Legislation

Published on: April 15, 2024

Royalty on Federal Lands

The US Department of Interior finalized a rule on Friday increasing royalty rates on oil and gas leases of federal land from 1/8th to 1/6th, and increasing minimum bonus rates from $2/acre to $10/acre. The regulations also increase bonding requirements to secure operators’ obligation to plug their wells.

I’ve always been puzzled why federal leases are not granted the same way the Texas General Land Office does, with competitive bidding. Almost all leases of lands owned by the State of Texas or University Lands reserve one-fourth royalty.

A lot of federal oil and gas leases cover offshore tracts, and thousands of wells have been drilled in federal offshore waters in the Gulf of Mexico. I recently heard a CLE presentation about companies’ plugging obligations in the Gulf. Unlike Texas, federal law provides that all operators in the chain of title to a federal well are jointly and severally liable for the plugging costs and for properly disposing of the platform once the wells are plugged. Many plugging obligations end up in bankruptcy courts, and prior operators are now receiving notices from the BLM notifying them of their plugging obligations. Louisiana also holds prior operators liable for plugging obligations. If prior operators in Texas retained liability for well plugging, the list of Texas “orphan wells” would shrink substantially.

Published on: June 13, 2023

A New Ad Valorem Tax Exemption for Minerals Owned by Charities

By John McFarland

Governor Abbot has signed House Bill 456, passed by the Legislature, granting certain charities an exemption from ad valorem taxes on their oil and gas royalties, effective January 1, 2024. The bill amends Tax Code Section 11.18(a), which provides ad valorem tax exemptions for charitable organizations, including churches and educational institutions. The bill amends the statute to provide an ad valorem tax exemption for mineral and royalty interests, but only for some charitable organizations.

The exemption applies to the following types of charitable organizations who provide services without regard to ability to pay, but only if the mineral or royalty interest (i) is not severed from the surface estate (i.e., is under land owned by the charity), or (ii) was donated to the charity:

a charity providing medical care;

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Published on: August 4, 2021

Abbott and Legislature Get Blowback on Fix of Texas Grid

By John McFarland

Abbott said the legislature’s response to the breakdown of Texas’ electric grid “fixed all the flaws.” News media reports and experts are questioning that conclusion.

A UT Austin study concludes that lawmakers did not do enough to prevent future power failures and recommended 20 additional policy changes. It is estimated that as many as 700 people died from the freeze.

At least part of the blame lies with the Legislature’s deregulation of the state’s power sector in 1995 that was supposed to save ratepayers money. According to a Wall Street Journal analysis, customers in deregulated areas have paid a surcharge of $28 billion over the last two decades, whereas customers in areas that remain regulated–including El Paso Electric, Austin Energy and CPS Energy in San Antonio–enjoy cheaper electric rates than those in deregulated areas.

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Published on: July 14, 2021

Something Every Texas Farmer and Rancher Should Know

By John McFarland

Tiffany Dowell Lashmet, blogger at Texas A&M AgriLife Extension, alerted me in her blog to a bill passed in the last session of the Texas Legislature, HB 365, that Texas landowners should know about. The bill amends the Texas Farm Animal Liability Act, Texas Civil Practice and Remedies Code Chapter 87. The Act offers landowners protection from liability from injuries caused to “participants” resulting from an inherent risk of engaging in a “farm animal activity”.

The bill was passed to address an issue with the Act addressed in a Texas Supreme Court case, Waak v. Rodriguez, 603 S.W.3d 103 (Tex. 2020). The Waaks breed Charolais cattle on their ranch in Fayette County. They hired Raul Zuniga to help with the cattle. They instructed him to move some cattle to a different pasture, including a 2,000-pound bull. They later found Zuniga dead in the pen with the bull, cause of death blunt force and crush injuries. Zuniga’s parents and surviving children sued the Waaks for wrongful death and survival claims, alleging negligence. The trial court dismissed the case on the ground that the Farm Animal Activity Act barred the claims. The Court of Appeals reversed, holding that the Act did not apply. The Supreme Court affirmed, holding that the Waaks were not entitled to the protection of the Act. The Act limits liability for injury to a “participant in a farm animal activity” that results from “inherent risk” of such activities. The court held that Zuniga was not a “participant in a farm animal activity” as defined in the Act.

