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.
Post-Production Costs:
Court Determines Oil and Gas Company Cannot Deduct Post-Production Costs from State
Royalty Payments
On July 11, 2019, the
Supreme Court of North Dakota ruled that Newfield Exploration Company (Newfield) could not deduct
post-production costs incurred by the company from royalties paid to the state (Newfield
Exploration Co. v. State of North Dakota, No. 20190088). Newfield
filed the lawsuit to determine whether the royalty payments made to the State
of North Dakota were correct after an audit of the company found the royalties
were being underpaid according to the lease. Newfield was making
royalty payments to the state “based on the gross proceeds it had received from
the sale of the gas to Oneok Rockies Midstream L.L.C.” once Oneok processed the
gas into a marketable form. The state argued that basing the royalties
on profits received from Oneok required the state to “share in post-production
costs incurred to make the gas marketable.” The district court initially
ruled in favor of Newfield, determining the lease “allows the reduction of the
royalty payments to account for expenses incurred to make the natural gas
marketable.” The North Dakota Supreme Court, however, reversed the
district court’s decision, finding that the term “gross proceeds” used in the
lease meant the “lessor’s royalty is calculated based on the total amount
received for the product without deductions for
making the product marketable.”
Public Lands:
Environmental Groups File Lawsuit Against Bureau of Land Management for Issuing
Oil and Gas Leases in Arizona
On July 15, 2019,
environmental groups filed a Complaint in the U.S. District Court for the District of Arizona against
the U.S. Bureau of Land Management (BLM) for issuing oil and gas leases in
Navajo and Apache Counties (Center for Biological Diversity v. Suazo). The leases include land near the Petrified National Forest and the
Coconino aquifer. The Plaintiffs, including the Center for Biological
Diversity, Sierra Club, and WildEarth Guardians, contend that BLM violated the
National Environmental Policy Act (NEPA) by relying on an Environmental Impact
Statement (EIS) from 1988. According to the Complaint, BLM found that
the 1988 EIS “included an adequate analysis of the environment impacts and
alternative actions” for the land in which the leases were located. The
Plaintiffs disagree with this finding and assert that “BLM failed to consider
the numerous foreseeable impacts of oil and gas development on environmental
and cultural resources” in the area. The Plaintiffs are asking the court
to reverse and set aside the leases awarded by BLM.
Pipelines:
Pennsylvania’s Natural Gas Pipeline Expansion Proposal Signed into Law
On July 10, 2019,
Pennsylvania State Representative Jonathan Fritz issued a press release detailing the passage of SB 712, expanding the Pipeline Investment Program initiative. The bill,
which was signed into law as Act 20 on July 1, 2019, amends the Fiscal Code to
provide additional grant money for the program. According to the program’s website, the grants can be used for “acquisition, construction, and site
preparation costs associated with extending natural gas pipelines.” The press
release states that the distribution lines will be completed to provide natural
gas to “business parks and existing manufacturing and industrial enterprises,”
ultimately providing access to natural gas for Pennsylvania residents.
Production and
Operation: Pennsylvania's Department of Environmental Protection Releases
Annual Oil and Gas Report
On July 10, 2019,
Pennsylvania's Department of Environmental Protection (DEP) released its annual
Oil and Gas Report. The report begins with a summary of new
developments and programs implemented in 2018, including an improved permit
review process, a four-point methane emissions reduction strategy, and
compliance assistance for oil and gas regulations. The report also includes
various statistics including numbers on production amounts, permits issued, and
various wells present in the state. Some notable numbers show Pennsylvania’s
2018 overall production of natural gas at 6.1 trillion cubic feet, which
amounts to Pennsylvania’s largest volume of natural gas ever produced in a
year. Report statistics also show that 917 oil and gas wells were drilled in
2018, and 90% of fluids produced by hydraulic fracturing operations were
recycled and reused. The report follows up with a section on what to expect in
2019, including permit fee rulemaking, a geologic hazard mitigation plan, and
continuous improvement for data management.
