Oil and Gas Lawyer Blog

Published on: August 5, 2015

Oklahoma Corporation Commission Slashes Injection Rates in Response to Quakes

The Oklahoma Corporation Commission, the regulator of oil and gas in Oklahoma, has directed operators of 23 injection wells in a designated area to reduce rates of injection by 38% by October 2, 2015. The order covers a 15-mile-by-40-mile “area of interest,” stretching northwest from the outskirts of Oklahoma City. The Commission’s letter may be viewed here: Oklahoma Corp Commn quake letter

Earthquakes in Oklahoma have increased from 2 in 2012 to 359 in 2014; so far in 2015, 253 quakes have been detected.

Dana Murphy, one of the three elected members of the Corporation Commission, said “This is an issue completely outside the scope of the experience of not only this agency, but all our partner agencies and stakeholders, as well. There was a time when the scientific, legal, policy and other concerns related to this issue had to first be carefully researched and debated in order to provide a valid framework for such action. That time is over.”

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Published on: August 3, 2015

Urban Drilling in Colorado

By John McFarland

The rights of local municipalities to regulate or ban drilling activity within their jurisdictions has been a hot topic over the last few years in several states, especially Pennsylvania, Texas and Colorado. Shale development has been intense in all three states, but their reactions to urban drilling regulation have differed markedly.

In Colorado, voters threatened to force a ballot initiative to ban hydraulic fracturing in the state. In response, the governor cobbled together a compromise that included the appointment of a task force to examine the impact of drilling on urban environments and make recommendations. That task force, the Colorado Oil and Gas Task Force, issued nine recommendations in February of this year. They make for interesting reading.

The Colorado Oil and Gas Conservation Commission has been conducting hearings across the state on two of the Task Force recommendations, both of which would require the COGCC to implement regulations. Both of the recommendations would increase municipalities’ participation in the permitting process for wells within their jurisdictions. Recommendation #17 would require companies planning “Large Scale Oil and Gas Facilities” to consult with local governments to try to reach agreement on the siting of those facilities and to engage in mediation if the parties are unable to reach agreement. Recommendation #20 would require companies to provide local governments a five-year plan for their drilling and development within their jurisdictions, to allow the municipalities to include those plans in the municipalities’ own long-range plans.

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Published on: July 29, 2015

New EPA Program to Limit Methane Emissions: “Methane Challenge”

By John McFarland

The EPA this week published a “proposed framework” for a new voluntary program for the oil and gas sector to reduce methane emissions – the “Natural Gas STAR Methane Challenge Program.” It is part of the administration’s continuing effort to reduce emissions of methane, a powerful greenhouse gas. The proposal can be found here.

I’m no expert on air emissions standards. As a citizen reading the proposal, I was struck by the increasing intensity of efforts to address emissions of methane and volatile organic compounds in the oil and gas sector.

In 1993, EPA created its Natural Gas STAR Program, a voluntary program in which oil and gas companies could commit to identify opportunities in their companies to reduce methane emissions and report on their progress. According to the EPA, Gas STAR partner companies have reported methane emission reductions of more than one trillion cubic feet through 2013.

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Published on: July 22, 2015

The Independent Texas Mineral Owner

By John McFarland

When exploration began in the Marcellus Shale in Pennsylvania, it was the wild west transported to the east. Speculators sprung up and bought oil and gas leases with the expectation of selling them for a profit. The forms of oil and gas leases I saw being used in Pennsylvania were the worst I have seen in my career. Speculators paid for leases with 90-day drafts, hoping they could find a buyer for the leases in time to pay the bonuses.

But landowners soon caught on. They organized themselves, creating informal associations in geographic areas to negotiate leases as a group. The associations hired competent counsel. Large blocks of land were offered to multiple companies, forcing companies to bid against each other. Landowners educated themselves and realized that there was power in numbers.

