Oil and natural gas spot prices continued their downward trend since our last report with the Henry Hub dipping below $3 for the second straight week, spot prices in Appalachia dipping below $2, and oil prices hovering around $44/bbl. In Appalachia, the Pennsylvania Public Utility Commission issued its annual report demonstrating that the state collected more than $173 million from impact fees from natural gas producers, although the total dropped about $15 million from 2015. In other news, a bankruptcy judge denied a claim to hundreds of millions of dollars in royalties based on a division order. Here’s a roundup of the past several weeks:
The Rig Count
- The national rig count is up at 933. (Source: BakerHughes).
- The rig count in the Marcellus is flat at 45. (Source: BakerHughes).
- The rig count in the Utica is flat at 25. (Source: BakerHughes).
- The Henry Hub natural gas spot price is down at $2.90/MMBtu as of 6/16/2017. (Source: EIA).
- In the Marcellus and Utica region, spot prices are down as of 6/16/2017. At Dominion South in northwest Pennsylvania, spot prices are down at $1.82/MMBtu. On Transco’s Leidy Line in northern Pennsylvania, spot prices are down at $1.69/MMBtu. (Source: EIA).
- Oil prices are down at $47.74/bbl as of 6/16/2017. (Source: WSJ).
Developments in Appalachia
- PA Impact Fees Down for 2016 by Roughly $15 Million. The Pennsylvania Public Utility Commission posted the annual account of impact fee distributions collected from natural gas production companies for 2016. The fees total $173,258,900, down roughly $15 million from 2015 and down for the third straight year. A copy of the press release may be accessed here, and the PUC’s interactive site may be accessed here.
- Commonwealth Court Confirms PADEP Decision to Issue Permit for Oil and Gas Well with Lateral Underlying Refinery. The Commonwealth Court of Pennsylvania affirmed a decision by the Environmental Hearing Board that upheld a permit issued by PADEP for an oil and gas well with a planned lateral that would underlie an oil refinery in Warren County, holding that the refinery did not meet its burden of proof and citing a lack of evidence on the refinery’s part to support its claims that PADEP acted arbitrarily or abused its discretion. Judge Patricia McCullough dissented, stating that the PADEP did not address unresolved concerns about the fracturing process in a “potentially dangerous zone.” United Refining Co. v. Pennsylvania Department of Environmental Protection, — A.3d —, No. 1321 CD 2016 (Pa. Cmwlth., June 12, 2017).
- PA Federal Judge Denies Reconsideration of Order Dismissing Royalty Claims. A federal judge in Pennsylvania denied the request of class royalty owners to reconsider an order denying their challenge to the sale of gas at the “at the well” by one entity to the entity’s affiliate as a “sham” transaction, concluding that although the royalty owners can pursue a claim for breach of the implied marketing covenant, they could not state any viable claims that the affiliated entities engaged in any wrongdoing by using indices to establish wellhead sales prices on which royalties would be calculated. Canfield v. Statoil USA Onshore Properties Inc., — F. Supp. 3d —, No. CV 3:16-0085, 2017 WL 2535941 (M.D. Pa., June 12, 2017).
- WV Supreme Court Confirms that Dual Purpose Lease Expired for Lack of Oil and Gas Production. The West Virginia Supreme Court concluded that a so-called “dual purpose” lease for exploration and production and for operating injection wells expired for lack of oil and gas production activities, concluding that the lessee had the obligation to engage in oil and gas activities or operate injection wells for salt water or brine disposal and could not hold the lease for operating an old well on the property for purposes of injecting flowback or produced water from off the leased premises. Webb v. North Hills Group, — S.E.2d —, No. 16-0640, 2017 WL 2493768 (W. Va., June 9, 2017).
- Ohio Appeals Court Denies Lease Busting Attempt. A court of appeals in Ohio denied the attempts by a lessor to terminate an oil and gas lease as a void “no term” lease and for failure to pay delay rentals, concluding that delay rentals held the lease for the one-year primary term and the lessee drilled a well within the delay period to hold the lease beyond the primary term. Bohlen v. Anadarko E&P Onshore, L.L.C., — N.E.3d —, No. 14-CA-13 (Ohio Ct. App., June 1, 2017).
- PA Superior Court Upholds Easement Agreement. Relying on the opinion of the trial court, the Superior Court of Pennsylvania denied attempts by landowners to enforce a side agreement unsigned by the pipeline company and enforced the actual signed agreements by the parties in connection with a pipeline right of way the landowners granted, concluding that the pipeline company followed the terms of the parties’ signed agreements and that the landowners could not enforce the unsigned letter agreement that purported to contain additional payment and other terms conflicting with the operative agreements. Lankard v. Laurel Mountain Midstream Operating, LLC, — A.3d —, 1367 WDA 2016, 2017 WL 2539844 (Pa. Super. Ct. June 12, 2017).
Developments Beyond Appalachia
- TX Appellate Court Holds that Statute of Frauds Bars Enforcement of 160-Acre Proration Unit. A court of appeals in Texas recently concluded that a well operator that retained an interest in a 160-acre proration unit surrounding a specific well did not satisfy the statute of frauds because none of the operative agreements described the 160-acre proration unit with sufficient specificity. Cabot Oil & Gas Corp. v. Newfield Exploration Mid-Continent Inc., — S.W.3d —, No. 07-16-00125-CV (Tex. Ct. App., June 12, 2017).
- Bankruptcy Court Denies Billions in Royalty Claims in Samson Proceedings Based on Division Order. A bankruptcy judge denied claims by heirs of royalty owners for an accounting of a whopping $100 million on royalties on production from property within a production unit, concluding that the royalty owner could only be entitled to royalties based on a specific lease pooled into the production units and that the royalty owners executed division orders for specific royalty payments that did not include royalty payments as claimed and therefore the royalty owners were bound by the division order until revoked (which never occurred) under settled Texas law. In re Samson Resources Corp., — B.R. —, 15-11934, 2017 WL 2602325 (D. Del., June 15, 2017).