Shale Energy Law Blog

Pennsylvania House Environmental Resources and Energy Committee Hearing

In his testimony on August 17, 2021 at the Pennsylvania House Environmental Resources and Energy Committee public hearing on the Environmental and Economic Benefit of Pipelines, Babst Calland Attorney Keith Coyle, chairman of the Marcellus Shale Coalition’s Pipeline Safety Workgroup, explains, “As long as we are relying on fossil fuels to produce power, we need pipelines to deliver them safely. …It’s pretty clear we are going to be relying on natural gas and petroleum for some time. There is no other way to do this safely and to move product in bulk besides these pipelines.” To view the video of the full public hearing of the House Environmental Resources & Energy Committee on the Environmental and Economic Benefits of Pipelines, click here.

In this episode of the Emerging Tech Podcast Series, Justine Kasznica and Ashleigh Krick of Babst Calland’s Emerging Technologies Group talk to Jonathan Kersting of the Pittsburgh Technology Council about the latest investment trend in energy as reported from the 2021 Babst Calland Energy Report. Kasznica and Krick discuss how public government funding is driving investment in emerging energy technologies like energy storage and hydrogen. They will also detail how VC and private equity investments are at a record high and what’s driving the growth. Listen to the podcast here.

A Recent Conversation with U.S. Senator Joe Manchin Featured in this Report Law firm Babst Calland today published its 11^th annual energy industry report: The 2021 Babst Calland Report – Legal & Regulatory Perspectives for the U.S. Energy Industry. Each of our nation’s energy sectors is impacted by local, state and federal policies, many of which are addressed in this inclusive report on legal and regulatory developments for the energy industry in the United States. The Babst Calland Report represents the timely collective perspectives of more than 45 energy attorneys on the current state of the U.S. natural gas and oil, coal, and renewable energy sectors. For the first time, this Report is presented as an easy-to-navigate digital site featuring 12 sections, addressing the following key topics:

• Business Outlook for the U.S. Energy Industry
• Climate Change Initiatives from the Biden Administration
• Pipeline & Hazardous Materials Safety Administration Priorities
• Environmental Law Developments
• Environmental Justice Issues
• Appalachian Basin Regional Developments
• Coal Mining Regulatory Changes
• Expansion of the U.S. Renewable Energy Market
• Real Estate & Land Use Developments
• Litigation Trends
• Changes in Employment & Labor Law
• Emerging Technologies Affecting the Energy Industry

Joseph K. Reinhart, shareholder and co-chair of Babst Calland’s Energy and Natural Resources Group, said, “The energy industry, once again, is at an inflection point and a moment of resiliency as it experiences a rebound in pricing and recovers from the impact of the global pandemic. Evidenced by the signing of several Executive Orders, President Biden has made climate change a focal point of U.S. energy policy. The full impact of the new administration’s “government-wide” approach to regulatory and social environmental policies will be unclear for months. “This transformational time promises to bring significant changes for the U.S. energy industry. It is vital for any energy organization to consider the forewarnings, the risks, and the legal and regulatory implications to its business.” Report Features Video Commentary from U.S. Senator Joe Manchin This edition features commentary from Senator Joe Manchin (D-WV), Chairman of the U.S. Senate Energy and Natural Resources Committee, who spoke with Babst Calland energy clients at a special briefing on June 25, 2021. A link to the webinar recording is available in this Report. To request a copy of The 2021 Babst Calland Report, click here. Updates on key developments in energy and natural resources law beyond this Report are available directly by the attorneys who represent clients in a wide spectrum of industry sectors and legal practice areas.

Attorney Keith Coyle provides an update on the latest progress in the PHMSA rulemaking process for the Gas Gathering Rule.

In this episode, you will learn about the importance of how gathering lines are defined, the impact of the recently-updated API RP 80 that provides additional guidance on how to define gathering lines, what type of gathering lines need to comply with the PHMSA safety requirements in 49 CFR 192, how the transition to a new administration will impact the timing of the rulemaking being finalized, and more topics. To listen to this podcast, click here.

On a recent episode of Pipeliners Podcast, attorney Keith Coyle discusses insights on PHMSA rulemaking and how pipeline policy was affected by the previous four years, and how it might be affected in the next four years. To listen to this podcast, click here.

