Oil and Gas Committee Report

Alaska

A. Legislative Developments

No substantive oil and gas legislation was passed in this year’s state legislative session.

B. Administrative Developments

1. Department of Natural Resources Allows Santos to Use Roads Which ConocoPhillips Constructed on State Oil and Gas Leases

Santos, Ltd. (Santos) is an Australian oil and gas producer, formerly known as Oil Search, LLC. For several years, Santos has sought to use roads built by ConocoPhillips (Conoco) at Conoco’s Kuparuk River Unit (the KRU), which is located on state-owned land that is leased to Conoco pursuant to State oil and gas leases, so Santos could access other state lands for resource development at Santos’ Pikka project. Conoco and Santos failed to reach a permanent agreement regarding Santos’ use of the KRU roads, and Santos filed an application for a miscellaneous land use permit to allow it access the roads, which was granted by the Director of the Alaska Division of Oil and Gas. Conoco appealed and the Commissioner of the Alaska Department of Natural Resources decided that Santos could use the KRU roads because roads constructed by oil and gas lessees on state-owned lands are allowed to be concurrently used by other parties, like Santos, for the development of other state oil and gas leases, especially given that the usage of those roads by Conoco was not being unreasonably impaired.

2. Alaska Administrative Code Updates

The Alaska Oil and Gas Conservation Commission has amended 20 AAC.07(d), 20 AAC 25,105(c)(2), 20 AAC 25.110, 20 AAC 25.534, and 20 AAC 25.990, which “update drilling, wells, inspections, and definitions to provide more clarity in carrying out the purposes of Alaska Statutes 31.05.” The amendment was signed into law on June, 28, 2022 and appears in Register 243, October 2022, of the Alaska Administrative Code.

C. Judicial Developments

In Sagoonik v. State, a group of young Alaskans sued the State of Alaska, “alleging that its resource development is contributing to climate change and adversely affecting their lives.” The young Alaskans sought declaratory and injunctive relief based on allegations that the State has, through existing policies and past actions, violated both the constitutional natural resources provisions and their individual constitutional rights. However, the superior court dismissed the case, and the Alaska Supreme Court upheld dismissal on appeal in part, reasoning that the legislature’s stated energy policy both recognizes “‘concerns about global climate change’” and “‘encourage[s] economic development by … promoting the development, transport, and efficient use of nonrenewable and alternative energy resources….’” The import of “purposeful development of the state’s abundant natural resources” was only undertaken with the consideration of citizens’ social and economic views and assurances of adequate protection of Alaska’s environment.

II. Arkansas

A. Legislative Developments

There were no 2022 Arkansas legislative developments. The Arkansas General Assembly meets in general session biannually, in odd numbered years.

B. Administrative Developments

Because the Arkansas Oil and Gas Commission’s regulations are constantly in revision, practitioners are advised to regularly check these regulations, online at http://www.aogc.state.ar.us. Proposed rule changes as well as a tabulation of recently enacted, repealed or amended rules are available online at http://www.aogc.state.ar.us/rules/new.aspx.

C. Judicial Developments

Numerous Arkansas appellate decisions involving deed interpretation have relied upon the so-called “four corners” rule to determine the intent of the grantor and grantee. That rule requires the court to determine whether the deed in question is ambiguous. Outside evidence of the parties’ intent is only admissible if the deed is determined to be ambiguous.

Two recent decisions of the Arkansas Court of Appeals cited the four corners rule but appear to have expanded the inquiry from the “four corners” of the deed itself to include consideration of prior and contemporaneous instruments within in the parties’ title chain.

Phifer v. Ouellette, involved a series of conveyances, the last of which was a deed from Appellee, Ruth Wilburn, now deceased, to Appellant, Phifer. The question presented was whether that deed conveyed a one-half or one-fourth mineral interest. The answer depended upon the interpretation of a prior instrument in the parties’ title chain. That prior instrument excepted “one-half of all oil, gas and other minerals…previously conveyed.” The “previous conveyance” thus referred conveyed a one-half mineral interest, to the other Appellees, Richard and Margot Cowin, immediately prior to the Phifer deed. The question was whether the exception in the Phifer deed of “one-half previously conveyed” excepted the full one-half or only one-half of that one-half. The court permitted evidence of the entire title chain including the mineral deed to Richard and Margot and concluded that a full one-half mineral interest had been excepted.

Mehaffy v. Clark, involved two quitclaim deeds which had been executed on the same day to different grantees. The deeds were otherwise identical. Each quitclaimed to its respective grantee, one-half of the grantor’s interest which, at the time, included a 75 percent mineral interest. The two deeds were not recorded until two and one-half years later, also on the same day. Clark, the grantee of the deed which was recorded first, claimed a full one-half mineral interest out of the grantor’s three-quarter interest based the earlier recording time, rather than three-eighth’s interest (one-half of the common grantor’s three-quarter interest). The appeals court recited the identical “four corners” deed interpretation rule quoted above, but did not decide whether or not the deed to Clark was ambiguous. Instead, it merely held that, in the context of the other near-identical contemporaneous deed, the common grantor had intended to convey one-half of the grantor’s interest to each grantee.

California

A. Legislative Developments

1. Prohibition on Drilling and Reworking Wells Within “Health Protection Zones”

With the enactment of Senate Bill 1137, the California Legislature has effectively attempted to ban drilling and reworking operations in any inhabited area within the State and has imposed broad new requirements on existing oil and gas production operations. Senate Bill 1137 added new Article 4.6 (commencing with section 3280) to Chapter 1 of Division 3 of the Public Resources Code. New section 3281 prohibits the California Geologic Energy Management Division (CalGEM) from approving any “notice of intention” submitted by an operator under Public Resources Code section 3203 for the drilling of oil or gas wells or the reworking of existing oil or gas wells within a “health protection zone,” defined as the area within 3,200 feet of a “sensitive receptor.” “Sensitive receptors” include any residence, school, a community resource center, a health care facility, long-term care hospital, prison, and any building housing a business open to the public. Section 3281(a) does contain limited exceptions to respond to health, safety or environmental threats, to plug and abandon a well, or “[t]o comply with a court order finding that denying approval would amount to a taking of property, or a court order otherwise requiring approval of a notice of intention.” Section 3281 also requires operators to submit additional information with a notice of intention, including a sensitive receptor inventory and map, and “a statement certifying that the operator has confirmed,… that there are no sensitive receptors [] within 3,200 feet of the wellhead….” Section 3284 requires operators to provide baseline and follow-up surface water and groundwater testing to property owners and tenants within the health protection zone.

SB 1137 also imposes a number of new requirements on existing production operations. Every operator must submit a “sensitive receptor” inventory and map to the CalGEM by July 1, 2023, and annually provide updates. Commencing January 1, 2025, all oil or gas wells and production facilities within a health protection zone will have to comply with new requirements for sound levels, lighting, dust control measures, emissions and vapor venting, and chemical analyses of produced waters, as well as comply with applicable state, federal, and local permits. Operators within a health protection zone will be required to submit a leak detection and response plan by January 1, 2025 and implement their plan by January 1, 2027.

The oil and gas industry has submitted a referendum to repeal SB 1137 and reportedly obtained enough voter signatures for certification of the referendum, thereby allowing it to go on the ballot. Upon certification by the Secretary of State, SB 1137 may be delayed from going into effect until the referendum is voted on in the 2024 statewide election.

