Shale Energy Law Blog

The law firm of Babst Calland today released its annual energy industry report: The 2019 Babst Calland Report – The U.S. Oil and Gas Industry: Federal, State and Local Challenges & Opportunities; Legal and Regulatory Perspective for Producers and Midstream Operators. In this Report, Babst Calland energy attorneys provide perspective on issues, challenges, opportunities and recent developments in the oil and gas industry that are relevant to producers and midstream operators. According to the International Energy Agency, “the second wave of the U.S. shale revolution is coming” and the United States will account for a 70 percent increase in global oil production and a 75 percent expansion in LNG trade in the next five years.  On a year-over-year basis, natural gas production continues to increase in each of the seven largest shale basins in the United States. Most notably, oil and natural gas production is being driven by three of the largest producing basins including Appalachia in Pennsylvania, West Virginia and Ohio, the Permian Basin in Texas and New Mexico, and the Haynesville Basin in southwestern Arkansas, northwest Louisiana, and east Texas. Joseph K. Reinhart, shareholder and co-chair of Babst Calland’s Energy and Natural Resources Group, said, “Domestic shale producers and operators continue to face myriad legal and regulatory challenges by regulatory agencies, the courts, activists, and the market. This annual review is a snapshot of the issues and trends on the federal, state and local level in the oil and gas industry over the past year.” The 92-page Babst Calland Report covers a range of topics from the industry’s business outlook, regulatory enforcement and rulemaking to developments in pipeline safety and litigation trends. A few of the Report’s highlights include:

• The U.S. Department of Energy’s Energy Information Administration (EIA) reports both oil and dry natural gas production set U.S. records this year. Oil production hit 12.4 million barrels per day in May, natural gas soared above 90 billion cubic feet per day. U.S. production of gas liquids also set records and now account for over a quarter of U.S. petroleum product output.
• This year, the oil and gas industry received mixed messages regarding environmental matters. On the federal level, the Trump administration generally loosened regulatory and/or statutory constraints, such as narrowing the Clean Water Act definition of “Waters of the United States.” In contrast, at the state level, some agencies introduced or considered more rigorous standards, including Pennsylvania’s proposed cap-and-trade program.
• Public interest in pipeline safety has grown significantly in recent years. Consequently, operators’ installation of new pipeline infrastructure to transport energy products from the nation’s shale plays to domestic and foreign markets has resulted in increased scrutiny.
• In Pennsylvania, the contours of the Robinson Township II decision continue to be litigated and legislated by local governing bodies, while the Commonwealth Court provided clarity concerning a municipality’s right to determine the location of oil and gas operations. In West Virginia, the extent of a county government’s ability to investigate alleged nuisances is being considered in the state’s highest court. In Colorado, new legislation has empowered local governments to take a much more active role in regulating oil and gas development.
• Significant title issues concerning oil and gas property rights continue to be addressed in states in shale plays throughout the country. The desire to improve efficiencies has resulted in the use of allocation wells and cross unit drilling, particularly in Texas and Oklahoma.
• Nuisance claims, alleging that excessive noise, traffic, dust, light, air pollution and impaired water quality interfere with the use and enjoyment of private property, continue to be asserted across the shale plays.
• An increasing number of oil and gas companies recognize the advancements in commercial unmanned aircraft systems (UAS) technology and the utility and cost savings associated with using UAS to inspect and monitor assets such as pipelines and infrastructure.

After more than a decade, the shale gas industry continues to expand its reach and impact on our country’s energy supply and independence. 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 West Virginia Supreme Court issued an opinion in Andrews v. Antero Resources Corp. and Hall Drilling, LLC, No. 17-0126 (W. Va. June 10, 2019), an eagerly-awaited decision arising out of the In re: Marcellus Shale Litigation, in which hundreds of lawsuits have been filed against E&P and midstream oil and gas companies alleging that activities related to the production, compression, and transportation of natural gas represented a private nuisance.

