Nightmare: Appeals Court Upholds Right to Cancel Pipeline Deals
Drillers may have a new “get out of (pipeline) jail free” card. If you don’t like your 10-20 year pipeline contract, just file for bankruptcy and cancel the contract during the “reorganization” process, emerging from bankruptcy without the responsibility to fulfill the long-term contract you signed. That’s the option just upheld by the Second Circuit Court of Appeals (unsurprisingly located in New York). MDN has covered this issue for more than two years. In March 2016, MDN brought you the news that a NY bankrutpcy court judge had allowed Sabine Oil & Gas, going through bankruptcy, to cancel a pipeline gathering contract with Cheniere’s Nordheim Eagle Ford Gathering in Texas (see Midstream Nightmare Comes True: Judge Lets Driller Cancel Contracts). Nordheim spent $84 million building a pipeline system to Sabine’s wells. In return for laying out that kind of money, Sabine, as is almost always the case, signed a multi-year contract with Nordheim (10 years in this case), ensuring Nordheim would make a profit on its up-front investment. The judge allowed Sabine to unilaterally cancel the deal several years into the contract as part of the bankruptcy process. We asked at the time: If a driller signs a contract and that signature is no longer any good, will anyone build pipeline systems anymore? We later brought you insight from a pair of lawyers who said: “If other judges follow the analysis and conclusions reached in the Sabine Oil case, the expectations of midstream service providers in the oil and gas extraction process might be turned on their heads” (see Lawyers Warn Pipeline Case May Turn Midstreamers “On Their Heads”). Indeed. Now that the Second Circuit has upheld this disastrous lower court decision, with the only appeal option left being the U.S. Supreme Court (which likely won’t take the case), we’re holding our breath to see what happens next. It seems this is the nightmare we can’t wake up from. Will midstream companies quit building gathering systems?…
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The single biggest factor in whether or not gas drillers are willing to roll the dice and drill another well is….the price of natural gas. When prices are low, say below $3 per thousand cubic feet (Mcf), drillers are less willing to ramp up the rigs and drill new holes in the ground. When the price goes significantly above $3/Mcf, they’re much more likely to drill. Everyone keeps a close eye on the price. We’ve just come through a hard winter that drew down stocks of natural gas in reserve. Less supply with the same or increasing demand equals higher prices. However, if drillers produce more, a lot more, then supply will meet, or even exceed increased demand and the price will stay about the same, or even decrease. So what about the price for natural gas this summer? The Natural Gas Supply Association (NGSA) has just hauled out its crystal ball to predict what may happen with the price of natgas this summer. As our headline indicates, NGSA believes the price will remain about where it is now. From the report (full copy below): “Our expectation for flat price pressure is based on a forecast for tremendous growth in demand that is matched by even more impressive growth in production”…
Pennsylvania Gov. Tom Wolf’s Dept. of Environmental Protection (DEP), the agency charged with overseeing oil and gas drilling in the state, “blindsided” the shale industry in February with a proposal to hike the fee required when submitting an application to drill a new shale well (see 
Talk about cutting off a $200,000 nose to spite your face! One of the counties through which the Mountain Valley Pipeline (MVP) will travel is Franklin County, VA. MVP is a $3.5 billion, 301-mile pipeline that will run from Wetzel County, WV to the Transco Pipeline in Pittsylvania County, VA. For more than a year residents in Franklin County have opposed and hassled the MVP project (see 
Last winter, from Dec. 26 to Jan. 9, the northeast and New England experienced an extreme cold snap. New England essentially ran out of natural gas needed to feed electric generating plants. The entire region came razor close to succumbing to rolling blackouts. The only thing that prevented the blackouts was the restart of 1960s oil-burning electric plants. During that two week period, New England burned through 2 million barrels of oil to keep the lights on. Scary. Although a number of circumstances conspired to produce this “perfect storm” that almost tripped over into blackouts, there is one main, towering, primary reason why it happened: lack of natural gas pipelines. And there is one main, towering, primary reason why there aren’t more pipelines to flow more natgas into New England: New York Gov. Andrew Cuomo. Andy has admitted, on camera, that his policy is to block any/every/all new natural gas pipelines (see 
Que the music with dramatic drums, cymbals and trumpets. Camera A, zoom in on Secretary McDonnell. The whole state is watching. It’s time for the Pennsylvania Dept. of Environmental Protection (DEP) Hunger Games to begin! In February Sunoco Logistics Partners agreed to pay a massive (historically high) $12.6 million fine to the PA Dept. of Environmental Protection (DEP) for “permit violations related to the construction of the Mariner East 2 pipeline project” (see 
