Oil and Gas Lawyer Blog

Published on: May 23, 2016

RRC Sunset Review Part III – Bond Requirements for Well Plugging

The draft Sunset Commission report on the Texas Railroad Commission makes recommendations for legislative changes to the bonding requirements for oil and gas wells. Landowners should be familiar with how the RRC’s bonding system works, and how it could affect operations on their property.

Operators of oil and gas wells in Texas must have a permit to operate. In order to obtain that permit, the operator must provide financial security in the form of cash, a bond, or a letter of credit to provide financial assurance that it will plug any wells it operates. The amount of financial security required is set by statute and was last revised in 1991. Most operators comply with the bonding requirement by furnishing “blanket” bonds. The amount of the bond depends on the number of wells operated by the operator:

Operators with 1-10 wells must have a $25,000 blanket bond.
Operators with 11-99 wells must have a $50,000 blanket bond.
Operators with 100 or more wells must have a $250,000 blanket bond.

The theory is that, if an operator becomes insolvent and is unable to plug its wells, the RRC can call on the bonding company to provide the money to plug the wells. But in reality, bonds provide only about 16% of the cost of plugging abandoned wells. In FY 2015, the RRC collected $4.288 million on bonds from 94 operators who abandoned 1,584 wells – an average of only $2,707 per well. In the same year, the RRC spent $11.722 million plugging 692 wells – an average of $17,012 per well. Continue reading →

Published on: May 16, 2016

RRC Sunset Review Part II: Monitoring and Enforcement

By John McFarland

The third issue identified by the Sunset Commission in its draft report on review of Texas Railroad Commission operations was the RRC’s monitoring and enforcement of its regulations. As in previous Sunset reports on the RRC, the Sunset Commission criticized the Commission’s enforcement practices and policies.

RRC field inspections and enforcement are the areas where landowners most often come into contact with RRC operations. The RRC is responsible for enforcing rules related to oil and gas spills and contamination, including contamination of groundwater.

Facts:

The RRC employs 151 oil and gas field inspectors. In FY 2015, the RRC reported that those inspectors conducted 134,484 inspections and cited 61,189 violations. When it finds a rule violation, the RRC can fine the operator, and it can issue a “severance order,” requiring suspension of oil and gas production until the violation is remedied. In FY 2015, the RRC assessed 1,878 administrative penalties and issued 7,936 severance orders.

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Published on: May 4, 2016

Sunset Advisory Commission Staff Report on Texas Railroad Commission

By John McFarland

The Sunset Advisory Commission staff have issued their draft report on the Texas Railroad Commission. Sunset review of the RRC has been controversial. This is the third time the agency has gone through sunset review since 2010, although most agencies aren’t reviewed by the Sunset Commission more than once every twelve years. Previous sunset review reports, like the current draft, have been critical of some aspects of the RRC’s structure and work. Because the RRC’s principal jurisdiction is over the regulation of oil and gas exploration and production and pipelines, its functioning is important to land and mineral owners, and those owners should be familiar with how the RRC works and what its responsibilities are and should consider weighing in on issues raised by the Sunset Commission Report.

First, a little background on the sunset review process. The Sunset Commission is required by statute to periodically review the performance of all state agencies and make recommendations on whether they should continue to exist and how they could improve their performance. The idea is that all agencies “sunset” — cease to exist — unless the legislature re-authorizes the agency after review by the Sunset Commission. About 130 state agencies are subject to review under the Texas Sunset Act. Agencies typically undergo sunset review every 12 years.

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Published on: April 29, 2016

Austin’s First African-American Lawyer

By John McFarland

Occasionally I find something interesting that has nothing to do with oil and gas law, and I file it under “something completely different.” John Browning, a Dallas attorney, law professor and historian, has written the story of a remarkable man, John N. Johnson, who was the first African-American lawyer in Austin and the first African-American admitted to practice before the Texas Supreme Court. Johnson also taught school and published a newspaper. Browning’s account of Johnson’s accomplishments also gives us a taste of what it was like to practice law in Texas at the end of the 19th century. Browning’s article, an excellent read, can be found here.

Published on: April 27, 2016

LNG Produced in George West?

