Articles Posted in OIl and Gas News

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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.

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U.S. District Judge Matthew Kacsmaryk, in Amarillo, recently wrote an opinion in Mayo Foundation for Medical Education and Research v. BP America Production Company, 447 F.Supp.3d 522 (March 3, 2020) dealing with the enforceability of a lease provision requiring the lessee to obtain the lessor’s consent to assign an oil and gas lease. The opinion addresses issues that, remarkably, have never been discussed by a Texas court. Judge Kacsmaryk provides a detailed discussion and analysis of legal arguments on the construction and enforceability of consent-to-assign clauses in oil and gas leases.

Barbara Lips owned a ranch in Roberts and Ochiltree Counties. She signed an oil and gas lease to Alpar Resources in 1994. Ms. Lips died in 1995 and devised the ranch to the endowment arm of the Mayo Clinic. Bank One was hired as agent to manage the Clinic’s interest. The lease was later amended to contain the following provision:

The rights and obligations of the Lessee hereunder are not assignable or transferable in any respect by it, except upon the written approval of Bank One Trust Company, N.A., as Agent, or any successor Agent, which approval shall not be unreasonably withheld.

The lease, as to a portion of the land, came to be owned by BP America, which asked Bank One for permission to assign its interest in the lease to Courson Oil & Gas. Bank One refused to grant consent, citing past business dealings and litigation with Courson. Mayo Foundation then sued BP seeking an injunction to prevent the assignment. Continue reading →

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I first wrote about Chesapeake Energy in 2009, and I’ve written multiple posts about the company since. Founded in 1983 by two Oklahoma landmen, Aubrey McClendon and Tom Ward, Chesapeake grew into one of the largest natural gas producers in the country. During that time the company transformed natural gas production in the US, changing the country from an importer of natural gas to an exporter. Chesapeake also angered its competitors by outbidding them for leases and then used innovative marketing methods to reduce its royalty obligations to its lessors, ending up in multiple cases brought by landowners wherever it did business. Chesapeake’s success was also the germ of its demise; the growth of shale gas production ultimately reduced its price so far that the company was unable to carry its heavy debt burden, and its late effort to shift into oil plays was met with the 2020 oil glut and the COVID-caused reduction in consumption.

Continue reading →

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Rystad Energy has released an analysis of gas flaring in the Permian Basin. Operators flared 533 million cubic feed per day during the fourth quarter of 2018 – more than some states use in a year.CaptureThe flared volumes represented an average of less than 5% of all gas produced. But results varied greatly by operator. (click to enlarge)

Capture-1According to a report by the Environmental Integrity Project, a result of the increased volumes of flared gas and emissions, excessive emissions of sulfure dioxide and hydrogen sulfide have increased pollution levels in Ector County above standards set by the EPA.

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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.

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Our firm is hosting our 5th annual seminar for Texas land and mineral owners on topics of interest in oil and gas law. We have a great lineup of speakers, including Idalia Romanos on royalty audits, Peter Huddleston on current shale development activity in Texas, Mary Keeney providing a case law update, Allen Gilmer of Drillinginfo, and yours truly on allocation wells.

You can find more information and register here.

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Texas Land & Mineral Owners Association is having its Statewide Members Meeting on October 11 in San Antonio. Information here. It is a good organization and a good meeting. Join up and attend.TLMA-mtg

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I served as a clerk for Justice Ross Doughty from 1975-1976, after graduating from UT Law School. Justice Pope was serving on the court at the time. Jack Pope served on the Supreme Court from 1964 until his retirement in 1985, and served as Chief Justice from 1982 to 1985, following the retirement of Chief Justice Joe Greenhill. There were many great jurists on the court in that era, including Greenhill, Steakley, Reavley, Walker, Norvell, and Johnson. They were truly servants of the law, and Justice Pope was among the best.

Requiscat in Pace.

Here is an obituary from Osler McCarthy’s  Texas Supreme Court Advisory:

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This article appeared yesterday in the New York Times:  Land Rush in Permian Basin, Where Oil Is Stacked Like a Layer  Cake. Exxon announced a $6.6 billion deal to buy the Bass family’s position in the Permian.  Noble Energy agreed to buy Clayton Williams Energy for $2.7 billion, acquiring Williams’ 120,000 acres in the Permian. Anadarko announced it is selling its Eagle Ford shale leases to Sanchez Energy and Blackstone Group for $2.3 billion so it can concentrate on developing its leases in the Permian. SM Energy and EOG Resources are also selling assets in other fields to acquire larger interests in the Permian. According to the Times, there have been more than $25 billion of mergers and acquisitions in the Permian since June last year. The frenzy to acquire assets has become known as “Permania.” Companies claim they can make money at as little as $40/bbl. The reason: multiple “stacked” zones in the Permian, principally the Spraberry and Wolfcamp formations, allow multiple wells at different depths on each property.


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