Oil and Gas Update for 9/23/2016 – Dormant Mineral Act Decisions Take Center Stage in Ohio; PA Gov. Endorses Acting DEP Secretary for Full-Time Position.

The Henry Hub surpassed $3 gas for the second straight week amidst a steadily growing rig count, but oil prices dropped since our last report and gas prices in the Marcellus continue to underwhelm at just slightly over a dollar per MMBtu. Although things are relatively quiet beyond Appalachia this week, a busy Ohio Supreme Court issued its much anticipated decisions on the Dormant Mineral Act, the Ohio Court of Appeals rejected another bid to claim that an oil and gas lease creates an unlawful “no-term” lease, and Governor Wolf endorsed acting DEP Secretary Pat McDonnell to fill the spot permanently. Here’s your week in review:

The Rig Count  oil
  • The national rig count is up at 511. (Source: BakerHughes).
  • The rig count in the Marcellus is up at 30. (Source: BakerHughes).
  • The rig count in the Utica is up at 15. (Source: BakerHughes).
 Commodity Prices oil-prices
  • Natural gas spot prices at the Henry Hub are up at $3.14/MMBtu as of 9/23/2016. (Source: EIA).
  • In the Marcellus and Utica region, spot prices are down as of 9/23/2016. At Dominion South in northwest Pennsylvania, spot prices are down at $1.20/MMBtu. On Transco’s Leidy Line in northern Pennsylvania, spot prices are down at $1.16/MMBtu. (Source: EIA).
  • Oil prices are down at $ $45.89/bbl as of 9/23/2016. (Source: WSJ).
Developments in Appalachia mountains
  • Pat McDonnell Tapped for Permanent PADEP Secretary Gig. Governor Wolf nominated Pat McDonnell, acting PADEP Secretary, to fill the role on a permanent basis, stating in a press release that McDonnell “has been a dedicated steward of the environment and a leader in advancing Pennsylvania’s energy development in a responsible way.” The Pennsylvania Senate has to confirm the nomination. McDonnell took over after former PADEP Secretary John Quigley resigned amidst controversy over his emails to environmental groups urging their support of (and urging them to pressure lawmakers to support) then-pending revisions to oil and gas regulations.
  • OH Supremes Say Delay Rental Payments Don’t Save Reversion of Oil and Gas Estate under OH Dormant Mineral Act. The Ohio Supreme Court issued a two-part decision seeking to clarify some questions about the state’s Dormant Mineral Act, which operates to merge a previously severed subsurface estate with the overlying surface estate (under certain circumstances and after a certain time frame), holding that (a) the state law applies to claims asserted after the effective date of the June 2006 amendment to the act; and (b) the payment of a delay rental isn’t the type of “title transaction savings event” that could prevent a reversion of previously severed mineral estates, reasoning that delay rentals alone do not “affect title. Corban v. Chesapeake Exploration, L.L.C., — N.E.3d —-, No. 2014–0804, 2016 WL 4887428 (Ohio, September 15, 2016).
  • OH Supreme Court Says Surface Owners’ Failure to Follow Dormant Mineral Act Procedures Dooms Reversion of Mineral Estate. Following its decision in Corban v. Chesapeake Exploration, L.L.C., — N.E.3d —-, No. 2014–0804, 2016 WL 4887428 (Ohio, September 15, 2016), the Ohio Supreme Court held that the owner and lessee of mineral interests in Ohio did not abandon those rights under the Dormant Mineral Act, holding that the surface owners failed to issue a notice of intent to declare the mineral interest abandoned and to file an affidavit of abandonment. Albanese v. Batman, — N.E.3d —-, Nos. 2015–0120, 2015–0121, 2016 WL 4894676 (Ohio, September 15, 2016).
  • OH Appeals Court Denies Claim that a Fixed Primary Term and Indefinite Secondary Term Creates an Unlawful “No-Term” Lease, Grants Request for Equitable Tolling. Following the Ohio high court’s recent decision in State ex rel. Claugus Family Farm, L.P. v. Seventh Dist. Court of Appeals, 47 N.E.3d 836 (Ohio 2016), the court of appeals in Ohio rejected the suggestion that a typical lease creating a primary term of fixed duration followed by a secondary term of indefinite duration created an unlawful “no-term” lease, reasoning that delay rentals held the lease for the primary term only and that the indefinite term is subject to additional conditions and requirements. The court also granted the lessee’s request for “equitable tolling” or “equitable extension” of the primary term, reasoning that the lessee understandably delayed operations while the court sorted out the lease-invalidity claim and therefore should get back the time it took to litigate the case. Oxford Oil Co. v. West, — N.E.3d —-, No. 13 BE 0031, 2016 WL 4649219 (Ohio Ct. App., September 6, 2016).
  • PA Federal Judge Says No Remand of Royalty Case to State Court. A federal judge in Pennsylvania denied a bid by a royalty owner to remand a case under the Class Action Fairness Act under the “local controversy” exception to federal subject-matter jurisdiction, reasoning that the royalty owner did not satisfy its burden to show that more than two-thirds of the putative class are residents of Pennsylvania. Municipal Water Authority of Westmoreland County v. CNX Gas Company, L.L.C., — F. Supp. 3d —-, No. CV 16-422, 2016 WL 5025752 (W.D. Pa. Sept. 20, 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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