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Four interesting recent cases on oil and gas issues:

Energy Transfer Fuel v. 660 North Freeway, 2021 WL 1569702

Energy Transfer owns an easement across North Freeway’s property in Fort Worth. The easement provided that the owner “hereby reserves the right to use the land in any manner that will not prevent or interfere with the exercise by [the easement holder] of its rights, privileges and easements hereunder, provided, however, that OWNER shall not construct or permit to be constructed any house, building or structure of any kind whatsoever on the easement.”

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The Texas Supreme Court handed down its opinion in Mitchell v. MAP Resources, Inc., setting aside a default judgment in a tax foreclosure suit granted more than 16 years ago, on the ground that the defendant’s due process rights were violated when she was served by posting notice on the courthouse door.

Mitchell is the result of one of many tax foreclosure cases brought by taxing districts to collect delinquent taxes on royalty interests. In the late 1990s an attorney and two mineral buyers got together and proposed to taxing districts that they would handle tax foreclosure suits for delinquent taxes on royalty interests for them. The tax foreclosure suits named hundreds of defendants in a single suit, who were all served by posting notice of the suit at the courthouse. Texas law allows notice of suit by posting or publication where the plaintiff has tried diligently to locate the defendant and has been unable to do so. The two mineral buyers, Joe Hughes and Duke Edwards, searched the tax records for owners with delinquent taxes, and the lawyer proposed to represent the taxing districts in foreclosing the tax liens on those owners’ interests. The lawyer’s fee was paid out of the proceeds from the sheriff sale of the royalty interests foreclosed on. Hughes and Edwards were hired to try to locate the delinquent royalty owners so they could be served with the tax suit. For those they could not locate, they provided testimony in the foreclosure suit that they diligently looked for the missing owners and were unable to find them, so the court could authorize service by posting. Hughes and Edwards received an “abstractor’s fee” for each “unlocateable” owner for whom they searched, also paid out the proceeds of the sheriff sale. At the sheriff sale, Duke and Edwards bid on and purchased some of the royalty interests sold.

In Mitchell, the lawyer, representing the Pecos-Barstow-Toyah Independent School District, Reeves County Hospital District, and Reeves County, sued some 500 owners of more than 1600 mineral interests totaling tens of thousands of acres in Pecos County, in a single suit to collect delinquent property taxes on those mineral interests. The lawyer later filed an affidavit seeking court permission to serve the defendants by posting on the courthouse door. He swore that the names or residences of the listed defendants were unknown and could not be ascertained after diligent inquiry. For those defendants who had an address listed with the appraisal district, he swore that citation was issued to those defendants at those addresses. The court authorized notice by posting; the notice required the named defendants to answer within 42 days. The court appointed an attorney ad litem to represent the interests of the defendants who were served by posting.

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A great article appears in the March Section Report of the Oil, Gas and Energy Resources Law section report, by Jacqueline Weaver, Professor Emeritus, University of Houston Law Center: “The Railroad Commission’s New Duties to Keep Texans Warm: Winter Storm Uri Forces Change.” Here are some excerpts:

The throughput of dry gas production from Permian Basin processing plants dropped 85% from early February to February 18, [2021] and two-thirds of the gas processing plants in the Permian Basin had outages. The natural gas industry blamed electricity suppliers for cutting off power to them when they most needed it; power generators blamed the gas industry for failing to supply gas to them. Many natural gas providers had not filed a short form with ERCOT, the grid operator for most of Texas, that would have exempted them from electric outages during emergencies. The Railroad commission seemed unaware of this form and exemption process. Clearly, the natural gas and electricity sectors needed to communicate and coordinate more closely. In the ERCOT system, natural gas provides about half of all electricity generation.

According to an FERC-NERC Staff Report on Storm Uri:

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Almost a year ago, a district court in Travis County ruled that the Texas Railroad Commission had violated Texas’ Administrative Procedure Act by issuing a well permit to Magnolia Oil & Gas after informally adopting rules for issuance of permits for allocation wells and “PSA” wells (production-sharing-agreement wells) without complying with the APA. On April 27, the Third Court of Appeals will hear oral argument in the appeal of that ruling by the Commission and Magnolia.

