  • Environmental Organization can Intervene in Reverse-FOIA Action, Fifth Circuit Says.  The Fifth Circuit switched courses after a Louisiana federal court denied the Sierra Club’s bid to intervene in a reverse-FOIA action initiated by a power company to prevent the disclosure of certain information in the EPA’s hands, concluding that the EPA wouldn’t necessarily protect the Sierra Club’s interest in the action and in fact those parties could be adverse to one another such that the Sierra Club demonstrated a right to participate in the action.  Entergy Gulf States Louisiana, L.L.C. v. U.S. E.P.A., — F.3d —-, No. 15-30397, 2016 WL 1077108 (5th Cir., Mar. 17, 2016).
  • Challenge to Alaska DNR’s Termination of Exploration Unit Moot on Appeal.  The Supreme Court of Alaska denied a production company’s appeal after it challenged the decision of the Department of Natural Resources to dismantle an exploration unit agreement with the state, concluding that the production company’s failure to comply with requirements in the plan of exploration within time frames established by the agreement authorized the DNR to terminate the unit, and a separate decision on the adequacy of the company’s compliance resolved against the production company rendered its appeal in this case moot.  White v. State, Dep’t of Nat. Res., No. S-15334, 2016 WL 1071444 (Alaska, Mar. 16, 2016).

Questions about this week’s update?  Email gbibikos@cozen.com or call (717) 703-5907.

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At the Well Weekly
Welcome to At the Well Weekly, a blog designed for busy folks in the oil and gas industry. If you haven’t read a thing during the week, our hope is that you can breeze through the update and be up to speed on the basics such as current rig counts, commodity prices, and case law updates on legal issues of interest in Appalachia and elsewhere.
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