Oil and Gas Lawyer Blog

Published on: January 26, 2016

RRC Public GIS Viewer

The Texas Railroad Commission website includes a tool it calls the Public GIS Viewer, that all mineral owners should become familiar with. It can be found at http://wwwgisp.rrc.state.tx.us/GISViewer2/, and it looks like this (click to enlarge):

The RRC website also has a page showing you how to use the viewer, found here.

You can locate wells and permits, and find permit plats, P-12’s, and other records in the permit file. Spend a little time playing around on the viewer to become familiar with its tools.

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Published on: January 19, 2016

Oil at $1.50 a Barrel?

By John McFarland

Flint Hills Resources, LLC, a refiner owned by Charles and David Koch, offered to pay $1.50/bbl for North Dakota Sour crude, from the Bakken shale. Flint Hills originally posted a price of -$0.50/bbl (that’s right, minus fifty cents) for the sour crude, but later said that was a mistake and corrected the posting to $1.50. There is a lack of pipeline capacity for this ultra-low quality crude.

Plains All American, another oil buyer, offered $13.25/bbl for South Texas Sour and $13.50 for Oklahoma Sour.

West Texas Intermediate futures traded as low as $28.36/bbl in New York, and Brent Crude futures settled at $28.55/bbl in London.

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Published on: January 8, 2016

Aycock v. Vantage Fort Worth Energy – Effect of Lease Ratification

By John McFarland

The Texas Supreme Court recently denied a petition for review filed by the Aycocks in their suit against Vantage Fort Worth Energy. The trial court and court of appeals both ruled against the Aycocks’ claims. The holding in the case is not surprising, but dicta in the court of appeals’ opinion may raise some eyebrows among oil and gas lawyers.

Desdemona Cattle Company owned an undivided mineral interest in 1,409 acres in Erath County. In March 2008 Desdemona leased its undivided interest to Vantage Fort Worth Energy for $750 per net mineral acre, for a total of $394,574.60. The Aycocks also owned an undivided mineral interest in the 1,409 acres, and when they learned of Desdemona’s lease to Vantage, they contacted Vantage and sought to lease their interest. Vantage never replied. No well was ever drilled, and the Desdemona lease expired in March 2011.

In May 2012, the Aycocks sued Vantage. They claimed that they had ratified the Desdemona lease and were entitled to be paid a bonus of $750 per net mineral acre for their mineral interest. The trial court denied the Aycocks’ claim. The Eastland Court of Appeals affirmed, holding that the Aycocks had no basis to assert a claim for unpaid bonus against Vantage.

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Published on: December 23, 2015

Classification of Wells Becomes a Political Issue

By John McFarland

An article by Jim Malewitz in The Texas Tribune, “As Oil Prices Plunge, Questions about Big Tax Credit,” sheds light on an arcane and technical issue not well understood even by most oil and gas lawyers – classification of wells as “oil wells” or “gas wells” by the Texas Railroad Commission. While most wells produce both oil and gas, under RRC rules a well must be either one or the other. Different rules apply depending on well classification. Why does it matter?

For one thing, oil and gas leases traditionally have allowed larger pooled units for gas wells than oil wells – allowing operators to hold more acreage with a single well. This distinction is based on the theory that gas wells drain a larger area than oil wells – probably true in most conventional reservoirs, where oil and gas migrate through the formation as wells withdraw production. Not so true for new unconventional shale formations, which have very low permeability and porosity, and where oil and gas don’t “flow” through the formation but are produced through artificially induced fractures.

But operators recently are rushing to “reclassify” wells as gas wells that were originally classified as oil wells. According to Malewitz, the RRC granted operator applications to reclassify 844 wells from oil to gas this year – nearly six times the number reclassified in 2013. And Devon Energy has asked the RRC to reclassify more than 200 of its wells from oil to gas. The reason? Tax credits. Continue reading →

Published on: December 17, 2015

Property Tax Rollbacks from Oil and Gas Operations

By John McFarland

The Texas Land & Mineral Owners Association Newsletter recently published an article disclosing that the Zavala County Appraisal District has denied agricultural-use special appraisal value for land used for oil-pad sites and frac ponds. One owner who challenged the re-appraisal got the District to agree that, if a well pad is not fenced, it won’t deny the ag-use appraisal for pad sites. But fenced frac ponds, it said, don’t qualify.

