Shale Law Weekly Review - November 28, 2016

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

BLM Natural Gas Regulations Face Second Lawsuit from Montana and Wyoming

On November 18, 2016, the states of Wyoming and Montana filed suit against the Department of the Interior and the Bureau of Land Management (BLM) in response to new oil and gas regulations (Wyoming and Montana v. Sally Jewell, 16-cv-285-S). The lawsuit alleges that the BLM lacks the authority to promulgate the regulations. The new rules entitled, Waste Prevention, Production Subject to Royalties, and Resource Conservation, are intended to “reduce waste of natural gas from venting, flaring, or leaks…” This is the second lawsuit brought against the regulations. The first lawsuit was filed by the Western Energy Alliance and the Independent Petroleum Association of America (Western Energy Alliance and the Independent Petroleum Ass’n of America v. Jewell).

Pawnee Nation of Oklahoma Files Suit to Protest Oil and Gas Leases

On November 18, 2016, the Pawnee Nation filed suit in federal court against the Department of the Interior, Bureau of Indian Affairs, and the Bureau of Land Management. (Pawnee Nation of Oklahoma v. Sally Jewell, 16-cv-679-JHP-TLW) The case was filed in protest of oil and gas leases and drilling permits that were approved on Indian trust lands. The complaint alleges that the approval of the leases violates the National Environmental Policy Act, the National Historic Preservation Act, and the American Indian Agricultural Resource Management Act. Concerns expressed in the complaint include “surface disturbance, traffic, noise, air pollution, and accidents…”

Sierra Club Files Antitrust Complaint Against NEXUS Pipeline

On November 16, 2016, the Sierra Club filed a complaint with the Federal Trade Commission alleging antitrust violations by DTE Electric Company (DTE). According to the Sierra Club press release, the pipeline project owned by NEXUS Gas Transmission, LLC, an affiliate of DTE, will monopolize the market in Michigan and then raise consumer rates above competitive levels. The complaint alleges that “DTE Electric already controls 47% of installed generating capacity owned by Michigan utilities,” and the pipeline project negatively impacts competition in the energy market.

Oil and Gas Leases Cancelled in Colorado

On November 17, 2016, the Department of the Interior and the Bureau of Land Management (BLM) cancelled 25 oil and gas leases in Colorado, according to a BLM press release. The oil and gas leases were located in the Thompson Divide area and were issued from 1995 to 2012.  These leases “amount to less than ½ of 1 percent of the active leases on public lands in the state of Colorado…” The BLM also announced the full adoption of the settlement agreement for the Roan Plateau Resource Management Plan which involved the closing of 17 oil and gas leases.

Center for Biological Diversity Files FOIA Claim Against Railroad Administration

On November 21, 2016, the Center for Biological Diversity (“Center”) filed suit against the Federal Railroad Administration (FRA) for allegedly failing to publicly disclose documents (Center for Biological Diversity v. Federal Railroad Administration, No. 16-2308). The Alaska Railroad Corporation was given approval by the FRA in 2015 and in September of 2016 they became the first railroad to ship liquefied natural gas (LNG). The complaint alleges that the FRA violated the Freedom of Information Act when they failed to provide documents in response to the Center’s request for records on the decision to approve the transportation of LNG by rail.

Physicians for Social Responsibility Release Report on Health Effects of Hydraulic Fracturing

On November 17, 2016, Physicians for Social Responsibility (PSR) released a report entitled “Compendium of Scientific, Medical, and Media Findings Demonstrating Risks and Harms of Fracking.” The PSR report is a compilation intended to provide evidence from medical writings, the government and industry reports, and other investigations about the effects of hydraulic fracturing. The studies by PSR state that inherent problems in gas extraction “can lead to water contamination, air pollution with carcinogens and other toxic chemicals, earthquakes, and a range of environmental and other stressors wrought on communities.”

Energy API Releases Report on Impact of Hydraulic Fracturing on Drinking Water

On November 17, 2016, Energy API (API) released a report called “Quantitative Support for EPA’s Finding of No Widespread, Systemic Effects to Drinking Water Resources from Hydraulic Fracturing.” The report was prepared by Catalyst Environmental Solutions for API as quantitative support for the Environmental Protection Agency’s draft assessment which examined the impacts of hydraulic fracturing on drinking water. The report states they found “no direct correlation between the hydraulic fracturing process and quality of drinking water supplies.”

National Renewable Energy Laboratory Releases 2016 Electricity Outlook

On November 16, 2016, the National Renewable Energy Laboratory (NREL) released their 2016 Standard Scenarios: A U.S. Electricity Sector Outlook. The report discusses several major areas in energy including “Declining costs and increasing deployment of renewable energy, abundance of low-cost natural gas, [and] rapid growth in rooftop photovoltaics (PV).” NREL estimates a growth in renewable energy generation as well as growth in natural gas. In addition, the report shows a decrease in carbon dioxide emissions, where emissions in 2015 were 21% less than 2005.

