Oil and Gas Lawyer Blog

Published on: May 26, 2020

Bush v. Lone Oak Club – Texas Supreme Court Once Again Dives Into the Arcane Law of Water Boundaries

Lone Oak Club, a hunting and fishing club, owns a tract of land in Galveston County near Galveston Bay, through which runs Lone Oak Bayou:

Members of the public boat up into Lone Oak Bayou and sometimes wade and fish or hunt in its shallow waters. Lone Oak complained about this activity and asserted that it owns the bed of Lone Oak Bayou and that members are trespassing when they set foot on the bayou’s bed. The Club agrees that the public has the right to boat on the public waters of the bayou, but when the fisherman or hunter steps out of his boat, they claimed trespass. The Texas General Land Office disagreed. It said the State owns the bed of Lone Oak Bayou adjacent to the Club’s land because the bayou is influenced by tides from the bay and is below the line of mean high tide, and the State owns all submerged lands within tidewater limits. So the Club sued George P. Bush, Commissioner of the Land Office, to establish its title to the bed of the bayou within the boundaries of its 160 acres.

Nature sometimes does not cooperate with the laws created by humans to establish the boundary between the land and water. In Texas especially these laws, mostly created by courts, can sometimes be confusing and complex. Water boundaries shift with the rise and fall of tides, erosion and evulsion, and changes in watercourses. I learned this when I was asked, in my first year of law practice many years ago, to summarize Texas laws regarding land boundaries and rights of public access for a client who owned land along the coast. Continue reading →

Published on: May 18, 2020

Texas Supreme Court Weighs In On Application of Rule Against Perpetuities to Overriding Royalty Reservations

By John McFarland

Last week the Texas Supreme Court issued its opinion in Yowell v. Granite Operating Company, No. 18-0841, again grappling with the ancient Rule Against Perpetuities in the context of modern oil and gas transactions–the second time in two years in which the court tackled the inscrutable “Rule.”

The facts (simplified): The Yowells own an overriding royalty on production from a 1986 oil and gas lease. Upland Resources owned the lease. In May 2007, Amarillo Production Company took a top lease on the same land as the 1986 lease, and three months later it sued Upland, contending that the 1986 lease had expired. The parties settled: Upland’s 1986 lease wass terminated, Amarillo Production’s 2007 lease became effective.

The overriding royalty owned by the Yowells was created in an assignment of the 1986 lease that contains the following language, known as an “anti-washout clause”:

Should the Subject Leases … terminate and in the event Assignee obtains an extension, renewal or new lease or leases covering or affecting all or part of the mineral interest covered and affected by said lease or leases, then the overriding royalty interest reserved herein shall attach to said extension, renewal or new lease or leases; and an appropriate recordable instrument shall be executed to evidence Assignor’s overriding royalty interest therein. Further, any subsequent extension or renewal or new lease or leases shall contain a provision whereby such overriding royalty shall apply and attach to any subsequent extensions or renewal of Subject Leases.

The successors to Upland, Granite Oil and Apache, refused to recognize the Yowells’ continued overriding royalty in the 2007 lease, contending that the grant of an override in “future leases” violates the Rule Against Perpetuities. Continue reading →

Published on: May 14, 2020

Solar, Wind, Oil and Coal

By John McFarland

US oil production fell by 300,000 bbls/day last week to 11.6 million bbls/day. US oil production peaked earlier this year at 13.1 million bbls/day–decline from that peak is more than 11%. Expect more decline to come.

Crude stockpiles declined last week by 700,000 bbls. Gasoline inventories fell by 3.5 million bbls. The Energy Information Administration estimates that global petroleum and liquid fuels consumption declined by 5.8 million bbls/day in the first quarter from the same period in 2019.

EIA projects that renewable power sources will generate more electricity this year than coal for the first time on record. It estimates that generation from coal will decline by 25% this year.

Continue reading →

Published on: May 8, 2020

Texas’ “Competitive” Retail Electricity Market

By John McFarland

Great story in Houston Chronicle. Power companies were deregulated by the Legislature to create a competitive market for retail electricity, except for some municipally owned utilities like those in Austin and San Antonio. Turns out consumers in Austin and San Antonio have the better deal. Power companies do their best to confuse consumers into signing up for higher-cost plans, and they don’t want anyone to mess with their system–and the Public Utility Commission has declined to get involved.

Reporter L.M. Sixel writes:

The maddening experience of shopping for electricity has spawned a group of concierge websites that say they find the lowest-price plans and move their customers when better deals appear.

Continue reading →

Published on: May 7, 2020

The State of Crude Oil Inventory

By John McFarland

The Wall Street Journal today published some excellent graphs illustrating the glut in world and US oil inventories. Click on images to enlarge. Article is here.

