On April 23, 2014, the Findlay Township Board of Supervisors approved the conditional use application of CONSOL Energy, Inc.’s affiliate, CNX Gas Company LLC, to construct on the property of the Pittsburgh International Airport 6 well pads, up to 60 unconventional gas wells, 3 centralized impoundments (I fresh water and 2 produced water), and related pipelines and access roads. The approval is the culmination of two public hearings, held in February and March of this year, and thousands of pages of application materials. The Board of Supervisors placed 23 conditions on the approval. CNX paid the Allegheny County Airport Authority $50 million in 2013 for the airport drilling rights, and it is expected that the drilling will provide approximately $450 million in royalties to the Authority over the next 20 years.
As reported in The Wheeling Intelligencer, the West Virginia Legislature continues to consider H.B. 4558 and S.B. 578, which would allow oil and gas producers to create production units through “Forced Pooling.” If passed, such a law would allow natural gas producers to include un-leased acreage in their active drilling units if all of the un-leased landowner’s neighbors have been leased. Industry advocates pushing for passage of these measures argue their necessity for West Virginia production to remain competitive in the Marcellus markets, as Pennsylvania and Ohio have similar laws. Opponents of the idea fear that such a law could weaken the position of landowners when negotiating leases with oil and gas companies. The West Virginia Legislature considered similar laws in the past, without success.
The respective bills are currently in Committee in both the House and the Senate. With the current legislative session ending in early March 2014, it is unclear whether the bills will be taken up for a full vote in either house of the legislature prior to the close of the session.
Platts.com reports that Dominion has begun talks regarding farming out 100,000 acres in West Virginia in the Marcellus Shale located near Dominion’s gas storage assets near the Ohio and Pennsylvania borders. Thomas Farrell, CEO of Dominion, indicated that this acreage has potential gas reserves of 1 trillion cubic feet and that Dominion retained the ownership of the gas rights in order to ensure that drilling in the area would not compromise its storage facilities.
On September 4, 2013, in the case of Whiteman v. Chesapeake Appalachia, L. L. C. (2013 U.S. App. LEXIS 18359 (4th Cir. W. va. 2013)), the United States Court of Appeals for the Fourth Circuit upheld a District Court ruling from the Northern District of West Virginia regarding claims of trespass against Chesapeake Appalachia, L. L. C. brought by the surface owners of a 101 acre parcel in Wetzel County. The Fourth Circuit Opinion, written by Judge Faber, concluded that the District Court properly granted summary judgment to Chesapeake. The Opinion specifically stated “that creating drill waste pits was reasonably necessary for recovery of natural gas and did not impose a substantial burden on the [Plaintiffs] surface property, that creation of the pits was consistent with Chesapeake’s rights under its lease, was a practice common to natural gas wells in West Virginia, and consistent with requirements of applicable rules and regulations for the protection of the environment.”
The Superior Court of Pennsylvania upheld the trial court’s decision in Humberston v. Chevron U.S.A. to grant preliminary objections in favor of Chevron U.S.A., Inc. and Keystone Vacuum, Inc., holding that Chevron and Keysone had the right under the oil and gas lease to construct a fresh-water impoundment and to utilize hydraulic fracturing on the landowner’s property. The landowners argued that Chevron and Keystone violated the terms of the lease because hydraulic fracturing was never contemplated by the parties and the water impoundment was impermissible because it would service neighboring drilling sites.
Looking at several key provisions of the lease, the Superior Court found that the landowner’s arguments were in conflict with the clear and unambiguous language of the contract. The trial court determined that, “[t]he lease clearly provides that the lessee has the right to use as much [of] the surface as is ‘necessary or convenient’ to lessee to explore for, develop and produce oil and gas.” In addition the lease “provides that lessee, in its efforts to explore for, develop and produce oil and gas from the subject premises and from lands which adjoin the subject premises, may use ‘methods and techniques which are not restricted to current technologies.’” The Superior Court agreed that this language leaves no room for doubt that the lease permitted hydraulic fracturing and water impoundments.
Hess Corporation and Newfield Exploration Company recently terminated lease agreements with about 1,300 property owners in Wayne County, Pennsylvania, where the Delaware River Basin Commission (DRBC) has imposed a moratorium on gas drilling since May 2010. The moratorium is not intended to be permanent, but only until the DRBC develops environmental regulations for drilling in the watershed. The landowners received a combined $150 million (at $3,000 per acre) initially, and would have received an estimated $187 million in royalties had the wells been drilled. The landowners are free to negotiate with other energy companies, but it is unclear whether any drillers would be interested given the moratorium. Several weeks ago, the Northern Wayne Property Owners Alliance threatened to sue the DRBC “to regain [their] right to access [their] mineral estates.”