B. Administrative Developments

1. Implementation of SB 1137

Despite the referendum challenging SB 1137, CalGEM gave notice of a proposed emergency rulemaking action on December 19, 2022 to adopt emergency regulations implementing SB 1137, with an intended effective date of January 7, 2023. The proposed regulations would, among other things, impose new requirements for the permitting of production facilities.

2. Proposed Cost Estimate Report Regulations

Public Resources Code 3205.7, enacted in 2019, directed CalGEM, commencing July 1, 2022, to require each operator to submit a report to the Supervisor “demonstrat[ing] the operator’s total liability to plug and abandon all wells and to decommission all attendant production facilities, including any needed site remediation….” In April 2022, CalGEM released a pre-rulemaking draft of proposed regulations for such cost estimates for the purpose of receiving public input. Formal rulemaking has not yet commenced.

3. CalGEM Permits in Kern County

Kern County, the largest oil-producing region of California, in conjunction with CalGEM and industry stakeholders, approved an ordinance in 2015 to streamline the permitting process for new oil and gas wells and certified an environmental impact report (EIR) as compliant with the California Environmental Quality Act (CEQA). In 2021, the Kern County Superior Court, in Vaquero Energy Inc. v. County of Kern, ordered the County to suspend the review and approval of oil and gas permits until the court determined that the ordinance complied with CEQA requirements. On November 2, 2022, the court lifted the suspension of the operation of the ordinance, thereby allowing Kern County to resume permitting of oil and gas operations with CEQA as the lead agency and CalGEM as a responsible agency. Accordingly, CalGEM issued Notice to Operators 2022-06, advising operators that CalGEM “w[ould] consider Kern County’s [Final Supplemental Recirculated Environmental Impact Report] when reviewing any Notice of Intention or UIC application,” but would “reach its own conclusion on whether and how to approve the project.”

C. Judicial Developments

The Ninth Circuit held in Environmental Defense Center v. Bureau of Ocean Energy that the Bureau of Ocean Energy Management (BOEM) and Bureau of Safety and Environmental Enforcement (BSEE) violated the National Environmental Policy Act (NEPA), the Endangered Species Act (ESA), and the Coastal Zone Management Act (CZMA) in authorizing permits for oil well stimulation treatments, including hydraulic fracturing, on federal leases off the coast of California without preparing a full Environmental Impact Statement consistent with California’s coastal management program.

In In re Venoco, LLC, a bankruptcy court held that the takeover by the California State Lands Commission and its operation of an offshore platform after the operator quitclaimed its leases back to the Commission and filed for bankruptcy was “a reasonable exercise of [the State’s] police power[s] and not a taking in violation of the Fifth Amendment of the U.S. Constitution” or the California Constitution.

In January 2022, the California Supreme Court granted review of the Court of Appeal’s opinion in Chevron U.S.A., Inc. v. County of Monterey (discussed in The Year in Review 2021), which had held that a Monterey County ordinance banning well stimulation treatments, wastewater injection and impoundment, and the drilling of new wells in the County was preempted by Public Resources Code section 3106. The Court’s minute order stated that

[P]ending review, the opinion of the Court of Appeal, which is currently published at 70 Cal.App.5th 153, may be cited, not only for its persuasive value but also for the limited purpose of establishing the existence of a conflict in authority…. The parties [were] ordered to brief the following issue: Does Public Resources Code section 3106 impliedly preempt provisions LU-1.22 and LU-1.23 of Monterey County’s initiative “Measure Z?”

Colorado

A. Legislative Developments

1. PFAS Disclosures and Prohibition

In June 2022, Governor Jared Polis signed two bills into law in response to growing public concern in Colorado and elsewhere regarding chemicals used in oil and gas operations, other industrial operations, and consumer products, with a particular focus on a broadly defined group of perfluoroalkyl and polyfluoroalkyl compounds (PFAS chemicals). The first bill, House Bill 22-1348, implements disclosure requirements for any chemical that may be used in oil and gas production in Colorado, including PFAS chemicals. The second bill, House Bill 22-1345, prohibits the sale or distribution of consumer [and industrial] products that contain intentionally-added PFAS chemicals.

House Bill 22-1348 requires disclosers that sell, distribute, or use a chemical product in downhole operations in Colorado to disclose information about the product to the Colorado Oil and Gas Conservation Commission (COGCC), including the chemical trade name of the product, details about the chemicals used in the product, the intended purpose of the product, and a declaration to the COGCC that the product does not contain intentionally-added PFAS chemicals. A discloser may refuse to disclose this information if it is protected by trade secrets. A discloser is defined as an operator or service provider that uses chemical products in the course of downhole operations, or any direct vendor that provides chemical products to an operator or service provider for use at the well site.

House Bill 22-1345 requires manufacturers and distributors to phase out the sale and distribution of certain PFAS-containing consumer products and oil and gas products. On or after January 1, 2024, the use and sale of PFAS-containing oil and gas products, including hydraulic fracturing fluids, drilling fluids, and proppants, will be prohibited.

2. Financial Assurances Rulemaking

Effective April 30, 2022, the COGCC approved new regulations requiring financial assurance to cover the cost of plugging and abandoning wells and reclaiming well sites. Pursuant to Senate Bill 19-181, which was signed into law by Governor Jared Polis, the COGCC updated the financial assurance rules to include (1) requiring that operators are financially capable of meeting their obligations under Senate Bill 19-181 through an operator-specific financial assurance plan, (2) increasing financial assurance for transferred and inactive wells, (3) requiring financial assurance accounts for new wells funded in the initial years of operations, (4) creating an orphan well fund, (5) applying Colorado’s new rules to federal wells for the first time, (6) broadening access for local governments regarding the plugging of wells, and (7) developing an out-of-service plugging program. Operators are required to use the COGCC’s newly-developed Form 3 to submit financial assurance plans.

The orphan well fund was established in June 2022. Operators must pay a mitigation fee for each well that has been spud but not plugged and abandoned. The mitigation fees collected will “fund the plugging, reclaiming, and remediating of orphaned wells” in Colorado.

C. Judicial Developments

In Great Northern Properties, LLP v. Extraction Oil & Gas, Inc., the Colorado Court of Appeals held that the centerline presumption applies to mineral interests underlying a dedicated right-of-way. In that case, a real estate developer owned a parcel of land in Greeley, Colorado, which is located in Weld County in the heart of the Denver-Julesburg Basin. The developer subdivided the parcel into individual lots and dedicated a right-of-way across its land to the City of Greeley. The developer granted three parcels, all abutting the right of way, to separate grantees, but did not expressly reserve any mineral interests. Years later, the developer conveyed “whatever interest it had in the minerals” under the right-of-way to Great Northern Properties (GNP). GNP subsequently sought to quiet title to the mineral estate.

Extraction Oil & Gas, Inc. (Extraction) held oil and gas leases with land abutting the right-of-way and was entitled to drill oil and gas beneath the right-of-way. Extraction argued that in applying the centerline presumption, the landowners of the parcels abutting the right-of-way owned the mineral rights and GNP did not own any mineral rights. The centerline presumption provides “‘a conveyance of land abutting a road or highway is presumed to carry title to the center of that roadway to the extent the grantor has an interest therein, unless a contrary intent appears on the face of the conveyance.’” Further, the law presumes a grantor conveys all appurtenant advantages and rights along with the property, including all mineral interests, unless specifically reserved to the grantor. Therefore, Extraction argued the real estate developer did not own any interest in the mineral rights beneath the right-of-way at the time of the conveyance to GNP, and the landowners took title to both the mineral estate to the centerline of the right-of-way.

