Articles Posted in Legislation

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Terrence Henry, a writer for StateImpact Texas, has written a recent article, “Why Oil and Gas Lobbyists Were Big Spenders in Texas.” He analyzes two reports on spending on lobbyists and campaigns compiled by Texans for Public Justice. Lobbyists for energy and natural resources companies spent between $31.4 million and $62.5 million on lobbyists during the most recent legislative session, according to the report, 19% of the total of between $155 million and $328 million spent on the session. Incredible numbers. There are no limits on such spending in Texas.

Texas Railroad Commissioners were big beneficiaries of both campaign contributions and lobbying by oil and gas interests. Sunset-recommended reforms of the Commission, opposed by the Commissioners, failed to pass once again. The only RRC-related reform that did pass (but which the Governor has vetoed) was a requirement that a commissioner resign if he/she decides to run for another office.  Andrew Wheat, a researcher at Texans for Public Justice, says that’s because the oil and gas industry supported that measure:  “The [oil and gas industry] is interested in paying their bills while they’re commissioners. But they don’t want to pony up huge amounts of money every time one of these people wants to run for higher office.”

One important bill supported by the energy industry did not pass. It would have limited public participation in hearings at the Texas Commission on Environmental Quality in applications for emissions permits. The bill was opposed by communities and environmental groups. And pipeline companies’ bills to make it easier for them to exercise the power of eminent domain to condemn pipeline easements also failed to pass.

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The pipeline industry bill intended to “fix” the issues raised by Texas Rice Land Partners v. Denbury Pipeline, appears to be dead in the Texas legislature. The issue: requiring pipelines that assert the power of eminent domain to prove that they qualify as common carriers. The Texas Supreme Court held in Denbury that simply filing a form with the Texas Railroad Commission would not suffice; the pipeline has to show that it will actually use the pipeline to transport oil or gas for hire. This requirement could substantially slow the condemnation process, requiring pipelines to prove their common-carrier status each time they sue to condemn a right-of-way.

The solution proposed by the pipelines: have one hearing, at the Texas Railroad Commission, to establish that a proposed new line will in fact qualify for common-carrier status. That determination will then be binding on all landowners whose property will be crossed by the pipeline. Those landowners would be given the opportunity to participate in the hearings; notice of the hearings would be given by publication in local newspapers. The Texas Farm Bureau, the forestry industry, and other landowner groups opposed the bill. Most major oil and gas asociations favored the bill.

The bill, HB 2748, was defeated Friday on a procedural point of order raised by Democrats that moved it back to committee. Rural Republican representatives were faced with a difficult decision whether to support the bill, in light of opposition by rural landowners. Time is running out before the end of the session and it may be difficult to revive the bill.

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State Representative Harold Dutton, Jr. has introduced a bill in the Texas Legislature to amend Texas’ Open Beaches Act. What does this have to do with oil and gas, you may ask? Read on.

Last year, the Texas Supreme Court decided a case interpreting the Open Beaches Act, Severance v. Patterson, 370 S.W.3d 705 (Tex. 2012). The case arose because of Hurricane Rita. Carol Severance owned two beachfront houses on Galveston Island, as rental properties. Because of Hurricane Rita, erosion shifted the beach vegetation line farther landward, causing both homes to be located on the dry beach facing the Gulf of Mexico. As a result, under the Open Beaches Act, the Commissioner of the General Land Office informed Severance that she would have to remove the houses and offered her $40,000 assistance to relocate or demolish them. Severance then sued the Commissioner in US District Court claiming that the Commissioner’s action constituted a taking of her property without compensation under the Fifth Amendment of the US Constitution. Her case was dismissed, and she appealed to the 5th Circuit Court of Appeals. That court, after analyzing the case, concluded that Texas law was unclear on the matter, and it submitted “certified questions” to the Texas Supreme Court.

