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In the last century in West Texas, oil and gas exploration in the Permian Basin scarred the landscape. Below is a Google Earth view of an area of Ward County in far West Texas, showing the drilling pads and roads from oil and gas development.

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At the time of this development the surface of this land, dry and semi-desert, was considered relatively worthless, and the impact of oil exploration to the surface of the land was considered a small price to pay for the wealth of oil found under the ground.

Today, landowners have become more ecologically conscious and protective of the natural environment of their lands. Increasingly, oil and gas leases are including provisions requiring restoration of the surface by exploration companies. But restoration of semi-arid lands in West Texas is not a simple task and requires patience and expertise, as well as significant resources.

I recently ran across a series of publications by the University of Wyoming that describes strategies for restoring Wyoming lands disturbed by oil and gas activities. The University has created a Reclamation and Restoration Center in its College of Agriculture and Natural Resources, working with its School of Energy Resources. It has published a series of informative bulletins describing best practices for restoration of severely disturbed lands – how to preserve topsoil, re-establish plant species, and preserve natural habitat.  One bulletin describes considerations for including restoration requirements in oil and gas leases on private lands. The bulletins are online and can be found here. While Wyoming habitat is not the same as West Texas habitat, they have a lot in common.

A resource for landowners wishing to learn more about habitat restoration in South Texas is the Caesar Kleberg Wildlife Research Institute at Texas A&M University in Kingsville, which has experts on native habitat and vegetation.

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Ever heard of the Groningen gas field? Neither had I, until I read a recent article in the New York Times. It is in the Netherlands, and was discovered in 1959. 

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The field is operated by a joint venture of Royal Dutch Shell and Exxon Mobil. Today, the field produces about one-third of all natural gas produced in the European Union.  It produces more gas each year than Russia recently committed to sell to China, and contributes some $16.4 billion a year to the Netherlands’ national government. According to Wikipedia, as of 2009 the field had produced 39.3 trillion cubic feet, 60% of total reserves, and production is expected to last for another 50 years. It is listed as the ninth largest gas field in the world, based on estimated recoverable reserves. For comparison, the EIA estimates total U.S. proved shale gas reserves at about 129 tcf.  Some gas field.

The NYT article reports that earthquakes linked to the depletion of the field have recently been increasing in number and intensity, and the Dutch government has required the operator to reduce production by 20% to see if that will quell the tremors. That will put more pressure on the EU to find alternate gas supplies.

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A jury has awarded damages in a second nuisance case against an operator, this time against Chesapeake Energy.  In Crowder et al. v. Chesapeake Operating Inc., case number 2011-008169-3, in Tarrant County Court at Law, the jury awarded the Crowders $20,000 for what the jury found to be a temporary nuisance – drilling operations conducted by Chesapeake in a field behind their house, where Chesapeake has drilled 13 wells. The Crowders complained of offensive odors and extensive noise. The jury failed to find that Chesapeake’s operations created a permanent nuisance, which would have entitled the Crowders to additional damages. The Crowders filed their suit in 2011.

While the jury award in Crowder will not excite plaintiffs’ attorneys to look for additional such cases — unlike the $2.9 million verdict recently awarded in another case, Lisa Parr v. Aruba Petroleum, Cause No. 11-01650-E, in the County Court at Law No. 5 of Dallas County — the case does show the viability of nuisance claims aimed at oil and gas operations near residences, especially in urban areas.

The Dallas city council recently adopted a drilling ordinance prohibiting well locations within 1,500 feet of any residence, effectively prohibiting most drilling within the city limits. The setback in Fort Worth is 600 feet. There are more than 1,700 wells in the City of Fort Worth.

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Here are two emerging technologies that could change how we might use natural gas to fuel our cars and electrify our homes and offices.

A company called Redox Power Systems is building a plant in Florida to produce The Cube, a dishwasher-sized system that generates electricity from natural gas using electro-chemical fuel cell technology. 

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With almost no moving parts, The Cube can provide enough electricity to power a gas station or a small grocery store. It also generates heat that can be used to heat a home or business. It’s technology was developed at the University of Maryland. The system also emits carbon dioxide, but according to a review by MIT, its emissions should be lower than those associated with power from the grid. Redox plans to complete a 25-kilowatt prototype and start selling complete systems by the end of this year.