The court held the centerline presumption only applies when the following criteria is met:

(1) the grantor conveys ownership of a parcel of land abutting a right-of-way; (2) at the time of conveyance, the grantor owned the fee underlying the right-of-way; (3) the grantor conveys away all the property they own abutting the right-of-way; and (4) no contrary intent appears on the face of the conveyance.

In Weld County Colorado Board of County Commissioners v. Ryan, the Board of County Commissioners of Weld County, Colorado (Weld County), sued the Colorado Department of Public Health and Environment (CDPHE) and the Air Quality Control Commission (Commission), challenging the Commission’s new air quality control regulations on oil and gas operations. The Commission proposed to revise its Regulation No. 7 to impose (1) additional leak detection and repair inspections at well production facilities and natural gas compressors and (2) increased emission controls for storage tanks. The Commission initiated rulemaking processes to review and revise Regulation 7 and eventually adopted the new rules.

Once the new rules took effect, Weld County sued, asserting the Commission and CDPHE allowed a local community group to submit a late amendment without allowing other parties to respond, and the Commission failed to prioritize Weld County’s concerns regarding economic impacts of the rules and its land use powers. The CDPHE and the Commission moved to dismiss Weld County’s claims for lack of standing to sue a state agency under the Martin v. District Court holding and failure to establish an injury-in-fact. The Martin decision provides that “absent ‘an express statutory right, a subordinate state agency’ – possibly a county – ‘lacks standing or any other legal authority to obtain judicial review of an action of a superior state agency.’” The district court dismissed Weld County’s suit.

On appeal, Weld County argued that it is not a subordinate agency because its powers and rights as a county are like those of an agency, and because the State Air Act requires the Commission to prioritize the economic impact concerns of local government with respect to proposed regulations. However, the Court of Appeals disagreed and found the Colorado Air Act limits the County to adopting regulations that conform to, or may be more restrictive than, the Commission’s standards. Accordingly, the court held Weld County did not have standing to seek judicial review of the Commission’s rulemaking pursuant to the Martin decision and affirmed the district court’s dismissal. Importantly, in November 2022, the Supreme Court of Colorado granted a Petition for Writ of Certiorari to determine whether the court should review and clarify the Martin decision, and in doing so, whether Weld County may have standing to seek a decision on the merits in the District Court.

Kansas

Kansas had a relatively quiet year in both the legislature and the judiciary. Two case decisions were issued by Kansas courts.

A. Judicial Developments

1. Fawcett and the Marketable Product Rule

In the longstanding Fawcett litigation, the Kansas Supreme Court issued its decision on the plaintiffs’ amended petition. Fawcett was a class action by royalty owners based on Kansas’s marketable product rule. After the Kansas Supreme Court rejected the plaintiffs’ theory of recovery in 2015, the class amended its petition on the basis that the Court, “changed the law on what it means to be marketable.” The Class challenged OPIK and third-party gas marketers’ use of net-back formulas to determine royalty payments—essentially alleging that such formulas suggest bad faith toward lessors.

The Court found that its prior decision did not reflect a change of existing law. In doing so, the Court relied on “the law of the case” doctrine, which “provides that when a second trial or appeal is pursued in a case, the first decision is the settled law of the case on all questions addressed in a first appeal and reconsideration will not be given to such questions.” As such, the owners were precluded from relitigating that the operator breached its implied duty to market or from raising a good faith argument based on an intended market theory. This opinion appears to have finally brought the Fawcett saga to a close, but new royalty owner class actions may still arise in the future over the marketable product rule.

2. Wrongful Royalty Payments and Insurance Coverage

In Deutsch v. Bitco Gen. Ins. Corp., the Federal District Court of Kansas heard an insurance case arising out of a royalty misallocation dispute and found that coverage did not apply. Deutsch was the operator of an oil and gas lease in Stafford County. The property was originally leased in the 1970s. In 2012, the operator drilled another well on the leasehold without realizing that the property had been subdivided into two tracts and the new well had differing mineral ownership than the previous ones. The affected royalty owners sued the operator for breach of contract, conversion, and negligence. As part of Deutsch’s attempt to fix the problem, Deutsch successfully unitized the two tracts to address royalty payments going forward. The Tract A owners (who had been overpaid by Tract B production) then sued Deutsch because the unitization would dilute their royalties from Tract A and cause them “financial injuries.”

Deutsch sent notices of the claims to BITCO seeking coverage because the claims involved damage to property. BITCO denied both requests because the relevant policies provided coverage only if the damage was either physical or involved “the loss of use of ‘tangible property.’” When Deutsch sued, BITCO sought a motion for summary judgment on the grounds that royalty misallocations were purely intangible losses. Deutsch argued that ‘tangible’ meant “anything ‘capable of being appraised at an actual or approximate value,’” and that oil is tangible. Deutsch likewise urged the Court not to adopt the Black’s Law definition because it a specialized resource for lawyers.

The district court granted summary judgment for BITCO and adopted the Black’s Law Dictionary definition for tangible. The court noted the frequent use of Black’s Law Dictionary by both Kansas and federal courts. In addition, the court relied on an older Kansas case, which characterized oil and gas leases as “the source of intangible interests.” It is worth noting that the Court’s description of the oil and gas lease suggests that the lessor was entitled to a one-eighth share of the oil produced. BITCO had a separate argument that severed oil would exempt as personal property under the insured’s control, but the court declined to address that issue in its decision.

Louisiana

A. Legislative Developments

Louisiana’s risk-fee statute, La. R.S. 30:10 (also known colloquially as the statutory JOA), was amended by Act No. 5 of the 2022 Regular Session, effective August 1, 2022. The major substantive changes fall into three primary categories. First, the amendment creates new rights for operators remitting a nonparticipating owner’s lease burdens for the benefit of the nonparticipating owner’s royalty and overriding royalty owners as required by the statute. Nonparticipating owners must now furnish the operator with the instruments creating the royalty and overriding royalty obligations, along with title information pertaining to the nonparticipating owner’s interest in the unit. A nonparticipating owner who receives payment based upon the information it furnishes to the operator must indemnify and hold the operator harmless for claims arising from such payments and must restore any payments made by the operator in reliance upon incorrect information. Following the amendment, the operator may also secure a title opinion for the nonparticipating owner’s tract(s) in the unit and recoup the cost out of the nonparticipating owner’s allocable share of production from the unit well. In addition, any mineral lease royalty owner or overriding royalty of the nonparticipating owner making demand on the operator for failure to remit the nonparticipating owner’s lease burdens must now enclose the applicable instruments as part of the demand to the operator.

