Oil and Gas Update for 3/31/2017 – Commonwealth Court Addresses Stripper Wells and Impact Fees, Federal Judge Tosses $4.2 Million Verdict in High Profile Water Well Contamination Case.

The Henry Hub inched past $3/MMBtu since our last report alongside another increase in the national rig count and a tiny uptick in oil prices.  In Appalachia, the Commonwealth Court issued a decision on whether and when certain marginal (“stripper”) wells are subject to the state’s impact fee while a federal magistrate judge tossed a controversial $4.2 million verdict against a well operator and ordered a new trial after finding insufficient evidence that the operator contaminated the plaintiffs’ private water supply and deriding the behavior of the plaintiffs’ lawyer.  Here’s your week in review:

The Rig Count  oil
  • The national rig count is up at 824. (Source: BakerHughes).
  • The rig count in the Marcellus is flat at 44. (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 $3.03/MMBtu as of 3/31/2017. (Source: EIA).
  • In the Marcellus and Utica region, spot prices are down as of 3/31/2017. At Dominion South in northwest Pennsylvania, spot prices are down at $2.76/MMBtu. On Transco’s Leidy Line in northern Pennsylvania, spot prices are flat at $2.68/MMBtu.  (Source: EIA).
  • Oil prices are up at $52.29/bbl as of 3/31/2017. (Source: WSJ).
Developments in Appalachia mountains      
  • Pipeline Inspectors Lose Bid to Certify Overtime Class Action under FLSA. Judge Brann from the Middle District of Pennsylvania declined to certify a class action under the Fair Labor Standards Act for overtime payments, concluding that the class members aren’t similar enough for class certification and reasoning that “(1) significant disparities exist among the putative class members, their worksites, their responsibilities, and their clients—there is no common thread; (2)  individualized inquiries as to the applicability of certain exemptions would overwhelm collective resolution; (3) applicable payroll records reveal that they were likely paid a salary; and (4) the pay letters at issue are at worst ambiguous and at best clarify that the workers actually received a salary guarantee.” Sloane v. Gulf Interstate Field Services, — F. Supp. 3d —, No. 16-1571 (M.D. Pa., March 24, 2017).
  • Commonwealth Court Holds that Impact Fee Does Not Apply to Stripper Well that Dips Below 90,000 cf in “any” one month in a Calendar Year. The Commonwealth Court recently concluded that an unconventional well that does not produce more than 90,000 cubic feet in “any” one month in a calendar year is a “stripper well” that is not subject to the state’s impact fee. Snyder Brothers, Inc. v. PUC; — A.3d —, Nos. 1043 CD 2015 and 1175 CD 2015, 2017 WL 1161052 (Pa. Cmwlth., Mar. 29, 2017).
  • PADEP Sues Municipalities that Banned UIC Wells. At the same time, PADEP brought an action in Commonwealth Court captioned Department of Environmental Protection v. Elk Township and Grant Township, No. 123 MD 2017, against municipalities that enacted ordinances designed to ban UIC wells within their municipal borders.
  • Virginia Federal Court Certifies Oil and Gas Royalty Classes. A federal judge in Virginia certified a royalty class action involving claims that lessees and their midstream affiliates engaged in excessive and unwarranted post-production-cost deductions for marketing costs and severance taxes and paid royalties on artificially low prices.  Adair v. EQT Production Company,  — F. Supp. 3d —, No. 1:10CV00037, 2017 WL 1174024 (W.D. Va., Mar. 29, 2017).
  • Federal Judge in Pennsylvania Tosses $4.2 Million Verdict for Well Water Contamination. A federal magistrate judge vacated a jury award of $4.2 million in damages levied against Cabot Oil & Gas Corporation for alleged contamination of private water wells.  The judge concluded that the evidence in the case didn’t support the jury’s verdict and award and ordered a new trial. Ely v. Cabot Oil & Gas Corp., — F. Supp. 3d —, No. 09-2284 (M.D. Pa., March 31, 2017).
  • PA Federal Court Says Surface Rights Include Use of Surface Materials to Build Well Pad. Relying on Humberston v. Chevron U.S.A., Inc., 75 A.3d 504, 511 (Pa. Super. Ct. 2013) and Belden & Blake Corp. v. Com., Dep’t of Conservation & Nat. Res., 600 Pa. 559, 969 A.2d 528, 532 (2009), a federal court in Pennsylvania held that a well operator had the implied right under the common law and the express right under its lease to use rock, fill, mulch, and other surface material from the lessor’s property in constructing the well pad. Valley Rod & Gun Club v. Chesapeake Appalachia, LLC, — F. Supp. 3d —, No. 13-725, 2017 WL 1173930 (M.D. Pa., Mar. 29, 2017).
Developments Beyond Appalachia us-map
  • Tenth Circuit Says Ownership of Trade Secret not a Prerequisite to Suing for Misappropriation. Predicting how the Oklahoma Supreme Court would rule, the Tenth Circuit recently upheld a $3.4 million verdict in favor of a geologist who sued his AMI partners under Oklahoma’s version of the Uniform Trade Secret Act after they used his study to profit from oil and gas leasing, rejecting the argument that the geologist couldn’t sue because the AMI partnership, not him personally, “owned” the trade secret and concluding instead that ownership is not a prerequisite to standing to sue under the uniform act.  Gaedeke Holdings VII Ltd. v. Baker,  — F.3d —, No. 16-6004, 2017 WL 1173608 (10th Cir., Mar. 30, 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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