Justia Energy, Oil & Gas Law Opinion Summaries

LUMA Energy, LLC and LUMA Energy ServCo, LLC entered into a long-term contract to operate and maintain Puerto Rico’s electric power transmission and distribution system, previously managed by the Puerto Rico Electric Power Authority (PREPA), a Title III debtor under PROMESA. The agreement included a liability waiver provision, which was subsequently approved with modifications by the Puerto Rico Energy Bureau (PREB). After LUMA invoked the waiver to deny numerous consumer claims, the Puerto Rico Department of Consumer Affairs (DACO) brought suit in Puerto Rico’s courts against LUMA, PREPA, and PREB, challenging the constitutionality of the waiver. The Supreme Court of Puerto Rico accepted the case for review.While the DACO action was pending, LUMA, without participation from PREPA or the Financial Oversight and Management Board (the Board), sought an order from the United States District Court for the District of Puerto Rico (acting as the Title III court) to enforce the automatic bankruptcy stay and halt the DACO litigation. The Title III court denied LUMA’s motion, finding the police and regulatory power exception to the automatic stay applicable because DACO’s action was an exercise of governmental authority to protect consumers. LUMA appealed this order.The United States Court of Appeals for the First Circuit reviewed the case. The main holding was that LUMA lacked statutory standing to appeal the Title III court’s denial of its motion to enforce the automatic stay. The First Circuit clarified that LUMA was not a “person aggrieved” for purposes of appellate standing under the Bankruptcy Code as incorporated by PROMESA, because LUMA did not show it suffered a direct and adverse pecuniary injury of the type the automatic stay is meant to prevent. Accordingly, the First Circuit dismissed the appeal for lack of appellate jurisdiction. View "LUMA Energy LLC v. Puerto Rico Dep't of Consumer Affairs" on Justia Law

Several landowners in South Texas leased mineral rights to a company that later filed for Chapter 11 bankruptcy protection. During the bankruptcy proceedings, the company, responding to a collapse in oil prices during the COVID-19 pandemic, temporarily halted production on wells within the leased premises for about 40 days before resuming operations. The bankruptcy court subsequently confirmed the company’s reorganization plan, which included a set deadline for filing administrative expense claims.The landowners, asserting that the company’s temporary cessation of production had automatically terminated their leases under the leases’ terms and Texas law, filed a motion in bankruptcy court seeking administrative expense priority for damages related to alleged post-termination trespass. They also sought to have a state court adjudicate whether the leases had terminated and whether trespass damages were owed, arguing that the bankruptcy court lacked jurisdiction or should abstain from deciding these underlying state-law issues. The bankruptcy court determined that it had core jurisdiction to decide the administrative expense claim, which included resolving the validity of the underlying lease-termination and trespass claims. The court found that the temporary cessation did not terminate the leases, denied the administrative expense claim, and declined to abstain. The United States District Court for the Southern District of Texas affirmed, rejecting arguments concerning jurisdiction, abstention, and the application of Texas law.On appeal, the United States Court of Appeals for the Fifth Circuit held that the bankruptcy court properly exercised jurisdiction over the administrative expense claim, which necessarily included resolving the underlying state-law lease-termination and trespass issues. The Fifth Circuit further held that, under the express terms of the leases and Texas law, the temporary cessation of production did not result in automatic termination, as production was resumed well within the contractual 120-day period. The Fifth Circuit affirmed the lower courts’ rulings. View "Storey Minerals v. EP Energy E&P" on Justia Law

Chenault-Vaughan Family Partnership ("Chenault"), a royalty interest holder in a Texas mineral estate, sued Centennial Resources Operating, LLC ("Centennial"), the site operator, for wrongly withholding royalties. The Bankruptcy Court awarded summary judgment to Centennial. Chenault appealed to the District Court, where the parties consented to proceed before a Magistrate Judge. The Magistrate Judge affirmed the Bankruptcy Court’s judgment, and Chenault appealed to the United States Court of Appeals for the Third Circuit.The Third Circuit first addressed whether the Magistrate Judge had jurisdiction to enter final judgment in the bankruptcy appeal. The court concluded that, with the consent of the parties and a referral by the district court, a magistrate judge may enter final judgment in a bankruptcy appeal. This conclusion was supported by the broad consent authority granted to magistrate judges under 28 U.S.C. § 636(c), the repeal of the statutory provision that previously prohibited such referrals, and the supervisory authority retained by Article III judges.On the merits, the Third Circuit reviewed the Bankruptcy Court’s summary judgment on two claims: trespass to try title and royalties under the Texas Natural Resources Code ("TNRC"). The court affirmed the summary judgment for Centennial on the trespass-to-try-title claim, finding that Centennial did not unlawfully enter the land and dispossess Chenault, as Luxe, a cotenant, had the right to extract minerals and permit Centennial to operate.However, the court vacated the summary judgment on the TNRC claim. The court found that there were genuine disputes of material fact regarding whether Centennial was obligated to pay Unit B royalties to Chenault, particularly concerning the Division Order and Centennial’s knowledge of MDC’s non-signature on the Unit B JOA. The case was remanded to the Magistrate Judge with instructions to remand to the Bankruptcy Court for further proceedings on the TNRC claim. View "In re: MTE Holdings LLC" on Justia Law