A company named Siluria Technologies is making low-carbon gasoline from natural gas using a catalyst grown from a genetically modified virus. Siluria claims that its gasoline carries half the carbon footprint of gasoline refined from oil, and that it can produce gasoline for about $15 a barrel, not counting the price of the natural gas consumed.  According to Sliuria’s website: “At commercial scale, Siluria’s process will enable refiners and fuel manufacturers to produce transportation fuels that cost considerably less than today’s petroleum-based fuels, while reducing overall emissions, NOx, sulfur and particulate matter. Fuels made with Siluria’s processes are also compatible with existing vehicles, pipelines and other infrastructure and can be integrated into global supply chains.”

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Recently my son was watching the movie “Holes,” a great adventure movie based on a book by the same name written by Louis Sacher in 1988. Sacher also wrote the screenplay for the movie, which came out in 2003. In the story, Stanley Yelnats IV, a teenager, is sent to Camp Green Lake, a juvenile detention camp, for stealing a pair of sneakers. Green Lake was a dried-up lakebed in Texas where the camp detainees were forced by the evil warden (played by Sigourney Weaver) to dig holes looking for a buried treasure. It’s a great growing-up story. 

Camp Green Lake.JPG

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The movie reminded me that Green Lake is a real place in Texas that has its own fascinating legal history.

Green Lake is the largest natural fresh-water lake in Texas. Located in Calhoun County near the coast, it covers an acre of about 10,000 acres.

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Historically, the lake was filled by overflow from the Guadalupe River, and the lake sometimes dried up during times of drought. Its average depth when full is about 4 feet.

Before the Civil War the area was settled by ranchers and cotton farmers and grants were made of the surrounding land. A small settlement, Green Lake, was established near the lake.

Sometime before 1917, the landowners surrounding Green Lake sued the State of Texas contending that their surrounding grants extended to the center of the lake, and that the State did not own title to the bed of the lake. 

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In 1917, the Austin Court of Appeals held that the bed of the lake belonged to the State. Welder v. State, 196 S.W. 868 (1917).  “Under the law as it now exists in this state, Green Lake cannot be sold …, but is under the jurisdiction of the game, fish, and oyster commissioner….”

In 1913, while Welder v. State was pending, Elmer Yates made application to the Texas General Land Office to buy the bed of Green Lake. In 1918, after the Welder case was decided, the Land Commissioner, James Robison, sold the bed of the lake to Yates. His decision was apparently based on evidence presented by Yates that the lake wasn’t really a lake. 

In the 1940’s, Price Daniel, then Texas’ Attorney General (and later Governor and Supreme Court Justice), sued the successors to Yates to recover the State’s title to the bed of Green Lake, arguing that the Land Commissioner had no authority to sell it in 1918. In Texas at the time, the Land Commissioner had authority to sell state land only if it was dedicated to the Public School Fund; Daniel argued that under Texas law the beds of lakes and rivers are not Public School Lands and not subject to sale. In State v. Bryan, 210 S.W.2d 455 (1948), the Austin Court of Appeals upheld the sale.  Its decision was based on a statute that provided that, if a sale was made by the state “under color of law,” it could not be challenged unless suit was brought within one year from the date of the sale. The court concluded that the Land Commissioner’s sale was “under color of law” because there was evidence considered by the commissioner that the lake was in fact dry most of the time. Yates submitted evidence that the bed of the lake was “bone dry” in 1895 and again in 1900, and that between 1900 and 1912 it was sometimes flooded and sometimes dry, and was “completely dry” between 1917 and 1918. “There certainly was a fact question at least as to whether the area was the bed of a navigable [lake], a non-navigable lake, or merely overflow land. Even under the factual situation detailed in the Welder opinion, the conclusion therefrom that the lake was navigable was, to say the least, questionable.”

So two courts ruled on the legal status of the lake, one holding that it was a lake and the other that it was not. Here’s a photo of Green Lake today from Google Earth:

Green Lake Google Earth.JPG

 

But wait, there’s more.

In 1988, the Texas Supreme Court decided the case of Indianola Company v. Texas Water Commission, 749 S.W.2d 771 (Tex. 1988). In that case, the then owner of the lands that were the bed of the area called Green Lake (that wasn’t really a lake) sued to determine who owns the water in the lake. In Texas, the State owns all waters in lakes and rivers, but “storm water, floodwater, and rainwater of a depression” can be captured and owned by private landowners. “We agree that Green lake is a ‘lake’, and thus public water under Tex. Water Code section 11.021,” declared the court.

Thus far, I have found no opinion determining legal title to the treasure that Stanley Yelnats IV found in the bed of the lake. For that, you’ll have to watch the movie.