The second major substantive change affects the manner in which the operator proposes the well under La. R.S. 30:10. The amendment gives operators the discretion to include a statement in the risk charge notice that payment in full of an owner’s share of the authorization for expenditure (AFE) costs and cost estimates must be included with an election to participate in the well. Finally, the third major change in the amendment relates to a “subsequent unit operation.” The amendment authorizes an operator to recover a risk charge of 100% of a tract’s allocated share of actual reasonable expenditures incurred in conducting a subsequent unit operation if an owner in the unit elects not to participate in the risk and expense of the subsequent unit operation (or is deemed to be a nonparticipating owner as to the subsequent unit operation). “Subsequent unit operation” is defined as “a recompletion, rework, deepening, sidetrack, or extension....” And each of these operational terms in the definition are also defined in both the amendment and the original statutory JOA.

B. Judicial Developments

In October 2022, the United States Fifth Circuit Court of Appeals in Plaquemines Parish v. Chevron USA, Inc. affirmed the district court’s decision to remand the coastal legacy lawsuit against oil and gas companies who operated along the coast to state court in Plaquemines Parish. The lawsuit, originally brought by Plaintiff in state court, is one of over forty like it seeking to determine the oil and gas industry’s potential liability (and potential restoration obligations) for the deterioration of Louisiana’s coastal wetlands. The merits of that challenge have not yet been reached. Instead, the parties have been debating the appropriate forum for the dispute. Plaintiff argued the case belongs in state court, alleging violations of Louisiana’s State and Local Coastal Resources Management Act. Defendants, however, argued the case was properly removable to federal court because the government directed the oil and gas industry to increase production as part of the nation’s combined wartime efforts during the Second World War, and thus, the oil and gas companies qualify as federal officers to anchor federal jurisdiction. However, after nearly a decade of debate, the Fifth Circuit resolved this dispute in favor of remanding the case to the 25th Judicial District Court in Plaquemines Parish. In doing so, the Fifth Circuit potentially cleared the way for at least forty-one similar lawsuits collectively alleging billions of dollars in damages for environmental damages to the Louisiana coast. Defendants recently sought but were denied a stay to allow for a writ of certiorari to the United States Supreme Court.

A significant decision impacting operators across Louisiana was handed down this year by the United States District Court of the Western District of Louisiana, which reversed a decision from three years ago. Originally, in 2019, the Western District of Louisiana granted summary judgment in favor of unleased mineral owners included in drilling units created by the Louisiana Commissioner of Conservation in the case of Johnson v. Chesapeake Louisiana, LP. The court concluded that the unit operator was not authorized to recover the unleased mineral owner’s pro rata share of post-production costs incurred by the operator to market the unleased mineral owner’s share of production from the unit. Days after the decision was rendered in 2019, class action lawsuits were filed on behalf of unleased mineral owners in the state of Louisiana against Chesapeake Operating, L.L.C. and BPX Operating Company, and these putative class action lawsuits were assigned to the same judge who rendered the Johnson decision. In Johnson, the defendant filed a motion for reconsideration of the summary judgment ruling. In Self, the defendant filed a Federal Rule of Civil Procedure 12(b)(6) motion for partial dismissal aimed at dismissing the primary claim that assessing post-production costs to the proceeds of unleased mineral owners is per se illegal. On March 31, 2022, the district court reversed its prior ruling in the 2019 Johnson v. Chesapeake Louisiana, LP case and granted BPX Operating Company’s motion for partial dismissal in Self. In rendering its decision, the court relied upon Louisiana jurisprudence that confirmed when an operator markets production on behalf of an unleased mineral owner, the operator does so pursuant to the Civil Code quasi-contractual regime of negotiorum gestio. The court concluded that this regime (specifically Civil Code article 2297) authorizes the legal recovery of post-production costs by the operator as a matter of law.

This year the Fifth Circuit also had occasion to interpret the notice requirements of La. R.S. 30:103.1 and 103.2, which, if satisfied, expose an operator to the statutory penalty of forfeiting the “costs of drilling operations of the well.” In B.A. Kelly Land Company, L.L.C. v. Aethon Energy Operating, L.L.C., the Fifth Circuit reversed the district court’s conclusion that the correspondence sent by an unleased mineral owner to an operator failed to satisfy the requirements of La. R.S. 30:103.1 and 103.2. The district court deemed the first letter at issue, which was dated December 15, 2017, to be insufficient notice under La. R.S. 30:103.1 primarily because it did not reference either of the two statutes at issue or expressly use the term “initial report” or “quarterly report.” On appeal, however, the Fifth Circuit rejected this rationale. Instead, the Fifth Circuit noted that the express requirements of La. R.S. 30:103.1 were met, i.e., the correspondence was in writing, sent by certified mail to the operator, and identified the name and address of the unleased mineral owner. Furthermore, the letter tracked the language of La. R.S. 30:103.1 with respect to the specific information that the statute requires the operator to report, and it identified the drilling units and wells at issue. Similarly, as to the second letter at issue, which was dated April 17, 2018, the district court concluded it did not satisfy La. R.S. 30:103.2 because the letter did not expressly reference either of the two statutes at issue or “the possibility of ‘a lawsuit, penalty or forfeiture under § 103.2.’” The Fifth Circuit, however, explained that La. R.S. 30:103.2 only required the notice to “‘call[] attention’ to [an] operator’s ‘failure to comply with the provisions of R.S. 30:103.1.’” Here, the second letter expressly identified the prior letter dated December 17, 2017 and reiterated the plaintiff’s unleased status and request for “‘written reports concerning operating costs and expenses….’” Furthermore, the April 17, 2018 letter also tracked the language of La. R.S. 30:103.2. As such, the Fifth Circuit concluded that the writings from the plaintiff satisfied both La. R.S. 30:103.1 and 103.2.

Finally, there were also a number of significant rulings from the Louisiana Supreme Court in the realm of legacy litigation, which generally refers to lawsuits involving claims of oilfield contamination to land, including soil and groundwater, which allegedly arose from historic oil and gas operations. The Louisiana Supreme Court held in State ex rel. Tureau v. BEPCO, L.P. that citizen enforcement actions under La. R.S. 30:16 are not subject to liberative prescription. The statute in question, La. R.S. 30:16, is a statute that allows citizen enforcement actions in instances where the Commissioner of Conservation fails to bring suit pursuant to La. R.S. 30:14 against a person who is violating or is threatening to violate state law with respect to conservation or oil or gas. In Tureau, the plaintiff claimed that the defendants maintained several unlined pits in connection with wells being operated on their property and on adjacent property. Further, the plaintiff claimed that the unlined pits were either never closed or were not closed pursuant to “Statewide Order 29-B which, among other things, requires the registration and closure of [such] unlined oilfield pits, [along with] the remediation of various enumerated contaminates in the soil to certain minimum standards.” In lieu of asserting a private right of action related to these claims, the plaintiff sought injunctive relief under La. R.S. 30:16 which would force defendants’ compliance with Statewide Order 29-B. In response, the defendants raised an exception of prescription, alleging that the one-year prescriptive period in Louisiana Civil Code article 3492 applies to the plaintiff’s claims. However, the Louisiana Supreme Court found these kinds of lawsuits are not subject to any liberative prescriptive period because the legislature has not enacted such a period for claims under 30:16, and further, because such claims allow a citizen to act for the Commissioner rather than for personal damages.

