The Klotzman mineral owners have appealed the Texas Railroad Commission’s order granting EOG a permit to drill an “allocation well” on their land. A copy of the petition can be viewed here: Klotzman Petition.pdf. Our firm represents the Klotzmans. For my previous posts about allocation wells and the Klotzman case, search for “allocation well” in the site’s search engine.
The San Antonio Court of Appeals recently decided a case illustrating the new kinds of issues that can arise from the drilling of horizontal wells.
In Springer Ranch v. Jones, Alice Burkholder owned a ranch, 8,545 acres in La Salle and Webb Counties. She signed a single oil and gas lease on the ranch in 1956 that has been maintained by produciton. When she died, Alice left the ranch to her husband for life, and thereafter in three separate tracts to her three children. In effect, by her will she partitioned the ranch, surface and minerals, into three tracts, subject to the oil and gas lease. Alice’s husband died in 1990, and thereafter the three children signed a contract agreeing on how royalties on production from the lease should be divided among them. The contract provided that all royalties under the lease “shall be paid to the owner of the surface estate on which such well or wells are situated, without reference to any production unit on which such well or wells are located.”
The lessee drilled a horizontal well located partly on one of the ranch tracts, now owned by Springer Ranch, and partly under a different tract now owned by Rosalie Sullivan. The surface location of the well was on the Springer Ranch tract. Springer Ranch argued that, because the surface location was “situated on” its property, it should receive all royalties from the well. Rosalie Sullivan argued that royalties from the well should be allocated between the two tracts based on each tract’s part of the productive lateral of the well. The trial court agreed with Ms. Sullivan, and the court of appeals affirmed. It construed the parties’ agreement to to allocate royalties on the basis of the percentage of the productive interval of the wellbore on each party’s tract, not on the basis of the well’s surface location.
Data from the Energy Information Administration shows that Texas’ oil production is now the highest it’s been in thirty years. Texas crude production is now approaching 3 million barrels/day, a rate not seen since the 1960’s.
Below are EIA graphs showing production of oil from the Eagle Ford and the Permian Basin. It appears that Eagle Ford production rates will soon surpass production from the Permian.
EIA also calculates changes in the initial productivity of new wells in each field, a measure of the improved efficiency of rigs in the field. The graphs below show that new wells in the Eagle Ford are improving substantially; not so in the Permian. IP rates of Eagle Ford wells are now substantially higher than in the Permian.
On December 20, the Office of Inspector General of the Environmental Protection Agency issued its “Response to Congressional Inquiry Regarding the EPA’s Emergency Order to the Range Resources Gas Drilling Company.” The report was requested by Congress as a result of an emergency order issued by the Dallas regional office of the EPA against Range Resources on December 7, 2010. That order required Range to take certain actions based on EPA’s finding that Range’s wells in the Barnett Shale were the likely source of contamination of water wells in Parker County.
I have written about Range’s saga before. EPA sued Range to enforce its emergency order. Range disputed and fought the EPA order, suing in the U.S. Court of Appeals to get the order revoked. Range called a hearing before the Texas Railroad Commission (in which EPA did not participate), after which the RRC found that Range’s wells were not the source of the gas in the water wells. One of the well owners, the Lipskys, sued Range in state court for damages; Range countersued, contending that the Lipskys had falsified evidence and defamed the company. The district court found that Lipsky had created a “deceptive video” that was “calculated to alarm the public into believing the water was burning.” The Lispkys have appealed to the Texas Supreme Court, where their case remainds pending.
The Energy Information Administration has created a nifty website presenting energy information by state, with a great map interface. Here is the link to the Texas map: http://www.eia.gov/state/?sid=TX Click on “full screen,” then play with the different layers for the map. Under “layers/legend,” click on “views” and explore the different layers on the map. You can also see how Texas ranks among states in crude oil, natural gas, electricity and total energy production (#1), and in per capita energy consumption (#6). Texas also ranks #1 in carbon dioxide emissions.
In November, Texas Monthly hosted a panel discussion at Rice University’s Baker Institute for public policy about the boom in shale oil development in the US. The panel members: Arthur E. Berman, a Sugar Land-based geologist; Scott W. Tinker, the director of the Bureau of Economic Geology at the University of Texas at Austin; and Kenneth Medlock III, an energy fellow at the Baker Institute. You can watch the panel discussion on Texas Monthly’s website, here. It’s worth an hour of your time.