LNG Exports: FERC Order
Approves Construction and Operation of LNG Export Facilities in Jackson County,
Mississippi
On July 16, 2019, the
Federal Energy Regulatory Commission (FERC) issued an order approving the construction and operation of new liquefied natural
gas (LNG) export facilities in Jackson County, Mississippi. Gulf LNG
Liquefaction Company, LLC and Gulf LNG Energy, LLC (collectively Gulf Liquefaction)
filed an application to construct the new facilities under section three of the
Natural Gas Act. According to the order, Gulf Liquefaction proposed the
construction of two natural gas liquefaction trains, pretreatment facilities,
support facilities, and two marine offloading facilities. FERC approved
Gulf Liquefaction’s proposal, concluding that the facilities would be built on
land currently used for the import terminal site, and the environmental impacts
from construction would be “temporary or short term.” Commissioner Click
filed a lone dissent, stating the order violated both the Natural Gas Act and the National
Environmental Policy Act by not properly addressing the climate change
implications of constructing the LNG facilities.
Crude Oil by Rail: North
Dakota, Montana Petitions U.S. Department of Transportation to Overturn
Washington State Law Prohibiting Crude Oil by Rail
On July 17, 2019, the
Attorneys General for North Dakota and Montana filed an application with the U.S. Department of Transportation’s Pipeline and
Hazardous Materials Safety Administration (PHMSA) to preempt a new Washington
State law that restricts loading or unloading crude oil by rail. Senate Bill 5579, titled “An act relating to the volatility of
crude oil received in the state by rail,” was signed into law on May 9, 2019
and takes effect July 28, 2019. The
new law states that crude oil may not be loaded or unloaded “from a rail tank
car unless the oil has a vapor pressure of less than nine pounds per square
inch.” The law does not prohibit rail cars from transporting
crude oil though Washington or require railcars to be stopped or checked for
vapor pressure before entering the state. However,
Attorney General Wayne Stenehjem, who co-filed the application, said in a statement that “Washington’s attempt to re-classify crude oil based on its
vapor pressure is inconsistent with federal standards.”
Methane Emissions: EPA
Publishes New Data on Voluntary Methane Emissions Reductions
On July 11, 2019, the
U.S. Environmental Protection Agency (EPA) issued a news release highlighting new results from its Natural Gas STAR Methane Challenge Program. The news release states that oil and gas companies who
participated in the program “reduced methane emissions equivalent to nearly 1
million metric tons of carbon dioxide” in 2017. Some of the data included in
the news release shows company efforts to replace old pipelines including
“1,400 miles of cast iron pipelines and more than 2,000 miles of unprotected
steel pipelines.” Additionally, emission reduction efforts by the program’s
participants “kept nearly $6 million worth of natural gas in the pipeline.” The
EPA provides specific data on each oil and gas company participating in the
program on their Methane Challenge Program webpage.
Production and
Operation: Analysis Shows Large Economic Impact of Energy Sector on Texas
Business Activity and Job Creation
On July 8, 2019, the
Perryman Group, a team of economic analysts, published a column detailing the large impact of the energy sector on business and
job creation in Texas. The publication, Black Gold, found that the
energy sector “directly or indirectly supports about one of every six Texas
jobs.” The publication considered industry supply chains and consumer spending
in its analysis, along with examining other industries to garner opportunities created
from the energy sector’s influence. According to the column, oil and natural
gas production in Texas has risen 500% since 2010, leading to reduced imports
and an increase in U.S. crude oil. Additionally, the energy sector has created 1.9
million jobs and a total personal income of $120.6 billion.
From the National Oil
& Gas Law Experts:
David Perlman, Kathryn
Penry, & Annie Willet, Finding New FPA Authority, FERC Makes Policy
Change to Authorize Retroactive Surcharges (and Maybe More), (July 17, 2019)
“Hill Country pipeline opponents threaten lawsuit over
golden-cheeked warbler habitat” -
Houston Chronicle
“Texas Showdown Flares Up Over Natural-Gas Waste” - Wall Street Journal
“North Sea Oil is Learning From US Shale” - Bloomberg
“Philadelphia refinery to shut down” - Oil and Gas Journal
“EPA's Methane Challenge Partners Are Leading The Oil And
Gas Industry In Efficiency And Emissions Reductions” - Oil and Gas Online
“What’s up with drilled but uncompleted wells?” - Shale Gas Reporter
“America's Hottest Shale Play Is Waning” - Bloomberg
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