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Our Shale Energy Law Blog provides timely legal and business information on issues impacting the energy industry and specifically natural gas development, as well as articles published by the attorneys of Babst Calland.

 


 

 

Legislative Update: West Virginia Governor Signs House Bill No. 4091 into Law

On February 17, 2020, West Virginia Governor Jim Justice signed into law House Bill 4091, allowing for expedited oil and gas well permitting for horizontal wells. Under the bill, which amends W. Va. Code § 22-6A-7, operators may pay an additional fee to enter into an expedited permit application process for drilling certain horizontal wells.  The additional expedited permit fee is $20,000 for the initial horizontal well and $10,000 for each additional well drilled on a single well pad at the same location.  Within 45 days of the applicant’s submission of the permit application, the Secretary of Environmental Protection must issue or deny the permit. If there is no decision within 45 days, the Secretary is required to refund the applicant a pro-rated amount of the expedited application fee for each day with no decision, up to the 60th day, at which point the expedited fee would be fully refunded. The bill also provides for an expedited permit modification process, allowing the operator to pay an expedited application fee of $5,000 for a modification to an existing permit. The Secretary must issue a decision on the modification within 20 days or refund the applicant a daily, pro-rated amount. Half of the funds collected from the expedited applications will be used by the Department of Environmental Protection to cover the administrative costs of processing the applications. The remaining balance will be used for reclamation and plugging of orphaned oil and gas wells throughout the State. The expedited permitting processes under the law do not apply to deep wells, so operators could only utilize these expedited processes for horizontal wells with target formations of the Marcellus Shale or shallower formations. The bill is effective ninety days from passage, on May 5, 2020.

Tagged:  Legislation, Marcellus, Natural gas, Permitting, Regulatory, Utica, West Virginia, drilling


Pipeline Safety Alert – PHMSA Issues Final Rule for Underground Natural Gas Storage Facilities

On February 12, 2020, the Pipeline and Hazardous Materials Safety Administration (PHMSA or Agency) released a final rule establishing new safety standards and reporting requirements for underground natural gas storage (UNGS) facilities (the Final Rule).  The Final Rule modifies regulations that PHMSA previously established in an interim final rule (IFR) to address a congressional mandate in the Protecting Our Infrastructure of Pipelines and Enhancing Safety Act of 2016 (PIPES Act). The Final Rule follows the approach taken in the IFR by incorporating the provisions in two industry safety standards for UNGS facilities by reference but eliminates the requirement to treat the permissive elements of those standards as mandatory.  The Final Rule also makes other changes to the IFR, many of which respond to issues raised in public comments, a petition for reconsideration filed by several industry trade organizations, and a petition for judicial review filed by the State of Texas in the U.S. Court of Appeals for the 5th Circuit.  Additional information about the Final Rule, which takes effect on March 13, 2020, is provided below. Please read more about this Final Rule in this Alert.

Tagged:  PHMSA, UNGS, underground natural gas storage facilities


Nuisance Claims From Oil & Gas Operations Constitute a Permanent Nuisance Subject to the Two-Year Statute of Limitations

On January 27, 2020, the Court of Common Pleas of Washington County granted an oil and gas operator’s motion for summary judgment, dismissing the plaintiffs’ nuisance claims due to the bar of the statute of limitations.  Keller-Smith, et. al v. Rice Drilling B, L.L.C., No. 2016-297 (Washington Cnty. Ct. Comm. Pl. 2020).  Plaintiffs claimed (among other things) that dust, noise, and light from a nearby natural gas well and compressor station interfered with the use and enjoyment of their properties.

The issue before the Court was whether Plaintiffs’ claims constituted a permanent or continuing nuisance.  The two-year statute of limitations for a permanent nuisance begins to run from the first date of injury.  In contrast, for a continuing nuisance, the two-year statute of limitations begins to run with each separate occurrence.  In deciding whether Plaintiffs’ nuisance claims were permanent or continuing, the Court considered three factors: (i) the character of the structure or thing which produced the injury; (ii) whether the consequences of the nuisance will continue indefinitely; and (iii) whether the past and future damages may be predictably ascertained.

The Court found that each of the three factors indicated that Plaintiffs’ nuisance claims were permanent in nature.  The Court held that “under the first and second factors, both the character of the well pad and the indefinite nature of its operations, spells permanence.”  The plaintiffs’ repeated and continual allegations of harm demonstrated that the alleged “nuisance occurred with such regularity that the third factor also weigh[ed] in favor of a permanence finding.”  The Court held that to find the claimed injuries to be continual in nature would lead to the untenable result of the statute of limitations recommencing “each time an unpleasant smell wafted onto the Plaintiffs’ property or bright lights at the Pad kept the Plaintiffs awake at night.”  The Court noted that it was the plaintiffs themselves who “decided to postpone filing a distinct lawsuit on any of the tortious incidents separately and opted instead to assert a plethora of disparate allegations under a unified theory of nuisance.  In reaching this conclusion, the Court found the opinion of the United States District Court for the Middle District of Pennsylvania in Russell v. Chesapeake Appalachia, L.L.C. to be persuasive.

