Oil and Gas Update for 3/17/2017 – As Natural Gas Prices Slightly Rise, Trump’s Budget Cuts Hit EPA Hard and Sabine Rejection Doesn’t Survive District Court Appeal.

Natural gas spot prices continued to climb since our last report alongside a healthy rig count that gained another 21 units nationally, but oil prices still ended up around $50/bbl at the end of a less volatile week. The Trump Administration’s proposed budget cuts grabbed headlines, including a whopping $2.6 billion cut to EPA’s share of the pie.  In Appalachia, PADEP’s Secretary wrote a forceful letter to EPA Secretary Pruitt deriding the budget cuts while the courts wrangled with issues ranging from eminent domain restrictions on storage operators in Pennsylvania and limitations on forfeitures of oil and gas leases in Ohio.  In other regions, the latest decision in the Sabine saga affirms the ability to reject certain gathering agreements under Section 365 of the Bankruptcy Code.  Here’s your week in review:

The Rig Count  oil
  • The national rig count is up at 789. (Source: BakerHughes).
  • The rig count in the Marcellus is flat at 42. (Source: BakerHughes).
  • The rig count in the Utica is flat at 22. (Source: BakerHughes).
 Commodity Prices oil-prices
  • The Henry Hub natural gas spot price is up at $3.00/MMBtu as of 3/17/2017. (Source: EIA).
  • In the Marcellus and Utica region, spot prices are up as of 3/17/2017. At Dominion South in northwest Pennsylvania, spot prices are up at $2.85/MMBtu. On Transco’s Leidy Line in northern Pennsylvania, spot prices are up at $2.77/MMBtu.  (Source: EIA).
  • Oil prices are down at $51.90/bbl as of 3/17/2017. (Source: WSJ).
Developments in Appalachia mountains
  • PADEP Secretary Criticizes Proposed EPA Budget Cuts. PADEP Secretary Pat McDonnell sent a letter to EPA Secretary Scott Pruitt deriding the budget cuts proposed by the Trump Administration that will affect, among other things, safe drinking water inspections, sewage and industrial wastewater inspections, brownfield redevelopment initiatives, air quality programs, and cleanup efforts for the Chesapeake Bay. A copy of the letter may be accessed here.
  • Commonwealth Court Remands Storage Rights Eminent Domain Issue in Light of Robinson Township. The Commonwealth Court of Pennsylvania remanded a case involving the rights of storage operators to exercise eminent domain over storage reservoirs in light of the Pennsylvania Supreme Court’s infamous Robinson Township decision in which the high court said the Oil and Gas Act’s provision authorizing eminent domain powers for storage operators unconstitutionally granted that authority for private purposes in violation of the state’s Takings Clause.  Hughes v. UGI Storage Co., — A.3d —, No. 629 C.D. 2016, 2017 WL 962449 (Pa. Cmwlth., Mar. 13, 2017).
  • NY Federal Judge Says Constitution Pipeline Can’t Force NY DEC to Act on Permits. A federal judge in New York dismissed a complaint brought by Constitution Pipeline challenging inaction by the NY Department of Environment Conservation on water quality permits for the proposed pipeline while another appeal of a permit denial remains pending, concluding that Constitution didn’t establish constitutional standing to bring the claim and reasoning that the pipeline company suffered no harm by the delay because it can’t go forward with the project anyway until the related appeal is resolved. Constitution Pipeline Company, LLC v. New York State Department of Environmental Conservation, — F. Supp. 3d —, No. 1:16-cv-00568 (N.D.N.Y., March 14, 2017).
  • OH Federal Court Denies Bid to Forfeit Oil and Gas Lease for Alleged Breach of the Pooling Clause. A federal judge in Ohio dismissed a complaint seeking forfeiture of an oil and gas lease for the lessee’s alleged breach of the pooling clause, holding that breach of the pooling clause is not among the events contemplated by the lease as a basis for forfeiture and that the plaintiffs had adequate legal remedies for breach of contract rather than forfeiture. Hartline v. Statoil USA Onshore Properties, Inc., — F. Supp. 3d —, No. 2:16-CV-315, 2017 WL 1014377 (S.D. Ohio, Mar. 14, 2017).
