Oil and Gas Lawyer Blog

Published on: February 15, 2018

Retained Acreage Clauses

I recently ran across an excellent article explaining the relationship between retained acreage clauses in oil and gas leases and density and proration rules promulgated by the Texas Railroad Commission: “Fun New Ways for Density and Proration Rules to Bust Your Lease: Retained Acreage Clauses and ‘Governmental Authority’ Language in the Wake of Three Recent Texas Cases,” by Brandon Durrett, of Dykema Cox Smith. You can view it here: 140_Durrett – Fun New Ways Brandon summarizes the history of case law construing lease language that adopts RRC spacing rules as the basis for limiting pooled units and designation of acreage that can be held under an oil and gas lease.

At the time of Brandon’s article the Texas Supreme Court had denied petitions in two cases dealing with retained acreage clauses, Endeavor Energy Resources v. Discovery Operating and XOG Operating v. Chesapeake. Since then, the Supreme Court changed its mind and agreed to hear the cases and they were recently argued.

I have previously written that it is a mistake to adopt RRC field rules as the basis for retained acreage clauses. These two recent cases are Exhibit A for that argument.

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Published on: February 5, 2018

The Treaty of Guadalupe Hidalgo

By John McFarland

On February 2, 1848, the United States and Mexico signed the Treaty of Guadalupe Hidalgo, ending the Mexican-American War. I’ve been reading the biography of Stonewall Jackson; he and many of the generals in the Civil War first experienced combat in that war. As part of the treaty Mexico ceded the portion of Texas between the Nueces and Rio Grande Rivers, and Texas and the U.S. recognized the validity of titles to land granted by Mexico and Spain in this area, known as the Nueces Strip.

Of course the treaty didn’t settle matters in the Nueces Strip. In 1850 a movement arose to establish a Rio Grande territory separate from Texas. Its leaders called for a convention to form a provisional government and a petition to Congress to recognize the area as a separate territory. Part of the reason for the movement was fear that Texas wouldn’t recognize their land titles.

In response, on February 22, 1850, the Texas Legislature passed a law establishing a commission to investigate and recommend for confirmation title claims emanating from Spanish and Mexican land grants. Known as the Bourland Commission, it consisted of two commissioners, William Bourland and James Miller, and Robert Jones, a well-known lawyer and judge, to serve as the commission’s attorney. The commissioners gathered evidence, including documents, affidavits and testimony, and prepared an abstract on each claim and a recommendation as to whether the claim should be confirmed or rejected. The legislature then acted to confirm or deny applications for recognition of the land titles.

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Published on: January 30, 2018

Hooks v. Samson – The Last Chapter

By John McFarland

The Texas Supreme Court yesterday denied Samson Exploration’s petition for review, ending a long-fought fraud case against Samson that began in 2007. The case was before the Court for the second time; in its first opinion in 2015 the Supreme Court reversed a court of appeals’ judgment throwing out the Hooks’ $21 million judgment against Samson and remanded to the court of appeals for further proceedings. In 2016 the court of appeals affirmed all but $2.6 million of the judgment, leaving in place a judgment for $17.5 million plus interest.

The Hooks claimed damages resulting from Samson’s fraudulent misrepresentation of the location of a well it drilled adjacent to the Hooks’ property. The Houston Court of Appeals’ first opinion in the case threw out the judgment because the Hooks’ claim was barred by limitations. But one Justice on the court made clear that he was joining the majority only because he was bound to do so by the Supreme Court’s opinion in BP v. Marshall:

In that case, the Texas Supreme Court makes clear that no lies on the part of a lessee, however self-serving and egregious, are sufficient to toll limitations, as long as it is technically possible for the lessor to have discovered the lie by resort to the Railroad Commission records. This burden the Court imposes upon lessors is severe. It is now a lessor’s duty to presume that any statement made by its lessee is false and to ransack the esoteric and oft-changing records at the Railroad Commission to discover the truth or falsity of its lessee’s statements. If, as is often the case, these records are technical in nature and require expert review to ferret out the truth, it is the lessor’s job to hire experts out of its own pocket to perform such a review. If a lessor fails to take these steps, then it will have failed in exercising reasonable diligence to protect its mineral interests and, if the lessee’s fraud is successful for longer than the limitations period, the lessor’s claims will be barred by limitations.

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Published on: January 22, 2018

Pecos County is Center of Solar Power Boom

By John McFarland

174 Power Global Corp., a subsidiary of South Korea’s Hanwha Energy, held its groundbreaking last week for the largest solar power project in Texas: a 236-MW plant to be built in Pecos County. It will sell its power – enough to power more than 50,000 homes – to Austin Energy, Austin’s municipally owned power provider.

Other Texas solar projects:

NRG’s Buckthorn Solar Farm, 200 MW in Pecos County, to supply the City of Georgetown, the largest municipality in the country powered solely by renewable sources.

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Published on: January 16, 2018

Mega Pads

By John McFarland

An Encana well pad in the Permian:

Here is another, EQT’s Cogar pad in the Marcellus:

Article from Post Gazette on mega pads in the Marcellus here.

Published on: January 16, 2018

Art Berman on the Permian

By John McFarland

I recently ran across an article on Investing.com, “The Problematic Truth About U.S. Shale Oil Production,” by Dr. Ellen Wald, who hosts a podcast about global energy. Dr. Wald reports on her recent podcast discussion with Art Berman, a geology consultant and frequent speaker and author. It reminded me that I wrote about Mr. Berman several years ago, when the shale gas plays in the Marcellus and Barnett were getting started. He told Dr. Wald that the Permian shale plays have much smaller reserves than others — including the Energy Information Administration — have estimated, as little as 3.8 billion barrels.

