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Flare
My clients regularly complain of flares from wells on their property. Most leases don’t require royalty payments on flared gas, so their royalty is going up in smoke. Flares often don’t function properly, resulting in emissions of toxic gases. Flares make noise.

TexasBarToday_TopTen_Badge_SmallThe Environmental Defense Fund recently released an excellent report on flaring in the Permian Basin, Permian-Flaring-Report-2017.  EDF analyzed flaring and venting by 15 major producers in the Permian for the years 2014-2015. Here’s what they found (click on image to enlarge):

EDF-graph-flaring
On average, these operators flared at a rate of 3 to 4 percent of their production in these years, more than 80 Bcf of gas. At $3/mcf, that’s $240 million of gas.

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This is my 500th blog post. My first post was on March 23, 2009, the first of three posts about deductibility of post-production costs from royalties. Since then I’ve written about post-production costs twenty-three times.

I decided to start this blog as a way to provide information about developments in oil and gas law of interest to land and mineral owners. Lawyers have continuing education requirements and attend seminars in their specialty where they hear other attorneys present papers on current issues in the law. But there are few such seminars for land and mineral owners, and legal seminar papers are not designed for laypersons. I couldn’t find any other blogs that provided the content I wanted. So I ventured into the blogosphere, a territory I knew little about. It has been a fun and productive ride.

When I began this effort the Barnett and Haynesville shales were booming, the controversy over environmental effects of hydraulic fracturing was bubbling up, and lawyers were just beginning to grapple with the legal issues raised by horizontal wells. Since 2009 the shale boom has revived the domestic onshore oil and gas industry and in the process changed the international politics of global energy production and supply. OPEC and Saudi Arabia have tried unsuccessfully to stifle the shale boom. Talk of peak oil has disappeared. Global demand for oil continues to increase in the face of the now-incontrovertible evidence of hydrocarbons’ adverse effect on our atmosphere. There are five-day traffic jams in China, and India has passed China in the rate of growth of oil consumption, increasing 8.3% in 2016.

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Senator Dan Patrick and Speaker Joe Strauss have issued their list of interim charges for the next legislative session – issues that committees must study during the interim between sessions. Those interim charges may be found here:

SenateInterimCharges_2017_Round_1_FINAL

House-interim-charges-85th

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On this day in 1787 Alexander Hamilton, under the pen name “Publius,” published the first of the 85 letters to newspapers later named the Federalist Papers, written by Hamilton, James Madison and John Jay, to argue for adoption of the U.S. Constitution. We’ve been arguing about it ever since.

Hamilton wrote, in part:

I propose, in a series of papers, to discuss the following interesting particulars:

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Beginning in 2015, earthquakes in Oklahoma began to be linked with increased injections of water produced from oil and gas wells. State regulatory authorities were slow to react. Operators of large injection wells like Harold Hamm and his Continental Resources pushed back, pressuring the University of Oklahoma to dismiss scientists who were studying links between disposal wells and earthquakes. But the State eventually began monitoring seismic events in earnest, and the Oklahoma Corporation Commission began to order the shut-down of injection wells.  In September 2016 the Commission and the EPA ordered 54 disposal wells in Osage County shut in after a magnitude 5.6 quake on September 3. See Oklahoma’s interactive map displaying seismic events, here. The image below shows the number and intensity of earthquakes north of Oklahoma City in 2015:

OK-quakes-2015-1

Below are the quakes to date in the same area in 2017: Continue reading →

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The Texas Supreme Court heard argument last week in a fee dispute between Albert Hill Jr., an H.L. Hunt heir, and one of his attorneys, Gregory Shamoun. Albert G. Hill, Jr. v. Shamoun & Norman, LLP, No. 16-0107.  The Dallas Court of Appeals reversed a take-nothing judgment and awarded Shamoun $7.5 million in fees. 483 S.W.3d 767 (Tex.App.-Dallas 2016)  Shamoun helped Hill resolve a “spider web of litigation”, twenty lawsuits, among Hill, his son and other family members over a $1 billion family trust that involved more than 100 attorneys representing Hill. Shamoun claimed that Hill orally promised to pay him a contingency fee if Shamoun was successful in resolving all of the litigation. To everyone’s surprise, Shamoun negotiated a global settlement of $40.5 million and left the trust in Hill’s control. (Shamoun gained fame by once bringing a donkey to testify in a case.)

