Oil and Gas Update for 4/15/2016 – PA Chapter 78 Regulations Survive Injunction Request, Texas Court Clarifies Standard of Review for TCEQ Superfund Orders, and a Louisiana Landowner’s Lease Busting Attempt Falls Flat.

The Henry Hub closed in on $2 at the close of last week due to additional infrastructure additions while spot prices in the Marcellus still trail. Rig counts are relatively flat compared to dramatic slides in prior weeks while oil prices based on the Brent Crude and West Texas Intermediate benchmarks still closed up from last week despite fluctuations.  In Appalachia, the Commonwealth Court of Pennsylvania denied a bid by conventional drillers to enjoin the Pennsylvania DEP’s controversial “Chapter 78” oil and gas regulations. Elsewhere, the Texas appeals court straightened out the proper standard of review of TCEQ orders imposing cleanup costs for Superfund sites, Louisiana’s court of appeals denied another lease busting attempt, and the Texas Court of Appeals remanded a summary judgment in favor of the City of Beaumont that authorized ad valorem taxes on pooled acreage located outside the city’s boundaries.  Here’s your week in review:

The Rig Count  oil
  • The national rig count is down 3 units from last week to 440. (Source: BakerHughes).
  • The rig count in the Marcellus is down one unit at 28.  (Source: BakerHughes).
  • The rig count in the Utica is flat at 12.  (Source: BakerHughes).
 Commodity Prices oil-prices
  • Natural gas spot prices at the Henry Hub are up from last week at $1.98/MMBtu as of 4/15/2016.  (Source: EIA).
  • In the Marcellus and Utica region, spot prices are up yet still below  the Henry Hub benchmark as of 4/15/2016.  At Dominion South in northwest Pennsylvania, spot prices remained flat at $1.47/MMBtu as of 4/15/2016. On Transco’s Leidy Line in northern Pennsylvania, prices are down at $1.41/MMBtu as of 4/15/2016.  (Source: EIA).
  • Oil prices are up from last week at $43.10/bbl as of 4/15/2016.  (Source: WSJ).
Developments in Appalachia mountains
  • Commonwealth Court Denies Bid to Enjoin Chapter 78 Oil and Gas Regulations.  In a ruling that, for the moment, gives DEP’s controversial “Chapter 78” oil and gas regulations a chance at a final vote by the Pennsylvania Independent Regulatory Review Commission, the Commonwealth Court denied a request by the Pennsylvania Independent Petroleum Producers to enjoin those regulations, concluding that the PIPP’s challenge to the as-yet final rules is premature and based on alleged harm that might not occur.  PIPP has appealed the ruling to the Pennsylvania Supreme Court.  The ruling is the latest chapter in DEP’s years-long efforts at revising its oil and gas regulations.  DEP proposed significant changes on December 14, 2013 that, if adopted, would revise Chapter 78 to govern conventional operations and create a new Chapter 78a to govern unconventional operations.  After an extensive public comment period, the Environmental Quality Board of the DEP approved the final regulations on February 3, 2016, and the IRRC – an agency charged with reviewing all proposed final regulations in the state – is scheduled to vote on April 21, 2016, amidst strong industry opposition and recent votes by legislative standing committees asking IRRC to kill the regulations.

Developments Beyond Appalachia us-map
  • Federal Court in TX Denies Claim that Oral Promises about an Oil Rig Sale are Subject to the Statute of Frauds.  A federal court in Texas denied a rig owner’s claim that his buyer can’t enforce oral agreements about the purchase of the rig, citing evidence that the rig owner orally promised to transfer title to the rig and arrange for the buyer to execute drilling contracts and concluding that these oral promises are not among the transactions that require a writing under the Texas statute of frauds.  BCL-Equipment Leasing, LLC v. Davis, — F. Supp. 3d. —-, No. 2:15-CV-195-WCB, 2016 WL 1403989 (E.D. Tex., Apr. 11, 2016).

  • TX Appeals Court Concludes that TCEQ has Burden to Prove Liability for Cleanup Costs.  In a case of first impression, the Court of Appeals of Texas held that the state’s Commission on Environmental Quality has the burden of proof by a preponderance of the evidence that potentially responsible parties are liable for cleanup costs at a Superfund site under the state’s Solid Waste Disposal Act, rejecting the agency’s claim that the courts only have jurisdiction to review those orders under a standard more deferential to the agency that places the burden on the challenging party to show arbitrary decision-making or a lack of substantial evidence supporting the cleanup order.  Texas Common on Envtl. Quality v. Exxon Mobil Corp., — S.W.3d —-, No. 03-14-00667-CV, 2016 WL 1406859 (Tex. App. Apr. 8, 2016).

  • Landowner Loses Lease Busting Attempt in Louisiana.  The Court of Appeals in Louisiana denied a landowner’s bid to bust a lease for lack of timely drilling and production operations, concluding first that the original lessee’s assignment of the deep rights did not divide the lease into two separate leases and second that the lessee and its assigns timely drilled and produced from both shallow and deep formations within the time required by the habendum clause without any break that lasted more than 90 days as required by the continuous operations clause of the lease.  Guy v. Empress, L.L.C., — So.3d —-, No. 50,404, 2016 WL 1391911 (La. Ct. App., Apr. 8, 2016).

  •  TX Appeals Court Remands Order Authorizing Tax on Pooled Acreage Outside City Boundaries. The Texas Court of Appeals remanded a summary judgment in favor of the City of Beaumont that authorized ad valorem taxes on pooled acreage located outside the city’s boundaries, reasoning that the leases weren’t part of the record on summary judgment and, as a result, the trial court couldn’t determine for sure whether the pooling resulted in a cross-conveyance of the minerals both within and outside the city’s boundaries such that the mineral interests located outside the city’s boundaries could be subject to the city’s tax.  Haider v. Jefferson Cty. Appraisal Dist., — S.W.3d —-, No. 09-14-00311-CV, 2016 WL 1468757 (Tex. App. Apr. 14, 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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