On June 1, 2022, the Louisiana Supreme Court affirmed its interpretation of Act 312 in a previous landmark decision of the same name. This new decision, referred to as Louisiana Land III, stands as the final chapter in a trilogy of Louisiana Supreme Court cases interpreting the extent of recovery under the 2006 version of Act 312. Prior to the introduction of Act 312, there was no legal mechanism requiring a landowner to use money awarded to remediate environmental damage on the actual cleanup of the allegedly contaminated property. In 2006, the Louisiana Legislature introduced Act 312 to require all damages awarded for evaluation or remediation of environmental damage to be paid into the registry of the court and used for cleanup of the property at issue. Then, in Louisiana Land I, the Louisiana Supreme Court interpreted Act 312 to potentially allow juries to award damages in excess of actual costs to remediate environmental damages. The Court overturned this ruling in Louisiana Land II, concluding that a landowner’s recovery is limited to a regulatory cleanup of contaminated property unless specifically contracted otherwise. Thereafter, in Louisiana Land III, the Louisiana Supreme Court granted rehearing of its Louisiana Land II decision and ultimately affirmed its ruling to explain that any award in excess of what is necessary through the feasible plan under Act 312 would be an unacceptable windfall to a landowner, and any tort damages received cannot be duplicative of the award under the Act.

New Mexico

A. Judicial Developments

There were not any topical reported decisions in New Mexico in 2022.

B. Administrative Developments

On March 25, 2022, the New Mexico Oil Conservation Commission (NMOCC) adopted a series of rule amendments related to the venting and flaring of natural gas with the ultimate goal of having operators capture 98% of their natural gas by the end of 2026. The NMOCC adopted a new form identified as a C-115B on which operators are to report all volumes of natural gas vented and flared. After drilling and completion operations are finished, the new rules prohibit venting or flaring except in cases of emergency or malfunction, various sorts of enumerated clean-up or maintenance activities, or for the first twelve months of production for a well classified by the New Mexico Oil Conservation Division as an exploratory well. The new rules also require that facilities constructed after the effective date be designed to minimize waste of gas, including flare stacks having automatic ignitors or continuous pilots, and that permanent storage tanks installed shall be equipped with an automatic gauging system that reduces venting. The rules also includes provisions requiring operators to adopt practices, retrofit wells and otherwise take necessary actions to annually increase the percentage of natural gas captured to achieve 98% capture by the end of 2026. Improvement is to be judged on percentages captured by an operator in the last quarter of 2021 and first quarter of 2022. There is no exception in the rules for older stripper (low producing) wells.

Effective August 5, 2022, ozone precursor rules were adopted by the New Mexico Environment Department (NMED). The basic purpose of those rules “is to establish emission standards for volatile organic compounds (VOCs) and oxides of nitrogen (NOx) from oil and gas production, processing,” and transmission facilities. The rules contain detailed requirements for monitoring, installing, operating, maintaining, performing, and/or replacing oil and gas related engines and turbines, compressor seals, control devices and closed vent systems, leaking equipment and other fugitive emissions, unloading of natural gas liquids, glycol dehydrators, heaters, hydrocarbon liquid transfers and related equipment, pipeline pig launching and receiving, pneumatic controllers and pumps, storage tanks, well workovers, produced water management units, and flowback vessels and preproduction operations.

Ohio

Like in recent years, Ohio courts tackled a variety of oil and gas issues, ranging from the interpretation of deeds and leases to the application of Ohio’s statutory mechanisms for terminating severed mineral interests.

A. Legislative Developments

Effective July 21, 2022, Ohio’s statutory unitization law was amended to impose timing requirements upon the Division of Oil and Gas Resources Management (Division) in both setting hearings and issuing unit orders. The amendment provides that the Division must hold a hearing on an application within sixty days after the filing date. However, the hearing may be continued if the operator fails to correct any issue causing the application to be “materially incomplete” within three business days of receiving notice of the issue from the Division. Further, assuming the statutory elements are met by the applicant, the Division is now required to issue a unit order within sixty days of the hearing.

B. Judicial Developments

1. Deed Construction

In Bates v. Bates, Ohio’s Seventh District Court of Appeals interpreted a mineral reservation in a deed that also reserved a life estate unto one of many grantors. Here, the owners of a collective seven-ninths interest in the subject property conveyed the land, reserving a life estate unto Anna Bates, one of the grantors who personally owned a one-third interest. In addition, the deed reserved unto Ms. Bates “the one half interest in the oil and gas in and under the [land] together with the right to lease and dispose of the same in any manner she sees fit . . . .” The court rejected the argument that the mineral reservation merely created a life estate in Ms. Bates, finding that the language used in the separate life estate and mineral reservations, as well as the surrounding paragraphs in the deed, showed that the mineral reservation was not to be limited to Ms. Bates’ lifetime. The court also disagreed that the mineral reservation contained a latent ambiguity simply because Ms. Bates only owned a one-third interest in the land. Instead, the court stated that “[t]he reservation language is exact,” as it specifically reserved a one-half interest in the minerals, and the grantors collectively owned and conveyed more than just the one-third interest that Ms. Bates owned. The court ultimately concluded that nothing prohibits grantors from combining their interests to reserve an amount unto one of the grantors who individually owns less than that amount.

In Senterra, Ltd. v. Winland, the Supreme Court of Ohio considered whether the Duhig rule applies to an overconveyance resulting from an attempted mineral severance. At issue was the effect, if any, of a purported reservation of a one-quarter interest in the oil and gas in a 1954 deed. Due to prior severances, the grantor only owned a three-eighths interest in the oil and gas at the time, but these prior severances were not mentioned in the 1954 deed. As a result, the grantee’s successor argued that because the grantor purported to convey a three-quarter interest – an amount greater than that which the grantor actually owned – the one-quarter reservation was immediately void under the Duhig rule. The Court disagreed, instead relying on another Texas case to hold that because the grantor “did not own the exact interest necessary to remedy the breach at the time of the conveyance,” the Duhig rule did not apply. In other words, because the grantor did not own a three-quarter interest in the oil and gas (the interest purportedly conveyed by the 1954 deed), the Duhig rule was inapplicable.

In Peppertree Farms, L.L.C. v. Thonen, the Supreme Court of Ohio analyzed the impact on a mineral severance of a common-law rule providing that a grantor could only convey or retain a fee simple absolute interest in real property by including words of inheritance in the deed. Although Ohio abrogated this rule by statute in 1925, it still applied to deeds executed prior where, without words of inheritance, a conveyance or retention of an interest would only create a life estate. Important to this common-law rule, there is a distinction between the terms “reservation” and “exception,” despite the two terms often being used interchangeably today. A reservation creates a new property right for the grantor, while an exception withholds from a conveyance an existing fee simple property right already owned by the grantor. Because of the distinction, words of inheritance were needed to create a fee simple interest by reservation, but not by exception. In this case, the Court looked at a 1916 deed severing “one half of the royalty of the oil and gas” and a 1920 deed severing “the 3/4 of oil Royalty and one half of the gas,” neither of which included words of inheritance. Reiterating that the use of the words “reserve” or “except” is not determinative of whether a severance was a reservation or exception, the Court held that each severance was an exception and thus words of inheritance were not required to retain more than a life estate. The Court reasoned that, in both instances, the oil and gas was already in existence and owned in fee simple before the severance, and thus the severance did not create the interest. The Court explained that because unaccrued royalties are classified as real property and “the right to receive royalt[ies] in the future is one of the separately alienable incidents of ownership of the full mineral interest,” the right to future royalties may be retained by exception.

