Monday, August 19, 2019

Shale Law Weekly Review - August 19, 2019

Written by:
Sara Jenkins - Research Assistant
Jackie Schweichler - Staff Attorney

The following information is an update of recent local, state, national, and international legal developments relevant to shale gas.

GHG Emissions: States, Environmental Groups File Lawsuit Challenging EPA’s Affordable Clean Energy Rule 
On August 13, 2019, several states filed a Petition for Review with the U.S. Court of Appeals for the District of Columbia Circuit regarding the Environmental Protection Agency’s Affordable Clean Energy Rule (State of New York v. EPA, No. 19-1165). Several environmental groups filed a similar Petition the next day on August 14th (Appalachian Mountain Club v. EPA, No. 19-1166). The Affordable Clean Energy Rule, officially titled, Repeal of the Clean Power Plan; Emission Guidelines for Greenhouse Gas Emissions From Existing Electric Utility Generating Units; Revisions to Emission Guidelines Implementing Regulations (Rule), was finalized on July 8, 2019.  The Rule replaces the Obama Administration’s Clean Power Plan and instructs states to create standards in order to reduce greenhouse gas emissions for energy development from fossil fuels. According to EPA, heat rate improvement is the “best system of emission reduction” for coal-fired energy units. The States’ Petition requests that the court determine the Rule to be unlawful under section 7607(d)(9) of the Clean Air Act. Both suits follow the American Lung Association’s Petition for Review filed the same day the final Affordable Clean Energy rule was finalized (American Lung Association v. EPA, No. 19-1140). 

Pipelines: Environmental Groups File Petition for Court of Appeals to Review Mountain Valley Pipeline Decision
On August 12, 2019, environmental groups filed a Joint Petition for Review with the United States Court of Appeals for the Fourth Circuit (Wild Virginia v. U.S. Dep’t of the Interior, No. 19-1866). The petition was filed as a request for the court to review the U.S. Fish and Wildlife Service’s Biological Opinion and Incidental Take Statement regarding the Mountain Valley Pipeline. In the Biological Opinion, the Fish and Wildlife Service designated critical habitat areas only for the Indiana bat and stated that pipeline construction was not expected to affect the bat’s habitat. The environmental groups, however, complain that the Fish and Wildlife Service did not set take limits for the amount of endangered bats that could be harmed during construction.  Additionally, the incidental take statement anticipated a small percentage of different species would be harmed or killed during pipeline construction, but it included “reasonable and prudent measures” to be implemented by the pipeline to minimize take. The petitioners, however, claim that the agency failed to measure impacts on other endangered wildlife species. The petitioners request that the Petition be set for “expedited consideration.” 

Municipal Regulation: Activists Request Colorado Court Reinstate Local Hydraulic Fracturing Ban 
On August 13, 2019, the activist group, Our Health, Our Future, Our Longmont (Our Longmont), filed a Motion to Reopen a case which previously found that banning hydraulic fracturing within city limits was not permitted by law (Colorado Oil and Gas Ass’n v. City of Longmont, No. 2013CV63). Our Longmont argues that the case can be revisited due to the adoption of Senate Bill 19-181, which was signed into law on April 16, 2019. SB 19-181 titled, Protect Public Welfare Oil and Gas Operations, gives local governments more authority to regulate oil and gas land use to minimize the effects of oil and gas operations on public safety and the environment. The Motion states that a local hydraulic fracturing ban would no longer be in conflict with Colorado law, allowing the case to be reopened and moved forward. 

Induced Seismicity: Bureau of Ocean Energy Management Issues Permit for Seismic Survey Near Alaskan Coast 
On August 14, 2019, the U.S. Department of the Interior’s Bureau of Ocean Energy Management (Bureau) approved a permit for Hilcorp Alaska, LLC (Hilcorp) to conduct “geophysical exploration operations” in federal waters near Southcentral Alaska. Operations include a seismic survey of the Lower Cook Inlet area covering approximately 969 square kilometers (press release). According to the Bureau’s press release, data gathered from the survey can be used to find “potential offshore oil and gas resources.” The permit approval included several stipulations to be followed by Hilcorp including monitoring ships in the area and reporting birds found on at-sea equipment. The survey is expected to begin August 31, 2019, and be completed by October 31, 2019.