The Property Owners in Andrews, which represented the first trial group in In re: Marcellus Shale Litigation, alleged that the fracking operations of Antero and Hall Drilling “in relation to their development of the Marcellus shale have caused Property Owners to lose the use and enjoyment of their properties due to the annoyance, inconvenience, and discomfort caused by excessive heavy equipment and truck traffic, diesel fumes and other emissions from the trucks, gas fumes and odors, vibrations, noise, lights, and dust.”  They filed a complaint alleging claims for “private temporary continuing abatable nuisance and negligence” against Antero and Hall Drilling arising from their “natural gas exploration, extraction, transportation and associated activities in close proximity to [Property Owners’] properties.”

Please read more about this decision in this Alert.

On June 5, 2019, the West Virginia Supreme Court issued its opinion in EQT Production Company v. Crowder affirming a decision of the circuit court of Doddridge County, holding that a surface tract cannot be used to produce minerals from neighboring lands in the absence of an agreement with a surface owner, even if the mineral owners/lessees agreed to pooling and unitization.  Please read more about this decision in this Alert.

Ohio’s Sixth District Court of Appeals recently ruled that Ohio’s Marketable Title Act (the “MTA”) extinguished restrictive covenants on a parcel located in a residential subdivision due to a gap in excess of 40 years without being identified in the parcel’s chain of title. David v. Paulsen, No. OT-18-032, 2019 Ohio App. LEXIS 2229 (Ct. App. May 31, 2019).  The MTA allows an owner to establish marketable title, being title free from reasonable doubt of litigation, by relying on a record chain of title to extinguish interests and claims existing prior to the root of title unless an exception applies. The root of title is the most recent instrument of record at least 40 years prior to the time marketability is being determined. While not immediately impacting the oil and gas industry, at the heart of the dispute in Paulsen was when marketability is determined under the MTA, which may affect future oil and gas ownership claims under the MTA.

The Appellants, members of a subdivision seeking to enforce the restrictive covenant against the landowner Appellees’ building of a shed, argued that the date of the 2009 deed where the landowners took title to the lot should be used to determine marketability. If so, the root of title would be a 1964 deed which predated the restrictions of the subdivision. Therefore, the MTA would not extinguish the restrictions, as they would post-date the root of title. The landowners countered with the argument that the date the members of the subdivision filed their summary-judgment motion, being the date most recent in time, should be the date the court uses to determine marketability.

Finding fault with both positions, the court instead determined marketability when the members of the subdivision sought to enforce their purportedly-superior right, being the date they filed their complaint. Thus, the court found that a July 3, 1973 deed, being the first deed of record 40 years prior to the filing of the complaint, operated as the root of title for the land in dispute. The court concluded that the MTA extinguished the restrictions because the restrictions existed prior to the root of title and were not stated or identified in the July 3, 1973 deed or specifically referenced in any of the documents of the chain of title in the 40 years following the root of title.

While only binding on courts located within the jurisdiction of the Sixth District in northwest Ohio, Paulsen is the first appellate decision in Ohio to analyze the date that marketability is determined under the MTA. If adopted by other courts of appeal, particularly the Seventh District, Paulsen may render the MTA toothless in reclaiming title to previously severed oil and gas interests. Because the court in Paulsen determined marketability on the filing date of the complaint, a landowner would arguably be required to file a quiet title action to claim severed oil and gas interests under the MTA - an action not contemplated by the statute.

On June 3, 2019, the U.S. Department of Transportation (DOT) sent a legislative proposal to Congress for reauthorization of the Pipeline and Hazardous Materials Safety Administration’s (PHMSA) pipeline safety program.  If enacted and signed into law, the legislation would reauthorize PHMSA’s pipeline safety program for an additional four years, or through 2023.

As in previous reauthorizations, the bill includes provisions that respond to recent events—in this case, the September 13, 2018 natural gas distribution incident in Merrimack Valley, Massachusetts.  Consistent with the Trump administration’s broader policy agenda, the bill also includes provisions to promote innovation by supporting new technologies and enhancing pipeline safety and reliability.