To understand the significance of Severance v. Patterson, it is necessary to go back a ways, to the Texas Supreme Court case of Luttes v. State, 324 S.W.2d 167 (1958). In that case, Mr. Luttes was claiming to own about 3,400 acres of “mud flats” lying on the edge of the Laguna Madre in Cameron County. The State of Texas holds title to all submerged lands along the coast, including lands within the Laguna Madre, the long, shallow lagoon that runs between the mainland and Padre Island along much of the Texas Gulf Coast. Mr. Luttes contended that these mud flats were part of his “dry land”, and not “submerged land” belonging to the State.

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State Representative Van Taylor, R-Plano, and Senator Rodney Ellis, D-Houston, have introduced a bill to allow for forced pooling in Texas. The House bill, HB 100, may be viewed here.

The bill would allow an operator to force-pool mineral, royalty and leasehold interests into a unit if the operator obtains agreement from 70% of the leasehold owners and 70% of the royalty owners in the area to be unitized. Unleased mineral owners could be pooled, and would be treated as owning a 1/6 royalty interest and a 5/6 working interest. The unit operating agreement can provide for a “sit-out” penalty of no more than 300% for a working interest owner who elects not to pay its share of the well costs. The bill does not allow force-pooling of mineral or royalty interests owned by the State.

Here is just one interesting provision in the bill:

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This summer, the Department of Interior’s Bureau of Land Management issued proposed rules relating to disclosure of the content of frac fluids and handling of frac fluids used in wells drilled on puclic lands managed by the BLM. Last week a group of Congressmen led by Congressman Edward J. Markey, D. Mass., head of the House Natural Resources Committtee, have submitted an extensive letter commenting on the proposed rules.

The letter criticizes BLM’s rules for (1) not requiring disclosure of chemicals in frac fluids prior to drilling of a well rather than after the fact, (2) proposing to use FracFocus as the method for disclosure of frac fluids, (3) allowing flowback fluids to be stored in earthen pits, (4) not imposing requirements for proper well construction, cement and casing design and installation, and (5) not establishing minimum setbacks between wells and public buildings to minimize harm from air emissions during well completions.

As I have reported earlier, the Texas Railroad Commission recently published proposed rules tightening regulations on well construction and cementing, as well as more stringent regulation of disposal wells, to better protect against contamination of groundwater.

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The Texas Railroad Commission has been issuing new rules and proposed rules affecting oil and gas exploration activities that landowners should know about.

New Penalty Guidelines

The RRC proposed new rules earlier this year establishing guidelines for penalties for violations of RRC rules. This month, the RRC adopted those proposed rules. In the last Texas legislative session, the RRC was criticized by the Sunset Advisory Commission for not enforcing its rules more vigorously. The Sunset Commission said that the RRC’s current “voluntary compliance” policy contributes to “a public perception that the Commission is not willing to take strong enforcement action.” It said that operators must have a reasonable incentive, a realistic threat of penalties that are greater than the savings achieved by violating the rules. The Legislature did not act on the Sunset Commission’s recommendations, but postponed consideration of the RRC’s report until the next legislative session.
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In its 2009 Legislative Session, the Texas Legislature passed House Bill 2259, whose stated purpose is to ensure that inactive oil and gas wells get plugged and that surface equipment associated with those wells gets removed. I provided a summary of the bill’s terms in a post on this site. A summary of the bill’s requirements from the Texas Railroad Commission may be found here. The Texas Land and Mineral Owners Association, which lobbied for the bill, has now issued its report card: the Railroad Commission is not doing its job.

HB 2259 does not actually require that inactive wells be plugged. It imposes requirements on operators of inactive wells, depending on how long the wells have been inactive, to: disconnect the wells from electricity; post additional bonds to assure that the wells will eventually be plugged; and remove surface equipment from the wells. These provisions are phased in over a 10-year period. HB 2259 provides that an operator who does not comply with the new requirements will lose its operating permit (known as a P-5) — meaning that it will not have the right to continue to operate any wells in the State.

Recently, TLMA asked the RRC how many P-5 permits have been denied because of failure to comply with HB 2259. The answer: none. Even though, according to TLMA, almost 1,500 operators failed to comply with the statute.

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The staff of the Texas Railroad Commission has proposed to the Commision rules to implement House Bill 3328, passed by the last Legislature, requiring the disclosure of chemicals used in frac fluids. The rules will be subject to a period for public comment, and a hearing will be held on the rules, now proposed for Wednesday, October 5.

