Lawyers for parties challenging local gas drilling bans enacted in two upstate towns filed briefs on May 31, 2013 asking the New York Court of Appeals to review recent intermediate appellate court decisions. Permission to review the decisions is required from the Court of Appeals since the intermediate court unanimously upheld the right of municipalities to ban drilling via local laws and zoning ordinances. In 2012, the Court of Appeals granted 6.4 percent of requests for permission to appeal, and 7.4 percent of such requests in 2011.
Last week, in Good Will Hunting Club, Inc. v. Range Resources-Appalachia, LLC, the U.S. District Court for the Middle District of Pennsylvania held that a landowner (Good Will) was bound by a five-year extension clause in an oil and gas lease that it signed with Range Resources because drilling commenced within the initial term of the lease. The court concluded that staking a drill site, obtaining permits, obtaining easements, clearing timber, and beginning construction of a well pad clearly constituted commencement of drilling operations even though no drill bit had touched the ground. Good Will argued that the five-year extension clause was unenforceable because Good Will was not aware of the clause. However, the lease had been negotiated on behalf of Good Will by a consultant who had authority to execute the lease on Good Will’s behalf and the Court concluded that the consultant “had actual authority to negotiate the Lease… and it [was therefore] his understanding of the terms of the Lease that bind[s] Good Will.”
Last month District Court Judge Irene Keeley, sitting in the Northern District of West Virginia, sought to have the West Virginia Supreme Court of Appeals (WVSCA) rule upon whether West Virginia law permits a natural gas producer to use a surface owner’s property to sink horizontal wells that draw gas from neighboring tracts. The decision in this case will have far reaching economic consequences in West Virginia. Now, the Court is slowing down the process through which the WVSCA may decide the novel issue. According to the San Francisco Chronicle, Judge Keeley has requested the record be supplemented with additional facts before the question is submitted to West Virginia’s highest court. Under this second order, it is unclear when the WVSCA may be called upon to determine this drilling issue.
On May 7th the Fourth Circuit Court of Appeals rejected the arguments of Martha and Charles Wellman and upheld the validity of a “legacy” oil and gas lease. The lease provided for royalty payments on production and a flat-rate rental payment. The mineral owners alleged that Bobcat Oil & Gas, Inc. failed to produce oil or gas under the lease, and breached the lease by missing rental payments, resulting in forfeiture of the lease. As the West Virginia Record noted, the Fourth Circuit upheld the lease under its original 1933 terms, stating that the lease could be maintained solely by payments of the flat rental, and that the missed payments in this case were not such that warranted termination of the lease.
A copy of the unpublished opinion from the Fourth Circuit can be found here.
In two decisions issued on May 2, 2013, a New York State intermediate appellate court held that the New York Oil, Gas, and Solution Mining Law (“OGSML”) does not preempt a municipality’s authority to enact a zoning ordinance to prohibit natural gas drilling within its jurisdiction. The rulings affirmed two trial court decisions which upheld local drilling bans in the upstate New York towns of Dryden and Middlefield. The intermediate appellate court concluded that, although the zoning ordinances at issue would have an “incidental effect” on the natural gas industry, such ordinances were not the type of regulatory provisions the state legislature intended to preempt in the OGSML. The attorneys for the parties challenging the zoning ordinances will reportedly seek appeals to the Court of Appeals, New York’s highest court.
In a press release issued earlier today, the U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (PHMSA) stated that a recent federal court decision confirms its authority to inspect natural gas liquids (NGL) plants for compliance with the minimum federal safety standards in 49 C.F.R. Part 195. The decision, issued by the U.S. District Court for the Northern District of Oklahoma, dismissed a lawsuit filed against PHMSA by the operator of an NGL plant. The district court concluded that the Pipeline Safety Act’s new judicial review provision provides the federal courts of appeal with exclusive jurisdiction over the plaintiff’s claim that PHMSA does not have the authority to inspect the piping and equipment located inside the plant’s boundaries.