From the National Oil & Gas Law Experts:
Charles Sartain, Water: The Hot Commodity in the Permian and Elsewhere, (August 15, 2019)


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Monday, August 12, 2019

Shale Law Weekly Review - August 12, 2019

Written by:
Sara Jenkins - Research Assistant
Jackie Schweichler - Staff Attorney

The following information is an update of recent local, state, national, and international legal developments relevant to shale gas.

Pipelines: Virginia Department of Environmental Quality Issues Stop Work Instruction for Mountain Valley Pipeline
On August 2, 2019, the Virginia Department of Environmental Quality (DEQ) issued a stop work instruction for a section of the Mountain Valley Pipeline. According to the instruction, an inspection conducted by DEQ on August 1, 2019, found an “imminent and substantial adverse impact to water quality” due to construction of the pipeline in Montgomery County, Virginia. DEQ asserts that the pipeline failed to control erosion and sediment in the area of construction. The instruction named corrective measures to be taken including the installation of erosion control devices and remediation of accumulated sediment. DEQ Director David Paylor stated in a news release, “DEQ will continue to monitor and inspect all ongoing work to ensure continued compliance and protection of Virginia’s natural resources.” 

Pipelines: D.C. Court of Appeals Denies Landowners’ Petition to Review Atlantic Sunrise Pipeline Decision 
On August 2, 2019, The U.S. Court of Appeals for the District of Columbia Circuit denied landowner petitions requesting reviews of the Federal Energy Regulatory Commission’s (FERC) approval of the Atlantic Sunrise pipeline expansion (Allegheny Defense Project v. Fed. Energy Regulatory Comm’n, No. 17-1098). The Petitioners argued that FERC “improperly conducted its environmental assessment under NEPA” (National Environmental Policy Act), failed to prove a market need for the pipeline expansion, and denied due process by allowing the project to move forward without judicial review of FERC’s decision. The court found that FERC sufficiently met the requirements of NEPA through its environmental impact statement and by thoroughly evaluating other proposed routes for the project. The court also found that FERC provided evidence of market need for the project beyond what was required. Further, the court found that petitioners were not denied due process, citing to circuit precedent that FERC’s “public-convenience-and-necessity determination” was enough to satisfy the Fifth Amendment’s public-use requirement. A concurring opinion was filed by Judge Millett agreeing with the court’s decision but acknowledging a concern for “fair process” on behalf of the homeowners to “have their day in court.” 

Wildlife Habitat: Forest Service Issues Proposed Land Management Amendments and Final Impact Statement for Greater Sage-Grouse Areas 
On August 2, 2019, the United States Department of Agriculture’s Forest Service issued the Greater Sage-Grouse Proposed Land Management Plan Amendments (LMPA) and Final Environmental Impact Statement (FEIS) for the Intermountain and Rocky Mountain Regions. The purpose of the LMPA and FEIS is to benefit sage-grouse conservation in Colorado, Idaho, Nevada, Utah, and Wyoming. The LMPA is proposing changes to the 2015 greater sage-grouse plan amendments for “better alignment with Bureau of Land Management (BLM) and state plans.” According to the USDA’s press release, “[t]he 2019 plans have been adapted to take into account site-specific conditions to ensure ranchers, permittees, and industry can adapt to their local conditions.” A notice of the planned amendments and final impact statement was published in the Federal Register on July 31, 2019, and allows for a 60-day objection period. 

Federal Lands: District Court Rules Environmental Groups Lack Standing in Climate Change Suit 
On July 31, 2019, the U.S. District Court for the District of Oregon dismissed a climate change lawsuit, filed by several environmental groups, for a lack of standing (Animal Legal Defense Fund v. U.S., No. 6:18-cv-01860-MC). The plaintiffs argued that the federal government failed to protect them against climate change impacts on federally-owned lands, depriving them of their right to a “safe and sustainable environment.” Additionally, the plaintiffs alleged that they were exposed to dangerous conditions on federal lands through the promotion and development of “carbon-intensive industries.” The plaintiffs asked the court to recognize a “right to wilderness” under the Constitution. The defendants, consisting of the United States and various federal agencies, filed a motion to dismiss the case, claiming the plaintiffs failed to “assert a cognizable case or controversy.” The court ultimately ruled that the plaintiffs lacked standing because their harm was not individualized. Further, the court ruled that the plaintiffs failed to state a claim, finding that “there is no fundamental right to a particular type of environment or environmental conditions.”

