Oil And Gas Update For Week Ending 10/6/2017 – Natural Gas Prices Slide, PA Superior Court Addresses Reserved Royalty Vs. Oil/Gas Interest, And ND Tackles Ownership Of Minerals Underlying Streambeds

by Cozen O'Connor

Natural gas prices have fallen pretty harshly since our last report, particularly in Appalachia where prices dropped below $1/MMBtu, amidst a slightly sliding rig count. In Appalachia, the Pennsylvania Superior Court addressed the distinction between royalty vs. oil/gas interests in a deed reservation while courts in Ohio address whether an oil well is “capable of producing gas” for purposes of drawing up well drilling units.  In other news, the North Dakota Supreme Court asked a trial court to review its determination of state ownership of minerals underlying streambeds in light of new state legislation allocating mineral ownership under the high-watermark of the Missouri River.  Here’s the week in review: 

The Rig Count
  • The national rig count is down at (Source: BakerHughes).
  • The rig count in the Marcellus is down at 45. (Source: BakerHughes).
  • The rig count in the Utica is flat at 30. (Source: BakerHughes).
Commodity Prices
  • The Henry Hub natural gas spot price is down at $2.81/MMBtu as of 10/6/2017. (Source: EIA).
  • In the Marcellus and Utica region, spot prices are down as of 10/6/2017. At Dominion South in northwest Pennsylvania, spot prices are down at $0.84/MMBtu. On Transco’s Leidy Line in northern Pennsylvania, spot prices are down at $0.92/MMBtu.  (Source: EIA).
  • Oil prices are down at $56.09/bbl as of 10/6/2017. (Source: WSJ).
Developments in Appalachia    
  • PA Superior Court Addresses Interplay Between Habendum Clause, Lease Expiration, and Limitation-of-Forfeiture Clause. The Pennsylvania Superior Court concluded that a trial court erred by granting judgment on the pleadings to a landowner in a lease-busting suit, concluding that an ambiguity in the oil and gas lease authorized parol evidence to determine whether the lease expired at the expiration of its primary term even though the landowner did not give the lessee notice of termination under the limitation-of-forfeiture clause and the lessee resumed operations and produced oil within the cure period (180 days) following the expiration of the primary term. L.D. Oil & Gas Enterprises, Inc. v. Loop, — A.3d —,  No. 1883 WDA 2016, 2017 WL 4001655 (Pa. Super., Sept. 12, 2017).
  • Third Circuit Upholds Injunction Against Landowner for Transco Condemnation under Natural Gas Act. The Third Circuit Court of Appeals upheld an injunction issued by the district court under the Natural Gas Act, concluding that Transco obtained a FERC certificate of public convenience for its pipeline project and met the requirements for a proper condemnation under the act after landowner negotiations for a right-of-way broke down.  In re Transcontinental Gas Pipe Line Co., — F.3d —, No. 17-1829, 2017 WL 4005011 (3d Cir., Sept. 12, 2017).
  • PA Superior Court Concludes that Deed Created Reservation of Royalties, not Reservation of Oil and Gas. The Pennsylvania Superior Court concluded that a deed “[r]eserving, also from this conveyance one half of the oil and gas royalty” in a 1919 deed created a reservation of the royalty payments from the oil and gas leases then in effect, not one-half of the oil and gas. Clutter v. Brown, — A.3d —, No. 1542 WDA 2016, 2017 WL 4179747 (Pa. Super., Sept. 21, 2017).
  • Ohio Appellate Court Addresses Oil and Gas Lease’s Treatment of a Well “Capable of Producing Gas.” A court of appeals in Ohio concluded that a “well unit for gas” as used in the oil and gas lease did not necessarily cover an oil well drilled by the lessee an used to form a 640-acre unit (for gas wells) as opposed to for a 40-acre unit (for oil wells) because the lease was ambiguous about whether an oil well that might produce gas is “capable of producing gas” based on a separate shut-in provision and sent the case back to the trial court to figure it out.  Bond v. Halcon Energy Properties, Inc., — N.E.3d —, No. 15 MA 0178, 2017 WL 4220361, 2017-Ohio-7754 (Ohio Ct. App., Sept. 21, 2017).
  • Ohio Court of Appeals Says Holder of Interest in Oil and Gas Lease with Right to Approve Well Locations did not Retain “Interest in Land” for Purpose of Statute of Limitations. A court of appeals in Ohio concluded that a landowner who reserved an interest in an oil and gas lease with certain rights to control certain activities on the leased premises (such as approving locations of wells, tanks, access roads, and pipelines) did not create an “interest in land” for purposes of applying a 21-year statute of limitations for recovering title and possession of real property versus a 10-year statute. Schlabach v. Kondik, No. — N.E.3d —, No. 16 HA 0017, 2017 WL 4350984, 2017-Ohio-8016 (Ohio Ct. App., Sept. 29, 2017).
  • PUC Gets High Marks for Pipeline Safety from PHMSA. The PUC scored 50 out of a possible maximum of 50 points on the annual PHMSA Progress Report, along with a score of 115 out of a total 116 points in the Annual Program Evaluation Review. These in-depth evaluations are intended to assess the overall pipeline safety performance of various state agencies, covering six different areas: damage prevention programs, inspection activities, inspector qualifications, leak management, enforcement and incident investigations.  A copy of the press release may be accessed here.
Developments Beyond Appalachia
  • OK Federal Court Rejects Motion to Abstain under CAFA for Oil and Gas Royalty Dispute. A federal court in Oklahoma concluded that plaintiffs removed from state court under the Class Action Fairness Act failed to establish that more than two-thirds of the class plaintiffs complaining about royalty payments resided in Oklahoma.  Nichols v. Chesapeake Operating, LLC, — F. Supp. 3d —,  16- 1073, 2017 WL 4052810 (W.D. Oklahoma, September 13, 2017).
  • ND Supremes Address Ownership of Minerals Underlying Streambeds. The Supreme Court of North Dakota reversed and remanded a trial court order concluding that the Board of University and School Lands of the State of North Dakota (“Land Board”) owns certain property below the ordinary high watermark of the Missouri River, concluding that although the district court considered the equal footing doctrine and prior case law and decided the State owns the mineral interests at issue in this case, the North Dakota legislature enacted legislation governing state mineral ownership of lands inundated by the Pick-Sloan Missouri Project dams and remanded for a determination of the issues in light of the recent enactment. Wilkinson v. Bd. of Univ. & Sch. Lands, — N.W.2d —, No. 20160199, 2017 WL 4296216, 2017 ND 231 (N.D., Sept. 28, 2017).
  • Federal Court Rejects BLM’s Delay of Venting Rule. The U.S. District Court for the Northern District of California ruled that the Interior Department violated federal law in June when it froze provisions of the Bureau of Land Management’s rule designed to “reduce waste of natural gas from venting, flaring, and leaks during oil and natural gas production activities on onshore Federal and Indian (other than Osage Tribe) leases . . . [and] also clarify when produced gas lost through venting, flaring, or leaks are subject to royalties, and when oil and gas production may be used royalty-free on-site.”  The court found that BLM misused a provision of the Administrative Procedure Act to justify postponing upcoming compliance deadlines.  California v. Bureau of Land Management, No. 17-3804-EDL (N.D. Cal., October 4, 2017).


Written by:

Cozen O'Connor

Cozen O'Connor on:

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