HB 365 broadens the definitions of participant and farm animal activity so that they would cover injuries sustained in handling cattle like the activity engaged in by Zuniga. (It also now includes bees as farm animals covered by the Act.)

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Published on: July 8, 2021

Bills Addressing Flaring in Texas Legislature

By John McFarland

The recently completed session of the Texas Legislature several bills were filed addressing flaring from oil and gas wells — none of which passed. The number and variety of bills does, however, indicate the increased level of interest and concern about unwarranted flaring of natural gas.

HB 1377: Revises the Tax Code to eliminate the exemption from severance tax for gas “produced from oil wells with oil and lawfully vented or flared.

SB 1293 and HB 1494: Revises the Tax Code to impose a severance tax of 25% on flared gas.

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Published on: June 9, 2021

Wrap-up of bills in Texas Legislature of interest to Texas land and mineral owners

By John McFarland

HB 3794

This bill, signed by the Governor, fixes a problem with the provisions of the Texas Business and Commerce Code that grant a security interest in oil and gas production and proceeds to secure the payor’s obligation to pay royalty owners. I have written about this problem before. Previous bankruptcy court decisions held that this provision did not protect royalty owners when the payor was a company not organized in Texas.

SB 1259

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Published on: May 30, 2019

Death of Eminent Domain Bill and Other Legislative Maneuvers

By John McFarland

Senate Bill 421, reforming how pipelines exercise the power of eminent domain to condemn right-of-way, died at the end of the Texas legislative session after Rep. Tom Craddick sought to make amendments opposed by its author, Sen. Lois Kolkhorst. Kolkhorst said Craddick “seized the legislation” from its house sponsor and severely weakened the bill. The bill would have prevented low first-time offers for easements, improved easement terms and set mandatory meetings with property owners to explain the eminent domain process.

“The language of the House version would have turned back the clock for landowners and greatly harmed them,” Kolkhorst said in a statement Sunday. “I cannot agree to the Craddick proposal, which would do the opposite of what we set to do: help level the playing field for landowners in the taking of their property.”

This is the third legislative session in which Kolkhorst’s efforts to reform eminent domain have failed. Kolkhorst said she isn’t giving up. “This issue will and must remain a top state legislative priority,” she said.

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Published on: October 30, 2017

House and Senate Interim Charges Issued

By John McFarland

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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Published on: July 3, 2017

85th Legislature – Legislation of Interest to Land and Mineral Owners

By John McFarland

The Texas legislative session recently ended without any major reforms of the Texas Railroad Commission. Bills to reform the Commission failed in the previous two legislative sessions, after Sunset Commission reports recommending significant changes in the structure of the RRC. This session, the Legislature had no heart for tackling those reforms and instead gave the RRC renewed life through September 1, 2029.

The bill authorizing continuance of the RRC, HB 1818, includes a provision requiring the RRC to track its oil and gas monitoring and enforcement activities and publish an annual report on its website. But a bill (HB 247 by Anchia) to require the RRC to publish on its website details of violations and enforcement actions by operators, searchable by county, operator and well, failed to pass. As did a bill to change the RRC’s name to the Texas Energy Commission. Another bill by Anchia, HB 464, restricting the time periods when Commissioners could accept political contributions and prohibiting contributions by companies with contested cases before the RRC, also died. HB 567, which would have increased penalties for operator violations of RRC rules and required the RRC to allow public input on its penalty guidelines, failed to get out of committee.

The Legislature’s budget bill includes an appropriation of $38.2 million from the state’s rainy day fund for plugging of orphaned oil and gas wells. The RRC website lists more than 5800 orphaned wells in Texas – wells for which no operator can be found who can be made responsible for plugging the well.

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Published on: November 7, 2016

Texas Sunset Advisory Commission to Vote on Final Recommendations for Railroad Commission Sunset Legislation

By John McFarland

The Sunset Advisory Commission will meet November 10 to vote on its recommendations to the Texas legislature for legislation to continue the Railroad Commission for another 12 years. Committee members have proposed modifications to several of the staff report, and also add several additional recommendations. The staff recommendations and proposed modifications submitted by Commission members can be viewed here. Decision Meeting Material_November Proposed changes/additions of interest to land and mineral owners include:

Chairman Gonzales and Representative Flynn propose to eliminate recommendation that the Commission’s name be changed to a name that reflects the agency’s functions.
From Representative Raymond:

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