From an article in the Dallas Morning News, “Texas power costs: What’s the cheapest way to generate electricity?”
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The cost of electricity
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Miller on Negotiating Oil and Gas Leases
My partner Nicholas Miller recently appeared on Tiffany Dowell’s podcast “Ag Law in the Field,” one of the programs offered by Texas A&M Agrilife Extension Service. A great discussion on how to approach negotiating an oil and gas lease. You can listen to it here.
Check out Tiffany’s other podcasts here.
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Murphy v. Adams – What is an “offset well”?
The Texas Supreme Court denied the landowners’ motion for rehearing last Friday in Murphy v. Adams, rejecting their claim that Murphy Exploration had breached their oil and gas lease by failing to drill an offset well or pay liquidated damages. The Court was divided 5-4 on the issue when it issued its original opinion, and the court remained divided 5-4 on rehearing, but both the majority and the dissent issued corrected opinions.
Our firm represented the landowners in the case, so I must admit that it is difficult for me to be objective in reporting on this case. I wrote about the case when the Court of Appeals ruled in favor of the landowners, reversing a summary judgment in Murphy’s favor issued by the trial court.
The landowners’ lease contains the following provision:
It is hereby specifically agreed and stipulated that in the event a well is completed as a producer of oil and/or gas on land adjacent and contiguous to the leased premises, and within 467 feet of the premises covered by this lease, that Lessee herein is hereby obligated to, within 120 days after the completion date of the well or wells on the adjacent acreage, as follows:
(1) to commence drilling operations on the leased acreage and thereafter continue the drilling of such off-set well or wells with due diligence to a depth adequate to test the same formation from which the well or wells are producing from on the adjacent acreage; or
(2) pay the Lessor royalties as provided for in this lease as if an equivalent amount of production of oil and/or gas were being obtained from the off-set location on these leased premises as that which is being produced from the adjacent well or wells; or
(3) release an amount of acreage sufficient to constitute a spacing unit equivalent in size to the spacing unit that would be allocated under the lease to such well or wells on the adjacent lands, as to the zones or strata producing in such adjacent well.
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Huddleston on Shale Plays in Texas
Peter Huddleston, President of Huddleston & Co. and a prominent petroleum engineer and a friend, agreed to report on the status of shale plays in Texas at our firm’s land and mineral owner seminar on November 9. He kindly agreed to let me use some of his slides. You can click on all images below to enlarge.
Peter’s presentation concentrated on developments in the Eagle Ford and the Permian Basin, by far the sources of most drilling in Texas today.
The map below shows the extent of the Eagle Ford formation.
Below graph shows cumulative Eagle Ford production to date, and number of wells producing.
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Vote for Me!
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.