In addition to briefs by the parties, the court of appeals has received briefs from Texas Oil & Gas Association, Pioneer Natural Resources, and American Exploration and Production Council, all in support of the Commission’s appeal, and from Ron Beal, a professor emeritus at Baylor Law School, in support of Appellees.

The case is Railroad Commission of Texas and Magnolia Oil & Gas Operating LLC v. Elsie Opiela and Adrian Opiela, Jr., Case No. 03-21-00258-CV. Briefs can be viewed here. My firm represents the Opielas. You can read my previous post about the case here.

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The Cockrell School of Engineering at the University of Texas in Austin this week issued a report, three years in the making, “Don’t Mess with Texas: Getting the Lone Star State to Net-Zero by 2050.” The study was co-authored by Vibrant Clean Energy and the University of Colorado Boulder. Funding was provided by The Cynthia and George Mitchell Foundation, the Energy Foundation, the meadows Foundation, and the Catena Foundation.

The study focused on four scenarios: Business as Usual, Electrification, Electrification with Accelerated Clean Power, Hydrogen and Carriers, and Extensive Capture. The study analyzed the viability of technologies for each scenario and its impact on carbon emissions, pollutant emissions, energy efficiency, job creation, water use, and land use. Its conclusion:

Achieving net-zero is difficult, but it’s also potentially lucrative; our analysis estimates it could spur economic growth and create jobs. In each scenario, we consider the environmental, economic, and jobs impacts to Texas over the next thirty years in transitioning Texas to net-zero conditions. We compare and discuss each scenario, including BAU, to reveal key policies, technological developments, economic impacts, and environmental trade-offs across the various pathways. These scenarios are neither predictive nor prescriptive. Rather, they are illustrative. A key takeaway is that it is possible for the Lone Star State to achieve a net-zero future, and there are multiple ways of getting there. The actual path Texas takes will likely look different from any of these scenarios, but assessing the trade-offs of different pathways can provide valuable insight for the next steps to take. Scenario conditions that have an outsized influence on future emissions or are present across multiple pathways should be strongly considered in the near term as win-win decisions Texas can make now while future technology development and market conditions continue to unfold. Figure ES-2 summarizes the major impacts from each scenario.

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I first wrote about earthquakes caused by injection wells in 2015. After earthquake events large enough to be felt in the Dallas-Fort Worth area, the Legislature funded a $4.4 million study by UT’s Bureau of Economic Geology to monitor quake activity in areas where disposal wells were active.  Because of quakes in Oklahoma, the Oklahoma Corporation Commission had already begun studying the connection. Up until that time the Railroad Commissioners refused to recognize a connection between quakes and oil and gas production or injection. At a RRC hearing asking XTO to show cause why its activity in Parker County were not being caused by its injection wells, XTO argued that the quakes were natural phenomena not cause by their injection activities despite a study from Southern Methodist University making that connection. Meanwhile, Oklahoma began slashing injection rates near seismic activity in that state. In 2016 the Dallas Morning News published an investigative report, “Seismic Denial? Why Texas Won’t admit Fracking Wastewater is Causing Earthquakes,” in which it said:

Not only has the Texas Railroad Commission consistently denied man-made earthquakes in the face of compelling science, it also worked overtime to protect the oil and gas industry from accountability for its role in an earthquake swarm that rattled Azle and Reno [in North Texas] in late 2013 and early 2014.

In 2017 UT’s BEG went live with its website TexNet, documenting seismic activity in the Texas. Here’s a snapshot for Culberson and Reeves Counties showing quakes since the beginning of 2021 (click on image to enlarge):

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On this day in 1861 Georgia Senator Alexander Stephens gave a speech, known as the Cornerstone Speech, in Savannah Georgia, just after he became the provisional vice president of the Confederacy. Less than a month later the Confederates fired on a federal fort in Charleston Harbor, starting the Civil War.