By John McFarland

Stabilis Energy has a facility in George West, about an hour south of San Antonio in the Eagle Ford field, that can produce up to 120,000 gallons of liquified natural gas a day. It opened in March 2015. The US Department of Energy has now given Flint Hills Resources permission to use shipping containers to export Stabilis’s LNG by trucking it to the Texas coast where it can be loaded onto LNG tankers and shipped to other countries.

Other LNG facilities are located along the Texas Gulf Coast. Cheniere Energy recently opened an export terminal for LNG at Sabine Pass in Port Arthur and is building a second facility in the Port of Corpus Christi. Freeport LNG is building an export terminal southwest of Houston, and three other companies are seeing federal permission to build LNG export facilities in the Port of Brownsville.

Published on: April 25, 2016

North American Oil & Gas Industry Bankruptcies

By John McFarland

Haynes and Boone has published a list of the companies who have filed bankruptcy in the current downturn. View it here. 31 of the 63 companies listed are based in Texas. Yesterday Swift Energy, which filed for bankruptcy protection on the last day of 2015, announced that it has emerged from bankruptcy after completing a financial reorganization and selling some assets – the first company on the list to successfully reorganize. The largest E&P companies on the list: Quicksilver Resources, Sabine Oil & Gas, Samson Resources, Energy XXI Ltd., and Energy & Exploration Partners.

Published on: April 18, 2016

GDHM 3rd Annual Landowners’ Seminar – Register Today!

By John McFarland

Our firm’s third annual seminar for land and mineral owners is May 6th at the Stephen F Austin Intercontinental Hotel from 9am to 6pm.

As a reader of my blog, if you use the coupon code BLOG, you will save $5 off the registration fee.

Topics covered throughout the day will include:

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Published on: April 14, 2016

Hotels in the Eagle Ford

By John McFarland

Great story in the Texas Tribune about the boom and bust of the hotel business in the Eagle Ford shale.

Published on: April 11, 2016

Friends of Lydia Ann Channel v. Corps of Engineers

By John McFarland

I have generally tried to avoid using this platform to promote or brag on my law firm. But every rule should have its exceptions, and I want to brag about Graves Dougherty’s representation of the Friends of Lydia Ann Channel. Lydia Ann Channel is a feature on the Texas Gulf Coast near Port Aransas, a fishing and recreation community dear to many Texans’ hearts. Below is a shot from Google Earth showing the channel. (click to enlarge)

The Friends of Lydia Ann Channel are a group of environmentally conscious citizens who are seeking to cancel a permit granted by the Corps of Engineers for installation of a facility allowing barges to be moored in the channel. With our firm as counsel, the Friends sued to require the Corps to revoke the permit, remove the barge moorings and restore the affected habitat along the channel. The facility is essentially a mile and a half parking lot for mooring of up to 200 barges that carry oil, chemicals and hazardous cargo.

The Friends allege that the permit was granted without the necessary environmental reviews, and that the facility risks harm to the environmental, recreational, historical and archeological environment of the channel. The area is home to eight federally listed threatened or endangered species, including the whooping crane and sea turtles.

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Published on: April 6, 2016

Marsden v. Titan – A Case to Watch

By John McFarland

Marsden v. Titan Operating, decided by the Fort Worth Court of Appeals in August 2015, is another case in which a landowner sought nuisance damages from the drilling of wells close to their home. After a jury trial, the trial court awarded damages of $36,000 to the Marsdens. The court of appeals reversed. The Marsdens have asked the Texas Supreme Court to hear the case.

The facts are these. The Marsdens bought 6 acres in Parker County in 1997, near Aledo, where they made their home with their two daughters. They signed an oil and gas lease covering the property in 2004. It was on the company’s printed form, but the Marsdens negotiated provisions they added by an addendum to the lease. The printed form provided that no well could be drilled nearer than 200 feet to any house on their property. But the addendum provided that no drilling operations could be conducted on the surface of their property – a “no-surface-use” lease.

In 2011, Titan, who acquired the Marsden lease and leases on adjacent properties, constructed a pad site immediately adjacent to the Marsdens’ property and within about 200 feet of their home. The rig for the initial well on the pad site was just over 300 feet from the house. The well was completed on a pooled unit in which the Marsdens’ property was included, and the Marsdens signed division orders and receive royalties from the unit. Titan subsequently drilled five more wells on the pad.

Continue reading →