Oil and Gas Lawyer Blog

Published on: December 9, 2019

Lyle v. Midway Solar – Solar Farm Meets Accommodation Doctrine

Plaintiffs Kenneth Lyle and Linda Morrison have appealed the dismissal of their suit against Midway Solar to the El Paso Court of Appeals, No. 08-19-00216-CV. Lyle and Morrison own the minerals under 315 acres in Pecos County. Midway Solar has constructed a solar farm on 215 of those acres.

Typically, a solar developer will obtain surface-use waivers from mineral owners before building a facility. Midway did not do that. Instead, it set aside portions of the 315 acres, on the north and south ends of the property, to allow for development of the minerals by directional drilling.

Lyle and Morrison contend their minerals are not susceptible to development by directional or horizontal drilling, because of the subsurface geology. They say 70% of their tract cannot be developed for minerals. Their minerals are not now leased and there are no plans to drill wells. There has been production from wells in the vicinity.

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Published on: December 6, 2019

Record Settlement in Citizens’ Suit against Formosa Plastics for Contamination in Texas Waters

By John McFarland

The Texas Tribune has published an article describing a remarkable settlement in San Antonio Bay Estuarine Waterkeeper and S. Diane Wilson v. Formosa Plastics Corp, a suit claiming environmental damages for Formosa’s plastics pollution discharges into Lavaca Bay. The judge in the US District Court for the Southern District of Texas, Kenneth Hoyt, approved a $50 million settlement – the largest ever for a citizen’s suit against an industrial polluter under the Clean Air Act and Clean Water Act.

Formosa argued that the $121,875 fine imposed by the Texas Commission on Environmental Quality made the suit moot. In an earlier ruling, Judge Hoyt disagreed, calling the company a “serial offender” and saying that “the TCEQ’s findings and assessment merely shows the difficulty or inability of the TCEQ to bring Formosa into compliance with its permit restrictions.” I cited this case in an earlier post about the inadequacy of Texas agencies’ enforcement of environmental laws and the complexities of administrative enforcement actions.

Diane Wilson, a retired shrimper and environmental activist, was represented by Texas Rio Grande Legal Aid and others. Congratulations to Ms. Wilson.

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Published on: December 2, 2019

The Economics of Flaring

By John McFarland

Rice University’s Baker Institute for Public Policy recently published an Issue Brief, “Reducing Oilfield Methane Emissions Can Create New US Gas Export Opportunities,” written by Gabriel Collins, Baker Botts Fellow in Energy & Environmental Regulatory Affairs at the Institute. Collins argues that instead of flaring gas, it should be liquefied and sold in the international market.

Actions that improve environmental well-being are most effective and sustainable when the yield a bona fide economic benefit. This certainly would be the case with policies to reduce flaring and venting of natural gas in the US, as doing so would free up gas molecules for export to customers worldwide seeking cleaner, more secure gas supplies.

Some statistics from Collins’ brief: Continue reading →

Published on: November 25, 2019

Fight Over Flaring in the Eagle Ford

By John McFarland

The fight between Williams and Exco over whether Exco can continue to flare gas from its wells has moved to District Court in Travis County.

Exco filed an application with the Texas Railroad Commission for permission to flare gas from more than 130 Eagle Ford oil wells on the Briscoe Ranch. Exco bought the wells from Chesapeake. Williams protested Exco’s application. It owns the gathering system, which it purchased from Mockingbird Midstream, at that time an affiliate of Chesapeake. Under RRC Rule 32, a company must obtain a permit to flare gas. After a hearing, the administrative law judge recommended that the permit be granted, and the RRC granted the permit.

Exco’s wells had been connected to the Williams gathering system and dedicated to the gathering contract between Chesapeake and Mockinbird Midstream when the two companies were affiliated. Exco and Williams disputed whether the Exco wells were still under that contract. Exco was in bankruptcy, and that dispute was in the bankruptcy court.

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Published on: November 14, 2019

Two Fun Resources

By John McFarland

A friend recently told me about two great websites: www.oilystuffblog.com, and www.shaleprofile.com. The first is a fun read authored by Mike Shelman, “Oily Humor & Short Stories About a Very Long, Oily Life.” Here’s a post about “BOE,” or “barrels of oil equivalent.”

