North America Shale Blog

North America Shale Blog

Midstream Gathering Agreements Targeted by Recent Oil & Gas Bankruptcies

Posted in New York, Oil and Gas

Continuing low oil and natural gas commodity prices have led to bargain prices at the pump, but also high tension in many boardrooms. This strain on the industry has resulted in many exploration and production, or “E&P,” companies seeking relief from high debt and reduced revenue in bankruptcy. In recent cases, those E&P companies have sought to reject their midstream gathering agreements, which they deem onerous and unprofitable. E&P companies Sabine Oil and Gas Corp. and Magnum Hunter Resources Corp. have been getting quite a bit of attention for their attempts to do just that, presenting potential road maps for how other such companies may choose to proceed during their reorganizations.

The ability to reject an executory contract or unexpired lease is a powerful reorganizational tool given to a bankrupt company by the Bankruptcy Code. With limited exception, under 11 U.S.C. § 365, debtors can reject such executory contracts over the objection of their counterparty. One such limited exception – that contracts creating covenants, which run with the title to real property, cannot be rejected under § 365 – has taken center stage in recent attempts by E&P debtors to reject midstream gathering agreements.

For the unacquainted, a midstream gathering agreement is a contract that governs the midstream company’s service of delivering oil or natural gas from the wellhead to market. Whether it does so using a pipeline, truck or crude oil transported by rail, these contracts can be extremely costly, largely because they are so vital to the business model of a continuing E&P venture. Continue Reading

Upsetting the Outer Continental Shelf Ecosystem through Overbonding

Posted in Uncategorized

At a time when the Bureau of Safety and Environmental Enforcement’s (“BSEE”) Well Control Rule has shifted focus away from its sister agency’s regulatory maneuvering, the Bureau of Ocean Energy Management (“BOEM”) is changing the way it approaches securitizing decommissioning obligations – a shift with the potential to change the face of the Outer Continental Shelf (“OCS”).

Industries, like ecosystems, thrive on symbiotic relationships. Even companies that compete for resources need each other to ensure the health of the industry as a whole. While BOEM’s anticipated new requirements for supplemental financial security may not affect majors directly, they do affect the smaller players, and the loss of those smaller players will ultimately affect the health of the OCS economic ecosystem.

BOEM’s proposed changes to its Notice to Lessees No. 2008-N07, which spells out BOEM’s supplemental bonding requirements, are discussed in an October 5, 2015, North America Shale Blog post. These changes – which we expect BOEM to issue before the summer – ignore the contracts put in place by private parties relying on BOEM’s current bonding practices (often between majors and independents), thus putting additional and unnecessary financial pressure on independents.  Continue Reading

Crude-by-Rail Update: Largest West Coast Terminal Proposal Suffocating Under Delay

Posted in Oil and Gas

The largest proposed crude-by-rail (CBR) transloading facility on the West Coast recently survived a major hurdle to its ultimate construction and operation—a lease extension. But with the proposed project enduring nearly three years of permitting delay while navigating Washington State’s Energy Facility Site Evaluation Council (EFSEC) process, the lease extension may come as too little too late.

The trials and tribulations of the proposed project highlight the difficulties large-scale energy-infrastructure projects confront, particularly on the West Coast. Simply put, American infrastructure projects need to be made a priority on political, legal, and regulatory agendas. Without such prioritization, much-needed projects will continue to wither away in permitting purgatory, and ultimately the American consumer will suffer. This proposed project is but one example.  Continue Reading

Colorado House Votes Down Bill Giving Local Authorities Power Over Fracking

Posted in Colorado, Fracking

Two Democrats joined the Republicans in the Colorado House of Representatives on April 4, 2016, to defeat a bill that sought to assert local government control over oil and gas drilling.

Drilling operations in Colorado have begun moving from rural communities into more populated areas, which has led to an outcry against oil and gas operations in suburban neighborhoods. Aware of the frustration, Governor John Hickenlooper formed a task force in 2015 to propose rules around local governance. The task force was intended to be a compromise that would address the concerns of the public while avoiding a ballot initiative that would give local governments the authority to ban hydraulic fracturing. But for some, the task force did not actually resolve any of the public’s concerns. Democratic Rep. Mike Foote of Lafayette, one of the bill’s sponsors, said, “The current system works very, very well for the industry. It doesn’t work so well, though, if you’re in these neighborhoods, particularly along the Front Range, and you want to have a meaningful say in what happens.” Though supporters of the bill claimed it was just a restatement of authority local governments already have, the bill reinitiated the debate on state-versus-local authority over the energy industry. Continue Reading

Moratorium on New Oil and Gas Operations Lifted in Adams County

Posted in Colorado, Oil and Gas

On Tuesday, Adams County, Colorado, commissioners lifted a six-week moratorium on new oil and gas drilling operations in urban areas. The moratorium, previously approved by the county commissioners in early February following contentious public debate about a proposed 10-month moratorium, applied to new permits for wells or well pads within 1,500 feet of homes, schools or public buildings.

