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From Texas Tribune:

A major metro paper endorses a third-party statewide candidate… The Houston Chronicle has endorsed Libertarian Mark Miller in the race to replace David Porter on the three-member Texas Railroad Commission.

“Our editorial board interviews scores of candidates for political office every election year, but seldom do we find ourselves wholeheartedly endorsing a nominee from the Libertarian Party,” the editorial board wrote Tuesday night.  “Then again, seldom have we met a Libertarian candidate like Mark Miller.”

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The Oklahoma Corporation Commission and the Environmental Protection Agency have ordered the shut-in of 54 disposal wells in Osage County, Oklahoma, after a magnitude 5.6 earthquake on Saturday, September 3. The wells are in an oval with a 10-mile radius around the center of the quake, a 211-mile area (click to enlarge):

OK quake Sept 2016
The EPA ordered 17 wells shut-in in the blue area above because EPA is responsible for regulation of oil and gas operations in the Pawnee Nation reservation area.

The quake was about the same magnitude as one near Prague, Oklahoma in 2011 that was the largest recorded quake in Oklahoma.

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Last week the Texas Supreme Court agreed to hear three petitions for review of lower court opinions addressing oil and gas issues of interest to land and mineral owners.

BP America Production Co. v. Laddex Ltd., No. 15-0248

BP owned a lease that was granted in 1971 and was held by production from a single well. The mineral owners granted a top lease to Laddex, and Laddex sued BP contending that BP’s lease had expired for failure to produce in paying quantities. The jury found for Laddex, and the court of appeals affirmed. BP argues that the jury charge is faulty and that there is no evidence to support the jury’s answers; it also contends that Laddex’s top lease is void under the rule against perpetuities. Briefs of the parties are here. Oral argument October 11.

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The EPA has issued a report evaluating the Texas Railroad Commission’s regulation of injection wells: EPAreviewRRC The report criticizes the RRC in three areas, discussed below.

Injection wells, permitted by the RRC, are used to dispose of oilfield waste – produced water, frac water, and other fluids. These liquid wastes are injected into underground reservoirs determined to have no useable groundwater or producible hydrocarbons. Called Class II injection wells, Texas has more than 56,000 such wells – a third of all Class II injection wells in the U.S.

Injection of waste underground is governed by the Safe Drinking Water Act passed by Congress in 1974. That act allows states to take responsibility for permitting and regulation of injection wells if the state’s program meets the requirements of the SDW Act and the EPA. Texas has been regulating injection wells under authority delegated by the EPA since 1982. As part of that delegation, the EPA evaluates Texas’ performance each year and issues an annual report with its findings.

By and large, the EPA report finds that the RRC’s regulation of injection wells meets or exceeds the requirements of the Act. But the RRC is criticized in three respects. Continue reading →

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Public Citizen Texas, an environmental watchdog group, has issued its comments on the Sunset Commission’s report recommending changes at the Texas Railroad Commission. Its comments can be viewed here. The comments largely agree with the Sunset Commission’s recommendations, but in several areas recommend additional reforms. I think Public Citizen’s comments on lack of transparency are particularly appropriate:

There is an astounding lack of transparency at the RRC compared to other states. Many have searchable databases and statistics on their websites relating to inspections, complaints, and enforcement actions, by individual operator and in the aggregate. While the RRC is busy on social media putting out self-serving tweets, no useful statistics or information regarding these issues is readily available on their website. Examples of better practices:

Continue reading →

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The Sunset Commission has scheduled a public hearing August 22, 2016 to hear comments on its staff report on the Texas Railroad Commission.  I have written previously about the staff report here, here and here.

Information about the scheduled hearing can be found here.

The staff’s report on the RRC can be viewed here, along with prior Sunset reports and comments already submitted by industry representatives and environmental and landowner groups on the current report.

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Chesapeake Energy announced last week that it is selling (giving away?) all of its interest in the Barnett Shale to Saddle Barnett Resources, LLC, a company backed by First Reserve. First Reserve is a global private equity investment firm. The Barnett Shale is the birthplace of the shale revolution in the U.S., and the origin of Chesapeake’s meteoric rise as the premier shale gas producer in the country. A key part of the transaction is Chesapeake’s renegotiation of its gathering agreements with Williams Partners. According to Chesapeake’s press release, renegotiation of the Williams agreements will save Chesapeake $1.9 billion in future midstream and downstream costs. Chesapeake is paying Williams $334 million to get out of the contract, and Saddle Resources is “expected to pay an additional sum.”

The sale covers 215,000 net acres and 2,800 wells producing 65,000 boe per day, 96% of which is natural gas. The deal is projected to save Chesapeake $200 to $300 million annually.

It is difficult to know exactly what this transaction entails without knowing more details, but it looks like Chesapeake is in effect transferring its Barnett leases to Saddle Resources for no consideration, and is in addition paying Williams Partners $334 million to get out of the onerous terms of the gathering/transportation agreement. It also looks like Chesapeake has been operating its Barnett leases at a loss, largely because of the Williams gathering/transportation agreement.

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I am not a social media guy, this blog notwithstanding. So I was surprised to learn of a whole category of social media I did not know existed, when I stumbled across www.fracfeed.com, a website sponsored by an organization called North Texans For Natural Gas. North Texans for Natural Gas describes itself as a “grassroots organization” sponsored by Devon Energy, EnerVest, EOG Resources, and XTO Energy, to promote the development and image of natural gas, particularly in the Barnett Shale area of North Texas. Fracfeed.com creates “memes” to promote its cause.

A “meme” is defined as “an idea, behavior, or style that spreads from person to person within a culture.” An internet meme is an activity, concept, catchphrase or piece of media which spreads, often as mimicry, from person to person via the Internet.  One kind of meme seen on the Internet is an “image macro” meme, which according to Wikipedia takes the following form:

meme format
Behind the text is an image “typically drawn from a set of ‘known images’ that are understood by many Internet users.”

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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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