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TP-ticketOnce the largest landowner in Texas with 3.5 million acres of land, Texas Pacific Land Trust now owns 888,333 acres of land in West Texas. The Trust is owned by holders of “shares of proprietary interest” traded on the New York Stock Exchange. TPLT’s story is a window into the history of Texas and railroads in the 19th century.

Texas and Pacific Railway was created by federal charter in 1871. Its charter was to build a southern transcontinental railroad between Marshall, Texas and San Diego, California. Railroad companies were given land grants in exchange for building rail line, and the U.S. Congress granted T&P twenty sections of land per mile in California and forty sections per mile through the territory that is now Arizona and New Mexico. The State of Texas (where there were no federal lands) agreed to grant T&P twenty sections per mile for the portion of the line crossing Texas. The panic of 1873 caused financial difficulties, and by 1876 only 444 miles had been built. In 1879, Jay Gould bought the company and began laying track west. Gould merged T&P with Southern Pacific Railway, and by 1881 it had built a total of 972 miles of track, entitling it to 12.4 million acres of land. But because it had not built all of the line within the time required by its charter, T&P was awarded only 5,173,120 acres, later reduced to 4,917,074 acres – 3.5 million of that in Texas.TP-map

In 1888, the T&P went through bankruptcy and receivership, and the bondholders who financed the railroad were awarded the land in Texas that had been granted to T&P. The bondholders created a trust, Texas Pacific Land Trust, to liquidate those lands for the benefit of the bondholders, receiving 3.5 million acres of land. The certificates of trust issued to the bondholders were later listed on the New York Stock Exchange. The mineral estate under the land was spun off into a separate entity and later sold to Texaco, now Chevron. TPLT owns a royalty interest in almost 500,000 acres of its land.

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Lightning Oil v. Anadarko will be argued before the Texas Supreme Court on March 21. I wrote about the court of appeals’ opinion here.  The issue: whether the owner of a mineral estate has a cause of action for trespass if a horizontal well is drilled through the tract to produce from an adjacent tract. The parties’ briefs may be found here.

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Texas A&M has asked that I post notice of its 2017 Energy Law Symposium on “The Future of Energy”. The symposium, scheduled for March 23–24, 2017, will convene industry experts, academic commentators and public officials to discuss a wide range of issues bearing on anticipated needs, policy challenges and proposed reforms in the U.S. and global energy markets. Panel, debate and keynote sessions will address legislative and regulatory priorities, power generation, allocation wells, trans-boundary resource management, environmental considerations, bankruptcy and much more. $50 Registration / $150 Registration + CLE (12.75 CLE credit hours pending approval). The agenda for the symposium can be viewed here: energy-symposium-agenda-2feb17(4)

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Yet another suit alleging underpayment of royalties has been filed against Chesapeake in the Barnett Shale. The petition can be viewed here: Addax v. Chesapeake Among the long list of plaintiffs is Kimbell Art Foundation. The petition alleges that plaintiffs are lessors under more than 8,000 leases in 280 pooled units with more than 725 producing gas wells. Defendants are Chesapeake and its working interest partner in the Barnett, Total E&P USA, Inc. Plaintiffs’ counsel is Burns Charest LLP.

The suit focuses on two complaints against the defendants. The first is based on the gathering agreement between Chesapeake and Access Midstream. The second is based on how Chesapeake has calculated the plaintiffs’ royalty interests in the pooled units. Continue reading →

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Three recent articles have intensified the debate over whether allocation wells are authorized by a typical oil and gas lease. Two of the articles appear in the most recent edition of the Section Report of the Oil, Gas & Energy Resources Law Section of the State Bar. The first, written by Ernest E. Smith, makes clear in its title the position of the author: Applying Familiar Concepts to New Technology: Under the Traditional Oil and Gas Lease, a Lessee Does not Need Pooling Authority to Drill a Horizontal Well that Crosses Lease Lines. View here: Applying Familiar Concepts  A later version of his article will be published in the Texas Journal of Oil, Gas and Energy Law at the University of Texas School of Law. The second article is by Ronald D. Nickum, an oil and gas attorney in Amarillo, titled Non Consent Allocation – Will it Survive Judicial Scrutiny. View here:  Non Consent Allocation Mr. Nickum’s article is more skeptical about the legality of allocation wells.

