Oil and Gas Update for 2/10/2017 – PA Governor Proposes Severance Tax – Again – while Rover Pipeline Initiates Condemnation Proceedings in WV and OH Federal Courts

The Henry Hub is on a gradual slide, but that hasn’t stifled the rig count, climbing an additional 12 units since our last report alongside a relatively steady oil price.  In Appalachia, Governor Wolf proposed another severance tax to fill budget gaps by approximately $215 million while Rover Pipeline invokes eminent domain authority for a FERC-approved project designed to move Appalachian gas.  Here’s your week in review:

The Rig Count  oil
  • The national rig count is up at 741. (Source: BakerHughes).
  • The rig count in the Marcellus is up at 42. (Source: BakerHughes).
  • The rig count in the Utica is down at 21. (Source: BakerHughes).
 Commodity Prices oil-prices
  • The Henry Hub natural gas spot price is down at $3.05/MMBtu as of 2/10/2017. (Source: EIA).
  • In the Marcellus and Utica region, spot prices are down as of 2/10/2017. At Dominion South in northwest Pennsylvania, spot prices are down at $2.80/MMBtu. On Transco’s Leidy Line in northern Pennsylvania, spot prices are down at $2.61/MMBtu.  (Source: EIA).
  • Oil prices are down at $56.21/bbl as of 2/10/2017. (Source: WSJ).
Developments in Appalachia mountains
  • Another Year, Another Severance Tax Proposal in PA. Governor Wolf reintroduced a severance tax on natural gas production as part of his proposed budget, mirroring the severance tax that he proposed and then dropped from last year’s budget proposal amidst opposition from Republican leaders in the Pennsylvania House and Senate and from an industry still struggling from the effects of a depressed market. The Governor expects that a 6.5% severance tax (offset by impact fee payments well operators already pay to local government) would raise $215 in annual revenues for the state’s general fund.  Republican leaders and industry stakeholders haven’t changed their views from a year ago, deriding the proposal as short-sighted and inimical to economic growth.
  • Rover Pipeline Condemnation Proceedings in OH and WV Follow FERC Approvals. In the wake of FERC’s recent approvals, Rover Pipeline filed condemnation proceedings in West Virginia and Ohio federal courts naming a great many landowners and other stakeholders with interests along the route as it gears up for the highly anticipated pipeline project that the company hopes to complete in 2017.  Rover’s approval follows recent FERC actions approving similar pipeline projects sponsored separately by Williams and Transcontinental Gas Pipe Line that aim to transport Marcellus and Utica gas to the mid-Atlantic and nearby eastern coastal areas.
Developments Beyond Appalachia us-map
  • City of Dallas Can’t Dodge Liability for Mineral Lease Dispute or Inverse Condemnation Claim. A Texas appeals court concluded that the City of Dallas couldn’t invoke immunity from claims arising under its mineral lease after the lessee challenged the city’s refusal to issue permits, holding instead that the city’s act of leasing mineral interests is a proprietary, not governmental, activity that doesn’t get the benefits of immunity and in any event the lessee stated a claim for inverse condemnation even if the city’s refusal to issue permits constituted a government function.  City of Dallas v. Trinity East Energy, LLC, — S.W.3d —, No. 05-16-00349-CV, 2017 WL 491259 (Tex. App., Feb. 7, 2017).
  • Cotenancy Barred Bad Faith Trespass Claim in TX. A court of appeals in Texas concluded that a lessee’s status as a co-tenant with the plaintiff (by virtue of the lease with the plaintiff’s co-tenant) precluded a bad-faith trespass claim, reiterating settled Texas law that a co-tenant may lease his or her interests without the consent and over the objection of other co-tenants.  Radcliffe v. Tidal Petroleum, Inc., — S.W.3d —, No. 04-15-00644-CV, 2017 WL 511219 (Tex. App., Feb. 8, 2017).
  • Federal Court in Oklahoma Tosses Challenges to Osage Nation Drilling Permits. An Oklahoma federal judge concluded that a surface owner failed to exhaust administrative remedies before challenging oil and gas leases and drilling permits approved by the Superintendent of the Osage Agency, reasoning that the plaintiff had the obligation to appeal the permits issued by the Superintendent to the BIA and couldn’t sue before doing so even if BIA didn’t conduct a proper environmental review before issuing the permits or notify the surface owner’s predecessor about the permits.  Lenker v. Haugrud,  — F. Supp. 3d —, No. 16-CV-0532-CVE-PJC, 2017 WL 539599 (N.D. Okla., Feb. 9, 2017).

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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