Oil and Gas Lawyer Blog

Published on: July 1, 2015

Town of DISH Victorious in Amarillo Court of Appeals

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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Published on: June 3, 2015

Texas Legislature – Bills of Interest to Mineral Owners

By John McFarland

The Texas legislative session has now ended. I followed 44 bills identified as potentially affecting the interests of mineral owners. Only two of those bills passed.

HB 40

The bill that produced the most controversy was HB 40, introduced by Rep. Darby, chair of the House Energy Resources Committee. It restricts the ability of municipalities to regulate oil and gas operations within their jurisdictions. This bill and several other bills were introduced in response to the referendum passed by the City of Denton barring hydraulic fracturing. The bill allows cities to adopt ordinances related to oil and gas activity only if the ordinance regulates “aboveground activity … at or above the surface of the ground, including … fire and emergency response, traffic, lights, or noise, or imposing notice or reasonable setback requirements,” is “commercially reasonable,” and “does not effectively prohibit an oil and gas operation conducted by a reasonably prudent operator.” The bill defines “commercially reasonable” as:

a condition that would allow a reasonably prudent operator to fully, effectively, and economically exploit, develop, produce, process, and transport oil and gas, as determined based on the objective standard of a reasonably prudent operator and not on an individualized assessment of an actual operator’s capacity to act.

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Published on: June 1, 2015

Texas Legislature Funds Earthquake Study

By John McFarland

The Texas Legislature has passed a supplemental appropriation of $4.471 million to fund a study of the cause of recent earthquakes in the Dallas-Fort Worth area. The money will be used to fund the purchase and use of seismic monitoring equipment and modeling of reservoir behavior, testing any connection between oil and gas activity and the recent swarms of quakes in the region.

The Bureau of Economic Geology at the University of Texas will lead the study in collaboration with other Texas universities, including the Texas A&M Engineering Experiment Station. The legislation requires formation of a nine-member technical advisory committee to direct the study. Members of the committee must include two members from universities who have seismic or reservoir expertise, to experts from the oil and gas industry, and the Texas Railroad Commission seismologist, Craig Pearson. A report must be provided to the Legislature by December 2016.

It is notable that the Legislature chose not to entrust the study to the Texas Railroad Commission, even though industry representatives favored that position. The Commission’s three elected commissioners rely heavily on contributions from the industry to fund their campaigns, and until the recent seismic activity in the DFW region, the commissioners refused to recognize the connection between earthquakes and oil and gas production in the Azle area of the Barnett Shale. Last month, a team of scientists published a paper concluding that the Azle seismic activity was more than likely linked to salt water injection wells in the vicinity. Those scientists testified before a legislative committee about their findings.

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Published on: May 21, 2015

New York vs. Texas

By John McFarland

Two recent articles brought to mind the trade-offs in the debate over hydraulic fracturing.

First, the Department of Environmental Conservation of New York State issued its Final Supplemental Generic Environmental Impact Statement, on the environmental impacts of allowing hydraulic fracturing in New York. New York has had a moratorium on fracking for the last several years, even though a substantial portion of the Marcellus formation underlies the state. It appears that New York is headed for a permanent ban on the practice.

I haven’t studied the EIS, which runs to several hundred pages. But it is a thorough catalogue and discussion of the environmental impacts of the drilling boom from fracking and horizontal drilling, most of which we know well by now: water use, surface spills, groundwater impacts, waste disposal, air quality, greenhouse gas emissions, health risks, visual impacts on the landscape, truck traffic, seismicity — all are discussed in great detail.

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Published on: May 15, 2015

Google and Pipeline Leaks

By John McFarland

Google has teamed up with the Environmental Defense Fund to detect leaks in gas lines in the Los Angeles Area, Boston, Indianapolis, Staten Island, Syracuse, and Burlington, Vermont. Google attached methane detectors to the cars it uses to create its street map images and has mapped the locations where it found levels of methane high enough to indicate pipeline methane leaks. A great use of new technology for a public purpose. View Google’s maps here. EDF has teamed up with industry and scientists to attack methane emissions, part of EDF’s efforts to combat global warming.

Published on: May 13, 2015

Oil and Gas Lease Extensions

By John McFarland

An excellent article by Judon Fambrough of the Real Estate Center at Texas A&M University, about how oil and gas leases can be extended beyond there primary term, can be found here. Great tips about how to avoid pitfalls in lease terms. Mr. Fambrough has written many good articles about negotiating oil and gas leases.

Published on: May 4, 2015

Restrictions on Assignment

By John McFarland

Modern oil and gas leases often contain restrictions on the right of the lessee to assign the lease to third parties. The lease may require the consent of the lessor to any assignment, or it may impose conditions on the right to assign — for example, that the lessee retain an interest in the lease and/or remain operator.

Recently I received a draft of an article that will be published next year in the Buffalo Law Review addressing the validity of restrictions on assignments in oil and gas leases, and the authors asked that I make it available on this blog. It is titled “The Validity of Restraints on Alienation in an Oil and Gas Lease,” and it is authored by Luke Myer and Rory Ryan, professors at Baylor Law School. There are actually two draft articles, one explaining the issue in layman’s terms and a second providing a more scholarly legal analysis with citations. The second article is titled “Aggregate Alienability.” The articles I think give a good analysis of the issue. There is actually little authority on whether restrictions on assignment, or “restraints on alienability,” in an oil and gas lease are valid. The authors make a good argument that such restrictions are valid. Good information for oil and gas lawyers, including tips on how to draft restrictions that are more likely to be upheld and enforced. The draft articles can be viewed here and here.