The West Virginia Supreme Court of Appeals, West Virginia’s highest court, recently overruled a point in the 1923 case of Ramage v. South Penn Oil Co. (W. Va.), which established that the term “surface” was presumptively ambiguous and always subject to interpretation. On June 13, 2013 in the case of Faith United Methodist Church & Cemetery of Terra Alta v. Morgan, the Court determined that the term “surface,” when used in an instrument of conveyance, has a “definite and certain meaning,” and “generally means the exposed area of land, improvements on the land, and any part of the underground actually used by a surface owner as an adjunct to surface use (for example, medium for the roots of growing plants, groundwater, water wells, roads, basements, basements, or footings).”
Last week, in Good Will Hunting Club, Inc. v. Range Resources-Appalachia, LLC, the U.S. District Court for the Middle District of Pennsylvania held that a landowner (Good Will) was bound by a five-year extension clause in an oil and gas lease that it signed with Range Resources because drilling commenced within the initial term of the lease. The court concluded that staking a drill site, obtaining permits, obtaining easements, clearing timber, and beginning construction of a well pad clearly constituted commencement of drilling operations even though no drill bit had touched the ground. Good Will argued that the five-year extension clause was unenforceable because Good Will was not aware of the clause. However, the lease had been negotiated on behalf of Good Will by a consultant who had authority to execute the lease on Good Will’s behalf and the Court concluded that the consultant “had actual authority to negotiate the Lease… and it [was therefore] his understanding of the terms of the Lease that bind[s] Good Will.”
On May 7th the Fourth Circuit Court of Appeals rejected the arguments of Martha and Charles Wellman and upheld the validity of a “legacy” oil and gas lease. The lease provided for royalty payments on production and a flat-rate rental payment. The mineral owners alleged that Bobcat Oil & Gas, Inc. failed to produce oil or gas under the lease, and breached the lease by missing rental payments, resulting in forfeiture of the lease. As the West Virginia Record noted, the Fourth Circuit upheld the lease under its original 1933 terms, stating that the lease could be maintained solely by payments of the flat rental, and that the missed payments in this case were not such that warranted termination of the lease.
A copy of the unpublished opinion from the Fourth Circuit can be found here.
On April 24, 2013, the Supreme Court of Pennsylvania issued an opinion in the case of Butler v. Powers, addressing the distinction between the words “gas” and “minerals” in private conveyances of land in Pennsylvania. The case began as a quiet title action in Susquehanna County, and the issue was whether an 1881 reservation of “One-half the minerals and Petroleum Oils” in a parcel of land would also include a right to the natural gas. The appellees argued that gas from shale formations should be classified under the term “minerals” in land conveyances, similar to the manner in which coalbed methane gas is considered a part of the coal estate in Pennsylvania. The appellees’ argument was contrary to the long-standing rule stated in an 1882 decision of the Supreme Court of Pennsylvania, Dunham & Shortt v. Kirkpatrick, which created a rebuttable presumption that a reservation of “minerals” did not include “oil” or “gas” unless the term was specifically recited in the reservation.
On appeal of the Butler trial court decision, the Superior Court of Pennsylvania remanded the case in order for the parties to obtain expert testimony explaining whether gas from the Marcellus Shale is “conventional gas” and could be considered a “mineral.” The Supreme Court of Pennsylvania ultimately rejected the Superior Court’s analysis and appellees’ arguments, and held that the rebuttable presumption in Dunham applies the same to shale gas as it would to gas recovered from shallow formations. Thus, the Supreme Court of Pennsylvania upheld the “Dunham Rule” in its April 24, 2013 opinion. According to the Supreme Court, the Dunham Rule (and subsequent case law) remains “viable,” “controlling,” and “unwavering in clarity.” The majority opinion can be found here and concurring opinion here.
On February 8, 2013, federal District Court Judge John Preston Bailey struck down a lawsuit attempting to void an oil and gas lease agreement. The lessors argued that the lease should be voided based upon an inconsistency in the “commencement” date in the lease document according to the West Virginia Record. Judge Bailey refused to void the lease stating “the appropriate remedy in this case is to resolve the discrepancy [of the commencement date] by endorsing the date supplied by Range.” The Lessors have appealed the District Court’s ruling and opening briefs before the Fourth Circuit Court of Appeals are due by April 22.