2. Ohio’s Dormant Mineral Act and Marketable Title Act

In Fonzi v. Brown, the Supreme Court of Ohio addressed the level of diligence a surface owner must exercise in attempting to identify and locate holders of a severed mineral interest under the Ohio Dormant Mineral Act (DMA). Referencing its prior decision in Gerrity v. Chervenak, the Court reiterated that, while a search “of the public records in the county where the mineral interest is located will ‘establish a baseline of reasonable diligence,’” the facts of each case may require additional searching to satisfy the standard of reasonable diligence. In this case, the surface owners only searched the public records of the Ohio county where the mineral interest was located, despite the severance deed identifying the county in Pennsylvania where the reserving parties resided. As a result, the Court ruled that it was unreasonable for the surface owners not to search the public records of the identified Pennsylvania county. Additionally, rejecting the argument that the 2006 amendment to the DMA created two distinct methods for abandonment – one where post-notice protections are afforded to the holder and one where they are not – the Court confirmed that “[t]wenty years without a savings event, service by mail (when feasible), and post-notice opportunity to preserve the mineral interest are indispensable elements” of a successful abandonment process.

In Stalder v. Gatchell, Ohio’s Seventh District Court of Appeals faced the unique issue of whether backdating the effective date of an oil and gas lease could result in earlier production from the subject property being attributed to that lease. The surface owners entered into an oil and gas lease, despite the oil and gas having been previously severed, and in early 2015 a well began producing from a unit including the subject property. Later in 2015, the surface owners abandoned the severed mineral interest under the DMA. Years later, the operator entered into an oil and gas lease with the successor to the mineral reserver. Notably, the effective date of that lease was dated before the well’s initial production. While oil and gas production can constitute a savings event under the DMA, it requires that production be by the holder or under a lease to which the mineral interest is subject. Here, production occurring prior to the 2015 abandonment was obtained solely under the surface owners’ lease (and thus not by a holder or under a lease to which the mineral interest was subject). And, despite the backdated effective date, the court held that past production was not “by” the new lessor. In fact, by the time the production was actually attributable to the new lease, that lessor was no longer a holder (because of the 2015 abandonment).

In Hamm v. Lorain Coal & Dock Co., Ohio’s Seventh District Court of Appeals addressed whether a claim to preserve filed by an alleged shareholder of a dissolved corporation could prevent the abandonment of that corporation’s mineral interest under the DMA. The Lorain Coal & Dock Company – the owner of a severed mineral interest – was dissolved in the mid-20th century. This mineral interest was never conveyed out of the corporation, and the surface owners sought to have it abandoned. However, an heir of an alleged shareholder in the company, along with her successor, filed claims to preserve the mineral interest. If timely filed, a claim to preserve “filed for record by [a] holder” will prevent the abandonment of a severed mineral interest. Even though the court agreed that holders other than the dissolved corporation (i.e., the record holder) could exist, it ultimately concluded that there was not enough evidence presented to confirm that the claims to preserve were filed by actual holders. It was uncertain whether the filers did in fact inherit and own shares in the company, especially given conflicting evidence that all shares had been cashed in during dissolution.

In Peppertree Farms, L.L.C. v. Thonen, the Supreme Court of Ohio answered the narrow question of whether a decedent’s Last Will and Testament could prevent the extinguishment of a severed mineral interest under the Ohio Marketable Title Act (MTA), when it did not include a specific devise of the interest or a residuary clause. The MTA provides that a claimant’s marketable record title shall be subject to “[a]ny interest arising out of a title transaction which has been recorded subsequent to the effective date of the root of title . . .” (emphasis added). And a title transaction is defined as a “transaction affecting title to any interest in land, including title by will or descent . . .” (emphasis added). Here, because the severed mineral interest owner’s will did not include a specific devise of the interest or a residuary clause, the interest passed as if he had died intestate. Looking to the relevant statutory language, the Court found that the decedent’s will was not a title transaction under the MTA, as it did not transfer, encumber, or in any way affect title to the interest. And while the intestate transfer of the interest was a title transaction, it was not a recorded title transaction.

3. Oil and Gas Leases

In Zehentbauer Family Land, LP v. TotalEnergies E&P USA, Inc., the Sixth Circuit Court of Appeals was tasked with applying Ohio law to determine the proper method for calculating royalty payments for a class of lessors. The oil and gas leases at issue provided for a royalty payment “based upon the gross proceeds paid to Lessee for the gas marketed and used off the leased premises, . . . computed at the wellhead from the sale of such gas substances so sold by Lessee.” Here, the defendant lessees sold their gas at the wellhead to midstream affiliates and were paid using the netback method. The lessor royalties were then calculated using the netback price as the base. Finding no conflict between the terms “gross proceeds” (from the perspective of the lessee) and “computed at the wellhead” under the circumstances, the Court approved of the calculation methodology. Based on the plain language of the leases, the royalty calculations were to be based on the amount paid to the lessees at the point of sale (i.e., the wellhead), and the netback method was commonly used to calculate that amount.

In Hogue v. Whitacre, Ohio’s Seventh District Court of Appeals elaborated on what qualifies as a “direct expense” when conducting a “paying quantities” analysis. The Supreme Court of Ohio’s decision in Blausey v. Stein provided the starting point of the analysis – that a paying quantities determination involves “the difference between gross profit and the direct expenses attributable to the production of oil or gas.” Whether the investment in a well is profitable is not relevant; rather, the inquiry involves the simple mathematical equation of subtracting direct expenses (i.e., “expenses that directly relate to the production of oil and gas”) from gross income to determine the profit. At issue was whether a flat monthly fee paid by the lessee to a wholly separate entity under common ownership constituted a direct expense. Looking at the evidence presented, the court determined that the monthly fee was an indirect expense, as it was used to pay the business expenses of that entity, and the same total amount was paid regardless of a well’s performance. Applying the mathematical formula set forth in Blausey (i.e., without accounting for the monthly fee, as it was an indirect expense) the court found that the well was producing in paying quantities.

4. Adverse Possession

In Cottrill v. Quarry Ents., L.L.C., Ohio’s Fifth District Court of Appeals addressed the effect of an existing oil and gas lease on the “exclusive possession” element of adverse possession. Here, the plaintiff continuously cared for, maintained, and used a portion of her neighbor’s property for over twenty-one years. As the sole occupier of the property’s surface, the plaintiff believed she met all the elements of adverse possession – “exclusive possession and open, notorious, continuous, and adverse use of the disputed property for a period of twenty-one years.” However, the court pointed to the existence of an oil and gas lease and associated producing well covering, in part, the disputed property. Because the lease gave the lessee the right of possession of the subsurface and the reasonable use of the surface to allow for the extraction of minerals, the plaintiff’s possession was not exclusive and therefore a finding of adverse possession was precluded.

IX. Oklahoma

A. Oklahoma Corporation Commission Developments

Documents filed in the rulemakings referred to below can be viewed on the Oklahoma Corporation Commission’s (Commission’s) website.

