My blog has been nominated in The Expert Institute’s 2018 Best Legal Blog Contest! I’m in the category “Niche & Specialty.” And I have one vote already! So vote early and often.
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Seeligson v. Devon – Plaintiffs (Almost) Get Class Certification
The U.S. Court of Appeals for the Fifth Circuit recently handed down its opinion in Seeligson v. Devon Energy Production Co., Cause No. 17-10320. The case is an appeal from a decision in the District Court for the Northern District of Texas certifying a class of royalty owners to sue Devon for breach of the duty to market gas produced under the royalty owners’ leases. The Fifth Circuit affirmed all but one of the trial court’s findings on the appropriateness of allowing the class action to proceed.
The question of whether class actions are appropriate in federal courts are governed by federal rules and cases, but the class certification rules are very similar to those applied by Texas state courts. Although class actions are common in other contexts, such as suits by shareholders against their companies, they have not generally been successful in suits by royalty owners. The barriers created by the requirements to certify a class have usually been too great.
In Seeligson v. Devon, the plaintiffs claim that Devon breached its implied duty to market their gas. Devon’s wells in the Barnett Shale field are connected to a gathering system called the Bridgeport System, owned by an affiliate of Devon called Devon Gas Services. The gas is gathered and transported to the Bridgeport Gas Processing Plant, owned and operated by Devon Gas Services. Under a contract between Devon Energy and Devon Gas Services, Devon Gas Services takes delivery of the gas at the well and runs it through the plant, which separates the dry gas from the natural gas liquids and sells the dry gas and NGLs separately. Under the contract, Devon Gas Services pays Devon Energy 82.5% of a published industry index price for the dry gas and NGLs. Devon Gas Services thus retains 17.5% of the value of the dry gas and NGLs to compensate it for the gathering and processing of the gas. Plaintiffs claim that this arrangement breaches Devon Energy’s duty to market because the 17.5% is in effect a processing fee that is far greater than the market rate for processing. Continue reading →
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Dr. Scott Tinker’s New Project
Dr. Scott Tinker, the Director of the Bureau of Economic Geology, University of Texas, and the Texas’ State Geologist, produced and starred in a film a couple of years ago called Switch. It provides an overview of how we use energy in the world and the opportunities and challenges facing our future in trying to reduce our reliance on hydrocarbons. A great film. He also created a great resource for educators about the many facets of energy, found at www.switchenergyproject.com, with multiple videos explaining every facet of energy production and use, from biofuels to environmental impacts to fracking to coal.
Dr. Tinker has released a new set of educational videos at http://www.switchenergyproject.com/education/energy-lab, on topics such as How We Make and Use Energy, How Batteries Work, Unconventional Sources of Oil, Risks of Fracking, How Solar Works, and many others, all free on his website.
Now Scott is making a sequel to Switch, called Switch On, which focuses on energy poverty. Scott emailed friends:
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Rational Decision-making in the Post-Rational World
Five years ago I wrote a blog entry titled “The Limits of Rational Decision-making.” The topic was a sociological study testing subjects’ ability to make decisions based on facts. The conclusion of the study was that knowledge does not increase a person’s ability to reason when it comes to politically charged issues. People’s biases prevent them from making decisions based on facts. I ended the post with these words:
Leon Festinger, a famous Stanford University psychologist, said that “A man with a conviction is a hard man to change. Tell him you disagree and he turns away. Show him facts or figures and he questions your sources. Appeal to logic and he fails to see your point.” Changing one’s point of view on difficult politically charged issues is difficult.
A group called “Ark Encounter” is raising money to construct a replica of Noah’s Ark in Williamstown, Kentucky, using the exact dimensions and directions found in Genesis. It will be more than 500 feet in length, three stories high, and built with planks, beams and pegs. When asked how they were going to get the more than 2 million species of animals now on the planet in the ark, they say that, in Noah’s time, there were only some 2,000 types of animals, and that all animals today descend from those original animals. Fitting myth to reality is no problem for believers. Changing their minds about the facts is more of a problem.