Mountain V Oil and Gas owns a Marcellus Shale well drilled in 2014 in Upshur County, WV that was a bust. You don’t often hear about Marcellus wells that don’t produce. Because their Marcellus well is a non-producer, Mountain V wants to convert it into a wastewater injection well. The neighbors are not happy about it. The WV Dept. of Environmental Protection held a public hearing last week about the proposal. Twelve local residents spoke at the hearing–every one of them against the project. No one spoke in favor. Is that really a surprise? The comments made at the hearing referred to the potential for earthquakes and pollution of the water table. Here’s what the good (but misinformed) residents of Upshur don’t understand about injection wells: (1) There are hundreds of thousands of them across the country, and have been for decades. (2) The wastewater (brine) going down the proposed injection well first came up from the same deep sources–we’re just putting it back where it came from. (3) If the well is properly cased, and rest assured these wells are heavily regulated and regularly checked, there is no way for the wastewater to seep back up to the surface. The water was down there for millennia and didn’t make its way to the surface, so why would it now? (4) Earthquakes can happen, but only when massive amounts of fluids are injected into an existing fault, or crack, in the rock layers. Earthquakes from injection wells, at least in the northeast, are as rare as hen’s teeth. Look, in all honesty, we wouldn’t be overly thrilled with an injection well locating near us either. However, if you’re going to object, as a first step you need to get your facts straight. Here’s more about last week’s hearing and the lack of facts (and wild statements) that circulated at that meeting…
Last week at a press conference an organization calling itself the Pennsylvania Conservative Energy Forum (PennCEF) officially launched. The group says it, “seeks to provide a conservative voice in the state energy policy debate, supporting common-sense, all-of-the-above energy solutions that are good for the economy, grid and national security, and the conservation of our state’s natural resources.” PBS’ StateImpact Pennsylvania, a mouthpiece for Big Green groups, opens its glowing article of the new “conservative” organization this way: “A group of political conservatives wants a voice in the state’s energy future.” Big red flag when StateImpact writes positively about a “conservative” group. We read the StateImpact article, located the PennCEF press release from last week, and looked over their website in detail. It appears PennCEF promotes an “all of the above” energy philosophy–EXCEPT fossil fuels, which are THE major source of energy today and for the next several generations. The use of the phrase “all of the above” used by PennCEF sounds eerily like what Lord Obama used to say. He said “all of the above” but meant he would pick the winners and losers. Solar and wind are the winners, fossil fuels the losers. Which is not truly an “all of the above” philosophy. We scoured the PennCEF website and a single reference (on an infographic) to natural gas. Nothing else about shale gas and its role in a clean energy future. We reviewed the Executive Leadership Council bios, the people who run the organization, and found Big Green, Big Solar, Big Wind, and Big Libs among those steering the organization. Our conclusion? There’s nothing “conservative” about PennCEF–other than a misappropriation of the word conservative…
As we reported in April, a Pennsylvania House of Representatives member, Dan Moul (Republican from Gettysburg), introduced a bill, House Bill (HB) 2222, that would replace the Delaware River Basin Commission (DRBC) and Susquehanna River Basin Commission (SRBC) authority to regulate groundwater by vesting that authority solely in the hands of the state Dept. of Environmental Protection (see 
In our headline we pose a question asking if private equity (PE) money is about to be lavished on the oil and gas sector once again. The short answer, according to an analyst who writes about these things, is YES! Anthony Mirhaydari, a senior financial writer at PitchBook, says because of the current high price of oil, “After a drought of investment as management teams aggressively trimmed expenses to stay afloat, an aggressive ramp-up in spending is needed.” According to Deloitte, the oil and gas industry will need to spend on the order of $3 trillion in capital expenditures from now until 2020 (two short years away). Some of that money comes from profits or is already in hand from other sources. But, according to Deloitte, “there is a funding gap of $750 billion to $2 trillion that will need to be met with outside capital.” That trillion dollar delta is where private equity comes in–private investors once again opening up their wallets so more oil and gas drilling can happen. And that’s good news for the entire industry, including the Marcellus/Utica region. More money = more drilling…
An interesting development in the pipeline wars. Kinder Morgan has just agreed to sell its Trans Mountain Pipeline system to the Canadian government for C$4.5 billion ($3.5 billion U.S.). Why? Kinder is tired of the ongoing civil war in Canada over extending Trans Mountain from the oil sands of Alberta through British Columbia to the coast for exporting to Asia. As we reported last week, British Columbia is blocking the project and Alberta is now fighting back–and it’s nasty, a civil war in every way except armed conflict (see 
As MDN reported last Friday, fossil fuel opponents finally located a liberal judge that they could persuade to abuse her judicial power to shut down not only construction on the 98% complete Mariner East 2 (ME2) pipeline project, but also shut down Mariner East 1 (ME1), a pipeline that has been working with no issues or problems for over a year (see 