The jury awarded Shamoun $7.5 million, which would work out to about $48,000/hour. (Shamoun sought $11 million.) The trial court threw out the verdict, refusing to enforce an oral fee agreement. But the court of appeals held that Shamoun had proven his right to a fee under a theory of quantum meruit, even though oral fee agreements are illegal under Texas’ Statute of Frauds. Under the quantum meruit theory, the jury was free to award a fee that was reasonable under the circumstances, based on the time spent and the result obtained. Hill’s attorneys argued that the only evidence Shamoun presented of a reasonable fee was the contingency fee he said Hill had agreed to, and that evidence was inadmissible.

Texas Solicitor General Scott Keller weighed in with an amicus brief supporting Hill and presented argument in the case – a very unusual event. Hill’s lawyer, James Ho, who also argued the case for Hill, was recently nominated for a seat on the 5th U.S. Court of Appeals by President Trump. One of the attorneys representing Shamoun is former Texas Supreme Court Chief Justice Wallace Jefferson, who argued the case for Shamoun.  Oral argument can be viewed here.

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The DC Court of Appeals and the US District Court for the Northern District of California have struck down orders of the EPA and the Bureau of Land Management postponing compliance dates for the Obama administration’s rules requiring the oil and gas industry to monitor and reduce methane emissions. Both courts held that the agency’s orders were “arbitrary and capricious” and in violation of the Administrative Procedure Act.  Clean Air Council, et al. v. E. Scott Pruitt, Administrator, Environmental Protection Agency and Environmental Protection Agency, No. 17-1145, opinion July 3, 2017; State of California, et al. v. U.S. Bureau of Land Management, et al., Case Nos. 17-cv-03804-EDL, 17-cv-388-EDL, opinion Oct. 4, 2017.

Methane is a powerful greenhouse gas contributing to human-caused global warming. The EPA’s rules, aimed at reducing emissions of methane from oil and gas facilities, were adopted in May 2016. They impose “new source performance standards” for finding and fixing leaks of methane in oil and gas production facilities. Those rules require operators to implement a leak monitoring plan using optical gas imaging to find and fix leaks from valves, connectors, pressure-relief devices, flanges, compressors and thief hatches on storage tanks.  The BLM issued similar rules in November 2016 to reduce waste of natural gas from venting, flaring and leaks during oil and gas production activities on Federal and Indian lands.

President Trump appointed Scott Pruitt as Administrator of EPA. Pruitt, as Attorney General of Oklahoma, sued the EPA at fourteen times on behalf of his state, attacking the EPA’s authority to regulate various industries. Pruitt rejects the scientific consensus that human activities contribute to climate change. Continue reading →

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On September 22, the Texas Supreme Court refused to reconsider its opinion in BP America v. Red Deer Resources, No. 15.0569 – after some 16 amicus briefs and letters were filed urging the court to grant Red Deer’s motion for rehearing.

The Court addressed the construction of a shut-in royalty clause in an oil and gas lease:

Where gas from any well or wells capable of producing gas … is not sold or used during or after the primary term and this lease is not otherwise maintained in effect, lessee may pay or tender as shut-in royalty …, payable annually on or before the end of each twelve month period during which such gas is not sold or used and this lease is not otherwise maintained in force, and if such shut-in royalty is so paid or tendered and while lessee’s right to pay or tender same is accruing, it shall be considered that gas is being produced in paying quantities, and this lease shall remain in force during each twelve-month period for which shut-in royalty is so paid or tendered ….

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The Texas Supreme Court has reconsidered its decision not to hear two appeals involving retained acreage clauses: XOG Operating, LLC v. Chesapeake Exploration Limited Partnership, No. 15-0935, and Endeavor Energy Resources, L.P. v. Discovery Operating, Inc., No. 16-0155. The Court initially refused to consider the cases, after ordering briefs on the merits in both, but on September 1 the Court reversed itself. It reinstated XOG’s petition for review in XOG v. Chesapeake, and it granted the petition for review and set Endeavor v. Discovery for oral argument on January 9, 2018.TexasBarToday_TopTen_Badge_Small

In XOG v. Chesapeake, the retained acreage clause is included not in an oil and gas lease, but in an assignment of lease from XOG. The assignment provided that, once the continuous development period in the assignment expires:

Continue reading →

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