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Devon v. Apache – Royalty and the Non-Consenting Co-Tenant
The Texas Supreme Court recently refused to consider the case of Devon Energy Production Company v. Apache Corporation, decided by the Eastland Court of Appeals – 550 S.W.3d 259. The case presents issues that, remarkably, have not previously been considered by a Texas appellate court.
Norma Jean Hester leased her one-third mineral interest in lands in Glasscock County to Apache, reserving a 1/4th royalty. The other mineral owners in the land (the Lessor Plaintiffs) leased their two-thirds mineral interest to Devon, reserving a 1/4th royalty. Apache and Devon were unable to agree on terms for a joint operating agreement to develop the property, and Apache drilled seven producing wells on the land without Devon’s participation. Devon became what is commonly called a “non-consenting co-tenant.” Devon became entitled to two-thirds of the net revenue from each well after Apache had recovered the costs of drilling and production (“payout”). But Devon did not pay its Lessor Plaintiffs their royalty on production, claiming that Apache owed the royalties to the Lessor Plaintiffs. The Lessor Plaintiffs sued Devon and Apache for their royalties.
The trial court ruled that Apache owed no royalty payments to the Lessor Plaintiffs, and that Devon owed the Lessor Plaintiffs royalties, but only on revenues received by Devon after the wells had paid out. The Lessor Plaintiffs then settled their claims against Devon, and Devon appealed. Continue reading →
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Oil and Gas News
The Texas Tribune is joining with the Center for Public Integrity to publish a series of articles on the Permian Basin. Called “Blowout,” it is the result of eight months of study of the impact of the Permian oil boom. The first article can be found here.
The International Energy Agency said Friday that the world pumped 100.3 million barrels a day in the third quarter, a record, and production is expected to increase. The IEA also expressed concern about the upswing in energy prices, saying it “poses a threat to economic growth.”
And on CBS’ “60 Minutes” last night, President Trump backed off his claim that climate change is a hoax, but he said he doesn’t know if its man-made. “Something’s changing and it’ll change back again. I don’t think it’s a hoax,” he told Brent Stahl. “But I don’t know that it’s man-made. I will say this. I don’t want to give trillions and trillions of dollars. I don’t want to lose millions and millions of jobs. I don’t want to be put at a disadvantage,” he said. “Look, scientists also have a political agenda,” he added.
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Three Supreme Court Cases to Watch
Two cases were argued in the Texas Supreme Court last week that bear watching, and a third interesting case is pending in the court on petition for review.
No. 17-0266, Burlington v. Texas Crude
Texas Crude and Burlington entered into a joint development agreement covering leases Texas Crude had acquired on lands in Live Oak County. As part of the deal, Texas Crude was entitled to an overriding royalty on all leases taken within the area of interest. Multiple assignments of overriding royalty were made, all containing this language:
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5th Annual GDHM Land & Mineral Owner Seminar November 9
Our firm is hosting our 5th annual seminar for Texas land and mineral owners on topics of interest in oil and gas law. We have a great lineup of speakers, including Idalia Romanos on royalty audits, Peter Huddleston on current shale development activity in Texas, Mary Keeney providing a case law update, Allen Gilmer of Drillinginfo, and yours truly on allocation wells.
You can find more information and register here.
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TLMA Members Meeting
Texas Land & Mineral Owners Association is having its Statewide Members Meeting on October 11 in San Antonio. Information here. It is a good organization and a good meeting. Join up and attend.
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News from the Railroad Commission
The Texas Railroad Commission has issued its Monitoring and Enforcement Plan for fiscal year 2019. The plan was required by a 2017 law that directs the RRC to develop an annual plan to assess its use of resources to ensure public safety and minimize damage to the environment. It requires the RRC to track monitoring and enforcement activities. Highlights:
The RRC has 158 oil and gas field inspectors. They average more than 123,000 inspections each year and are expected to conduct 130,000 inspections in fiscal 2019.
The RRC Oil and Gas Division receives about 600 complaints each year, from operators, mineral owners, surface owners, government agencies and members of the public. According to the Plan, “the complainant receives written updates on the progress of the investigation and any related enforcement action. The complainant is also notified when the complaint is closed.”