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The Texas Supreme Court has granted the plaintiffs’ petition to review a case important for Texas mineral owners, Hooks v. Samson Lone Star. I wrote about this case when it was decided by the Houston First Court of Appeals in 2011. The court of appeals’ opinion reversed a judgment for $21 million against Samson Lone Star in a case involving alleged bad-faith pooling and fraudulent misrepresentations by the Hooks’ lessee. The court of appeals threw out the judgment, holding that Texas Supreme Court precedent required it to hold that the Hooks’ claims were barred by the applicable statute of limitations.

The statute of limitations bars claims if they are not filed within four years (or two years for some claims) of the event that caused the damages or injury for which the claim is brought. In some cases, courts have excused the delay in filing claims if the damage or injury was not discovered until a later date. Under this “discovery rule,” the statute of limitation is “tolled” until the plaintiff discovered or, with reasonable diligence, should have discovered, her injury. Also, courts have held that the statute of limitations is tolled where the defendant fraudulently conceals the facts giving rise to the damage or injury.

Over the last several years, the Supreme Court has severely narrowed the circumstances under which plaintiffs can invoke the discovery rule or claim fraudulent concealment to toll limitations on a claim, particularly in suits by mineral owners against their lessees. In Exxon v. Emerald in 2009, the Supreme Court reversed an $18 million judgment against Exxon on the basis that the mineral owners’ claims were barred by limitations — despite an express finding by the jury that the plaintiffs had filed their claim within four years after they discovered or should have discovered Exxon’s fraudulent conduct. In 2011, the Supreme Court in BP v. Marshall overruled a jury verdict in favor of royalty owners, holding that their claim was barred by limitations as a matter of law even though the jury had found that the lessee had fraudulently concealed the facts and that the plaintiffs had no reason to discover the true facts until less than two years prior to filing suit.

One justice on the Houston First Court of Appeals wrote a concurring opinion that may have influenced the Supreme Court to take the case, which bears repeating here:

It is undisputed that Samson drilled a directional well bottomed within the “buffer zone” established in the Hooks’ Jefferson County Lease (the “Lease”) and failed to elect between the three alternatives outlined in the Lease, thus exposing itself to liability for breach of contract. If the Lease had allowed pooling, Samson could have solved the problem by pooling the lands covered by the Lease with the adjacent lands. The Lease, however, did not allow pooling.

Samson’s solution to this problem was to begin misrepresenting various “facts” to escape the consequences of its actions. Its landman, Lanoue, filed papers with the Railroad Commission falsely certifying that Samson had pooling authority from the Hooks. He later filed paperwork in the county’s real property records falsely indicating that the Hooks had already agreed to pool. Lanoue then sent a letter to the Hooks asking them to agree to pool the westernmost 50 acres of the Hooks’ acreage in the Lease into the BSM 1 Unit. When Charles Hooks called Lanoue and asked for more information about the well’s location, Lanoue represented to Hooks that the well was located approximately 1500 feet from the lease line, a location outside the buffer zone. When Charles Hooks asked for a plat, Lanoue faxed him one that represented a bottom-hole location that was +/- 1400 feet from the lease line, the accuracy of which he, Lanoue, had certified with no reference to an actual bottom-hole location, although it was ascertainable from a prior directional survey. Instead, when asked the origin of those measurements, he answered: “I got them from myself.” On this basis the Hooks agreed to the formation of the unit.

Thus it is clear that Samson, through its representative, took action to cover up its own error by both oral and written misrepresentations to its lessor, born of “assuming” and “hoping.” It is further clear that the Hooks, after asking for and receiving verification of Lanoue’s oral representation in the form of a plat, believed its lessee’s representations and made no attempt to go beyond them to discover the truth or falsity thereof. On these facts, the majority has found that the discovery rule does not apply to the Hooks’ fraud, fraudulent inducement, and statutory fraud claims and that they are barred by limitations as a matter of law.

I reluctantly concur, based on the Texas Supreme Court’s holding in BP America Production Co. v. Marshall, 342 S.W.3d 59 (Tex. 2011). In that case, the Texas Supreme Court makes clear that no lies on the part of a lessee, however self-serving and egregious, are sufficient to toll limitations, as long as it is technically possible for the lessor to have discovered the lie by resort to the Railroad Commission records. This burden the Court imposes upon lessors is severe. It is now a lessor’s duty to presume that any statement made by its lessee is false and to ransack the esoteric and oft-changing records at the Railroad Commission to discover the truth or falsity of its lessee’s statements. If, as is often the case, these records are technical in nature and require expert review to ferret out the truth, it is the lessor’s job to hire experts out of its own pocket to perform such a review. If a lessor fails to take these steps, then it will have failed in exercising reasonable diligence to protect its mineral interests and, if the lessee’s fraud is successful for longer than the limitations period, the lessor’s claims will be barred by limitations.