Tagged:  compressor station, gas well, injury, nuisance claims, well pad


Ohio Supreme Court to Tackle Whether Marketable Title Act Applies to Severed Oil and Gas Interests

The Ohio Supreme Court accepted the appeal of the owners of a severed royalty interest in West v. Bode, Case No. No. 18 MO 0017, 2019-Ohio-4092. The sole issue before the Court is whether the Ohio Dormant Mineral Act supersedes and controls over the Ohio Marketable Title Act for disputes involving severed oil and gas interests.  The Seventh District had ruled that both the Ohio Marketable Title Act (MTA) and the Ohio Dormant Mineral Act (DMA) are available to surface owners seeking to reclaim previously severed oil and gas interests; rejecting the royalty owners’ argument that the DMA is the sole remedy for these disputes. The Ohio Supreme Court’s decision should bring clarity to ownership of oil and gas rights in Ohio.

Tagged:  Dormant Mineral Act, Leasing, Litigation, Marketable Title Act, Natural gas, Ohio, Oil and gas, Title


Arbitration Means Arbitration: Golden Eagle Resources II v. Willow Run Energy

The West Virginia Supreme Court of Appeals recently signaled that it would treat arbitration issues under the West Virginia Revised Uniform Arbitration Act, W. Va. Code § 55-10-8, et. al. (the “Act”), exactly the same as arbitration issues that arise under the Federal Arbitration Act (FAA).

In Golden Eagle Resources II, L.L.C. v. Willow Run Energy, L.L.C., No. 19-0384 (Nov. 19, 2019), the Court addressed a written contract by which Willow Run conveyed mineral interests in property to Golden Eagle. The written contract contained an arbitration provision by which the parties agreed that any “disagreement between the Parties concerning this Agreement or performance thereunder” would be submitted to arbitration. A dispute arose about whether a cloud on title existed on the mineral interests conveyed, which led Golden Eagle to withhold payment for those interests, after which Willow Run filed a breach of contract civil action in the Circuit Court of Pleasants County.

To read more about this case, click here.

Tagged:  arbitration, cloud on title, mineral interests, real estate, rights


Pa. Allows Oil and Gas Operators to Drill Cross-Unit Wells

On Nov. 7, Pennsylvania Gov. Tom Wolf signed into law Senate Bill No. 694 that permits cross-unit drilling for unconventional oil and gas wells. This new law takes effect on Jan. 6, 2020. A cross-unit well (also known as an allocation well) is a lateral wellbore that crosses between two or more pooled units. Please read more about Senate Bill No. 694 in this article.

Tagged:  Oil and Gas Conservation Law, Oil and Gas Lease Act, allocation well, cross-unit well, operators


Ohio’s Statutory Unitization Amended to Clarify Inclusion of Partially Leased Tracts

Ohio recently passed HB 166, effective October 17, 2019, amending Section §1509.28 of Ohio’s statutory unitization statute.  The prior version of Section §1509.28 did not specify whether all mineral owners in a tract must be leased to be included in the accounting for the minimum 65% operator ownership interest, which is the threshold required in order to apply for statutory unitization.  The Section also did not address whether an operator could count partial net-acreage interests in a tract.  For example, under the prior version of Section §1509.28, if a 10 acre tract was owned jointly by five owners, two of which had leased their oil and gas interests, it was unclear whether the operator was required to represent the leased interest as only four net acres or whether the operator was required to represent the tract as wholly unleased until all owners in the tract had entered into oil and gas leases.  The new amendment added the following clarification to the Code: “In calculating the sixty-five per cent, an owner's entire interest in each tract in the proposed unit area, including any divided, undivided, partial, fee, or other interest in the tract, shall be included to the fullest extent of that interest.”  The amendment makes clear that for tracts with multiple owners, any type of interest held by the applicant-operator in a unitized tract counts towards the minimum 65% threshold required to apply for an order permitting forced unitization from the chief of the division of oil and gas resources management.

Tagged:  Forced Pooling, Gas drilling, Leasing, Legislation, Natural gas, Ohio, Oil and gas, Oil and gas drilling, Regulation, Unitization


Ohio Supreme Court to Address Whether the Dormant Mineral Act Requires Internet Search

The Ohio Supreme Court accepted mineral owner Timothy Gerrity’s appeal in Gerrity v. Chervenak, a Dormant Mineral Act (“DMA”) case from Ohio’s Fifth District Court of Appeals. The Fifth District upheld the summary judgment granted by the Guernsey County trial court in ruling that the surface owner had successfully served notice by publication under the DMA process and abandoned Gerrity’s interest in the oil and gas. Following a search of the Guernsey County records (the property’s location) and a search of the Cuyahoga County records (location of Gerrity’s predecessor’s last known address), the surface owner served notice by certified mail to Gerrity’s predecessor at an address that the predecessor had not lived at since 1967. Following failure of service as “Vacant – Unable to Forward,” the surface owner published notice in a newspaper as proscribed in the DMA and completed the remainder of the DMA process, thereby acquiring Gerrity’s oil and gas interest. Gerrity’s appeal alleges that the surface owner failed to exercise reasonable diligence in attempting to locate Gerrity by not conducting an online internet search. The level of diligence required by the surface owner in a DMA process in attempting to locate and serve notice by certified mail on the holders of the mineral interest is now squarely before the Ohio Supreme Court. The Ohio Supreme Court will decide whether a search of the county records where the property is located satisfies the reasonableness standard under the DMA or whether serving notice under the DMA requires a more comprehensive search, such as including the internet.

