Tiffany Dowell Lashmet and Karli Kaase, with Texas AgriLife Extension, have put together a great resource for landowners considering carbon contracts. It can be found here. Tiffany has regular blog posts providing great information for landowners.
Since passage by Congress of the Inflation Reduction Act (IRA) in 2022, significant activities and developments have taken place in Texas regarding carbon capture and underground storage (CCUS) projects. The IRA provides tax credits for injection and underground storage of carbon dioxide. As a result, major companies have begun developing CCUS projects in Texas and other states. Landowners are signing agreements with these developers allowing use of their land for injection and storage.
Tax Credits for CCUS Projects
The economic benefits to developers of CCUS projects derive solely from the federal income tax credits granted for underground storage of CO2. The credits are granted based on tons of CO2 injected. The amount of the credit varies depending on the type of project.
Last June the Corpus Christi Court of Appeals decided that the right to store oil in a salt cavern belongs to the surface owner. In Myers-Woodward, LLC v. Underground Services Markham, LLC, et al., No. 13-20-00172-CV, the court addressed a dispute between Myers-Woodward, which owned the surface estate and a royalty on minerals, including salt, in a tract in which Underground Services owned the salt. Underground Services mined and sold salt by solution-mining from a salt cavern under the land. Myers-Woodward disputed how Underground calculated its royalties on the salt. Underground also asserted that, as owner of the salt, it has the right to use the resulting salt cavern to store hydrocarbons. The court ruled in favor of Underground on its method of determining the royalties owed, but it ruled in favor of Myers-Underwood on the right to use the resulting salt cavern, holding that Myers-Underwood held the storage rights, a part of its rights as owner of the surface estate.
Underground cited Mapco, Inc. v. Carter, 808 S.W.2d 262 (Tex.App.–Beaumont 1991), rev’d on other grounds 817 S.W.2d 686 (Tex 1991), in support of its claim to storage rights. Mapco has often been cited as lending uncertainty to the issue of whether the surface owner owns the pore space under its land. The Beaumont court in Mapco, without citing any authority, held that the mineral owner had storage rights for underground storage facilities. After reviewing other authority, the Corpus Christi court concluded that, contrary to Mapco, “the well-recognized, decisional law states that the mineral estate owner owns the minerals but not the subsurface. … Therefore, we decline to follow Mapco in this case.”
Storage rights have become a more important issue recently with the advent of CO2 sequestration projects in Texas. Although the court did not cite Lightning Oil v. Anadarko, Lightning would seem to support its conclusion as well.
The King Ranch Institute for Ranch Management at Texas A&M University – Kingsville has published a webinar and a white paper on how ranchers should consider whether to enter into agreements to change their ranch practices to increase CO2 in their soil, generating carbon credits. Links to the webinar and white paper can be found here.
Last week the Supreme Court of North Dakota handed down its opinion in Northwest Landowners Association v. State of North Dakota, 2022 ND 150. The court struck down portions of a statute passed by the North Dakota Legislature, Senate Bill 2344, dealing with ownership rights to “pore space.” North Dakota law defines “pore space” as “a cavity or void, whether natural or artificially created, in a subsurface sedimentary stratum.” The purpose of the statute was to facilitate operators’ use of pore space for saltwater disposal and CO2 injection in tertiary recovery operations, and to deny landowners the right to compensation for such uses. But the language of the statute is much broader:
Notwithstanding any other provision of law, a person conducting unit operations for enhanced oil recovery, utilization of carbon dioxide for enhanced recovery of oil, gas, and other minerals, disposal operations, or any other operation authorized by the commission under this chapter may utilize subsurface geologic formations in the state for such operations or any other permissible purpose under this chapter. Any other provision of law may not be construed to entitle the owner of a subsurface geologic formation to prohibit or demand payment for the use of the subsurface geologic formation for unit operations for enhanced oil recovery, utilization of carbon dioxide for enhanced recovery of oil, gas, and other minerals, disposal operations, or any other operation conducted under this chapter. As used in this section, “subsurface geologic formation” means any cavity or void, whether natural or artificially created, in a subsurface sedimentary stratum.
North Dakota (unlike Texas) has a statute, the Damage Compensation Act, requiring that requiring a mineral developer to compensate the surface owner for “lost land value, lost use of and access to the surface owner’s land, and lost value of improvements caused by drilling operations.” N.D.C.C. sec. 38-11.1-04. Senate Bill 2344 amended the Damage Compensation Act to exclude “pore space” from its definition of “land.”
The Inflation Reduction Act, passed by the Senate yesterday and on its way to passage in the House, contains carrots and sticks for reducing methane emissions in the oil and gas sector.
From Inside Climate News:
One of the least discussed, but potentially most significant, climate aspects of the proposed Inflation Reduction Act is a fee it would place on methane emissions from oil and gas operations. The bill would charge companies for methane that they leak or vent into the atmosphere, with the fee starting at $900 per ton in 2024 and increasing to $1500 per ton by 2026.
The Cockrell School of Engineering at the University of Texas in Austin this week issued a report, three years in the making, “Don’t Mess with Texas: Getting the Lone Star State to Net-Zero by 2050.” The study was co-authored by Vibrant Clean Energy and the University of Colorado Boulder. Funding was provided by The Cynthia and George Mitchell Foundation, the Energy Foundation, the meadows Foundation, and the Catena Foundation.
The study focused on four scenarios: Business as Usual, Electrification, Electrification with Accelerated Clean Power, Hydrogen and Carriers, and Extensive Capture. The study analyzed the viability of technologies for each scenario and its impact on carbon emissions, pollutant emissions, energy efficiency, job creation, water use, and land use. Its conclusion:
Achieving net-zero is difficult, but it’s also potentially lucrative; our analysis estimates it could spur economic growth and create jobs. In each scenario, we consider the environmental, economic, and jobs impacts to Texas over the next thirty years in transitioning Texas to net-zero conditions. We compare and discuss each scenario, including BAU, to reveal key policies, technological developments, economic impacts, and environmental trade-offs across the various pathways. These scenarios are neither predictive nor prescriptive. Rather, they are illustrative. A key takeaway is that it is possible for the Lone Star State to achieve a net-zero future, and there are multiple ways of getting there. The actual path Texas takes will likely look different from any of these scenarios, but assessing the trade-offs of different pathways can provide valuable insight for the next steps to take. Scenario conditions that have an outsized influence on future emissions or are present across multiple pathways should be strongly considered in the near term as win-win decisions Texas can make now while future technology development and market conditions continue to unfold. Figure ES-2 summarizes the major impacts from each scenario.
Talos Energy announced that it has signed a lease with the Texas General Land Office for more than 40,000 acres offshore to store CO2 captured from industrial sites along the coast. Talos said it is capable of storing up to 275 million metric tons of Co2 and is “the first ever major offshore carbon sequestration site” in the U.S.”
Talos is also planning a CCS site along the Mississippi River with a capacity to store 500 million metric tons of CO2. Talos leased 26,000 acres along the Mississippi for a “carbon sequestration hub” with Storegga Limited and EnLink Midstream, to link with industrial emitters along the Louisiana coast that emit some 80 million metric tons of CO2 per year — with a right of first refusal to lease another 63,000 acres in the area.
Oxy is developing a carbon capture facility in the Permian Basin capable of removing one million tons a year from the atmosphere.