The legislation addresses other areas of concern to the pipeline industry, such as requiring more timely review of technical standards and imposing additional criminal sanctions for pipeline vandalism.  Finally, the bill includes rulemaking mandates that focus on items of importance to PHMSA—namely, expanding the operator qualification (OQ) program to pipeline construction and establishing regulations for inactive pipelines.

Please read more about this decision in this Alert.

On April 10, 2019, President Donald Trump signed an Executive Order on Promoting Energy Infrastructure and Economic Growth (Executive Order).  In addition to outlining U.S. policy toward private investment in energy infrastructure and directing the U.S. Environmental Protection Agency to take certain actions to improve the permitting process under the Clean Water Act, the Executive Order instructs the U.S. Department of Transportation (DOT) to update the federal safety standards for liquefied natural gas (LNG) facilities.  The Executive Order notes that DOT originally issued those safety standards nearly four decades ago and states that the current regulations are not appropriate for “modern, large-scale liquefaction facilities[.]”  Accordingly, the Executive Order directs DOT to finalize new LNG regulations within 13 months, or by no later than May 2020, an ambitious deadline given the complex issues involved and typical timeframe for completing the federal rulemaking process. Please read more about this decision in this Alert.

On March 15, 2019, the Pennsylvania Commonwealth Court in Anadarko Petroleum Corporation v. Commonwealth held that the Attorney General can bring claims under Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (“UTPCPL”) against companies that lease oil and gas rights from landowners.  The companies argued that the UTPCPL was “designed to only protect consumers against underhanded behavior of sellers, rather than all parties to a given transaction” and because they “were not selling or distributing anything” the UTPCPL was not applicable.  The Court rejected this argument and held that the UTPCPL’s definition of “trade” and “commerce” was broad enough to include claims against purchasers, as well as sellers.  The Court noted that the UTPCPL places restrictions on the ability of private citizens to file suit, but that those restrictions do not apply to the Attorney General.  The language of the UTPCPL quoted by the Court suggests that its holding does not open the door for private UTPCPL claims against oil and gas lessees.  The Court also addressed whether the UTPCPL supports antitrust claims.  The Court held that the UTPCPL “is not designed to render all antitrust violations actionable.”  The Court dismissed the Attorney General’s antitrust claim that was based on the premise that “joint venture and market sharing agreements intrinsically violate[] the UTPCPL.”  However, the Court held that the Attorney General did allege an actionable UTPCPL antitrust claim when it claimed that the companies were “giving [landowners] misleading information, and/or failing to disclose information, regarding the open market’s true appetite for subsurface mineral leases, as well as the whether the terms of the agreed-to leases ‘were competitive and fair.’”

Judge Covey issued a concurring and dissenting opinion, arguing that the “Majority manipulate[d] the language of the UTPCPL for a purpose the General Assembly never intended” – i.e. that the UTPCPL “a consumer protection statute intended to bolster consumers’ bargaining powers, can authorize legal action against a purchaser.”  Jude Covey concurred in the Majority’s dismissal of the Attorney General’s UTPCPL antitrust claim.  The case may be appealed to the Pennsylvania Supreme Court.

Ohio’s Seventh District Court of Appeals recently issued three separate opinions involving Ohio’s Marketable Title Act (the “MTA”) and Dormant Mineral Act (the “DMA”): Miller v. Mellott, 2019-Ohio-504 (Ct. App.); Soucik v. Gulfport Energy Corp., 2019—Ohio-491 (Ct. App.); and Hickman v. Consolidation Coal Co., 2019-Ohio-492 (Ct. App.). Despite ruling that the severed royalty and/or fee interests were subject to both the MTA and the DMA, the Seventh District held that the mineral/royalty interests had not been abandoned and/or extinguished by either. In its MTA analysis, the court scrutinized the language of the root of title deed used by the surface owners to establish title to the severed interest. If the surface owner’s root of title contained a reference to an oil and gas reservation, the court found that the surface owner was precluded from claiming the mineral interest had been extinguished under the MTA. The court determined that even a perfunctory exception to oil and gas “as heretofore reserved” barred the surface owner from claiming title to the mineral interest under the MTA. Finding that the severed minerals survived extinguishment under the MTA, the court addressed underlying defects in the surface owner’s DMA procedure. In denying the surface owners’ claims under the DMA in Miller and Soucik, the court determined that the surface owners failed to satisfy the diligence required by Ohio law in identifying the mineral holders before permitting notice by publication. Even though the margins of the deeds severing the mineral interests contained notations of abandonment, the court permitted examination of the underlying procedure to determine whether abandonment was proper. Surface owners carry the burden to establish that they attempted service by certified mail prior to proceeding to notice by publication. Because the surface owners in Miller and Soucik failed to provide evidence through affidavits or otherwise that they even attempted to serve notice by certified mail, the court found that the surface owners failed to comply with the notice provisions of the DMA. Therefore, the court ruled that the severed mineral interests had not been abandoned under the DMA.

