Oil and Gas Update for Week Ending 9/1/2017 – Hurricane Harvey Drives Oil, Nat Gas Prices Up and Down; PADEP Releases 2015 Methane Emissions Data from Oil/Gas Ops; Pipeline Projects Facing Challenges

After a brief hiatus we are back at the well. Since our last report in early August, Hurricane Harvey ravaged southeastern Texas, affecting oil, natural gas, and gasoline prices all over the country. In Appalachia, the PADEP issued the 2015 numbers for methane and other emissions from oil and gas sources, pointing to a modest increase in methane emissions from oil and gas sources despite significant increases in operation and production alongside significant decreases of other emissions. In other news, pipeline project sponsors in Appalachia and elsewhere continue to face challenges in pursuit of their state and federal approvals, gaining ground with agencies on permit applications while facing challenges from environmental and other groups. The struggle may continue as a result of a recent D.C. Circuit ruling that chastised FERC for a faulty NEPA review of pipeline projects in the south and their potential for greenhouse gas emissions.  Here’s a roundup of the last couple of weeks:

The Rig Count  oil
  • The national rig count is down at (Source: BakerHughes).
  • The rig count in the Marcellus is down at 44. (Source: BakerHughes).
  • The rig count in the Utica is up at 30. (Source: BakerHughes).
Commodity Prices oil-prices
  • The Henry Hub natural gas spot price is down at $2.86/MMBtu as of 9/1/2017. (Source: EIA).
  • In the Marcellus and Utica region, spot prices are down as of 9/1/2017. At Dominion South in northwest Pennsylvania, spot prices are down at $1.60/MMBtu. On Transco’s Leidy Line in northern Pennsylvania, spot prices are down at $1.60/MMBtu.  (Source: EIA).
  • Oil prices are down at $52.32/bbl as of 9/1/2017. (Source: WSJ).
Developments in Appalachia mountains
  • PADEP Releases 2015 Methane Emissions Data. PADEP’s 2015 inventory of air emissions for the unconventional natural gas operation industry shows emissions of methane and Volatile Organic Compounds (VOCs) from unconventional well sites and mid-stream reporting facilities increased from 2014 emission levels, while several other pollutants including nitrogen oxides (NOx), sulfur dioxide (SOx) and particulate matter (PM2.5) all saw decreases from 2014 emission levels.  A copy of the news release may be accessed here.  The 2015 report and associated documents may be accessed at DEP’s website here.
  • PADEP Approves Atlantic Sunrise Permits. PADEP issued Chapter 105 and Chapter 102 approvals to Transco for its Atlantic Sunrise Pipeline Project designed to transport natural gas from northeast Pennsylvania to mid-Atlantic and southern states.  The company still needs air quality plan approvals and FERC approvals.  A copy of the news release may be accessed here.
  • Third Circuit Rejects Challenges to Orion Pipeline Project Approvals. The Third Circuit Court of Appeals rejected the Delaware Riverkeeper’s challenges to decisions by the Army Corps of Engineers and the PA Department of Environmental Protection to approve Clean Water Act and wetlands permits for Tennessee Gas Pipeline Co. LLC’s $143 million Orion project, which consists of laying nearly 13 miles of additional pipe alongside pre-existing pipelines in Pike and Wayne counties in Pennsylvania, noting that the agencies didn’t act arbitrarily by rejecting alternatives proposed by the environmental group. Delaware Riverkeeper Network v. United States Army Corps of Engineers, No. 17-1506 (3d Cir. 2017).
  • PA Game Commission Can’t Shake Proctor Heirs’ Suit. In ongoing battles over oil and gas interests waged by the Proctor Heir Trusts in northeastern Pennsylvania, a federal magistrate judge recommended the denial of a motion by the Pennsylvania Game Commission to dismiss a counterclaim in which the Trusts claim ownership of mineral rights currently claimed by the Game Commission. The dispute is whether a 1908 tax sales resulted in a transfer of surface and subsurface estates or whether that tax sale transferred the surface only.  Commonwealth v. Thomas E. Proctor Heirs Trust et al., No. 12-1567, 2017 U.S. Dist. LEXIS 128888 (M.D. Pa. 2017).