Such is the case here. Had the Hooks presumed that Samson’s oral representations, followed by written representations, about the bottom-hole location of the well were false, and had they hired an expert to resort to Railroad Commission records to trace the various filings (some of which were also false), that expert could have hit upon the directional survey and, by virtue of his expertise, interpreted it to prove the falsity of the representations. Instead they merely relied on the oral and written representations of their lessee, without undergoing what doubtless seemed to them the useless expense of hiring an expert to rake through the Railroad Commission records with an eye towards exposing a potential falsehood.

I believe the Texas Supreme Court has placed an unnecessary and very heavy burden on lessors by its ruling in BP America, one that will result either in much money being spent unnecessarily on prophylactic forensic review of Railroad Commission records or in many viable claims being lost to limitations. As we are, however, bound to follow the Court’s rulings, I reluctantly concur in that part of the opinion that finds the Hooks’ fraud, fraudulent inducement, and statutory fraud claims barred by limitations as a matter of law.

Amicus briefs supporting Samson Lone Star were filed by the Independent Petroleum Association of America, the Texas Alliance of Energy Producers, and the Texas Oil & Gas Association. Amicus briefs supporting the Hooks’ application were filed by the Texas Land & Mineral Owners’ Association and by Cardwell, Hart & Bennett, a law firm that regularly represents landowners in oil and gas cases. Links to the briefs of all parties and amici can be found here. The court has not yet set a date for oral argument.

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There’s lots of buzz about a recent verdict in a case filed by a landowner in Dallas County alleging injuries from air emissions from drilling and production of Barnett Shale wells in Wise County. The case is Lisa Parr v. Aruba Petroleum, Cause No. 11-01650-E, in the County Court at Law No. 5 of Dallas County. The jury returned a verdict for personal injury and property damages of $2.9 million. According to the petition (Parr – 11th Amended Petition.pdf), Aruba had 22 wells within two miles of the Parrs’ 40 acres, including one within 800 feet.

CNN quotes the plaintiff, Lisa Parr, as saying that says she’s not opposed to the work oil companies do. She simply wants them to do their business responsibly.

“We are not anti-fracking or anti-drilling. My goodness, we live in Texas. Keep it in the pipes, and if you have a leak or spill, report it and be respectful to your neighbors. If you are going to put this stuff in close proximity to homes, be respectful and careful.”

Here is a chart of pending cases related to hydraulic fracturing done last year by Arnold and Porter:  http://www.arnoldporter.com/resources/documents/Hydraulic%20Fracturing%20Case%20Chart.pdf 

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Emissions of methane from oil and gas exploration, production and transportation facilities have become a big topic in the news recently. The E&P industry touts natural gas as a more environmentally friendly fuel than coal for electric generation, reducing greenhouse gas emissions. But methane is a powerful greenhouse gas, and there is much debate over the amount of fugitive emissions from wells, pipelines, processing facilities and other industries handling the fuel.

  • The UN Intergovernmental Panel on Climate Change has endorsed natural gas as a “bridge fuel” to reduce greenhouse gases.
  • The EPA has issued estimates of methane fugitive emissions that have been criticized as low by environmental groups.
  • The Obama Administration has recently outlined a new strategy for reducing methane emissions.
  • Colorado has recently adopted regulations to require operators to reduce and capture fugitive emissions and monitor for leaks.

Emissions from oil and gas exploration and production also are being blamed for increased ozone readings in shale-boom areas in Wyoming and Texas. In Texas, a state-funded study by the Alamo Area Council of Governments is underway to determine whether drilling in the Eagle Ford is contributing to increased ozone readings in San Antonio. San Antonio may soon be cited by the EPA as a nonattainment area for ozone, which would require the city to impose additional air quality regulations. Recently, the Texas Commission on Environmental Quality, which is funding the study, froze increased funding because the Alamo Council issued a statement tying increased ozone levels around San Antonio to Eagle Ford drilling without getting clearance from the TCEQ. 