In addition to ending the six-week moratorium, the commissioners approved an increase in new permit application fees and enhanced regulations that include a site-specific review process. Modeling the new regulations on the procedures utilized in Arapahoe County, Adams County now requires an operator that has previously entered into a memorandum of understanding with the county to apply for a Use by Special Review permit for each new oil and gas facility location. The application, which can take up to 42 days to review, may be approved, conditionally approved, denied or referred to the county commissioners. Applications that are denied can be appealed to the county commissioners. Continue Reading

Options to Help Oklahoma Alleviate Its Emerging Oilfield Water Crisis

Posted in Oklahoma, Water

Hydraulic_Fracturing_iStock_000025097211MediumThe Oklahoma Corporation Commission has restricted injection well activity over a combined zone of nearly 10,000 square miles—approximately the size of Massachusetts (Exhibit 1). In Central Oklahoma, the OCC seeks to reduce water injection into the Arbuckle Formation by at least 300,000 bpd. Furthermore, the OCC now requires new injection well applications to go through a full-court process, and approval can be granted only by a majority vote of commissioners. Furthermore, any permit approved is limited to six months, and contains requirements for seismicity monitoring and regular testing, and, perhaps most important, existing wells in the Area of Interest can be shut-in with no prior court hearing. Continue Reading

Pennsylvania Jury Awards $4.2 Million in Groundwater Contamination Case

Posted in Groundwater, Pennsylvania

Rural Landscape_463185431On Thursday, a federal jury in Pennsylvania ordered Cabot Oil & Gas to pay more than $4.2 million in damages to two Pennsylvania families who sued in 2009 alleging that the Texas-based company’s drilling operations contaminated local groundwater.

The long-running dispute – which originally featured more than 40 plaintiffs before most settled their claims – had previously made headlines after it was featured in the Emmy-winning documentary “Gasland.”

The plaintiffs claimed that Cabot, one of the largest operators in Pennsylvania, negligently conducted its hydraulic fracturing operations near Dimock, Pennsylvania, which in turn caused methane gas to leak into nearby groundwater. The company argued that methane occurred naturally and that the plaintiffs could show no causal link between the contamination in their wells and the company’s drilling operations.

The jury returned verdicts on the plaintiffs’ negligence and private nuisance claims – the only counts that remained after Cabot was granted partial summary judgment on the plaintiffs’ strict liability, breach of contract, and fraudulent inducement claims, among others.  Continue Reading

Off the Tracks: Quantifying Potential Monetary Exposure From Crude-by-Rail Incidents

Posted in Shale, Transportation

railThis article is the second in a three-part series that began with “Off the Tracks: A Data-Driven Analysis of Crude-by-Rail Liability Factors, Exposure, and Potential Solutions,” which was published on December 19, 2015.

In Part One of this series, we analyzed factors that influence liability for crude-by-rail (CBR) incidents. But knowing the liability factors leads to a second question: What is my monetary exposure?

Rail transportation has a strong operational safety record. And the CBR industry—in response to a meteoric rise in crude oil traffic—has leveraged rail’s proven track record to refine risk-management techniques in response to past incidents. Should a CBR incident occur, however, the analysis below provides a benchmark to evaluate potential monetary exposure.

Unit-train scale CBR incidents are a new phenomenon, and there is not yet a statistically meaningful dataset of regulatory fines, settlements, and jury verdicts. For that reason, we have expanded our inquiry to include the consequences of not only CBR incidents, but also those involving other railborne hazardous materials as well as passenger train derailments involving injuries and fatalities. This expanded inquiry better illustrates the extent of potential liability associated with CBR incidents. Continue Reading

The Fight to Stop the EPA’s “Clean Power Plan” Continues in the D.C. Circuit, Amid an Uncertain Future for Its Presumed Ultimate Destination – the Supreme Court

Posted in EPA Issues

Electricity power plant

On February 19, 2016, 27 states, the United States Chamber of Commerce, and over 150 different organizations and entities (the “Petitioners”) filed their joint Opening Brief on Core Legal Issues (the “Opening Brief”), related to their petitions for review of the Environmental Protection Agency’s (EPA’s) final agency action titled “Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units,” or as it is commonly referenced, the “Clean Power Plan” (the “Final Rule”).

According to the comprehensive and detailed Opening Brief, the Final Rule relies on “an obscure provision of the Clean Air Act,” to institute “an ‘aggressive transformation’ of the mix of electricity generation in nearly every [s]tate by systematically ‘decarboniz[ing]’ power generation and ushering in a new ‘clean energy’ economy.” Opening Brief, at 3. EPA has taken this bold step, even though Congress has never adopted any legislation specifically intended to achieve this result. Id. Continue Reading

EQT Wins a Temporary Victory, but the Future of Oil and Gas Operations in Fayette County, West Virginia, Is Still Undecided

Posted in Oil and Gas, Water, West Virginia

OilWellEQT Corp. won a temporary victory in its continuing effort to defend against the potential shutdown of its 200 oil and gas wells and one wastewater injection well in Fayette County, West Virginia, after the District Court for the Southern District of West Virginia issued a preliminary injunction on February 8 enjoining the enforcement of a new county ordinance aimed at stopping all operation of oil and gas wells in Fayette.

On January 12, the Fayette County Commission adopted an ordinance banning the storing, disposing, handling, treating, and processing of gas or oil waste within the boundaries of Fayette County. The ordinance was created in response to citizen complaints about a wastewater injection well in Fayette County operated by Danny Webb Construction, another well operator in Fayette County seeking to enjoin the ordinance. After receiving a petition with 5,000 signatures pleading for a ban on wastewater wells in Fayette, the Commission began to develop the new ordinance. Drafting of the ordinance was headed by the West Virginia Mountain Party, a grassroots political party that believes the county has the right to protect its citizens from the alleged hazardous waste that comes from these wells. Continue Reading