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As evidenced by the fight between Williams MLP Operating and EXCO Operating over EXCO’s flaring of Eagle Ford wells on the Briscoe Ranch, now pending on appeal in the 345th District Court of Travis County, flaring continues to be an issue in Texas. I thought a little history might enlighten the subject.

Controversy over gas flaring is not new. In the 1940’s flaring of gas was also an issue in Texas, and the Texas Railroad Commission successfully fought to reduce flaring as a waste of Texas’ valuable resource.

In the early days of oil exploration and production there was very little market for natural gas. It could not be stored and had to be transported by pipeline. In 1930 oil sold for about a dollar a barrel, and gas sold for 3.6 cents per mcf. Six mcf of methane gas produces the same heat as one barrel of oil. So based on heat equivalency, oil was five times more valuable than gas.

The giant Panhandle Gas Field was discovered in 1918 with the completion of the Masterson No. 1. Three additional wells soon followed, and those four wells were tested in March 1920 at 160 million cubic feet per day. Initially no one could be found to buy the gas. The City of Amarillo spent $60,000 advertising the resource but found no buyers. The city offered free gas for five years to any industry that would move to Amarillo. No takers.

But, by 1929 several gas pipelines were laid to move the gas to distant markets and fifty-three gasoline plants and twenty-four carbon black plants had been constructed. The value of gas had been realized. Continue reading →

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From POLITICO:

OIL IN THE TIME OF PANDEMIC: The global oil market is in an unprecedented situation, one that will hasten companies falling out of the sector, IHS Markit vice chairman and long-time energy industry doyen Daniel Yergin said Thursday. Yergin, in D.C. for an Energy Department board meeting, would normally have been in Houston to preside over the mammoth CERAWeek energy conference this week if the spread of the coronavirus hadn’t forced its cancellation for the first time in its nearly 40-year history. The economic distress, coupled with the flood of oil coming from Saudi Arabia and Russia, has put the overall industry in a situation it has never faced before and one that the federal government would be hard-pressed to fix, he said.

“I mean, there’s just so much weakness,” Yergin told reporters after the meeting. “There’s so much oil out there flooding into the market. It’s a problem of an oil price war in the middle of a constricting market and the walls are closing in. Normally, demand would solve the problem in a way. But not in this case, because of the freezing up of economic activity. Low gasoline prices and low oil prices don’t do much when schools are closed, when people are canceling all their trips and people are working from home. There have been many cases of an oil market collapse and competition for market share, but I can’t think of any one that was in the context of a larger global epidemic.”

Some of the possible solutions being bandied about probably wouldn’t work , Yergin said. Government purchases of oil to put into the Strategic Petroleum Reserve? “You’d have to write some very big checks, and I don’t know if they could deal with the amount of oil coming into the market,” Yergin said. Anti-dumping complaints of the sort Continental Resources CEO Harold Hamm said he’s pursuing? “I don’t think it would solve things overnight,” Yergin said, and it would be tough to prove Saudi Arabia is selling its oil below cost. “I think this is certain to accelerate consolidation” in the industry, Yergin said of the current market. “But it’s still early days.”

Here’s one idea: Railroad Commission should (1) order all flaring in the Permian to cease, requiring those wells flaring gas to shut in the wells or sell the gas, and (2) re-institute proration of production in the Permian, reducing economic waste.

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To better understand the recent news about the precipitous drop in crude prices, it is helpful to review the global picture of world oil production and consumption. (click on images to enlarge.)

In 2018, the US produced 18% of total world oil production, the most of any country. If Saudi Arabia increases its production by a million barrels a day, that would increase world production by about 1%.

top-world-producers-2018
In 2017, the US consumed 20% of total world oil consumption.

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The post below is from my partner Nicholas Miller. Nicholas has developed a specialty helping mineral owners evaluate offers to purchase their minerals and advising them through the sale process.

 

John and I often receive questions from clients and interested parties about selling mineral assets.  John previously wrote about our work in marketing and selling minerals here.

