Oil and Gas Lawyer Blog

Published on: December 2, 2019

The Economics of Flaring

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.

Continue reading →

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.

Continue reading →

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 →

Published on: October 7, 2019

Cimarex v. Anadarko – Is a lease held by production if the lessee does not participate in the well and there is no operating agreement?

By John McFarland

Last March the El Paso Court of Appeals decided Cimarex Energy v. Anadarko Petroleum, No. 08-16-00353-CV. The facts are these:

Cimarex leased a 1/6th interest in 440 acres in Ward County. Anadarko leased the remaining 5/6ths. Cimarex asked Anadarko to let Cimarex participate in wells on the leases under a joint operating agreement, but Anadarko refused. Anadarko drilled two wells, carrying Cimarex as a non-consenting co-tenant. Cimarex sued for an accounting. The parties settled, Anadarko agreeing to an accounting and to pay Cimarex its share of net profits from the wells. Cimarex paid its royalty owner for its share of production “according to the terms of its lease, dating back to the date of first production.”

But at the end of the primary term of the Cimarex lease – December 21, 2014 – Anadarko stopped paying Cimarex, claiming its lease had expired. Anadarko took a new lease from Cimarex’s lessor. Cimarex sued Anadarko for breach of the settlement agreement. The trial court held that Cimarex’s lease had expired and dismissed its suit. On appeal, the Court of Appeals affirmed. Cimarex has now filed a petition for review in the Supreme Court.

Continue reading →

Published on: October 2, 2019

Produced Water Supersystems

By John McFarland

H2O Midstream recently announced its acquisition of “produced water infrastructure” from Sabalo Energy in Howard County – 37 miles of pipeline, nine salt water disposal wells, four Ellenburger salt water disposal well permits, and other assets. This brings H2O Midstream’s produced water network up to a combined “supersystem” for handling produced water of up to 435,000 barrels per day, 190 total miles of pipeline, and 40,000 barrels per day of recycling capacity. The deal includes a 15-year “acreage dedication” of Sabalo’s leases to provide produced water gathering, disposal and recycling services to Sabalo. H2O Midstream is funded by EIV Capital and its institutional partners.

H2O is one of several companies trying to create supersystem produced-water handling systems in the Permian and the Eagle Ford. Like H2O’s deal with Sabalo, these acquisitions typically involve transferring produced water infrastructure assets to the company and dedication of the seller’s leases to the system – a commitment to pay an agreed amount to the company for produced water disposal services.

From landowners’ point of view, this development presents some interesting questions and challenges.

Continue reading →