  • Severed Mineral Owner in OH Preserved Mineral Interest Following Notice of Abandonment under Dormant Mineral Act. An Ohio appellate court concluded that mineral owners preserved their interest following their receipt of a notice of abandonment filed by the surface owner when the mineral owner filed an affidavit within 60 days after service to preserve their rights, rejecting the argument that the mineral owner failed to preserve the claim by omitting from the affidavit any mention of a specific “savings event” under the 2006 Dormant Mineral Act. M&H Partnership v. Hines, — N.E.3d —, No. 2017-Ohio-923, 2017 WL 1024587 (Ohio Ct. App., March 13, 2017).
Developments Beyond Appalachia us-map
  • Tracking the Trump Effect on Energy: Proposed Budget Cuts EPA Share by $2.6 Billion. President Trump proposed a $2.6 billion cut to EPA’s budget as part of his ongoing efforts to reduce spending in a variety of areas.  The cuts will likely have a significant impact on climate change initiatives under the Obama Administration.  The budget cuts may limit EPA’s involvement in methane reduction initiatives proposed by the previous administration.
  • NY District Court Upholds Section 365 Rejection of Gathering Agreement in Sabine Case. The controversial ruling of that debtors can reject certain gathering agreements under Section 365 of the Bankruptcy Code survived an appeal to the federal district court, which upheld the bankruptcy judge’s ruling that Sabine Oil & Gas Corporation can reject its gathering agreements and enter into alternative agreements with others to provide similar services at different rates in the exercise of the debtor’s business judgment because the covenants in the agreements did not run with the land under TX law.  In re Sabine Oil & Gas Corporation, Docket No. 15-11835 (S.D. N.Y., March 10, 2017).
  • TX Federal Court Upholds Transfer of ORRIs Free of Liens Under Louisiana Oil Well Lien Act. In a bankruptcy proceeding, a district judge in Texas upheld a bankruptcy judge’s decision that ORRIs transferred to the buyer without notice of prior liens as required by the “safe harbor” provisions of the Louisiana Oil Well Lien Act rendered the liens extinguished and therefore rejected the lienholders’ claims that the ORRI buyer should disgorge payments from the debtor in bankruptcy to free up cash so lienholders/creditors could be paid.  In re: ATP Oil & Gas Corporation, — F. Supp. 3d —, No. AP 12-3443, 2017 WL 928135 (S.D. Tex., Mar. 9, 2017).
  • Tenth Circuit Upholds Dismissal of Complaint Alleging Damage to Oil and Gas Wells as Time-Barred. The Tenth Circuit upheld the dismissal of a complaint filed by owners of oil and gas wells alleging that nearby hydraulic fracturing operations conducted by another operator permanently damaged producing oil and gas wells on the plaintiffs’ property, reasoning that the plaintiffs knew or should have known that the nearby operations may have caused damage to their wells long before the limitations period expired and rejecting the argument that the limitations period didn’t start running until the well owners eliminated other possible causes of damage. Max Oil Company, Inc. v. Range Production Company, LLC, — Fed. Appx. —, No. 16-6238, 2017 WL 972083 (10th Cir., Mar. 14, 2017).
  • Louisiana Appellate Court Upholds Multi-Million Judgment for Proceeds from the Wrongful Production and Sale of Minerals. A court of appeals in Louisiana upheld a $2.4 million judgment for royalties owed on production of oil and gas from beneath a road owned by the plaintiffs, concluding that the proceeds from the sale of the minerals beneath the road were subject to ten years liberative prescription and the doctrine of contra non valentem did not apply, but the court remanded for a recalculation of interest. Hackett v. Murphy Exploration & Production Co. USA, — So.3d —, 2017 WL 1002926, 2016-707 (La. App. Ct., March 15, 2017).

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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