Here are excerpts from his speech:

The new constitution [of the Confederacy] has put at rest, forever, all the agitating questions relating to our peculiar institution African slavery as it exists amongst us the proper status of the negro in our form of civilization. This was the immediate cause of the late rupture and present revolution. Jefferson in his forecast, had anticipated this, as the “rock upon which the old Union would split.” He was right. What was conjecture with him, is now a realized fact. But whether he fully comprehended the great truth upon which that rock stood and stands, may be doubted. The prevailing ideas entertained by him and most of the leading statesmen at the time of the formation of the old constitution, were that the enslavement of the African was in violation of the laws of nature; that it was wrong in principle, socially, morally, and politically. It was an evil they knew not well how to deal with, but the general opinion of the men of that day was that, somehow or other in the order of Providence, the institution would be evanescent and pass away. This idea, though not incorporated in the constitution, was the prevailing idea at that time. The constitution, it is true, secured every essential guarantee to the institution while it should last, and hence no argument can be justly urged against the constitutional guarantees thus secured, because of the common sentiment of the day. Those ideas, however, were fundamentally wrong. They rested upon the assumption of the equality of races. This was an error. It was a sandy foundation, and the government built upon it fell when the “storm came and the wind blew.”

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Talos Energy announced that it has signed a lease with the Texas General Land Office for more than 40,000 acres offshore to store CO2 captured from industrial sites along the coast. Talos said it is capable of storing up to 275 million metric tons of Co2 and is “the first ever major offshore carbon sequestration site” in the U.S.”

Talos is also planning a CCS site along the Mississippi River with a capacity to store 500 million metric tons of CO2. Talos leased 26,000 acres along the Mississippi for a “carbon sequestration hub” with Storegga Limited and EnLink Midstream, to link with industrial emitters along the Louisiana coast that emit some 80 million metric tons of CO2 per year — with a right of first refusal to lease another 63,000 acres in the area.

Oxy is developing a carbon capture facility in the Permian Basin capable of removing one million tons a year from the atmosphere.

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Foote v. Texcel Exploration, decided by the 11th Court of Appeals in Eastland, provides a lesson to surface owners.

Foote grazed cattle on land in Knox County under a lease with Styles. He put 650 head of cattle on the property, grazing winter wheat.

Texcel operated oil and gas wells on the property. Foote’s agent told Texcel it would be putting cattle on the property. Although the oil and gas lease did not require Texcel to fence its equipment, Texcel had a one-strand electric fence around its equipment. The cattle kept breaking through the fence, and Texcel’s pumper kept putting it back up. Finally, the cattle broke through again and knocked over a pipe coming out of a tank, resulting in an oil spill. The cattle ingested the oil, and 132 head of cattle died.

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Wikipedia defines “lawfare” as “using legal systems and institutions to achieve a goal.” Some use the term to refer to the misuse of legal systems against an enemy, “such as by damaging or delegitimizing them, wasting their time and money, or winning a public relations victory.” The Fort Worth Court of Appeals used the term in an opinion that has caused quite a stir in legal circles.

The Fort Worth Court’s opinion, in City of San Francisco, et al. v. Exxon Mobil Corporation, et al., 2020 WL 3969558, describes a long-ongoing dispute between Exxon Mobil and California municipalities over lawsuits filed against Exxon and other oil companies in California related to climate change. The appeal is from a trial court decision in a suit brought by Exxon against these municipalities and others under Rule 202 of the Texas Rules of Civil Procedure. That rule allows a trial court to authorize a deposition either to perpetuate or obtain testimony for use in a potential suit, or to investigate a potential claim or suit. The defendants have pending claims in California state courts claiming that Exxon’s activities affect climate change and that its public announcements about climate change were intended to downplay its effects, and seeking damages for nuisance and other relief. Exxon’s Texas suit claims that the California lawsuits were brought to silence and delegitimize Exxon “as a political actor” and to coerce Exxon and other Texas-based energy companies into adopting “the climate change policies favored by special interests and their allies in municipal government.” In other words, lawfare. Exxon said it wants to investigate potential claims for violations of Exxon’s First Amendment rights, abuse of process and civil conspiracy.

The defendants moved to dismiss Exxon’s Rule 202 petition on the ground that the court had no personal jurisdiction over them. The suit could not proceed unless the defendants had sufficient contact with Texas to allow Texas courts to exercise personal jurisdiction. The trial court held that Exxon had established facts to show such personal jurisdiction. The Court of Appeals reversed, holding no such jurisdiction existed.

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John McFarland
 Graves, Dougherty, Hearon & Moody, P.C.
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