Sidley Shale and Hydraulic Fracturing Report

Vol. 5, No. 30

Topics discussed in this week’s Report include:

  • Oklahoma to investigate potential link between seismic activity and hydraulic fracturing.
  • California moves forward with methane regulations for oil and gas wells.
  • Researchers report statistical association between asthma and shale gas wells.
  • GAO report urges more oversight for natural gas releases on federal land.

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Judge denies Maxim Power’s motion to dismiss, but rules that proceeding requires de novo trial

On July 21, Judge Mastroianni of the U.S. District Court for the District of Massachusetts issued an order denying Maxim Power’s motion to dismiss in FERC’s enforcement case against Maxim Power.  Importantly, however, Judge Mastroianni ruled that the case is an ordinary civil action subject to the Federal Rules of Civil Procedure and requiring a trial de novo (with some limitations on discovery).  According to the order, “In short, the court concludes that this case is to be treated as an ordinary civil action requiring a trial de novo, but with limitations on the discovery process in order to promote an efficient resolution of the case.”  Judge Mastroianni reasoned:  “The court’s reading of the statutory language, bolstered by FERC’s prior pronouncements, the approaches of other courts, and the requirements of due process, leads the court to conclude that Option 2’s de novo review means treating this case as an ordinary civil action governed by the Federal Rules of Civil Procedure that culminates, if necessary, in a jury trial.”

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FERC withdraws Connected Entity NOPR and issues new NOPR on data collection for analytics and surveillance

On July 21, FERC announced at its open meeting that the Connected Entity NOPR (Docket No. RM15-23) and the Ownership Information NOPR (Docket No.  RM16-3) have been withdrawn.  This was done in response to industry comments received on these two proposals.

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TOTAL replies to opposition to motion to dismiss class action lawsuit

On July 18, TOTAL filed its reply to the plaintiffs’ opposition to TOTAL’s motion dismiss the class action complaint in the Southern District of New York.  TOTAL argues that plaintiffs lack standing for any of their claims and have not plausibly alleged actual damages, causation, or specific intent.  TOTAL also argues that the plaintiffs’ claims are time-barred because they concede that their novel theory of injury—which the CFTC and FERC do not adopt—comes exclusively from their own analysis of the data.  Similarly, TOTAL argues that the plaintiffs antitrust claims are barred by the absence of any plausible allegations that TOTAL possessed monopoly power or engaged in exclusionary conduct in the relevant markets.  In addition to the reply, TOTAL submitted a letter requesting that the judge hear oral arguments on the motion to dismiss.

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Judge denies Kraft interlocutory appeal and grants CFTC motion to strike affirmative defenses

On July 16, U.S. District Judge John Robert Blakey issued an Memorandum Opinion and Order regarding the CFTC’s ongoing case against Kraft for alleged manipulation of the cash wheat and wheat futures markets.  The order denies Kraft’s motion for interlocutory appeal and stay, and grants the CFTC’s motion to strike affirmative defenses.  As we previously reported, the CFTC filed a motion opposing Kraft’s request for an interlocutory appeal of Judge Blakey’s December 18 order denying Kraft’s motion to dismiss.  Judge Blakey denied Kraft’s motion, finding that it did not meet the standards to certify an order for interlocutory appeal under 28 U.S.C. § 1292(b).  In particular, Judge Blakey found that there was not: (1) a question of law; and that question must be (2) controlling and (3) contestable, and (4) promise to speed up the litigation.

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New case on front-running

The criminal complaint brought by the U.S. DOJ against currency traders marks another example of a “front running” case.  In the complaint, prosecutors allege defendants used “information provided in confidence” by the victim company to purchase Sterling in advance of the transaction — “a scheme that is commonly referred to as ‘front running’” in breach of the duty of trust and confidence owed to the victim company.

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Sidley Shale and Hydraulic Fracturing Report

Vol. 5, No. 29

Topics discussed in this week’s Report include:

  • EPA requests additional information on oil and gas industry emissions.
  • PHMSA and FRA propose regulations for trains carrying crude oil and other flammable cargo.
  • Researchers conclude that the advent of hydraulic fracturing did not result in an increase in wellbore failures in Colorado’s Denver-Julesburg Basin.
  • EIA concludes that the U.S. will become net natural gas exporter in 2017.

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Unlocking Capitalization Strategies: Keys to Issuances of Preferred Securities

As the recent significant decline in oil prices drives profit margins lower, oil and gas industry players continue to seek new ways to obtain capital to preserve liquidity and maintain growth programs.  From drawing down revolving loans to keeping cash on the balance sheet to engaging in custom asset-focused carry structures, companies are examining—and executing on—a variety of diverse capitalization strategies.  One such strategy that has emerged as a recent favorite for certain public companies is the issuance of preferred securities to handpicked private equity funds and similar investors in private placements exempt from the registration requirements of the Securities Act of 1933.

While non-energy public companies generally have familiarity with the basic terms of preferred issuances, fewer oil and gas companies do, largely as a result of their historical rarity in the energy space.  However, with companies such as MPLX LP; NGL Energy Partners LP; American Midstream Partners, LP; Western Gas Partners, LP; Targa Resources Corp.; EnLink Midstream Partners, LP; Plains All American Pipeline, L.P., and Crestwood Equity Partners LP engaging in recent preferred issuances, such issuances have become an important tool in the oil and gas executive’s playbook.

This article briefly discusses the basic structure and terms of most private placements of preferred securities, with a focus on the most-negotiated commercial terms and their implications for the issuer and the investors.

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FERC affirms initial decision against BP

On July 11, FERC issued an order affirming an administrative law judge’s decision in the natural gas market manipulation case against BP.  In the order, FERC assessed a civil penalty in the amount of $20,160,000 (payable to the U.S. Treasury), plus disgorgement of unjust profits in the amount of $207,169 (to the Texas Low Income Home Energy Assistance Program).  FERC found that BP executed a scheme to profit from the market conditions in the aftermath of Hurricane Ike during the period from September 18, 2008 through November 30, 2008 by manipulating the price of natural gas in the Houston region.  FERC’s order affirms the ALJ’s findings across the board, but imposes slightly less in terms of the civil penalty and disgorgement than FERC initial sought in the order to show cause ($28 million civil penalty and $800,000 in disgorgement).

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Judge dismisses TOTAL declaratory judgment action against FERC

On July 15, U.S. District Judge Nancy F. Atlas issued an order dismissing TOTAL’s declaratory judgment action FERC.  This case was TOTAL’s effort “to bring the fight to FERC” by filing a declaratory judgment action in federal court in Texas claiming FERC lacked jurisdiction to adjudicate the manipulation claims against TOTAL.  Judge Atlas rejected TOTAL’s arguments and granted FERC’s motion to dismiss the action.

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