Published on: May 4, 2020

Sitton Drops Motion to Prorate

By John McFarland

Texas Railroad Commissioner Ryan Sitton announced today that he would withdraw his motion to prorate Texas oil production prior to the Commission hearing tomorrow, saying “proration is now dead.” Commissioner Christian had previously announced his opposition; Commissioner Craddick is evidently also opposed.

Published on: April 30, 2020

Texas Railroad Commission: Commissioner Sitton’s proposed proration order to be considered May 5; Commissioner Christian opposed

By John McFarland

Commissioner Ryan Sitton has published his proposed conditional order imposing proration on oil production in Texas, to be considered at the Commission’s hearing on May 5.

Commissioner Wayne Christian, in an op ed in the Houston Chronicle, has come out against the proposal.

Sitton’s proposed order is attached to the Commission’s May 5 hearing agenda. His proposal follows the recommendation he described at the Commission’s prior open meeting on April 14. The Commission received 888 comments prior to that meeting, and more than 50 individuals presented live comments during the meeting.

Continue reading →

Published on: April 21, 2020

Proration at the Railroad Commission: Sitton’s motion to conditionally order Texas operators to reduce their oil production by 20% is tabled.

By John McFarland

The Texas Railroad Commission at open meeting today considered Pioneer and Parsley’s petition asking the Commission to institute oil proration. Commissioner Sitton moved to institute proration, conditioned on other states and countries committing to a total of 4 mm bbls/day additional reduction in oil production by June 1. Sitton’s motion provided that each Texas operator would be required to reduce its production by 20% effective June 1, amounting to 1 mm bbls/day of Texas production, but exempting operators producing less than 1,000 bbls/day. Sitton got no second on the motion.

Commissioner Christian announced he has appointed a blue-ribbon panel to study the issue. He named only associations – TxOGA, TIPRO, Panhandle PRA,O and Permian Basin PA, and Pipeline Association — and not individuals, to be on that panel.

Commissioner Craddick said she wanted staff to present “all options” for how to institute proration and wanted guidance from the Texas Attorney General as to what was legal before taking any action, commenting that any action by the Commission is bound to end up in litigation.

Continue reading →

Published on: April 15, 2020

To Prorate or Not to Prorate?

By John McFarland

The Texas Railroad Commission heard comments yesterday in a virtual open meeting on the proposal from Pioneer and Parsley that the Commission re-institute proration of Texas oil wells in response to the drastic reduction of world oil demand. Unsurprisingly, those providing comments did not agree.

In general, the division was between majors and independents – though not totally.

Marathon, Ovintiv, and Diamondback opposed proration, as did TxOGA, Texas Alliance of Energy Producers, the American Petroleum Institute, Texas Pipeline Association, Plains All American Pipeline, and Enterprise Products Partners. Parsley and Pioneer testified in favor of proration, as did Latigo Petroleum, Discovery Operating, Elevation Resources, and former Railroad Commissioner and Congressman Kent Hance. Surprisingly, Quantum Energy, a major independent, testified in favor. In addition, the following provided written comments in favor of proration: Continental Resources, CrownQuest, Hibernia Resources, Texas American Resources, the Panhandle Producers and Royalty Owners Association, and Permian Basin Petroleum Association. Those submitting written comments opposing proration included Chevron, Cimarex, Concho, ConocoPhillips, EOG, Occidental, TXO, and former Commissioner Michael Williams. Written comments can be viewed on the Commission website, here.

Arguments against proration included: Continue reading →

Published on: April 13, 2020

Two New Studies from UT Austin on Shale Waste Water

By John McFarland

Two studies by University of Texas’ Jackson School of Geosciences analyzed data on water use in eight major US shale plays from 2009 to 2017. The first study, published in Environmental Science and Technology, quantifies how much water is produced from wells and how much is need for hydraulic fracturing. The second, published in Science of the total Environment, assesses the potential for using produced water in other sectors, including agriculture. UT’s announcement and summary of the studies can be found here. The announcement includes this:

Oil plays produced much more water than natural gas plays, with the Permian Basin producing about 50 times as much water as the Marcellus in 2017. As far as recycling potential for hydraulic fracturing, the research shows that in many cases there’s plenty of water that could be put to good use. For instance, in the Delaware Basin, which is part of the larger Permian Basin in Texas, scientists found that projected produced water volumes will be almost four times as great as the amount of water required for hydraulic fracturing.

Managing this produced water will pose a significant challenge in the Delaware, which accounts for about 50% of the country’s projected oil production. Although the water could theoretically be used by other sectors, such as agriculture in arid West Texas, scientists said water quality issues and the cost to treat the briny water could be hurdles. In addition, if the water is highly treated to remove all the solids, large volumes of salt would be generated. The salt from the produced water in the Delaware Basin in 2017 alone could fill up to 3,000 Olympic swimming pools.

Continue reading →