  • Federal Judge in West Virginia Says Flat-Rate Royalties and PPC Deductions OK in Class Action Fight. A federal judge in West Virginia held that oil and gas leases containing flat-rate royalty clauses with proportionate flat-rate deductions for post-production expenses are legal under West Virginia law, concluding that the leases at issue “satisfy all that the laws of the state of West Virginia require regarding such leases,” including the state Supreme Court’s decision in Tawney for post-production deductions, and that the “parties freely contracted that the flat-rate deductions are ‘actually incurred and reasonable.’” Kinney et al. v. CNX Gas Company LLC et al., No. 5:15-cv-00160 (N.D.W. Va. 2017).
  • Coal Case Offers Glimpse of EHB’s Application of Environmental Rights Amendment. The EHB recently determined that the Center for Coalfield Justice and the Sierra Club demonstrated by a preponderance of the evidence that the Department’s decision to issue a mining permit revision was unreasonable and in violation of the relevant statutes and regulations and Article I, Section 27 of the Pennsylvania Constitution. It also determined that DEP’s decision to revise a different permit met constitutional requirements. The EHB’s decision is among the first to apply the Environmental Rights Amendment following the PEDF v. Commonwealth   A copy of the decision may be accessed here.
  • Second Circuit Upholds NYDEC’s Decision to Deny Constitution Pipeline’s Water Permit. The Second Circuit denied Constitution Pipeline Co. LLC’s request to review a decision by the NYDEC that denied the company a water permit for a $683 million natural gas pipeline, saying the NYDEC properly denied the approval because the company hadn’t provided the information the department requested.  Constitution Pipeline Company LLC v. NYDEC, — F.3d —, No. 16-1568 (2nd Cir., Aug. 18, 2017).
Developments Beyond Appalachia us-map
  • DC Circuit Says FERC’s NEPA Review for Greenhouse Gas Emissions from Pipelines was Lacking. The D.C. Circuit recently concluded that FERC should have better considered greenhouse gas emissions from the Southeast Market Pipelines Project with segments spanning Florida, Georgia, and Alabama and sent the case back to the agency for a further NEPA analysis. Sierra Club v. FERC, No. 16-1387, slip op. at 24 (D.C. Cir. Aug. 22, 2017).  The recent ruling may have an impact on pending reviews of pipeline projects in the northeast/Marcellus region and has already been cited by NY regulators as a reason for denying state permits for a Millennium pipeline project approved by FERC that is designed to feed gas to a $900-million, 680-megawatt power plant in Orange County.
  • KY Appellate Court Affirms Lease-Busting for Breach of Implied Development Covenant. A court of appeals in Kentucky concluded that a lessee breached the common law implied covenant of exploration and development that is embodied in the state’s “Deep Horizons Act” for minimal exploration efforts in the three years following a demand for performance from the lessor and upheld a forfeiture of the oil and gas lease as an equitable remedy for the breach despite a finding that the express lease covenants were not divisible and the lessee did not breach any express terms. Lewis v. Kansas Prod. Co., Inc., — S.E.3d —, No. 115,174, 2017 WL 3575551 (Kan. Ct. App., Aug. 18, 2017).
  • TX Appellate Court Saves Lease Held by Last Producing Well on Proration Unit.  A court of appeals in Texas concluded that the last producing well on a 640-acre tract divided equally into four 160-acre proration units maintained the entire leasehold even though the other three wells on each of the other 160-acre proration units dried up, reasoning that the retained acreage clause in the oil and gas lease did not provide for the “rolling” termination of proration units as they cease to exist. Apache Deepwater, LLC v. Double Eagle Development, LLC, — S.W.3d —, No. 08-16-00038-CV, 2017 WL 3614298 (Tex. App., Aug. 23, 2017).
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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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