1. Oil & Gas Conservation Rules

Amendments to Title 165, Chapter 10 of the Oklahoma Administrative Code (OAC), which comprises the Commission’s Oil & Gas Conservation Rules, were addressed in Cause RM No. 202200002. Following is a brief summary of the amendments which became effective on October 1, 2022:

The amendments “streamline and clarify the Oil & Gas Conservation rules, update the list of Oil & Gas Conservation Division prescribed forms and eliminate forms, change requirements regarding operator agreements, modify Permit to Drill requirements, allow the Commission to issue a Permit to Drill prior to the issuance of an order under certain circumstances, establish parameters concerning cementing of wells and submission of cementing reports, and revise provisions pertaining to notice of hydraulic fracturing operations and eliminate a reference to citations.”

The amendments also clarify requirements regarding submission of well logs, update specifications concerning approval of underground injection wells, increase the amount and type of information to be supplied in connection with applications for approval of underground injection wells, modify requirements pertaining to simultaneous injection wells, and streamline provisions pertaining to issuance of licenses for pulling casing and plugging wells. “Certain amendments in [] OAC 165:10-1-22, OAC 165:10-1-24, OAC 165:10-3-1, and OAC 165:10-3-27 regarding issuance of Permits to Drill prior to the issuance of orders in particular circumstances are consistent with amendments to 52 O.S. section 87.1 in House Bill 3039 approved by Governor Stitt on May 22, 2022.”

2. Rules of Practice

Amendments to Title 165, Chapter 5 of the Oklahoma Administrative Code, which comprises the Commission’s Rules of Practice, were addressed in Cause RM No. 202200001. Following is a brief summary of the amendments which became effective on October 1, 2022:

The amendments add and clarify requirements and rules relating to the Commission’s Electronic Case Filing System. Additionally, the amendments “add definitions, clean up language throughout to accurately reflect current terms and processes, reorganize sections of the rules, clarify docket types, clarify notice requirements, and give priority status to hearings on the Oklahoma Universal Services Fund (OSF) docket.” Additionally, the amendments

[R]equire the submission of an “as drilled” plat constructed from the results of the directional survey in connection with proposed location exception orders regarding directionally drilled or horizontal wells, clarify procedures for obtaining changes of operator designation regarding pooling, location exception, and increased density orders, require submission of secondary recovery unit certificates of dissolution to the Managers of the Commission’s Technical Services and Underground Injection Control Departments, require submission of brine and associated solution gas unit certificates of dissolution to the managers of the Commission’s Technical Services and Underground Injection Control Departments, and eliminate forms regarding the use of state funds to conduct remedial action, and to clarify procedures concerning requests for the use and authorization of such state funds.

Finally, the amendments “increase or remove fees, and assess a new fee of $20.00 per applicable electric vehicle supply equipment (EVSE) port.”

X. Pennsylvania

A. Legislative Developments

On July 19, 2022, the Pennsylvania General Assembly enacted House Bill 2644 without Governor Wolf’s signature. The law amends Title 58 (Oil and Gas) of the Pennsylvania Consolidated Statutes by providing for oil and gas well plugging oversight and establishing the Oil and Gas Well Plugging Grant Program. The law also lowers the bond required for “a well other than an unconventional well” and eliminates the authority of the Environmental Quality Board to adjust the bond amounts for these wells for ten (10) years following the law’s effective date.

B. Judicial Developments

In Dressler Family, LP v. Pennenergy Resources, LLC, the Pennsylvania Superior Court concluded that a lease provision setting royalties at one-eighth of “gross proceeds received from the sale of [gas] at the prevailing price for gas sold at the well” was ambiguous regarding whether the deduction of post-production costs was permissible. The plaintiff argued that the “gross proceeds” language clearly meant that royalty payments must be calculated using the gross sales price for the gas. The defendant, on the other hand, relied on Kilmer v. Elexco Land Services, Inc. to argue that the unambiguous meaning of “royalty” and “at the well” in the oil and gas industry permitted deduction of postproduction costs. The trial court agreed with the defendant and found that the lease language was clear and unambiguous and permitted the deduction of post-production costs. The Superior Court reversed, explaining that “[a] finding that a contract is clear and unequivocable [] must be made on the contents of the contract ‘alone, within the four corners of the document[,]’” but the parties’ arguments and the trial court’s opinion all relied on extrinsic evidence. The Superior Court explained that the industry terms for “royalty” and “at the well” could not be neatly applied to this case to interpret the contract, necessitating remand. On remand, the trial court is to consider several factors, including whether it should apply the accepted meanings in the oil and gas industry for the terms “gross proceeds” and “at the well” and the contractual intent of the original parties to the lease.

In Commonwealth v. International Development Corp., the Pennsylvania Commonwealth Court affirmed the Board of Property’s final adjudication that International Development Corporation (IDC), rather than the Commonwealth, owned the oil and gas rights underlying a Bradford County property based on language in a century-old deed between the Commonwealth and the property’s previous owner. In 1894, the property was sold via deed which “expressly reserve[d] and save[d] to themselves, their heirs and assigns, all [of] the minerals, coal, oil, gas or petroleum found now or hereafter on or under the surface of any or all of the lands described . . . .” In 1920, Central Pennsylvania Lumber Company (CPLC) sold the property to the Commonwealth, and the deed stated that

[t]his conveyance is made subject to all the minerals, coal, oil, gas or petroleum found now or hereafter on, or under the surface on any or all of the lands described in each of the above mentioned parts or divisions [of the 1920 deed]; together with the right and privilege of ingress, egress and regress upon said lands for the purpose of prospecting for, or developing, working or removing the same, as fully as said minerals and mineral rights were excepted and reserved in deed dated October 27, 1894, from . . . Proctor [and Hill] to . . . Union . . . , recorded in the Office for recording deeds in Bradford County in deed book Vol. 205, page 436.

The second clause in the deed stated that the conveyance was also “subject to all the reservations, exceptions, covenants and stipulations” contained in the 1894 deed and the deed conveying the property to CPLC. Subsequently, CPLC executed a quitclaim deed for any oil and gas rights it had in the property, and IDC ultimately acquired these interests. The issue on appeal was whether the clause in the 1920 deed (quoted above) reserved the property’s mineral rights for CPLC or was simply a warranty disclaimer provision. The Commonwealth Court concluded that the “as fully as” language in the 1920 deed transformed the clause from one that would operate as a warranty to one that limited the scope of the property transfer memorialized in the 1920 deed. The Court explained that its conclusion was reinforced by the second clause that acted as a warranty provision. Therefore, the Commonwealth Court concluded that CPLC did not transfer ownership of the oil and gas rights underlying the property via the 1920 deed and IDC was the current owner of those rights.

In Salevsky v. Seneca Resources Co., LLC, plaintiff landowners brought suit against the lessee of oil and gas rights to their property, Seneca Resources Company, LLC, seeking declaratory relief to eject Seneca Resources and to quiet title on the property. In 2008, the plaintiffs entered into a lease with Seneca’s predecessor that contained a shut-in royalty clause stating that “[i]f during or after the primary term of this lease, all wells on the leased premises or within a unit that includes all or a part of the leased premises, are shut-in, suspended or otherwise not producing for any reason whatsoever for a period of twelve (12) consecutive months,” the lessee could “maintain this lease in effect” by the payment of shut-in royalties. In 2012, Seneca’s predecessor applied to the Pennsylvania Department of Environmental Protection to have the wells on the property listed as “Inactive Status.” Starting in 2013, Seneca’s predecessor, and subsequently Seneca, issued shut-in royalty payments to the plaintiff landowners. The landowners argued that these payments were insufficient to continue the lease because the wells had not been shut-in. The District Court disagreed, noting that the “broad language” of the shut-in royalty provision did not require the wells to be shut-in to be applicable; the clause also applied when the wells are “suspended or otherwise not producing for any reason.” The Court also rejected the landowners’ arguments regarding improper unitization and abandonment because the payment of shut-in royalties alone was sufficient to continue the lease.