Texas landowners, on the other hand, are an independent lot. They don’t like to give up their autonomy. They don’t like sharing their lease terms with other landowners. Every landowner thinks his lease form is the best. Landowners don’t like regulatory authorities telling them what they can and can’t do. One riot, one ranger.

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Published on: July 15, 2015

Natural Gas and the Climate Debate

By John McFarland

Here is an excellent article by Michael Levy, senior fellow for energy and the environment at the Council on Foreign Relations: “Fracking and the Climate Debate,” published in the journal Democracy. A well-reasoned and balanced summary of the debates over the role of natural gas in our energy future and its potential impact on our climate. Lengthy, but well worth reading.

Levy gives a good history of recent remarkable changes in the roles of coal and natural gas in US energy:

Between 1999 and 2005, the United States had added the equivalent of 200 nuclear power plants’ worth of natural gas-fueled electricity plants, even as U.S. coal-fired capacity actually fell. But by 2007, with natural gas prices rising, the U.S. government predicted a reversal: Over the next two decades, coal-fired power plants would be built at a furious pace, while natural gas would stagnate. This would be disastrous for U.S. greenhouse gas emissions: By 2030, it was predicted, the fleet of coal-fired power plants would belch three billion tons of carbon dioxide into the atmosphere each year, massively raising U.S. greenhouse gas emissions. …

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Published on: July 7, 2015

Rep. Darby Letter to House Energy Resources Committee Outlines Upcoming Issues

By John McFarland

Representative Drew Darby, Chair of the Texas House Committee on Energy Resources, wrote the members of the committee to ask their input on issues that should be addressed by the committee during the interim between legislative sessions. A copy of the letter can be viewed here: Darby letter.

Of the 33 energy-related bills referred to the committee, it reported 22 favorably, nine were passed by the legislature, and two of those were vetoed by the governor – so seven became law. They are described in Darby’s letter.

Darby mentions two issues he believes should be suggested to the Speaker of the House as “Interim Charges” for the committee to study: allocation wells and oil equipment theft. The legislature passed House Bill 3291, which would have increased penalties for oil-field theft, but the governor vetoed it, declaring it “overly broad.” Darby also reminds the committee that the Texas Sunset Commission will be reviewing the Texas Railroad Commission during the interim, and he expects the Sunset report to be a “significant focus of the Committee next session.”

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Published on: July 1, 2015

Town of DISH Victorious in Amarillo Court of Appeals

By John McFarland

Residents of DISH, Texas were awarded a victory by the Amarillo Court of Appeals in their long-running fight with pipeline companies. Sciscoe et al. v. Enbridge Gathering (North Texas), L.P., et al., No. 07-13-00391-CV. In an opinion issued on June 1, the court held that the plaintiffs are entitled to a trial on their claims that the pipelines’ gathering and compression facilities caused damages to their properties from noise and emissions that constituted trespass and nuisance.

DISH residents have fought the pipeline companies for years. The companies constructed several compressors and a metering station just outside the town between 2005 and 2009. Residents began to complain of excessive noise and offensive odors and said they suffered adverse health effects. In 2008, the residents complained to the Texas Commission on Environmental Quality, which conducted monitoring in 2009 and 2010 and concluded that emissions from the compressors “would not be expected to cause short-term adverse health effects, adverse vegetative effects, or odors.” The Texas Department of State Health Services performed medical tests on 28 DISH residents for exposure to chemicals, and tested tap water; it found no evidence of exposure to chemicals. Those findings were contradicted by tests conducted by Plaintiffs’ expert, Wolf Eagle Environmental, which found that Plaintiffs were exposed to harmful emissions of benzene, xylene, ethyl benzene, toluene and other harmful chemicals.

Finally, 18 DISH residents sued the pipelines in 2001 for damages, alleging nuisance and trespass. The town of DISH also filed suit, seeking damages for the loss of tax revenue resulting from reduced property values caused by the compressor station.