The case involves the valuation of a bitcoin mining property owned by Michael Oken, who had invested millions in infrastructure upgrades to support bitcoin mining. The property, located in College Park, Georgia, included a Power Sales Agreement with the city for low-cost electricity, which was crucial for the mining operation. After Oken's death in 2019, his businesses filed for Chapter 11 bankruptcy, and the property was sold along with an adjacent data center for $4.9 million. The deeds indicated a $2.45 million value for each property based on transfer taxes. Two creditors, Thomas Switch Holding and Bay Point Capital, sought to recover on liens against the property.The bankruptcy court held a bench trial to determine the property's value. Switch's appraiser, Michael Easterwood, valued the property at $830,000 using the cost approach, considering the infrastructure improvements. Bay Point's appraiser, Jeff Miller, valued it at $48,000 using the sales comparison approach, comparing it to other light industrial properties. The bankruptcy court adopted Easterwood's valuation, finding the property to be a special purpose property with bitcoin mining as its highest and best use. The court valued the property at over $700,000, awarding the full escrow amount to Switch.The United States District Court for the Northern District of Georgia affirmed the bankruptcy court's decision. On appeal, the United States Court of Appeals for the Eleventh Circuit reviewed the case. The appellate court upheld the bankruptcy court's findings, agreeing that the property was a special purpose property with bitcoin mining as its highest and best use. The court also affirmed the use of the cost approach for valuation and found no clear error in considering the tax stamp value as supporting evidence. The judgment of the lower courts was affirmed. View "In re: VIRTUAL CITADEL, INC." on Justia Law

The case involves a dispute arising from the financial fallout of Winter Storm Uri, which severely impacted Texas's electrical grid in 2021. The Electric Reliability Council of Texas (ERCOT), responsible for managing the grid, took measures including manipulating energy prices to incentivize production. This resulted in Entrust Energy, Inc., receiving an electricity bill from ERCOT of nearly $300 million, leading to Entrust's insolvency and subsequent bankruptcy filing. ERCOT filed a claim seeking payment of the invoice, which was challenged by Anna Phillips, the trustee of the Entrust Liquidating Trust. The trustee argued that ERCOT's price manipulation violated Texas law, that ERCOT was grossly negligent in its handling of the grid during the storm, and that ERCOT's transitioning of Entrust’s customers to another utility was an uncompensated taking in violation of the Fifth Amendment.The bankruptcy court declined to abstain from the case and denied ERCOT’s motion to dismiss all claims except for the takings claim. ERCOT appealed to the United States Court of Appeals for the Fifth Circuit, arguing that the bankruptcy court should have abstained under the Burford doctrine, which allows federal courts to abstain from complex state law issues to avoid disrupting state policies.The Fifth Circuit found that the bankruptcy court erred in refusing to abstain under the Burford doctrine. The court reversed the bankruptcy court's denial of ERCOT’s motion to abstain and its denial of ERCOT’s motion to dismiss the trustee’s complaint. The court also vacated the bankruptcy court’s order dismissing the takings claim with prejudice. The court remanded the case with instructions to dismiss certain counts and stay others pending the resolution of related state proceedings. View "Electric Reliability Council of Texas v. Phillips" on Justia Law

Electric Reliability Council of Texas, Inc. (“ERCOT”) determines market-clearing prices unless otherwise directed by the Public Utility Commission of Texas (“PUCT”). ERCOT is the sole buyer and seller of all energy in Texas. According to the operative complaint, during winter storm Uri ERCOT and the PUCT allegedly “intervened in the market for wholesale electricity by setting prices [that were] orders of magnitude higher than what market forces would ordinarily produce.”   Just Energy, a retail energy provider, purports that after the storm, ERCOT “floored” it with invoices totaling approximately $335 million. Just Energy commenced bankruptcy proceedings in Canada and filed this Chapter 15 case in the United States Bankruptcy Court for the Southern District of Texas, Houston Division. Just Energy challenges its invoice obligations. At the hearing on ERCOT’s motion to dismiss, the bankruptcy court stated that it would strike various language like, “subject to reduction only after a finding by the Court concerning a legally appropriate energy price per megawatt hour as proven by expert testimony, if appropriate, but in no event greater than the price per megawatt hour in effect after market forces took effect.” By striking this and similar language sprinkled throughout the complaint, the court concluded that “this change solves the abstention problem.”    The Fifth Circuit disagreed and vacated the bankruptcy court’s order and remanded with instructions to determine the appropriate trajectory of this case after abstention. The court explained that abstention under Burford6\ is proper because: (1) the doctrine applies in the bankruptcy context; and (2) four of the five Burford factors counsel in favor of abstention. View "Electric Reliability v. Just Energy" on Justia Law

