Oil and Gas Update for 5/13/2016 – EPA’s Methane Reduction Regs Make Headlines and Draw Criticism; Alaska’s High Court Fills the Gaps in Subsurface Pore-Space Dispute, and no Lease Busting in TX for Royalty Payments that Fall Short.

The national rig count continues to slide amidst somewhat steady but continuously underwhelming oil and natural gas prices. The Brent Crude and West Texas Intermediate benchmarks closed around $48/bbl since our last report while the Henry Hub eclipsed $2. E&P companies in Appalachia and elsewhere prepare as EPA unveiled its new air quality regulations targeting new sources in the oil and gas industry, while the Alaska Supreme Court decided the interesting question of who in that state owns (and should be paid for) the pore spaces in the subsurface used to store natural gas. Finally, it wouldn’t be “At the Well Weekly” without a lease-busting case, and this week, the Lone Star State delivered.  Here’s your week in review:

The Rig Count  oil
  • The national rig count is down 9 units to 406.  (Source: BakerHughes).
  • The rig count in the Marcellus is flat at 26.  (Source: BakerHughes).
  • The rig count in the Utica is down at 10.  (Source: BakerHughes).
 Commodity Prices oil-prices
  • Natural gas spot prices at the Henry Hub are up at $2.01/MMBtu as of 5/13/2016. (Source: EIA).
  • In the Marcellus and Utica region, spot prices are up but still trail the Henry Hub benchmark as of 5/13/2016. At Dominion South in northwest Pennsylvania, spot prices are up at $1.44/MMBtu as of 5/13/2016. On Transco’s Leidy Line in northern Pennsylvania, spot prices are down at $1.38/MMBtu as of 5/13/2016. (Source: EIA).
  • Oil prices are up at $47.83/bbl as of 5/13/2016. (Source: WSJ).
Developments in Appalachia mountains
  • EPA Reveals Final Methane Reduction Regs for New Oil and Gas Sources. The EPA issued three final rules aimed at reducing methane emissions from new and modified oil and gas sources. The first rule – creating new source performance standards (“NSPS”) – includes goals for methane reductions and focuses on leak-detection and related technology to achieve those benchmarks.  The “Source Determination Rule” identifies when “adjacent” sources should be combined for purposes of major air permitting requirements. The third rule seeks to implement methane reduction rules for oil and gas sources on Indian lands. Industry stakeholders criticized the EPA’s efforts as costly and particularly threatening to the shale-energy industry. The EPA’s website containing the rules and summaries of the regulatory measures can be accessed here.
  • EPA Issues ICR to Industry as First Step Toward New Methane Regs Targeting Existing Oil and Gas Sites. In connection with its announcement of final rules targeting methane emissions at new oil and gas sources, the EPA issued its Information Collection Request as a first step toward drafting regulations that (if passed) will target methane emissions from existing oil and gas well sites. As previously reported, these regulatory initiatives may have a particularly significant impact on conventional operators.
  • Federal Judge in Northeastern PA Tosses Dispute over Compressor Site Lease. A federal judge in Pennsylvania concluded that a subsequent purchaser of property burdened by a surface lease for a compressor site could not oust the tenant or force a new deal, concluding that the tenant’s rights trump the rights of a subsequent purchaser when the lease predates the new acquisition of the underlying property. WM Capital Partners XXXIX, LLC v. Bluestone Pipeline Co. of Pennsylvania, LLC, — F. Supp. 3d. —-, No. 3:15-CV-695, 2016 WL 2625016 (M.D. Pa., May 9, 2016).
  • Federal Judge in Western PA Declines Bid to Expand Class Action Dispute Over Oil and Gas Lease BonusesIn a class action alleging bad bonus payments for oil and gas leases, a federal judge in western Pennsylvania denied a motion to amend the class to include additional members, citing class actin rules designed to assure commonality among all the class members and their claims and concluding that “plaintiffs’ proposed expansion of the class would inject into the litigation numerous lines of particularized inquiry relative to the Additional Claimants, making their claims unsuitable for classwide resolution.” Thomas J. Walney & Rodney A. Bedow, Sr., v. SWEPI LP & Shell Energy Holding GP, LLC, — F. Supp. 3d —-, No. 13-102 ERIE, 2016 WL2766037 (W.D. Pa., May 13, 2016).
Developments Beyond Appalachia us-map
  • Who Owns the Subsurface Pore Space in Alaska? The Supreme Court of Alaska held that the co-owners of the mineral rights (the state and a private party) that executed a storage lease own the pore space in the subsurface pursuant to an Alaska statute that presumes the state’s reservation of those rights and rejected the surface owner’s request to apply the usual “American Rule” of pore-space ownership that would’ve presumed the surface owner’s rights to the caverns that remain in the subsurface after the development and depletion of subsurface oil, gas, or other minerals. City of Kenai v. Cook Inlet Nat. Gas Storage Alaska, LLC, — P.3d —-, No. S-15682, 2016 WL 2610025 (Alaska, May 6, 2016).
  • No Lease Busting in TX when Lessee Comes Up Short on Royalty Payments. The Texas Court of Appeals denied a royalty owner’s bid to bust a lease for delinquent royalties, concluding that the lease’s termination provision didn’t kick in unless the lessee failed to pay royalties altogether and relying on general rules disfavoring the termination of contracts based on improper payments when damages could make the plaintiff whole. Escondido Res. II, LLC v. Justapor Ranch Co., L.C., — S.W.3d —-, No. 04-14-00905-CV, 2016 WL 2753990 (Tex. App., May 11, 2016).

Questions about this week’s update? Email [email protected] 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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