Professor Smith’s article is written in rebuttal to an article to be published in the Baylor Law Review written by Professor Bret Wells, Allocation Wells, Unauthorized Pooling, and the Lessor’s Remedies, which can be viewed here. Professor Wells argues that allocation wells are a form of pooling not authorized by a typical oil and gas lease and give rise to claims for trespass and punitive damages.

The Texas Railroad Commission ruled in the Klotzman case that it had the authority to issue permits to drill horizontal wells that cross multiple lease lines without pooling those leases together. Although the Commission has never adopted a rule defining or authorizing permits for such wells, an “allocation well” has generally come to be understood as a well that crosses one or more lease lines and that produces from more than one lease without pooling those leases and without any agreement with the royalty owners as to how production will be allocated among the leases crossed by the well. Because of the uncertainty as to the legality of allocation wells, exploration companies sought legislation in the last legislative session expressly authorizing such wells. That bill, HB 1552, died in committee. It is expected that similar legislation will be filed in the upcoming session.

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Our firm’s third annual seminar for land and mineral owners is May 6th at the Stephen F Austin Intercontinental Hotel from 9am to 6pm.

As a reader of my blog, if you use the coupon code BLOG, you will save $5 off the registration fee.

Topics covered throughout the day will include:

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The township of Dimock, Pennsylvania has been the focus of controversy over the environmental impact of hydraulic fracturing. Residents of Dimock rely on groundwater, and in 2009 they were forced to obtain alternate sources because of contamination of their groundwater that they blamed on wells drilled by Cabot. Cabot had drilled and fracked 62 wells in an nine-square-mile area around Dimock. Cabot denied, and has continued to deny, that its wells were responsible for the contamination.  Dimock featured prominently in the anti-fracking “documentary” Gasland.

Last month, a case filed by Dimock residents against Cabot, Ely v. Cabot Oil & Gas Corporation, filed in 2009, finally went to trial.  A large number of residents originally joined the suit, but most settled with Dimock in 2012. Cabot, represented by Norton Fulbright, vigorously fought the case with pretrial motions. The plaintiffs originally had claims for negligence, gross negligence, private nuisance, strict liability, breach of contract, fraudulent misrepresentation, and claims under the Pennsylvania Hazardous Sites Cleanup Act. By the time of trial, Cabot had convinced the judge to dismiss all of plaintiffs’ claims except negligence and private nuisance. Two families remained as plaintiffs, the Elys and the Huberts. They still live in Dimock and still truck their drinking water to their homes. The Elys and Huberts, represented by two local attorneys, Leslie Lewis and Elisabeth Radow. Their case was financed by crowd-funding and the Energy Justice Network.

During trial, the judge dismissed the plaintiffs’ negligence claim and held that potential damages in the sole remaining claim for private nuisance should be limited to “inconvenience and discomfort” cause by the nuisance, excluding any claim for mental and emotional discomfort or the cost of replacing the water. The judge also ruled that plaintiffs could not discuss before the jury consent decrees between Cabot and the Pennsylvania Department of Environmental Protection relating to the Dimock groundwater contamination.

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Bloomberg’s estimates of the oil price necessary to recover drilling, completion and operating costs in various shale plays (click to enlarge):

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The winners: DeWitt County in the Eagle Ford Shale, $23/bbl, the Wolfcamp in Reeves County, $24/bbl, and the Bone Spring in Ward County, $25/bbl. Except for DeWitt County, all breakeven prices below $30/bbl are in the Permian Basin.

 

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