Water Quality: EPA Issues Proposed Rule for Clean Water Act 
On August 9, 2019, the Environmental Protections Agency (EPA) issued a news release announcing a proposed rule to implement section 401 of the Clean Water Act. The purpose of the proposed rule is to update water quality certifications for compliance with President Trump’s Executive Order 13868. More specifically, the proposed rule seeks to clarify “timeframes for certification, the scope of certification review and conditions, and related certification requirements and procedures.” EPA Administrator Andrew Wheeler stated in the news release, “Our proposal is intended to help ensure that states adhere to the statutory language and intent of [the] Clean Water Act.” A 60-day public comment period will be open once the proposed rule is published in the Federal Register. 

From the National Oil & Gas Law Experts:
George Bibikos, At the Well Weekly, (August 2, 2019)

Charles Sartain, Tenancy in Common and Joint Tenancy Explained, (August 7, 2019)


Pennsylvania Legislation:
SB 753: Amends the Gas and Hazardous Liquids Pipelines Act to require clear permit conditions and siting guidelines for increasing pipeline safety and minimizing impacts on the environment (Referred to Environmental Resources and Energy - August 7, 2019).

Follow us on Twitter at PSU Ag & Shale Law (@AgShaleLaw) to receive ShaleLaw HotLinks:

Connect with us on Facebook! Every week we will post the CASL Ledger which details all our publications and activities from the week.

Want to get updates, but prefer to listen? Check out the Shale Law Podcast! We can always be found on our Libsyn page, iTunes, Spotify, or Stitcher.


Check the July Agricultural Law Brief! Each month we compile the biggest legal developments in agriculture. If you’d like to receive this update via email, check out our website and subscribe!

Monday, August 5, 2019

Shale Law Weekly Review - August 5, 2019


Written by:
Sara Jenkins - Research Assistant
Jackie Schweichler - Staff Attorney

The following information is an update of recent local, state, national, and international legal developments relevant to shale gas.

Pipelines: Appeals Court Vacates Biological Opinion and Incidental Take Statement for Atlantic Coast Pipeline 
On July 26, 2019, the U.S. Court of Appeals for the Fourth Circuit vacated a decision by the U.S. Fish and Wildlife Service (FWS) regarding endangered species potentially affected by the construction of the Atlantic Coast Pipeline (Defenders of Wildlife v. U.S. Dep’t of the Interior, No. 18-2090). The Petitioners – Defenders of Wildlife, Sierra Club, and Virginia Wilderness Committee – filed suit after FWS issued a Biological Opinion and Incidental Take Statement for the pipeline. The Biological Opinion concluded that two species, the rusty patched bumble bee and the clubshell, would not be jeopardized by pipeline construction. Further, the Incidental Take Statement issued by FWS set an allowable limit on two other endangered species, the Indiana bat and the Madison Cave isopod, that could be harassed or eradicated during construction of the pipeline. Ultimately, the court vacated both the Biological Opinion and the Take Statement, finding that “FWS arbitrarily reached its no-jeopardy conclusions and failed to correct the deficiencies in the take limits” that the court had previously identified.

LNG Exports: FERC Announces New Division to Handle LNG Export Facility Applications 
On July 23, 2019, the U.S. Federal Energy Regulatory Commission (FERC) announced the creation of a new division under the Office of Energy Projects to handle incoming applications for liquified natural gas (LNG) facilities. The new division will be referred to as the Division of LNG Facility Review and Inspection and will include an expansion of personnel to a new Houston Regional Office. According to the announcement, the amount of LNG projects in the United States has grown, requiring more resources for FERC oversight. Additional staffers are needed in Washington D.C. as well as in the Houston area for “completing engineering reviews, coordinating safety reviews with the Pipeline and Hazardous Materials Safety Administration, . . . and preparing engineering analyses for inclusion in environmental documents.” 