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Published on: June 23, 2015

Earthquakes and Politics

By John McFarland

Energywire has been following the political implications of the University of Oklahoma’s study of the causes behind the huge increase in earthquakes in Oklahoma, and OU’s relationship with Harold Hamm, CEO of Continental Resources. In a recent investigative article, Energywire reported that “University of Oklahoma officials were seeking a $25 million donation from billionaire oilman Harold Hamm last year, records show, at a time when scientists at the school were formulating the state’s position on oil drilling and earthquakes.” OU initially “came up with a position that squared with Hamm’s, saying most of the hundreds of earthquakes rattling the state are natural and not caused by the oil industry.” Hamm turned down the donation request, and OU’s Geological Survey subsequently changed its position and now says that most earthquakes in Oklahoma are “very likely” triggered by oil and gas activities.

Earthquakes in Oklahoma have increased from 20 with a magnitude of 3.0 or greater in 2009 to 585 in 2014, and Oklahoma is now expected to have more than 800 such quakes this year.

OU’s president, David Boren, a former senator, serves with Hamm on Continental’s board of directors and according to Energywire has received $1.6 million from the company since 2009. Hamm has pressured OU to avoid linking quakes to injection of produced water in Oklahoma.

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Published on: June 17, 2015

Texas Supreme Court Rules for Royalty Owners in Chesapeake v. Hyder

By John McFarland

The Texas Supreme Court has ruled 5 to 4 that Chesapeake cannot deduct post-production costs from the Hyder family’s gas royalties.

The case in the Supreme Court actually addresses only the Hyders’ overriding royalty. As part of the Hyders’ oil and gas lease, the Hyders agreed that Chesapeake could use their land to drill horizontal wells producing from their neighbors’ land — the surface location on the Hyders’ land, but all of the productive lateral of the well under the neighbor’s property. In exchange, Chesapeake agreed to pay the Hyders a 5% royalty on production from such wells. Because the Hyders have no mineral interest in the lands from which these wells produce, the parties referred to this royalty as an overriding royalty.

The Hyders’ lease contains very specific provisions prohibiting Chesapeake from deducting post-production costs from the Hyders’ royalty on production from their lands. But the lease provision granting the overriding royalty on production from wells bottomed under their neighbors’ property is not so clear. Although Chesapeake originally fought to deduct post-production costs from both the royalties and the overriding royalties, the trial court and court of appeals ruled for the Hyders on all claims, and Chesapeake elected to appeal to the Texas Supreme Court only on the issue of deductibility of post-production costs from the Hyders’ overriding royalty.

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Published on: June 11, 2015

XTO’s Earthquake Show Cause Hearing

By John McFarland

Yesterday the Texas Railroad Commission held the first of two scheduled show cause hearings called by the RRC to determine whether two salt water disposal wells near Azle, Texas should be shut down because they caused earthquakes in the area. The earthquakes in that region of Parker County are the subject of a recently published study by scientists at Southern Methodist University, which concluded that the quakes were probably caused by the injection wells. One of the wells is owned by XTO Energy, the other by Enervest. Enervest’s show cause hearing is scheduled for next week.

The XTO hearing was before two hearings examiners, Marshall Enquist and Paul Dubois. Hearings examiners act as administrative law judges in RRC hearings; they then propose a decision to the three commissioners, who can either accept or reject their proposed decision.

Only XTO appeared at the hearing, represented by their attorney Tim George, who called three witnesses and introduced more than 30 exhibits. XTO argued that the earthquakes were natural phenomena not caused by their injection activities. No witnesses appeared to oppose XTO’s position. A staff attorney at the RRC did ask some questions of XTO’s witnesses and offered the SMU study as evidence, over XTO’s objection. Tim George argued that the study was hearsay and that the scientists were not available to be cross-examined on the study. Marshall Enquist admitted the study as evidence over George’s objection, saying “in a way, [the SMU study] is why we’re here today.”

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