When there is a “change of use” of land classified as ag-use or open-space use, the law provides that the change of use results in a “roll-back” of property taxes for five years. The owner is assessed tax based on market value for the five years, plus interest at 7% per annum. This can be a big hit for property owners. For one property owner in Zavala county, the assessed property value went from $73/acre to $2,000/acre. And, once a special use value is denied, it may take years after the oil company ceases its use of the property before the owner can re-gain the special use value.

Landowners should consider a lease provision shifting the risk of this re-appraisal to the lessee. Such a provision might read as follows:

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Published on: December 16, 2015

Texas Railroad Commission Candidates

By John McFarland

The filing deadline is now past, and eight Republicans, three Democrats and a Libertarian have said they will run for a seat on the Texas Railroad Commission to replace David Porter, who unexpectedly decided not to run for re-election. Here’s the lineup:

Gary Gates, Republican. Gates is a wealthy real estate developer and rancher from Rosenberg and a social conservative. He spent more than $1 million of his own money in an unsuccessful effort to take Comptroller Glenn Hegar’s former senate seat, losing to Lois Kolkhors in a special election – the fourth time he failed to win an election for the Texas legislature.
John Greytok, Republican. He’s a lawyer and registered lobbyist and an early supporter of Ted Cruz. He wants the RRC to lead the charge against the Obama administration’s environmental policies.

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Published on: December 10, 2015

Exploration Company Bankruptcies

By John McFarland

The price downturn has finally pushed exploration companies to resort to bankruptcy. According to The Dune, the following companies have filed for bankruptcy protection:

RAAM Global Energy

Endeavour International Corp.

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Published on: December 9, 2015

Class Actions Against Chesapeake in Pennsylvania

By John McFarland

Lawyers have filed a new class action against Chesapeake in Pennsylvania. The suit is against Chesapeake Energy and Chesapeake Marketing, filed in the US District Court for the Middle District of Pennsylvania. The plaintiffs also filed a demand for arbitration with the American Arbitration Association against Chesapeake Appalachia, LLC. According to the arbitration demand, title to Chesapeake’s leases in Pennsylvania is held by Chesapeake Appalachia, and many of those leases contain arbitration clauses requiring the lessor to arbitrate its claims. The complainants make the arbitration demand on behalf of all royalty owners in Pennsylvania who have leases with arbitration clauses.

The suit and the arbitration demand make similar claims, that Chesapeake through its affiliated companies “(1) paid the royalties on less than the revenue paid by the buyer, (2) paid no royalty on the proceeds of derivative contracts, (3) deducted costs incurred after [Chesapeake] no longer held title to the gas, (4) deducted gathering costs that were inflated through collusion and self-dealing with Access Midstream Partners, L.P., (5) deducted transportation costs that were fraudulent in their amounts, (6) deducted marketing fees that were never incurred, and (7) calculated the royalties on some of the gas without determining either the price paid or the costs deducted.”

The plaintiffs are represented by Caroselli Beachler McTiernan & Coleman, LLC in Pittsburgh and Robert C. Sanders, of Upper Marlboro, Maryland.

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Published on: November 30, 2015

OPEC and Oil Prices

By John McFarland

Oil prices are much in the news, especially in Texas. As oil prices continue to decline, the effect on Texas’ economy is settling in. And with all the talk of oil prices, OPEC is again the focus of much news coverage. What will OPEC do? How much does OPEC really control oil prices? What effect are the low prices having in the OPEC countries themselves?

Here are some interesting websites about OPEC:

OPEC’s own website. It publishes a monthly report, available online, in English.

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Published on: November 20, 2015

Oklahoma Keeps Rockin’

By John McFarland

Oklahoma oil and gas regulators are scrambling to deal with increasing seismic activity. The Oklahoma Corporation Commission ordered six wastewater disposal wells shut down after the state’s strongest earthquake since 2011, a magnitude-4.7 quake near Cherokee, close to the Kansas border. The quake was felt from Dallas to Kansas City. A second 4.0- quake was centered near Crescent, close to Oklahoma City. There were a total of eight earthquakes. The Commission also ordered the owners of 23 other wells to reduce injection rates by 25 to 50 percent.

Oklahoma regulators have now conceded that earthquakes there are caused by disposal wells, after much earlier debate. Oklahoma is now the most seismically active area of the country. The state has had more than 790 quakes of magnitude 3 or greater this year, compared to 585 last year.

Cherokee is in Alfalfa County, where 225 million barrels of waste water was disposed of last year, more than 10 times what was injected in 2010. It sits over the Mississippi Lime, an oil play that requires disposal of 10 barrels of water for every barrel of oil produced.

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