The Pennsylvania Superior Court returns to the Briggs case after the Supreme Court reversed its prior decision.  On December 8, 2020, the Superior Court reconsidered whether the trial court properly granted summary judgment against landowners as to their subsurface trespass claim.  The landowners claimed that a natural gas operator’s hydraulic fracturing operations on its neighboring leased property constituted a subsurface trespass onto their property.  The Superior Court originally vacated the trial court’s decision.  However, on January 22, 2020, the Pennsylvania Supreme Court reversed the Superior Court’s decision.

The Supreme Court “rejected as a matter of law the concept that the rule of capture is inapplicable to drilling and hydraulic fracturing that occurs entirely within the developer’s property solely because drainage of natural resources takes place as the direct or indirect result of hydraulic fracturing, or that such drainage stems from less ‘natural’ means than conventional drainage.”  Briggs v. Southwestern Energy Prod. Co., 224 A.3d 334, 348-49 (Pa. 2020).  The Supreme Court held that a plaintiff asserting a cause of action for trespass must be able to prove all elements of that claim –including that physical intrusion under its property occurred.  Id. at 349.  The Supreme Court remanded the case back to the Superior Court for its consideration as to whether the landowners “may proceed on a physical-invasion trespass cause of action.”  Id. at 351.

On remand, the Superior Court held that the landowners failed to “specifically allege that the [operator] engaged in horizontal drilling that extended onto their property.  Briggs, v. Southwestern Energy Prod. Co., 2020 WL 723311, *2 (Pa. Super. Ct. Dec. 8, 2020).  As such the Superior Court reinstated the trial court’s grant of summary judgment in favor of the operator.

The law firm of Babst Calland published its 10^th annual energy industry report: The 2020 Babst Calland Report – The U.S. Oil & Gas Industry: Federal, State, Local Challenges & Opportunities; Legal and Regulatory Perspective for Producers and Midstream Operators. 

In this Report more than 50 energy attorneys provide perspective on the current state of the U.S. natural gas and oil production industry and its growth to historic highs due to more than a decade of advances in on-shore horizontal drilling and high-volume hydraulic fracturing. It asserts that despite current challenges, a maturing shale industry is poised for future growth as natural gas and oil producers have driven down the costs of production. Transportation options for moving these natural resources from growing areas of production to customers continue to be built, even with new hurdles from regulators and other stakeholders.

Joseph K. Reinhart, shareholder and co-chair of Babst Calland’s Energy and Natural Resources Group, said, “The U.S. natural gas and oil industry has experienced tremendous growth and change since we first published this Report in 2011. Fast forward to an unprecedented 2020 with a pandemic, a corresponding economic slow-down and oversupply of natural gas and crude oil. With increased public and government pressure, sustained low prices, and less-reliable financing options, resiliency will continue to be the driving force of a dynamic energy market that continues to evolve.”

Report highlights

The Babst Calland Report is an annual review of the issues and trends at the federal, state and local level in the oil and gas industry over the past year. The 102-page Report covers a range of topics from the industry’s business outlook, regulatory enforcement and rulemaking to developments in pipeline safety and litigation trends. The Firm’s collective legal experience and perspectives on these and related business developments are highlighted in this Report, including those summarized below:

• Long-term, U.S. energy production appears poised to continue to outstrip domestic consumption due in some measure to increased consumption efficiency, along with the obvious ramifications from the natural gas revolution.
• The regulatory environment is focused on climate change, reducing emissions, water quality developments, and enforcement. Increased volumes of written agency guidance, enforcement, and penalties continue to challenge the industry.
• Citizens groups continue to actively challenge federal and state initiatives designed to expand natural gas and oil development, creating delays and uncertainties.
• Land use and zoning challenges continue at the local level. Increasing industry headwinds have resulted in a slowdown of new permitting activity amid ongoing challenges and ordinance restrictions.
• Public interest in pipeline safety has grown amid opposition and new rules from the Pipeline and Hazardous Materials Safety Administration in response to increased public and congressional pressure to initiate and finalize new or revised pipeline safety regulations. Operators seek to install new or replace existing pipelines throughout the U.S. while advocacy groups aggressively oppose many pipeline projects.
• Title legislation and court decisions vary by state and basin. In Pennsylvania, for example, Act 85 took effect in January 2020 and defines the conditions in which oil and gas producers may drill a lateral wellbore that crosses between two or more pooled units.
• Although 2019 saw renewed claims of adverse health effects allegedly related to oil and gas development, support for such claims continues to be limited, as now noted by numerous publications.
• Unmanned aircraft systems take hold in the energy sector. Despite the pandemic and its impacts, unmanned aircraft systems (UAS) have emerged as essential tools for the energy industry for conducting complex inspection and monitoring of difficult to access infrastructure and locations.
• From a workforce standpoint, COVID-19 conditions and other wage and hour regulations, amendments to the Family Medical Leave Act, and expanded unemployment benefits under the CARES Act have had an impact on companies across the country.