On Wednesday, December 19, 2018, Governor Kasich signed SB 263 into law, which amends O.R.C. §4735 to specifically exclude oil and gas land professionals (landmen) from having to be a licensed real estate broker to negotiate oil and gas leases in Ohio. Following the Ohio Supreme Court’s decision in Dundics v. Eric Petroleum Corporation, Slip Opinion No. 2018-Ohio-3826 (September 25, 2018), independent oil and gas landmen faced civil and criminal penalties if they continued to negotiate oil and gas leases without first acquiring a real estate broker's license. With the passing of SB 263, which goes into effect on March 19, 2019, independent landmen may continue negotiating oil and gas leases without a real estate broker's license provided they follow the new disclosure requirements set forth in the amendment. The newly passed legislation specifically exempts landmen from acquiring a real estate license if the transaction involves negotiating an oil and gas lease or pipeline easement. However, the landman must first register annually with the superintendent of real estate and pay a $100 registration fee. Additionally, the landman must provide the superintendent with evidence that the landman is in good standing in a national, state, or local professional organization that has developed ethical performance standards for oil and gas land professionals. When negotiating an oil and gas lease, the landman must now provide the landowner with a disclosure form that discloses their registration information and notifies the landowner that the landman is not a licensed real estate broker. The exemption does not apply to fee simple absolute transactions involving oil and gas rights, which still require the landman to be a licensed real estate broker.

On December 13, 2018, the Ohio Supreme Court in Blackstone v. Moore, 2018-Ohio-4959, affirmed the Seventh District Court of Appeals decision preserving a severed royalty interest from extinguishment under the Marketable Title Act (the “MTA”) because of a specific reference in the surface owners’ chain of title. The MTA allows an owner to rely on a record chain of title to establish ownership and operates to extinguish interests and claims existing prior to the root of title unless an exception applies. The root of title is the most recent instrument of record at least 40 years prior to the time marketability is being determined.  In addition to actively preserving their interest from extinguishment through their own actions, an interest may be preserved, even with no action by its owner, if specifically identified in the record chain of title of the individual attempting to extinguish the interest.

The Blackstones (surface owners) claimed that the royalty interest created in 1915 owned by the Moores had been extinguished by operation of law under the MTA. However, the Blackstones’ 1969 root of title referenced the outstanding oil and gas royalty interest by its owner’s name but failed to include a volume/page reference to the instrument that created the interest. The court rejected the Blackstones argument for a bright-line rule requiring the volume and page number, as the legislature did not require this specificity in the statute. Accordingly, the court determined that the Blackstones’ 1969 root of title specifically referenced the Moores’ interest, thereby preserving the Moores’ interest from extinguishment.

Justice DeGenaro, who is leaving the court at the end of 2018, wrote a concurring opinion emphasizing the narrow scope of the holding. She opined that the MTA no longer applies to severed mineral interests following the 1989 enactment of the Dormant Mineral Act (the “DMA”). While the issue of whether the MTA applies to severed mineral interests was not before the court in Blackstone, this issue is currently before the Seventh District Court of Appeals in a separate, unrelated case. The Seventh District had previously applied both the DMA and MTA to the Moores’ severed royalty interest when Blackstone was on appeal before them.