Victoria, Australia Introduces Bill to Ban Hydraulic Fracturing

On November 22, 2016, the Andrews Labor Government introduced legislation entitled Resources Legislation Amendment (Fracking Ban) Bill 2016. The new bill is intended “to prevent the exploration and mining of coal seam gas, to ban hydraulic fracturing and to impose a moratorium on petroleum exploration and production…” The Office of the Premier for Victoria stated in their press release that the bill will also extend the moratorium on conventional drilling until 2020.

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

Recent ShaleLaw HotLinks include:

Dept of the Interior Announces Final Rule for Reduction of Methane Emissions -DOI

New study confirms EPA study on the effect of hydraulic fracturing on water -OGJonline

Oil and gas regulations are being rushed through by the BLM and Interior Department -Forbes

PSR National and API release conflicting reports on the effect of fracking -StateImpact

New methane regulations coming - StateImpactPA

Dakota Access Pipeline saga continues - Reuters

“Will Oklahoma earthquakes spur technological innovation in oil, gas?” -Rigzone

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

Stay informed with our monthly Agricultural Law Brief located here.

Written by Jacqueline Schweichler

Advisory Council on Historic Preservation Recommends to End Oil and Gas Development in Montana Tribal Lands

On September 21, 2015, the Advisory Council on Historic Preservation (ACHP) recommended that the Departments of Agriculture and Interior revoke the Solenex Company’s permit to drill a single exploratory gas well in the Badger-Two Medicine area. The ACHP also requested cancellation of the lease authorizing Solenex to develop federal oil and gas reserves in the area.

In 1982, the U.S. Forest Service and BLM gave to Fina – now Solenex – the right to develop oil and gas resources in the Lewis and Clark National Forest, Montana. The Badge-Two Medicine area is located within the National Forest and is designated as a Traditional Cultural District (TCD) under the National Register of Historic Places. The lease has been suspended since 1985 due to concerns from the Blackfeet Tribe that such project will adversely affect the religious and cultural value of the area.

In 2013, Solenex filed a lawsuit in federal court against the U.S. Department of Interior challenging the action of the federal government to suspend its rights to drill a single exploratory gas well within the TCD. The case Solenex LLC v. Jewell et al. remains pending in U.S. District Court for the District of Columbia at docket no. 1:13-cv-00993.

As part of their recommendations, the ACHP observed that “[t]he proposed gas exploration and development would introduce activities and intrusions incompatible with the TCD and its unique qualities.” They also pointed out that “no mitigation measures would achieve an acceptable balance between historic preservation concerns and the undertaking [of the TCD].”

Written by Chloe Marie - Research Fellow

09/24/2015

SandRidge Exploration Joins Amicus Brief to Reconsider Texas Supreme Court’s decision in royalty case

On August 28, 2015, SandRidge Exploration and Production, LLC, joined a coalition of U.S. oil and gas producers in filing an amicus curiae brief to reconsider the Texas Supreme Court’s interpretation of overriding royalty language in a natural gas lease.

Plaintiffs leased their mineral rights with Four Sevens Oil Co. in 2004, which mineral rights ownership was eventually transferred to Chesapeake Exploration, LLC. The lease includes “‘a perpetual, cost-free (except only its portion of production taxes) overriding royalty of five percent of gross production obtained’ from directional wells drilled on the lease but bottomed on nearby land.” Plaintiffs challenged the overriding royalty clause’s language alleging that “[Chesapeake] breached the overriding royalty clause because appellees’ ‘cost-free overriding royalty’ entitled them to an overriding royalty free of production costs and post-production costs.”

Defendant contended that the “cost-free” language of said royalty clause “merely reinforces current Texas law that an overriding royalty is free of production costs, but subject to its proportionate share of post-production costs.”

The District Court ruled in favor of plaintiffs and defendant appealed before the San Antonio Fourth Court of Appeals arguing that the District Court failed to properly interpret the overriding royalty clause. The Fourth Court of Appeals affirmed the District Court’s decision.

On June 12, 2015, the Texas Supreme Court held that “[g]enerally speaking, an overriding royalty on oil and gas production is free of production costs but must bear its share of postproduction costs unless the parties agree otherwise. The only question in this case is whether the parties’ lease expresses a different agreement. We conclude it does . . .” As a result, in this case, the royalty owners do not bear post-production costs.

In their joint amicus curiae brief, the U.S. oil and gas producers’ coalition claimed that “if unchanged, the Court’s dicta may force producers with proceeds leases and industry standard wellhead sales contracts to re-determine royalties owed to thousands, if not several hundreds of thousands, of royalty owners in Texas.”

Information on this case is available at docket no. 14-0302. 

Written by Chloe Marie - Research Fellow

09/08/2015