State Regulation: Colorado Oil and Gas Conservation Commission Approves Oil and Gas Rule Amendments 
On July 31, 2019, the Colorado Oil and Gas Conservation Commission (Commission) approved 
amendments to the state Department of Natural Resources’s practices and procedures. These amendments added language to streamline the process for adjudicatory matters typically handled by the Commission's hearing officers (1:29:30). More specifically, rule 303h was amended to allow administrative judges to hear and make recommendations regarding drilling permit requests (1:29:30). Additionally, the Commission approved amendments to rule 530, which regulates involuntary pooling procedures. Under the amendments, an owner must own or obtain consent from the owners of a combined “forty-five percent of the mineral interests to be pooled” before submitting an involuntary pooling application (2:11:00). The amendments were approved by motion at the hearing, and no objections were noted (2:36:30).

Pipelines: FERC Issues Draft Environmental Impact Statement for Southgate Pipeline Project 
On July 26, 2019, the Federal Energy Regulatory Commission issued a draft environmental impact statement (EIS) for Mountain Valley Pipeline, LLC’s Southgate project (project). The draft EIS concluded that the project would result in “limited adverse environmental impacts.” Most of the impacts would be temporary, but other long-term impacts would affect forests or wetlands.  FERC recommended a number of mitigation measures in the EIS to reduce the adverse impacts to “less-than-significant” levels. Some of these mitigation measures included: requiring Mountain Valley to follow the mitigation plans outlined in their application for each specified environmental issue, requiring detailed maps and photos of all construction areas to be filed, and requiring Mountain Valley to develop and implement an “environmental complaint resolution procedure.”  According to FERC’s website, the project is expected to include 73 miles of natural gas pipeline in Virginia and North Carolina, and it would transport 375 million cubic feet of gas per day.

Induced Seismicity: Study Evaluates Fluid Injection Data to Predict Seismic Activity
On July 29, 2019,  Proceedings of the National Academy of Sciences published a study evaluating fluid injection data to predict seismic activity in Oklahoma. The study titled, Pore-pressure diffusion, enhanced by poroelastic stresses, controls induced seismicity in Oklahoma, focuses on predicting “induced seismicity linked to geothermal resource exploitation, hydraulic fracturing, and wastewater disposal.”  The study looked at data from 1995 to 2017, noting that increased seismic activity began in Oklahoma in 2008. The researchers examined 715 wells in north-central Oklahoma, observing the effect that deep, subsurface injection of saltwater had on potential fault slips. The study concluded that the “physics-based earthquake-forecasting” model could correctly predict seismic activity by considering “pore pressure and poroelastic stresses.” 

State Regulation: Texas State Auditor Releases Report on Texas Railroad Commission 
In July 2019, The Texas State Auditor released An Audit Report on Financial Management at the Railroad Commission. The audit found that the Railroad Commission (Commission) could improve in several areas including the tracking of cash transactions and strengthening security over its information systems. More specifically, the audit found that certain cash transactions lacked documentation to prove correct fees were paid or tracked upon receipt. Further, the audit found the Commission failed to maintain control over certain accounts that had access to its information systems. The Commission did not know the status of some user accounts including: duplicate accounts, accounts with incorrect access rights, and accounts of former employees. The Commission received high marks in other areas regarding collecting administrative penalties, processing refunds, and correcting data processing errors.

From the National Oil & Gas Law Experts:
George Bibikos, At the Well Weekly, (July 26, 2019)

Charles Sartain, Oil Fraudster Conspires with His Own LLC, (July 31, 2019)

John McFarland, Flaring in the Permian, (July 29, 2019)

Follow us on Twitter at PSU Ag & Shale Law (@AgShaleLaw) to receive ShaleLaw HotLinks:

Connect with us on Facebook! Every week we will post the CASL Ledger which details all our publications and activities from the week.

Want to get updates, but prefer to listen? Check out the Shale Law Podcast! We can always be found on our Libsyn page, iTunes, Spotify, or Stitcher.