A few years ago when fielding these questions, I would pass along the family mantra I so commonly heard growing up in a mineral and land-owning family; don’t ever sell your minerals.  You never know if and when the low-producing or non-producing asset will suddenly become exponentially more valuable.  This unknown still rings true today, but I believe to a lesser degree. Continue reading →

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I attended the Symposium of the Texas Journal of Oil, Gas and Energy Law at UT last week. One of the speakers was Giji M. John, Partner at Orrik, Houston, on renewable energy. Here are some takeaways. (click on images to enlarge.)

Renewable energy’s contribution to US energy consumption in 2018 was 11%. Of that 11%, wind energy contributed 21% and solar 6%. Remarkably, “wood” was 19% of that 11%. So solar and wind combined contributed 27% of 11%, or less than 3%, of energy consumed in the US.

US-energy-consumption-by-source-2018Texas is by far the leader in wind energy production, with 24,895 megawatts of installed capacity. The next state is California with 5,840 MW.

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I highly recommend a podcast sponsored by Texas Monthly, Boomtown. It’s a series about the history of the Permian Basin and the people who live and work there in the recent boom. Its host is Christian Wallace, who grew up in Andrews. You’ll get to meet his grandmother, who still lives there – quite a lady. You can download it on Apple Podcasts.

boom-town-permian-basin

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The oil and gas industry is at the beginning of a significant downturn. Oil and gas prices are down, supply is up, demand is flat. Another in the never-ending cycle of a boom-and-bust industry, now exacerbated by appearance of a potential coronavirus world epidemic and a sharp reduction in demand for hydrocarbons in China.

As in the past, a downturn in the industry results in a rise in bankruptcies, and this downturn is no exception. Two recent bankruptcy cases illustrate a new wrinkle in disputes arising from failed companies: Monarch Midstream, LLC v. Badlands Production Co., 608 B.R. 854 (Bkrtcy.D.Colo. 2019), and Alta Mesa Holdings, LP v. Kingfisher Midstream, LLC, 2019 WL 7580122 (Bkrtcy.S.D.Tex. Dec. 20, 2019). Continue reading →

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The Texas Supreme Court issued its opinion in ConocoPhillips Co. v. Ramirez, No. 17-0822, a family dispute over ownership of minerals in 10,058 acres in Zapata County, and ConocoPhillips’ claim to an oil and gas lease covering those minerals.

In 1995, ConocoPhillips bought oil and gas leases from EOG covering 1,058 acres, the Las Piedras Ranch, in Zapata County. At the time there was one producing well on the leases. The minerals belonged to the Ramirez family. One member of that family was Leonor, who died in 1990, owning all of the surface estate and a 1/4 mineral interest in the Ranch. Her will devised to her son Leon Oscar Sr. “all of my right, title and interest in and to Ranch Las Piedras … during term of his natural life,” and on his death “to his children then living in equal shares.” Leon Oscar Sr. signed an oil and gas lease on the Ranch, which was acquired by ConocoPhillips. Continue reading →

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Last April the Fort Worth Court of Appeals issued its opinion in Bluestone Natural Resources II, LLC v. Randle, No. 02-18-00271-CV, 2019 WL 1716415. The Court decided that, under Randle’s lease, Bluestone could not deduct post-production costs and owed royalty on plant fuel and compressor fuel. Bluestone has petitioned the Supreme Court for review and the Court has asked for briefs on the merits.

Randle’s lease was a printed form with an exhibit. The printed form provided that royalties on gas would be “the market value at the well of one-eighth of the gas so sold or used …” Exhibit A provided that “the language on this Exhibit A supersedes any provisions to the contrary in the printed lease hereof.” One provision in Exhibit A dealt with post-production costs:

Lessee agrees that all royalties accruing under this Lease (including those paid in kind) shall be without deduction, directly or indirectly, for the cost of producing, gathering, storing, separating, treating, dehydrating, compressing, processing, transporting, and otherwise making the oil, gas and other products hereunder ready for sale or use. Lessee agrees to compute and pay royalties on the gross value received, including any reimbursements for severance taxes and production related costs.

Continue reading →

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