San Antonio’s problems are reminiscent of a debate a few years ago over whether oil and gas exploration in the Barnett Shale was contributing to air pollution in the Dallas-Fort Worth area. The TCEQ has concluded that Barnett Shale drilling has had no significant impact on local ozone levels.  But a recent study by a graduate student at the University of North Texas concluded that ozone is higher in areas with drilling activity in the Barnett Shale.

I expect that the Texas Railroad Commission and the TCEQ will come under increased pressure to tighten rules for fugitive emissions of methane from oil and gas activities in Texas.

 

 

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The Ohio Department of Natural Resources has imposed rules on exploration companies requiring seismic monitoring around new well sites near fault lines and quake epicenters in the Utica Shale.  According to the Columbus Dispatch, the rules require monitors at new drill sites located within 3 miles of known fault lines or areas that have experienced an earthquake greater than magnitude 2.0. Monitors cost about $20,000 each, and as many as five are needed at each well. “ODNR officials said if monitors at drilling sites detect even a magnitude 1.0 quake, fracking will immediately stop and an investigation will start. If fracking is blamed, a moratorium would be instituted 3 miles around the epicenter,” according to the article. Earlier earthquake activity near Youngstown, Ohio was attributed to an injection well, which was shut down by Ohio DNR.

Earthquakes in Oklahoma and North Texas in the Barnett Shale, and more recently in the Eagle Ford in South Texas, have been linked to injection wells, but not to hydraulic fracturing. The Texas Railroad Commission has hired a seismologist to study the matter but has not imposed any new regulations on injection wells.

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I ran across this article from the Miami Herald: “Colorado’s new drilling rules seen as making an impact in Texas.” Colorado recently adopted tough air emissions rules applicable to the oil and gas exploration, production and transportation industries, intended to reduce emissions of methane. Those rules were adopted in collaboration with oil companies active in Colorado, and were supported by Anadarko, DCP Midstream, EnCana, and Noble Energy.  According to the article, several companies have approached the Environmental Defense Fund expressing interest in getting Colorado’s rules adopted in Texas. Jim Marston, VP at EDF, said that “The companies are often ahead of the Texas state government” on environmental issues.

Texas regulators often tout Texas as the nation’s leader in oil and gas regulation. Recently, the Texas Railroad Commission, which regulates oil and gas in Texas, has been having to play catch-up. It only recently hired a seismologist to study seismic activity caused by wastewater injection and has not yet agreed that injection is a cause or earthquakes near injection wells. Last year, the RRC adopted tougher casing regulations in response to concerns about possible groundwater contamination from drilling and completion operations. The Texas Commission on Environmental Quality, the agency that regulates air emissions, has increased its monitoring of air emissions from oil and gas operations, particularly in the Barnett Shale, in response to complaints and concerns raised in and around Fort Worth.

Colorado’s new rules are an effort to significantly reduce methane emissions from oil and gas facilities by requiring better emissions controls, better detection and faster fixing of leaks. Methane is a powerful greenhouse gas, and capturing fugitive emissions of methane also saves money for the companies and their royalty owners. EDF recently commissioned a study by ICF International to quantify the cost and savings of reducing methane emissions. The study found that industry could cut methane emissions by 40 percent below projected 2018 levels at an average annual cost of less than one cent per mcf of produced natural gas by adopting available emissions-control technologies and better leak-detection practices. The practices would have the additional benefit of reducing emissions of volatile organic compounds and other hazardous air pollutants.

Texas’ regulation of air emissions from the oil and gas sector were recently criticized by a University of Texas researcher and faculty member, Rachael Rawlins, who recently published an article in the Virginia Environmental Law Journal concluding that state and federal regulatory programs don’t effectively measure or regulate emissions from oil and gas facilities in urban areas. Rawlins’ conclusions are based on a comprehensive review of air quality monitoring and health-effect studies in the Barnett Shale. Rawlins concludes that “Texas’ reactive and ultimately inadequate effort to respond to citizen concerns on the Barnett Shale reflects a continuing need for across-the-board improvement in monitoring, health-based assessment and public communication.” See UT’s summary of the article here. As drilling has increased in the Eagle Ford in South Texas, complaints of health affects from air emissions have increased. According to a study by the Center for Public Integrity, the Weather Channel and Inside Climate News, “Big Oil, Bad Air,” there are only five permanent air monitors in the 20,000-mile Eagle Ford Shale region. That report was heavily criticized by David Porter, a RRC commissioner, and by the industry website Energy In Depth.

 

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