In 2010, I wrote about Mr. Berman’s attendance at a conference in Washington sponsored by the Association for the Study of Peak Oil & Gas – USA, of which he is a director. At that time he argued that the gas reserves in the Marcellus were much smaller than were being predicted. A year earlier, Mr. Berman created a stir when he published a gloomy analysis of the Barnett Shale. He was then a contributor to World Oil, a trade publication, and World Oil refused to publish one of his articles, causing him and his editor to resign and creating a stir.

Mr. Berman was on a panel hosted by Texas Monthly in 2013, along with Scott Tinker of the UT Bureau of Economic Geology, and Kenneth Medlock, then an energy fellow at the Baker Institute. He continued to question estimates of shale oil and gas reserves. (Dr. Tinker created a wonderful website for those wanting to know more about world energy, the Switch Energy Project, worth exploring.)

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Published on: January 8, 2018

Should I Sell My Minerals?

By John McFarland

I have often received calls from clients who receive unsolicited offers to buy their minerals. In the past, mineral owners have generally ignored these offers, reminded of their grandmother’s admonition to “never sell your minerals.”

That has changed. The buying and selling of minerals has now become common. Investment monies have flowed into funds that acquire mineral interests. Companies have been founded with that objective. Some of the largest mineral portfolios have been assembled by purchase over the last decade. Black Stone Minerals, for example, has evolved from a family-owned East Texas lumber company into one of the largest mineral owners in the country. Energynet, founded in 1999, conducts online auctions of minerals and now handles more than $1 billion per year in transactions.

Investment in minerals, especially in Texas, has several advantages. Holding costs for minerals are minimal. Taxes are assessed only on producing minerals. Severed non-producing minerals cannot be adversely possessed. No liability risks attach to mineral and royalty interests.

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Published on: January 2, 2018

Lawrence Wright, “The Dark Bounty of Texas Oil”

By John McFarland

Native Texan and Austinite Lawrence Wright, longtime journalist and Reporter at Large at the New Yorker, has written about Texas’ love affair with and dependence on oil, in the January 1 issue of the New Yorker. “The Dark Bounty of Texas Oil” is a 10,000-foot flyover of Texas’ oil business, from Spindletop to the Permian Basin. An excellent read.

When I began this blog, US oil and gas production was just beginning to rise out of a 35-year decline.

While Texas oil production is not back to its levels of the 1970’s, its rise since 2019 has been meteoric, fueled by the resurgence of production from the Eagle Ford and more recently the Permian.

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Published on: December 22, 2017

My Favorite Holiday Card

By John McFarland

Every year I look forward to receiving William Osborn‘s holiday photo. William is an Austin oil and gas attorney, an amateur historian, a historic preservationist, an alley gardener, an all-around renaissance man, and my cousin. Every December for the last twenty-five years he has sent a photo to his clients and friends documenting the history of the oil and gas industry in Texas, along with an article explaining its historical context written by William. He has collected all of those photos and articles on his Texas Compound website, and you can view them here. Below is one of his photos:

Of this photo, William wrote: “On July 29, 1918, the Fowler Farm Oil Company S.L. Fowler Number 1, located on the northern edge of the Wichita County community of Burkburnett, blew in at a rate of 2200 barrels of oil per day from a completion depth of 1,734 feet. Within three weeks there were more than 50 drilling rigs operating in the immediate area. The Fowler Farm Oil Company drilled a second well on the same lease and then sold its entire interest in the tract to the Magnolia Petroleum Company for the sum of $1,800,000.00.” By June 1919 there were more than 850 producing wells in “the world’s wonder oilfield.”

William, whose interests include the history of railroads in Texas, has also built the Texas Compound on Highway 290 West, west of Austin. Since 1986 he has moved several historic buildings onto his compound, including a Santa Fe Railroad Depot from Dumas and Texaco bulk fuel warehouses from MCamey and Spur. He has also restored several old railroad cars on the property, including three “Texas Zephyr” railroad passenger cars and two Southern Pacific “Sunset Limited” passenger cars. William’s Texas Compound website includes historical photos of his restored buildings and passenger cars. A visit to his compound is worth the trip. He has also written a history of Jim Crow laws and Texas Railroads, “Curtains for Jim Crow: Law, Race, and the Texas Railroads,” published in Southwestern Historical Quarterly, which can be found here, along with his other writings. Below is a historic photo from William’s collection showing the inside of the coffee shop in Southern Pacific Railroad’s “Pride of Texas.”

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Published on: December 18, 2017

Checklist for Negotiating an Oil and Gas Lease

By John McFarland

I got the idea to start this blog after I made a presentation to a landowner group in which I distributed a checklist for negotiating an oil and gas lease. Soon thereafter, I began receiving calls from people who had found the checklist on the internet. The organization that sponsored my presentation had posted it on their website, and people searching for help on negotiating a lease found it. I decided that I should investigate this internet thing more closely, and that led to my decision to start this blog.

I have updated my checklist, and you can find the new and improved version here: Checklist for Negotiating an Oil and Gas Lease

And on a sadder note, I would like to mourn the passing of Tommy Nobis, the best linebacker ever to play for the University of Texas. He played for UT 1963-65, and was a member of its 1963 national championship team. He had a great professional career with the Atlanta Falcons, where he was the franchise’s first draft pick in 1966 and was known as “Mr. Falcon.” He still holds the record in the NFL for most tackles in a season, at 294. Nobis died December 13. He attended the football banquet at St. Stephen’s Episcopal School in 1965 where I was a sophomore and played defensive guard and center. My jersey, like Nobis’s, was number 60. He and I both sported a flat-top haircut, and for the rest of my high school football career my nickname was “Nobis.” Requiescat in pace, Tommy.