In Laudato v. EQT Corp., the Third Circuit vacated and remanded the District Court’s certification of a class of all owners of real property within EQT’s natural gas storage fields who allege they have not been compensated for EQT’s use of their property. In its analysis, the Third Circuit explained that when evaluating class certification under Federal Rule of Civil Procedure 23, a court must engage in “‘a rigorous analysis,’ including a thorough examination of the factual and legal allegations,” before making a determination as to whether the requirements of that rule have been satisfied. Per Rule 23(a), a class should be certified only if numerosity, commonality, typicality, and adequacy of representation are shown. Per Rule 23(b), the party seeking certification of the class must also show that the action is one of the types of class actions that can be maintained. Only after these prongs of both Rule 23(a) and (b) are met can a class be certified. The Third Circuit concluded that the District Court’s explanation for certifying the class, which was merely included in a footnote, “was no more than a recitation of the Rule 23(a) prerequisites and [was] a far cry from the ‘rigorous analysis’ that long-standing precedent requires.” The District Court’s opinion was also devoid of any analysis into the requirements of Rule 23(b). As such, the Third Circuit stated it was not even in a position to conduct the analyses of Rule 23 as required. The Third Circuit ultimately vacated the District Court’s order and remanded for further proceedings.

In Lodge v. Robinson Township Zoning Hearing Board, the Commonwealth Court of Pennsylvania evaluated property owners’ challenge to a zoning ordinance allowing oil and gas development in Robinson Township, Pennsylvania. The property owners, who lived near the natural gas well development at issue, claimed that the operations affected their way of life due to traffic, noises, emissions, and concerns for well water, among others. Ultimately, the Commonwealth Court affirmed the trial court’s decision that the property owners lacked standing to challenge the ordinance. Citing a prior Pennsylvania Supreme Court opinion, the Commonwealth Court explained that “[i]n order to be aggrieved in the zoning context, a party must have a substantial, direct, and immediate interest in the claim sought to be litigated.” Moreover, “[t]o have a substantial interest, there must be some discernable adverse effect to some interest other than the abstract interest of all citizens in having others comply with the law.” Reviewing the record evidence, the Commonwealth Court concluded that there was sufficient evidence to support the trial court’s determination that neither the challenged ordinance, nor the well pad, were the cause of the landowners’ alleged harms.” The Commonwealth Court also rejected the landowners’ reliance on the Pennsylvania Supreme Court’s decision in Robinson Township v. Commonwealth of Pennsylvania, explaining that that case “in no way announced a new rule of law that individual objectors have automatic standing to pursue the validity of a zoning ordinance in the abstract or that oil [or] gas development is necessarily incompatible with Pennsylvania citizens’ constitutional rights.” Ultimately, the Commonwealth Court held that the landowners lacked standing to sue and affirmed the trial court’s decision.

In Diehl v. SWN Production Co., LLC, the U.S. District Court for the Middle District of Pennsylvania dismissed the plaintiff landowners’ claim for breach of contract – implied covenant to develop hydrocarbons, but allowed their claim for quiet title to go forward. The parties’ dispute centered on the sufficiency of the plaintiffs’ complaint with respect to the alleged breach of the implied covenant to develop. The oil and gas lease at issue provided that the lease would remain effective for as long after the primary term, or the optional extension, “as oil or gas is produced, or considered produced under the terms of this lease, in paying quantities from the premises or from land pooled therewith.” The defendant asserted that the claim for breach of the implied covenant to develop must fail because the lease terms precluded application of that duty and the complaint contained no facts regarding fraud. The Court cited its earlier opinion on the defendant’s motion to dismiss the prior complaint in which it had concluded that the express terms of the lease – rather than an implied duty to develop – controlled where development had commenced, as it had here. The plaintiffs failed to raise any new arguments on this issue, so the Court declined to revisit its prior conclusion. With respect to the failure to allege fraudulent conduct, the Court noted that Pennsylvania law requires averments of fraud in order to make out a claim for failure to develop. The Court rejected the plaintiffs’ claim for breach of the implied duty to develop, as the plaintiffs failed to aver fraud with particularity as required. As to the plaintiffs’ quiet title claim, the Court held that the claim could proceed. The defendant had the opportunity to raise arguments against the quiet title claim in its prior motions to dismiss, but chose not to. Moreover, the Court refused to entertain the defendant’s arguments.

In Yaw v. Del. River Basin Commission, the Third Circuit held that the plaintiffs – two Pennsylvania state senators, the Pennsylvania Senate Republican Caucus, and several Pennsylvania municipalities – lacked standing to challenge the Delaware River Basin Commission’s (Commission) ban on fracking in the Delaware River Basin. The Court reasoned that individual legislators did not have standing to assert that the Commission “deprived [them] of their lawmaking authority,” and instead, such injuries “belong[] to the legislature as a whole.” The Court further reasoned that “under well-established Supreme Court caselaw, ‘individual members lack standing to assert the institutional interests of a legislature.’” In addition, the Court held that the municipalities lacked standing because they failed to identify an actual injury that was imminent to support their request for prospective relief, instead identifying only a past injury and the possibility of future economic injury. The Court held that the plaintiffs lacked standing as “trustees of natural resources” under the Environmental Rights Amendment to the Pennsylvania Constitution because the Commission’s ban on fracking “promotes the purposes of the trust and protects its corpus.” Ultimately, the Court dispensed with the senators’ and municipalities’ challenges to the Commission’s ban on fracking in the Delaware River Basin because the claims “complain[] of a bare procedural violation divorced from any concrete harm.”

In Anderson Excavating, LLC v. Weiss World L.P., the U.S. District Court for the Western District of Pennsylvania held that under Pennsylvania’s mechanic’s lien law, a contractor cannot assert a lien against a surface owner’s property interest based on the subsurface owner’s failure to pay on a contract for work performed on the subsurface property. After the owner of the subsurface rights failed to pay the plaintiff excavation contractor, the contractor sought enforcement of a mechanic’s lien against the owner of the property’s surface rights. The contractor asserted that the subsurface owner was a subcontractor to the surface owner because the subsurface owner had an easement to construct a storage area and sediment pond. The Court disagreed, explaining that the subsurface owner could not have conveyed interest or title in the surface to the contractor because the easement did not grant such rights to the subsurface owner and “nobody can give what he does not have.”

In Adorers of the Blood of Christ U.S. Province v. Transcon. Gas Pipe Line Co., LLC, the Third Circuit affirmed the District Court’s dismissal of the plaintiff convent’s claims that the defendant’s pipeline through the convent’s property violated the nuns’ rights under the Religious Freedom and Restoration Act. The Court held that the convent’s failure to present their claims at any time during the administrative proceedings prior to the authorization of the pipeline precluded their instant claims in light of the Natural Gas Act’s “exclusive-review framework.”