Check the July Agricultural Law Brief! Each month we compile the biggest legal developments in agriculture. If you’d like to receive this update via email, check out our website and subscribe!

Thursday, August 1, 2019

Shale Law in the Spotlight – North Dakota Supreme Court Rules that Post-Production Costs Cannot be Deducted from Royalties Paid to State


Case Summary: Newfield Exploration Company et al. v. State of North Dakota et al., No. 2019 ND 193

Written by Chloe Marie – Research Specialist

On July 11, 2019, the Supreme Court of North Dakota concluded that post-production costs relating to the processing of gas into a marketable form could not be subtracted from royalties paid to the State of North Dakota. This article provides a comprehensive summary of this case.

Background

Newfield, an oil and gas company, entered into several natural gas leases with the State of North Dakota containing provisions that required royalties to be calculated based on gross proceeds from the sale of the gas. Newfield agreed to sell the gas produced at the wells to Oneok Rockies Midstream, LLC; however, royalty payments were to be made only after Oneok put the gas into marketable form and sold it. The manner in which Newfield actually paid royalties to the state was described by the Supreme Court in the opinion as follows: “[t]he price Oneok pays to Newfield for the gas is calculated based on 70-80% of the amount received by Oneok when Oneok sells the marketable gas. The 20-30% reduction of the price for which the marketable gas is sold account for Oneok’s cost to process the gas into a marketable form and profit.”

In June 2016, the State of North Dakota initiated an audit of Newfield and later argued that the audit revealed that Newfield did not pay enough royalties on the gas sold under the leases. More particularly, the State of North Dakota claimed that “Newfield is paying royalties based on gross proceeds reduced to account for deductions necessary to make the gas marketable and that reducing the gross payments by those deductions is contrary to the express terms of the lease.”

Subsequently, Newfield brought legal actions against the State of North Dakota seeking a Court Order declaring that the royalty payments were calculated correctly based upon the gross amount Newfield received from Oneok. After both parties moved for summary judgment, the District Court of McKenzie County, Northwest Judicial District, ruled in favor of Newfield’s motion for summary judgment agreeing that the lease “allows the reduction of the royalty payments to account for expenses incurred to make the natural gas marketable.”

The State of North Dakota appealed the District Court’s decision to the Supreme Court of North Dakota alleging that the District Court erred in its interpretation and that such method of calculation was the wrong way forward. The State argued that sharing in the post-production costs was contrary to the leases while Newfield countered that “it can pay a royalty based on a payment that has been reduced to account for the expense of making the gas marketable, as long as the expense is incurred by a third party.”

The North Dakota Supreme Court’s ruling

The State Supreme Court opined that, as a general rule, the lessor and lessee should apportion the costs of making the product marketable between them, unless otherwise specified in a contract.

Subpart (f) of the leases contained royalty provisions stating that “[a]ll royalties … shall be payable on an amount equal to the full value of all consideration for such products in whatever form or forms, which directly or indirectly compensates, credits, or benefits lessee.” The Supreme Court interpreted the language in Subpart (f) as clearly meaning that “the State’s royalty must include the value of any consideration, in whatever form, that directly or indirectly compensates, credits or benefits Newfield.”

Here, the Supreme Court observed that it was apparent that the “full value of the consideration paid to Newfield is not determined until Oneok has incurred the cost of making the gas marketable and subsequently sold the gas.” In other words, Newfield based its royalty calculation on the amount Oneok received for the marketable gas. This amount was later reduced to reflect the post-production costs incurred by Oneok. The Supreme Court found it to be unequivocal that Newfield benefitted from the post-production costs incurred by Oneok to make the gas marketable and consequently paid less in royalties to the State. As such, the court held that such method of calculation was contrary to the language of the leases.

Based upon this reasoning, the Supreme Court reversed the District Court’s judgment on July 11, 2019, ruling that[g]ross proceeds from which the royalty payments under the leases are calculated may not be reduced by an amount that either directly or indirectly accounts for post-production costs incurred to make the gas marketable.”

References:


 
 This material is based upon work supported by the National Agricultural Library, Agricultural Research Service, U.S. Department of Agriculture.