Shale Profile is a subscription site, but it has a lot of free information about shale plays in the U.S. A remarkable interactive use of big data. Here’s an example, a snapshot of all production in the Permian Basin:

Published on: November 4, 2019

How Fracking Works

By John McFarland

Interesting graphics in article from Bloomberg, “After Decades of Fracking, We Finally Know How the Fluid Spreads Underground.”

Published on: October 30, 2019

The Railroad Commission and the Coal Industry

By John McFarland

Excellent investigative reporting by Texas Tribune on how the Texas Railroad Commission fails to enforce state and federal laws requiring restoration of coal mines. “Texas coal companies are leaving behind contaminated land. The state is letting them.” Mirrors my experience with trying to get the RRC to force E&P companies to clean up their messes. Also echoes similar problems with abandoned coal mines in West Virginia.

Published on: October 29, 2019

Arkansas Case On Post-Production Costs

By John McFarland

A U.S. District Court in Arkansas decided a case in 2016 that a client sent me, Whisenhunt Investments, LLC v. Exxon Mobil Corp., 2016 WL 7494266, No. 4:13cv00656 JM, Eastern District of Arkansas, Western Division, raising an interesting issue on post-production costs.

Arkansas has forced pooling. The forced pooling statute provides that

One-eighth (1/8) of all gas sold … from any such unit shall be considered royalty gas, and the net proceeds received from the sale thereof shall be distributed to the owners of the marketable title in and to the leasehold royalty and royalty …. Payment of one-eighth (1/8) of the revenue realized from the sale of gas as provided in this section shall fully discharge all obligations of the operator and other working interest owners with respect to the payment of one-eighth (1/8) leasehold royalty or royalty … Nothing contained in this section shall affect the obligations of working interest owners with respect to the payment of royalties, overriding royalties, production payments, or similar interests in excess of the one-eighth (1/8) royalty required to be distributed under this section.

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Published on: October 16, 2019

Study Concludes Some Earthquakes in West Texas Likely Caused by Fracing

By John McFarland

A study released by TexNet concludes that “some earthquakes in west Texas are more likely due to hydraulic-fracturing than salt-water disposal.”

TexNet is a seismic monitoring program run by the University of Texas and funded by the legislature as a result of unusual earthquake activity in several areas of Texas where oil and gas drilling has spiked in the last few years. Previous studies had linked earthquakes to saltwater injection, resulting in increased regulation of water injection wells by the Texas Railroad Commission.

This year TexNet has detected 209 earthquakes across Texas, with the strongest at 3.8 magnitude, near Snyder on October 1, already surpassing the total quakes in 2018 of 192.

Published on: October 14, 2019

When is a contract provision a liquidated damages clause, and when is a liquidated damages clause an unenforceable penalty?

By John McFarland

Two recent court of appeals cases address the enforceability of liquidated damages clauses: TEC Olmos, LLC v. ConocoPhillips Company, and Fairfield Industries v. EP Energy E&P Company. The Texas Supreme Court requested the parties in TEC Olmos to file briefs on the merits but recently denied review. In EP Energy, the court denied EP’s petition for review, but EP has filed a forceful motion for rehearing and the court has requested a response. In the meantime, the case has been stayed because of EP Energy’s bankruptcy.

A liquidated damages clause is a provision in a contract specifying a dollar amount (“liquidated damages”) to be paid by a party if the party breaches the contract. Such clauses are common in all types of contracts, particularly in the oil and gas industry. If a contractor promises to complete construction of a building by an agreed date and fails to do so, the contract may provide for a payment of an agreed amount for each day completion is delayed. If a party promises to drill a well in a lease or farmout agreement, the parties may agree that, if the well is not drilled, the defaulting party will pay an agreed amount as damages. If a lessee promises to keep a ranch gate closed, the parties may agree on a liquidated damages amount for each time the lessee leaves the gate open.

Texas courts have imposed judicial restraints on the enforceability of liquidated damages clauses. In 2014, the Texas Supreme Court summarized these restraints in FPL Energy v. TXU Portfolio Management Co.: Continue reading →