In its decision, the district court explained that judicial review of a “regulation or order” issued by PHMSA must be initiated within 89 days by filing a petition for review in the U.S. Court of Appeal for the District of Columbia Circuit or in the court of appeals where a person resides or has its principal place of business. The district court reasoned that, as with other similar statutes, the term “order” should be interpreted broadly for purposes of the Pipeline Safety Act’s judicial review provision to encompass any PHMSA decision that has sufficient finality, i.e., that imposes an obligation, denies a right, or fixes some legal relationship. The district court found that the agency action being challenged in the case—PHMSA’s decision to inspect the NGL plant—was an order that could only be reviewed in the federal courts of appeal. Accordingly, the district court dismissed the matter for lack of subject matter jurisdiction.
It should be noted that on February 25, 2013, the plaintiff company filed a separate petition for review of PHMSA’s action in the U.S. Court of Appeals for the District of Columbia Circuit, and that the D.C. Circuit has yet to issue a ruling on the petition.
On April 24, 2013, the Supreme Court of Pennsylvania issued an opinion in the case of Butler v. Powers, addressing the distinction between the words “gas” and “minerals” in private conveyances of land in Pennsylvania. The case began as a quiet title action in Susquehanna County, and the issue was whether an 1881 reservation of “One-half the minerals and Petroleum Oils” in a parcel of land would also include a right to the natural gas. The appellees argued that gas from shale formations should be classified under the term “minerals” in land conveyances, similar to the manner in which coalbed methane gas is considered a part of the coal estate in Pennsylvania. The appellees’ argument was contrary to the long-standing rule stated in an 1882 decision of the Supreme Court of Pennsylvania, Dunham & Shortt v. Kirkpatrick, which created a rebuttable presumption that a reservation of “minerals” did not include “oil” or “gas” unless the term was specifically recited in the reservation.
On appeal of the Butler trial court decision, the Superior Court of Pennsylvania remanded the case in order for the parties to obtain expert testimony explaining whether gas from the Marcellus Shale is “conventional gas” and could be considered a “mineral.” The Supreme Court of Pennsylvania ultimately rejected the Superior Court’s analysis and appellees’ arguments, and held that the rebuttable presumption in Dunham applies the same to shale gas as it would to gas recovered from shallow formations. Thus, the Supreme Court of Pennsylvania upheld the “Dunham Rule” in its April 24, 2013 opinion. According to the Supreme Court, the Dunham Rule (and subsequent case law) remains “viable,” “controlling,” and “unwavering in clarity.” The majority opinion can be found here and concurring opinion here.
Environmental groups recently announced that they are dropping a First Amendment lawsuit filed against the Town of Sanford, New York, because earlier this month the town repealed a September 2012 resolution that banned the public discussion of natural gas drilling during monthly board meetings. The environmental groups filed their lawsuit in U.S. District Court in February 2013, alleging that the town’s resolution amounted to a “gag order” which violated the free speech rights of the town residents. The town board established the ban because the extensive public debate over natural gas drilling during meetings was preventing the board from accomplishing its business. In repealing the ban, the town board reserved the right to limit comments of any future speaker to three minutes.
On March 15, 2013, the Town of Avon reportedly became the third upstate New York municipality to prevail in a court challenge of a local zoning ordinance banning gas drilling. The trial court rejected the argument that New York’s Oil, Gas and Solution Mining Law preempted the town’s moratorium on gas drilling. In its decision, the court cited two previous decisions that upheld local bans in the towns of Dryden and Middlefield, which are both currently on appeal before the New York Appellate Division.
A mid-level New York State appellate court recently heard oral arguments in reviewing two trial court decisions which upheld municipal zoning laws that ban oil and gas drilling within the upstate towns of Dryden and Middlefield. The appeals focus on whether New York’s oil and gas law preempts a local government’s authority to prohibit gas drilling within its borders through zoning laws. More than 50 New York municipalities have banned gas drilling in anticipation that the state will lift its five-year moratorium on high-volume hydraulic fracturing. To date, three trial courts have rejected challenges to local ordinances that prohibit gas drilling. The Dryden and Middlefield decisions are the first to undergo appellate review, and the court is expected to issue a decision in approximately six weeks.
According to recent press reports, President Judge Joseph F. Kameen of the Pike County (Pennsylvania) Court of Common Pleas has granted an injunction to prevent protestors from interfering with the construction of a gas pipeline in northeastern Pennsylvania. The proponent of the project, Tennessee Gas Pipeline, L.L.C., received a certificate of public convenience and necessity from the Federal Energy Regulatory Commission to build the pipeline last year, and the line is projected to be in service by November 1, 2013.