The natural gas and oil industry continues to expand its reach and impact on U.S. energy supply and independence. Each company has its own set of opportunities and challenges to navigate based on its financing, debt, shareholder goals, and operations and infrastructure footprint. Nonetheless, the United States’ plentiful supply of natural gas and oil is expected to continue to fuel the country’s economic future and support national security.

Request a copy of the Report

Babst Calland’s Energy and Natural Resources attorneys support clients operating in multiple locations throughout the nation’s shale plays. To request a copy of the Report, contact info@babstcalland.com.

The Supreme Court of Appeals of West Virginia recently issued a memorandum opinion interpreting a reservation of oil and gas “royalty.” The result of the Court’s holding is consistent with long standing West Virginia case law regarding oil and gas severances. In Haught Family Tr. v. Williamson, No. 19-0368, 2020 W. Va. LEXIS 248 (Apr. 20, 2020), the Court interpreted a 1907 deed that reserved, “one half of all the royalty of oil (which royalty shall not be less than the usual one-eighth), and one half of the proceeds of all gas which may be produced from said tract of land…” The Court ultimately affirmed the circuit court’s decision, interpreting the 1907 deed as reserving a 1/2 non-participating royalty interest (“NPRI”). In reaching its decision, the Court stated that it relied upon Davis v. Hardman, 148 W. Va. 82 (1963) and Paxton v. Benedum-Trees Oil Co., 80 W. Va. 187 (1917) to ascertain the intent of the parties as expressed in the deed. Citing to Davis, the Court indicated that the 1907 deed’s use of the phrase “when produced” evidenced that the parties intended to limit the interest reserved to instances where oil and gas was actually produced. To construe the 1907 deed as reserving an in place interest would require regarding the words “when produced” as meaningless. The Court further implied that the deed’s use of “when produced” rendered the deed unambiguous. The Petitioner argued that the circuit court failed to construe the deed as of the time of the deed and reservations’ creation in 1907, and contended that the Court should analyze the deed as the Supreme Court would in 1907. See Syl. Pt. 2, Oresta v. Roman Bros., Inc., 137 W. Va. 633 (1952). However, the Court emphasized that its’ role, as stated in Davis v. Hardman, is to ascertain the intent of the parties as expressed in the deed. The Court further indicated that the reservation in question was similar to the reservation interpreted in Davis, and was executed around the same time as the Davis reservation. As a result, the Court held that the deed in question reserved a 1/2 NPRI. The reservation in Davis v. Hardman had notable distinctions from the 1907 deed, and the Davis court relied upon this distinct language in its analysis. The deed at issue in Davis reserved, “the oil and gas royalty, when produced, in and under said land, but said second party, his heirs and assigns, to have the right to lease said land for oil and gas purposes and to receive bonuses and carrying rentals,” and was interpreted as reserving an NPRI. In its analysis, the Davis court listed the distinguishing characteristics of NPRIs and in place interests in oil and gas:

(1) Such share of production is not chargeable with any of the costs of discovery and production; (2) the owner has no right to do any act or thing to discover and produce the oil and gas; (3) the owner has no right to grant leases; and (4) the owner has no right to receive bonuses or delay rentals. Conversely, the distinguishing characteristics of an interest in minerals in place are: (1) Such interest is not free of costs of discovery and production; (2) the owner has the right to do any and all acts necessary to discover and produce oil and gas; (3) the owner has the right to grant leases, and (4) the owner has the right to receive bonuses and delay rentals.

