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The Dallas Morning News has published an excellent, in-depth investigative report — “Seismic Denial? Why Texas Won’t Admit Fracking Wastewater is Causing Earthquakes,” by Steve Thompson and Anna Kuchment — about the Texas Railroad Commission’s failure to recognize or address the relationship between salt water disposal wells and earthquakes in North Texas, and the industry’s influence on the process. Anyone who wants to know how the Railroad Commission really works should read this article.  In an accompanying editorial, the News said:

Not only has the Texas Railroad Commission consistently denied man-made earthquakes in the face of compelling science, it also worked overtime to protect the oil and gas industry from accountability for its role in an earthquake swarm that rattled Azle and Reno [in North Texas] in late 2013 and early 2014.

The editorial remarks on the substantial campaign contributions received by commissioners, all of whom are elected, from exploration companies. The Commission is under sunset review (again) this session and must be re-authorized by the Legislature next year. The editorial continues:

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The news this week is full of stories about the EIA’s new figures on the amount of recoverable oil in the Permian Basin. Unlike the rest of the country, the rig count in the Permian is rising and is now equal to all other rigs in the country combined. Permian oil production exceeds that from the Eagle Ford and the Bakken. And unlike all other plays, production from the Permian continues to grow. From EIA’s Drilling Productivity Report (click to enlarge):

EIA Permian

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National press have reported that oil tycoon Harold Hamm, billionaire founder and CEO of Continental Resources, is being considered for Energy Secretary in the Trump administration. Last year, it was reported that Hamm pressured the University of Oklahoma to dismiss scientists who were studying links between disposal wells and earthquakes in Oklahoma. (Google Harold Hamm and earthquakes.)  Since that time, the Oklahoma Corporation Commission has been forced to order severe curtailment of salt water disposal to lessen incidence of earthquakes. Most recently, a 5.0 quake hit near Cushing, OK, the site of the largest oil and gas storage facility in the U.S., forcing shutdown of some pipelines and causing significant property damage in the town of Cushing.

Cushing

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The Commonwealth Court of Pennsylvania last month issued its decision in Kiskadden v. Pennsylvania Department of Environmental Protection, copy of opinion here: Kiskadden. Kiskadden claims that chemicals from Range Resources’ Yeager wells, located about a half-mile from Kiskadden’s water well, contaminated his well. One judge dissented. The Commonwealth Court is an intermediate court of appeals in Pennsylvania, so Kiskadden can appeal to the Pennsylvania Supreme Court.

The case began with Kiskadden’s complaint to the Pennsylvania Department of Environmental Protection. The DEP conducted an investigation and held a hearing and concluded that Kiskadden’s well was not contaminated by Range’s operations. Kiskadden appealed to the Board of the DEP. The parties conducted extensive discovery. Kiskadden refused to produce a list of all products and the composition of products used at the Yeager drillsite, but Range refused to produce that information. The Board then ruled that it would grant a “rebuttable presumption” that the chemicals found in Kiskadden’s water well were presumed to be present at the Yeager drillsite. In effect, this shifted the burden of proof to Range to show that it had not contaminated the well. After a hearing before the Board, it issued extensive findings and conclusions and affirmed the conclusion of the Department that chemicals spilled at Range’s site were not the source of the contamination of Kiskadden’s well. Continue reading →

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The Sunset Advisory Commission will meet November 10 to vote on its recommendations to the Texas legislature for legislation to continue the Railroad Commission for another 12 years.  Committee members have proposed modifications to several of the staff report, and also add several additional recommendations. The staff recommendations and proposed modifications submitted by Commission members can be viewed here. Decision Meeting Material_November  Proposed changes/additions of interest to land and mineral owners include:

  • Chairman Gonzales and Representative Flynn propose to eliminate recommendation that the Commission’s name be changed to a name that reflects the agency’s functions.
  • From Representative Raymond:
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“Liberty doesn’t work as well in practice as it does in speeches.”

“Democrats never agree on anything, that’s why they’re Democrats. If they agreed with each other, they would be Republicans.”

“If you ever injected truth into politics you would have no politics.”

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The Wall Street Journal reported that Sanchez Energy Corp is in talks to buy Anadarko’s leases and production in the Eagle Ford, partnering with Blackstone Group LP, for $3 billion to $3.5 billion. Separately, Sanchez Energy is selling $181 million of “non-core” Eagle Ford leases, about 15,000 acres, to Carrizo Oil & Gas Inc.  Carrizo will fund the purchase with sale of 6 million shares of common stock.

The Sanchez-Anadarko deal would be a big bite for Sanchez, which has a market cap of $472 million and $1.7 billion in long-term debt. Sanchez entered the Eagle Ford play by buying Hess’s leases, and in 2014 it bought Shell’s lease position for $639 million. Anadarko’s Eagle Ford leases are principally in Dimmit and Webb Counties, including the Briscoe Ranch, in all more than 1600 producing wells.

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Two new opinions, one from the San Antonio Court of Appeals and one from the El Paso Court of Appeals, again tackle the task of construing mineral and royalty conveyances and reservations. A spate of these cases has arisen as a result of the recent shale plays, where lands never before productive have suddenly become valuable. As a result, muddy language in old deeds has to be clarified by the courts.

In Laborde Properties, L.P. v. U.S. Shale Energy II, LLC, the San Antonio Court of Appeals was required to construe the following mineral reservation in a 1951 deed:

There is reserved and excepted from this conveyance … an undivided one-half (1/2) interest in and to the Oil Royalty, Gas Royalty and Royalty in other Minerals in and under or that may be produced or mined from the above described premises, the same being equal to one-sixteenth (1/16) of the production.

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Royalty owner opposition to Chesapeake is heating up in Pennsylvania.

Chesapeake has sent royalty owners letters saying it has overpaid them by failing to deduct post-production costs and demanding reimbursement.  Post-production cost deductions are exceeding revenues on Chesapeake’s royalty checks, resulting in a “negative royalty.”  The Commissioners of Bradford County, in the heart of the Marcellus play, have commissioned a video advocating for passage of a bill to require companies to pay a minimum royalty of 1/8th, regardless of the amount of post-production costs. Pennsylvania has a Guaranteed Minimum Royalty Act that requires all leases to contain no less than 1/8th royalty. But the state’s Supreme Court ruled in 2010 that the Act didn’t prevent companies from deducting post-production costs.

Chesapeake has the same problem in Pennsylvania that it had in the Barnett Shale play. In both cases, it made contracts between its affiliated companies to charge high fees for gathering and marketing its gas and then sold those affiliated gathering companies for a substantial premium. It’s now stuck with those very unfavorable post-production costs, and is charging those costs back to the royalty owners.

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I ran across this video from the Austin American Statesman – a reporter asking people what is the business of the Texas Railroad Commission. Not many voters know. Once again, the Sunset Commission has recommended that the Commission’s name be changed to something like the Texas Energy Commission. Sounds like a good idea. But strange things happen at the Legislature.

The RRC has three commissioners, each elected state-wide for terms of six years. There is an open seat this year, so voters will be electing a new commissioner. The Republican candidate is Wayne Christian, a former state lawmaker from East Texas. His campaign platform includes fighting for right to life, supporting gun rights and opposing illegal immigration.  He represented District 9 in the Texas House until 2012, when he was defeated by Chris Paddie. Christian ran for RRC in 2014 and lost in a runoff to Ryan Sitton, currently on the RRC. Christian opposes changing the name of the RRC.

The democratic candidate is Grady Yarbrough.

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John McFarland
 Graves, Dougherty, Hearon & Moody, P.C.
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