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The cover story in The Economist this week is titled “Crude awakening – The truth about Big Oil and climate change.”  It comes in the wake of the introduction by a group of new Democratic Congress members of a proposed “Green New Deal” to tackle climate change.

When I began my career some forty years ago the effect of carbon emissions on the earth’s climate was not a matter of concern. The focus was on cleaning up our water and air – under the Clean Water Act and the Clean Air Act. And those acts have had a big impact on our environment. Although burning fossil fuels contributed to air pollution and pollution from fossil fuels has been greatly reduced, the emissions regulated and reduced did not include carbon dioxide, which was not considered harmful to the environment. Remember catalytic converters? They have greatly reduced emissions of harmful chemicals, but not CO2.

The world has now come to the realization that climate change is real. A poll by Yale University late last year found that 73% of Americans agree. Extreme climate events in recent years have contributed to that change of opinion.

Yet the world’s dependence on fossil fuels is not receding. World demand for oil continues to grow by about 1-2% a year. CO2 emissions in the US, the second-largest polluter on the planet, are now rising again. ExxonMobil  says that global oil and gas demand will increase by 13% by 2030. It intends to spend more than $200 billion over the next seven years to develop its reserves. Continue reading →

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The big guys are moving into the Permian Basin.

Chevron, which owns substantial fee minerals in the Permian, saw its profits jump 19 percent in the fourth quarter, increasing its oil production 71 percent in the Permian to 310,000 bbls/day.  Chevron’s completions in 2018:

Chevron-Completions
In its DR State Wise Unit in Culberson County, Chevron has completed or is drilling seven two-mile laterals.

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Tiffany Dowell, author of the Texas Agriculture Law Blog at Texas A&M, gave me permission to re-publish her excellent article on what landowners should consider when a pipeline company asks permission to survey. Here is her article. The only thing I would add is that the landowner should find out the tentative proposed route, and if it is not acceptable, try to negotiate an alternate route before the surveyors begin their work.

Thanks to Tiffany. You might want to subscribe to her blog.

Question:  If a company with eminent domain power has contacted me about obtaining an easement across my property and now wants access to survey, can I keep them off of my land?

survey-1-e1545162613218-768x1024

Answer:  No.

In Texas, courts have held that by granting condemning entities the right to condemn land, this includes the right to enter onto the property to conduct surveys to select lands to be acquired.  Of course, this means that surveys may be conducted prior to the property actually being condemned. “Ancillary to the power of eminent domain is the authority to enter upon the land to make a preliminary survey.”  I.P. Farms v. Exxon Pipeline Co., 646 S.W.2d 544 (Tex. Ct. App. – Houston (1st Dist.) 1982).  Courts have issued injunctions against landowners attempting to interfere with this right.

There is a line of court cases that limit this right to visual inspections and lineal surveys only, refusing to allow more invasive procedures like core drilling or subsurface soil testing.  See Coastal Marine Serv. v. City of Port Neches, 11 S.W.3d 509 (Tex. Ct. App. – Beaumont 2000).

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I ran across an excellent article, “A Primer on the Geopolitics of Oil,” by Anand Toprani, assistant professor of Strategy & Policy at the U.S. Naval War College. He has a book in the works, Oil and the Great Powers: Britain and Germany, 1914-1945.

Oil has been a commodity different from all others in world politics since it became the principal source of energy in the early 20th century. And it will remain so as long as the world is dependent on hydrocarbons for its energy needs. Toprani’s article reminds us how oil supply, demand and price affect our relations with other nations as well as our environment and our personal lives.

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The Energy Information Administration appears to be at work during the government shutdown. Yesterday it released its regularly scheduled weekly reports.  Among them:

Crude-Futures-EIAYou can sign up for an email from EIA to receive a link to all of its reports at https://www.eia.gov/tools/emailupdates/?src=email .

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Morningstar has published a report analyzing oil pipeline and refining capacities along the Texas Gulf Coast – “Pipeline Plans Suggest Tsunami of Crude Exports – Midstream companies looking to double Gulf Coast shipments.”  pipeline-plans-suggest-tsunami-of-crude-exports-FINAL  If all planned pipelines are built and run to capacity, new lines “would carry as much as 7.7 mmb/d of new crude to the Gulf Coast, the majority of which would be light shale crude looking for a home in the export market.”

MorningstarThe result:  a fourfold increase in crude exports to more than 8 mmb/d after 2021.  Morningstar concludes:

Fortunately, current production forecasts don’t match the volume of pipeline projects, and crude growth over the next three years is likely to be closer to 3 mmb/d. The mismatch suggests an infrastructure overbuild is underway in the short term, and we expect consolidation of many of these projects before they’re built. Yet the history of shale expansion has taught us that the most optimistic forecasts frequently appear in the rearview mirror.

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Last April the Texas Supreme Court issued its opinion in Endeavor Energy Resources, L.P. et al. v. Discovery Operating, Inc., et al., No. 16-0155, construing a retained acreage clause in an oil and gas lease.  I commented that the opinion commented in dicta that, even if a lease allows the lessee to retain “tolerance acreage” as allowed by applicable field rules, the operator must “verify that additional acreage is actually necessary or required to achieve the maximum allowable,” quoting from a 2015 CLE paper by Phillip C. Mani.  On rehearing, the Court revised the language I quoted, so that it now reads as follows (click to enlarge):

https://www.oilandgaslawyerblog.com/files/2018/12/Endeavor-v.-Discovery.pngSo the court watered down its language somewhat.  The issue nevertheless remains an open one.

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Wade Caldwell, San Antonio attorney and President of NARO-Texas, published the article below in the recent NARO newsletter. He has kindly allowed me to republish it here.

And Happy New Year.

The Take Away

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In Murray v. BEJ Minerals, LLC, No. 1:14-cv-00106-SPW, a panel of the US 9th Circuit Court of Appeals ruled on a fight over fossils of two “dueling dinosaurs”, a 22-foot-long theropod and a 28-foot-long ceratopsian, “engaged in mortal combat” when “entombed under a pile of sandstone.”

Dueling-dinosaurs

The surface owner and mineral owners then became involved in a fight over the ownership of these fossils, as well as several other fossils (including a nearly intact Tyrannosaurus Rex skeleton) found on the property. Pointing out that “oil, gas and coal all derive from the remains of plants and animals,” the mineral owner argued that the fossils are “minerals.” The court agreed with the mineral owner, citing a Montana Supreme Court case, Farley v. Booth Brothers Land & Livestock Co.,, 890 P. 2d 377, 379 (Mont. 1995), which in turn adopted a definition from a Texas Supreme Court Case, Heinatz v. Allen, 217 S.W.2d 994  (Tex. 1949):

[S]ubstances such as sand, gravel and limestone are not minerals within the ordinary and natural meaning of the word unless they are rare and exceptional in character or possess a peculiar property giving them special value, as for example sand that is valuable for making glass and limestone of such quality that it may be profitably manufactured into cement. Such substances, when they are useful only for building and road-making purposes, are not regarded as minerals in the ordinary and generally accepted meaning of the word.

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Contact Information
John McFarland
 Graves, Dougherty, Hearon & Moody, P.C.
401 Congress Avenue, Suite 2700
Austin, Texas 78701
Phone: 512-480-5618
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