Tagged:  Dormant Mineral Act, Litigation, Natural gas, Ohio, Oil and gas, Title


Ohio’s Marketable Title Act Quickly Becoming Preferred Method for Surface Owners Seeking Ownership of Severed Mineral Interests

Since the Ohio Supreme Court’s decision in Corban v. Chesapeake Exploration, L.L.C., et al, 149 Ohio St.3d 512, 2016-Ohio-5796, many have questioned the interplay and availability of the Ohio Marketable Title Act (“MTA”) and the Ohio Dormant Mineral Act (“DMA”) for surface owners claiming previously severed oil and gas interests.  The Ohio Seventh District Court of Appeals recently answered many of those questions and illustrated the power of the MTA for surface owners. In Senterra Ltd. v. Winland, Case No. 18 BE 0051 (Ct. App. Oct. 11, 2019), the Seventh District again confirmed that both the MTA and the DMA are available to surface owners claiming ownership of severed oil and gas interests.  That court held that the MTA remains available for surface owners even after availing themselves to the DMA process.  The court also determined that the reference, “excepting all the oil and gas rights underlying said described premises” is considered a general reference under the Blackstone inquiry due to the reference failing to identify the party reserving the interest.

In addition to expanding on whether a reference is specific or general, the Seventh District’s analysis rendered the date determining marketability under the MTA as irrelevant.  That date controls what instrument operates as the root of title, being the most recent instrument of record at least 40 years prior.  Because the MTA statute (O.R.C. 5301.47, et. seq.) fails to define which date should be used to determine marketability, courts have previously used the following dates to begin its MTA analysis: (1) trial/summary judgment; (2) summons; or (3) a severed mineral holder filing a notice of preservation. In Senterra, the Seventh District determined that regardless of using the date of summons or the date of the trial court’s determination, a 1971 deed in the chain of title operated as the root of title for a portion of the land at issue.  However, in looking at the time period between 1971 and 2011 (the 40-year period required by the MTA), the record indicated an unspecified event occurred on July 14, 2000, which may have preserved the interest for its holder.  Therefore, the court looked to the previous deed in the chain of title, being a 1954 deed, and conducted its analysis using this deed as the root of title.  In determining that the surface owner had an unbroken chain of title from 1954 through 1994 with the mineral owner failing to preserve their interest during that time, the court held that the 1954 deed qualified as the root of title purporting to create the interest claimed by the surface owner and extinguished the interest of the mineral owner.  Therefore, regardless of what initial date is used in determining marketability, a proper analysis will step through each deed in order to determine if a 40-year unbroken chain of title has occurred.

The Senterra decision continues a series of victories for surface owners and establishes the MTA as an invaluable tool to claim severed oil and gas interests.  However, it remains to be seen if the case will be reviewed by the Ohio Supreme Court.

Tagged:  Dormant Mineral Act, Leasing, Litigation, Marketable Title Act, Natural gas, Ohio, Oil and gas, Title, reference, root of title


Pipeline Safety Alert – PHMSA Publishes Long-Awaited Mega-Rule for Gas Transmission Lines

On October 1, 2019, the Pipeline and Hazardous Materials Safety Administration (PHMSA or the Agency) published a final rule in the Federal Register amending the federal safety standards for gas pipeline facilities at 49 C.F.R. Part 192 (Rule). The Rule primarily addresses concerns identified in congressional mandates and National Transportation Safety Board (NTSB) recommendations for gas transmission lines.  The most significant provisions include new requirements for verifying pipeline materials, reconfirming maximum allowable operating pressure (MAOP), and performing periodic assessments of pipeline segments located outside of high consequence areas (HCAs), including in newly-defined moderate consequence areas (MCAs).  Other changes include amendments to the integrity management (IM) requirements, new requirements for reporting MAOP exceedances and the safety of inline inspection launcher and receivers, as well as related recordkeeping requirements. This alert is the first in a four-part Babst Calland series on the Rule.  This first alert discusses the new MAOP reconfirmation and material verification requirements.  The next alert will cover MCAs and new assessment requirements for pipelines located outside of HCAs.  The third client alert will review the new recordkeeping requirements.  Finally, Babst Calland will survey the remaining Rule topics. Please read more about this Final Rule in this Alert.

Tagged:  MAOP, PHMSA, gas transmission pipelines, maximum allowable operating pressure, operator