Appellant Sanare Energy Partners, L.L.C. agreed to purchase a mineral lease and related interests from Appellee PetroQuest Energy, L.L.C. Later, PetroQuest filed bankruptcy, and Sanare filed an adversary suit in that proceeding. Sanare argued that the lack of certain third-party consents rendered PetroQuest liable for costs associated with some “Assets” whose transfer the sale envisioned. The bankruptcy court and the district court each disagreed with Sanare.   The Fifth Circuit affirmed. The court explained that the Properties are “Assets” under the PSA, including section 11.1, even if the Bureau’s withheld consent prevented record title for the Properties from transferring to Sanare. This conclusion is plain from the PSA’s text, which excludes Customary Post-Closing Consents such as the Bureau’s from the category of consent failures that alter the parties’ bargain. Consent failures that do not produce a void-ab-initio transfer also do not alter the parties’ bargain, so the Agreements, too, are Assets under the PSA’s plain text. View "Sanare Energy v. Petroquest" on Justia Law

The Federal Energy Regulatory Commission (“FERC”), anticipating Petitioner Gulfport Energy Corporation’s (“Gulfport”) insolvency, issued four orders purporting to bind the petitioner to continue performing its gas transit contracts even if it rejected them during bankruptcy. Petitioner asked the Fifth Circuit to vacate those orders. The court granted the petitions and vacated the orders holding that FERC cannot countermand a debtor’s bankruptcy-law rights or the bankruptcy court’s powers.   Gulfport attacked attacks FERC’s orders on two fronts. Gulfport first says that FERC lacked authority to issue them. It then contends that the orders are unlawful because they violate the Bankruptcy Code and purport to restrain Gulfport’s bankruptcy-law rights and the powers of the bankruptcy court. The court explained that FERC did have authority to issue the orders. But because the orders rested on an inexplicable misunderstanding of rejection, the court must vacate them all. The court wrote that each order rests on the incorrect premise that rejecting a filed-rate contract in bankruptcy is something more than a breach of contract.   The court further wrote that FERC can decide whether actual modification or abrogation of a filed-rate contract would serve the public interest. It even may do so before a bankruptcy filing. But rejection is just a breach; it does not modify or abrogate the filed rate, which is used to calculate the counterparty’s damage. So FERC cannot prevent rejection. It cannot bind a debtor to continue paying the filed rate after rejection. And it cannot usurp the bankruptcy court’s power to decide Gulfport’s rejection motions. View "Gulfport Energy Corporation v. FERC" on Justia Law

The Fifth Circuit affirmed the bankruptcy court's judgment and held that, under the particular circumstances presented here, Ultra Resources is not subject to a separate public-law obligation to continue performance of its rejected contract, and that 11 U.S.C. 1129(a)(6) did not require the bankruptcy court to seek FERC's approval before it confirmed Ultra Resource's reorganization plan.Applying In re Mirant Corp., 378 F.3d 511 (5th Cir. 2004), the court concluded that the power of the bankruptcy court to authorize rejection of a filed-rate contract does not conflict with the authority given to FERC to regulate rates; rejection is not a collateral attack upon the contract's filed rate because that rate is given full effect when determining the breach of contract damages resulting from the rejection; and in ruling on a rejection motion, bankruptcy courts must consider whether rejection harms the public interest or disrupts the supply of energy, and must weigh those effects against the contract's burden on the bankrupt estate. Because Mirant clearly holds that rejection of a contract is not a collateral attack on the filed rate, the court concluded that FERC does not have the authority to compel continued performance and continued payment of the filed rate after a valid rejection. The court rejected any further arguments to the contrary. View "Federal Energy Regulatory Commission v. Ultra Resources" on Justia Law

The First Circuit affirmed the judgment of the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) Title III court allowing certain expenses incurred by the Puerto Rico Electric Power Authority (PREPA) under a contract entered into with LUMA Energy, LLC and LUMA Energy ServCo, LLC (collectively, LUMA) as entitled to administrative expense priority pursuant to section 503(b)(1)(A) of the Bankruptcy Code, holding that there was no error.In 2017, the Financial Oversight and Management Board for Puerto Rico (FOMB) filed for bankruptcy on behalf of PREPA. In 2020, PREPA entered into a contract with LUMA, a private consortium, to transfer the operations and management of PREPA to LUMA. At issue was whether the Title III court erred in allowing expenses incurred by PREPA under the contract as entitled to administrative expense priority. The First Circuit affirmed, holding (1) section 503(b)(1)(A) applies in Title III cases; (2) the Title III court did not abuse its discretion in applying the requirements of section 503(b)(1)(A); and (3) the Title III court correctly held that 48 U.S.C. 2126(e) prevents it from reviewing challenges to FOMB's certification decision. View "Union de Trabajadores de la Industria Eléctrica y Riego v. Puerto Rico Electric Power Authority" on Justia Law