Earlier this year, the 82nd Texas Legislature passed HB 3328,
requiring the RRC to adopt rules requiring disclosure of chemicals in
frac fluids. The draft rule would require operators to disclose chemical content of frac fluids on FracFocus, a website developed by the Ground Water Protection Council and the Interestate Oil and Gas Compact Commission.
(The website contains a lot of good information about hydraulic
fracturing and its benefits and risks.)  FracFocus was launched on April 1, 2011. As of August 16, 2011, according to RRC staff, operators had
registered 950 Texas wells on the website, including wells drilled by
Anadarko, Chesapeake, Chevron, Conoco-Phillips, Devon, El Paso, Energen,
EOG, Forest, Newfield, Occidental, Penn Virginia, Petrohawk, Pioneer,
Plains, Range, Rosetta, Shell, Williams, and XTO. You can search for a
well near you by using FracFocus’s search feature. An example of the
information disclosed can be found here:  4243935364-3212011-10792272-CHESAPEAKE[1].pdf The disclosure includes the percentage by mass of each chemical used in the frac fluid.

Under the proposed rule, an operator must also provide the same
information with its completion report for the well, as part of the
completion report. The completion report for all Texas wells can also be found on the RRC’s website.

RRC’s staff’s discussion of the proposed rule estimates that 13,000
wells undergo frac treatment in Texas each year — 85% of all wells
drilled in Texas.

A supplier, service company or operator is entitled under the draft
rule to claim trade-secret protection for a chemical additive. If such
protection is claimed, the particular chemical and its concentration
need not be provided, but the operator must disclose the chemical family of the ingrediant and the properties and effects of the chemical. The
claim of trade-secret protection may be challenged by the landowner on
whose property the well is drilled or any adjacent landowner, or by any
state department or agency with jurisdiction over issues related to
health and safety. Any such challenge must be filed within 2 years after the claim of trade-secret protection was filed. If a challenge is filed (with the RRC), the RRC refers the matter to the Texas Attorney General who makes a determination, based on evidence submitted by the person
claiming trade-secret protection, of whether the identity of the
chemical is in fact a trade secret under Texas law. The AG’s
determination may be appealed to a state district court. If a
trade-secret exemption is claimed, a health professional or emergency
responder may still obtain the information but must keep it confidential except to the extent it must be disclosed to protect health and safety.

An operator who fails to disclose as required by the rule may have its operating permit revoked.

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Bills of Interest from the Texas Legislature’s now-completed session:

  • SB 652 – re-authorized the Texas Railroad Commission for two more years. The Lege was unable to agree on changes recommended by the Sunset Commission to reform the RRC. See my discussion of Sunset recommendations here and here. Legislators could not agree on a provision changing the terms of the three commissioners from 6 to 4 years, and could not agree on a provision transferring hearings involving enforcement and gas utility rates to the State Office of Administrative Hearings.  See story here.
  • HB 3134 – Revises earlier legislation (HB 2259, passed in the previous session) that made it more difficult for an operator to renew its operating license if it had unplugged wells not in compliance with rules. The revision gives the operators more time to achieve compliance, and will make it more difficult to require operators to plug inactive wells. See my description of HB 2259 here.
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Recently some of my clients have received notices of class action settlements in Coll v. Abaco Operating, LLC, et al., in the U.S. District Court for the Eastern District of Texas, Marshall Division, C.A. No. 2:08-CV-345 TJW. The case reveals a little-known aspect of royalty payments: many companies never reimburse their royalty owners for refunds of severance taxes.

Most royalty owners know little about severance taxes except that they are a deduction that regularly appears on their royalty check stubs. Texas imposes a tax on the value of all oil and gas produced in the state: 7.5% for gas and 4.6% for oil. Most producing states impose similar severance taxes. Pennsylvania has been debating whether to pass a severance tax in light of its budget problems and recent development of the Marcellus Shale in that state. Texas’ severance taxes are paid into its “rainy day fund” that has been much in the news of late.

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