The Court indicated that the intent of the parties as expressed in the deed was clear when read in light of these characteristics. The Davis deed specifically conveyed all rights to lease and receive bonuses or “carrying” (delay) rentals. A conveyance of such rights is directly contradictory to an in place reservation. The Davis court relied heavily on these characteristics and the deed’s specific conveyance of leasing and bonus rights in its analysis. Although the Davis court observed that a reservation of oil and gas “when produced” supported an NPRI reservation, its analysis did not focus on this language as implied by the Court in Haught. The Court in Haught Family Tr. v. Williamson issued only a memorandum opinion due to the lack of novel issues of law. Although the opinion does not identically mirror the analysis in Davis v. Hardman, it remains valid law as to this particular case. The reservation language analyzed in Haught is typical of NPRI reservation language used throughout West Virginia from the 19th century to present. The result of the Court’s holding remains in line with prior West Virginia cases, and generally follows typical interpretation practices of title examiners.

The Pennsylvania Supreme Court recently accepted the appeal of Mitch-Well Energy, Inc. (“Mitch-Well”) in SLT Holdings, LLC v. Mitch-Well Energy, Inc. on the issue of whether Mitch-Well effectively abandoned its leases by failing either to produce oil or gas or pay required minimum rental payments to the landowners.  In 2019, the Pennsylvania Superior Court affirmed the trial court’s determination that Mitch-Well abandoned its leases due to the lack of production and payments.

The leases, executed in 1985, cover two tracts in Warren County, Pennsylvania, and contain provisions requiring Mitch-Well to drill a certain number of wells on the parcels and make yearly minimum payments to the lessors.  The leases also contain a provision stating that the leases will continue for so long as Mitch-Well determines that oil and gas can be produced in paying quantities.  From 1996 through 2013, wells drilled under the leases failed to produce in paying quantities and Mitch-Well neglected to make the minimum payments are required by the leases, prompting the landowners to seek judicial determination that Mitch-Well abandoned the leases.

On appeal, the Supreme Court will consider Mitch-Well’s argument that in its good faith determination, the wells were productive even though the trial court failed to take testimony on this issue. The Supreme Court asked Mitch-Well and the landowners to address Aye v. Philadelphia Co. and Jacobs v. CNG Transmission Corp., indicating that the Court may consider whether the leases survive both the automatic termination due to the non-payment of royalties and whether Mitch-Well abandoned the leases during the 16 years of non-production.  This is an opportunity for the Court to provide additional clarity on Pennsylvania law relating to cessation of production and lease abandonment and termination.

On Friday, March 27, Ohio Governor Mike DeWine signed Amended Substitute House Bill Number 197 (“House Bill 197”), passed by the 133rd General Assembly of the State of Ohio. The purpose of House Bill Number 197 is to provide emergency relief to Ohioans during the COVID-19 pandemic, in part by confirming that “essential operations of state government” will continue during the declared state of emergency, which began in Ohio on March 9, 2020. Section 21 of House Bill 197 is of particular import to the oil and gas industry. Section 21 requires the title offices of all courts of common pleas, as well as the county map office of each county, to remain open and operational, and to allow land professionals physical access to the offices as necessary to search the records. It is intended to maintain title searchers’ access to documents that either have not been digitized or are otherwise unavailable for viewing online. Section 21 provides that each county office may impose limitations on this access, such as operating during limited hours or permitting only visits of a limited duration, and further stipulates that title searchers may be subject to “requirements and restrictions in the interest of public health.” In addition, the Bill requires all “essential services to effectuate a property transfer” (i.e., deed recording and similar services) to remain open and available across all county offices. Section 22 extends tolling periods for various statutes of limitation, including the period of limitation for an administrative action or proceeding. It provides that any statutes of limitation set to expire between March 9, 2020 and July 30, 2020, shall be tolled for the duration of the state of emergency. This section is retroactive and relates back to March 9, 2020, the date the emergency was declared, and expires on the date the period of emergency ends or July 30, 2020, whichever is sooner. For additional information, please contact Meredith Calfe or Scott McKernan.