These guys know a lot about energy in general and oil and gas in particular. I have previously written about Arthur Berman, a “shale skeptic,” who has never believed that the shale boom would last. Scott Tinker is the narrator of the documentary “Switch,” an examination of the modern world’s thirst for and sources of energy. In addition to the film, Dr. Tinker has created a website, http://www.switchenergyproject.com/, that provides additional short videos and other resources to further explore questions surrounding energy, including carbon capture, global warming, hydraulic fracturing, and alternative energy technologies. He interviews many world experts on global energy issues. He is to my mind one of the most even-handed and level-headed thinkers and explainers of the complex issues surrounding energy issues.
StateImpact Texas has published a series of good articles about the growing evidence that the huge quantities of wastewater being injected in the Barnett Shale field are causing earthquakes — some of sufficient intensity to cause significant damages. Lawsuits have been filed in Johnson County to recover for the damage. StateImpact’s most recent article can be found here. Links to all of StateImpact’s articles on earthquakes caused by oil and gas activity are here.
Suppose that the fluids injected into a disposal well migrate beyond the boundary of the tract where the well is located; does that incursion of the injected fluids into and under the neighbor’s property constitute a trespass? Until recently, this question had never been addressed by a Texas appellate court, and the assumption in the disposal industry was that such incursion was not actionable. The Beaumont Court of Appeals, in FPL Farming Ltd. (“FPL”) v. Environmental Processing Systems, L.C. (“EPS”), concluded that the neighbor does have a trespass claim.
The Beaumont Court of Appeals has issued two opinions in the case; the first was appealed to the Supreme Court which reversed and remanded to the Court of Appeals, and the second has also been appealed to the Supreme Court, where it is now pending. FPL Farming Ltd. v. Environmental Processing Systems, L.C., 305 S.W.3d 739 (Tex.App.-Beaumont), reversed and remanded 351 S.W.3d 306 (Tex. 2011), on remand 383 S.W.3d 274 (Tex.App.-Beaumont May 24, 2012, pet. filed 1/18/13).
The facts in FPL are these: EPS operates an injection well for non-hazardous waste on land adjacent to the land owned by FPL. FPL previously objected to an amendment of EPS’s permit that increased the rate and volumes allowed to be injected. The Austin Court of Appeals affirmed the permit amendment over FPL’s objections, ruling that “the amended permits do not impair FPL’s existing or intended use of the deep subsurface.” FPL Farming Ltd. v. Tex. Natural Res. Conservation Comm’n, 2003 WL 247183 (Austin 2003, pet. denied).
Lawsuits against Chesapeake Exploration for wrongfully deducting post-production costs from its gas royalty payments are hitting a boiling-point. Suits are being pursued against the company in every jurisdiction where it operates, including Texas, Arkansas, Lousiana, Kansas, Ohio, West Virginia, Oklahoma and Pennsylvania. Chesapeake has recently been much more aggressive in deducting post-production costs. In the Barnett Shale in North Texas, its post-production cost deductions have been as much as $.70 to $1.00 per mcf, and with such low gas prices, some royalty owners’ payments have been halved by such deductions. Chesapeake’s royalty payments in North Texas have reportedly been on a net price of as little as eleven cents per mcf, and as little as 11% of the price other producers have based their royalty payments on. A recent Bloomberg article summarizes Chesapeake’s royalty payment practices.
Chesapeake has settled some claims, including large royalty owner claims in Pennsylvania. Chesapeake’s marketing practices in Pennsylvania mirror those it uses in the Barnett Shale. Last year, Chesapeake settled a claim brought by the Dallas-Fort Worth Airport for underpayment of royalties for $5 million. The Bass family in Fort Worth recently sued the company for wrongfully deducting post-production costs.
Chesapeake’s tactics for how it calculates its royalties cannot be understood without knowing something about how Texas courts have addressed deductibility of post-production costs. I have previously written three posts on this topic that can be seen here, here and here.
WoodMackenzie has recently come out with its 2013 ranking of the world’s twenty largest oil companies, and their change in production over the last ten years:
(BOE is barrels of oil equivalent.) As you can see, most are state-owned companies. Russia re-acquired its privately-owned companies. Saudi Arabia has increased its production 28% in the last 10 years. Iran, despite the embargo, has increased its production by 24%, in part because of increased export of natural gas. Venezuela’s production has suffered from politicization of its national oil company. Shell’s efforts to increase production by acquiring a position in U.S. shale plays has not been successful. BP has sold off a substantial part of its production. China has invested big-time to fuel its economy. And the world economy has managed to survive $100 oil. For comparison, the total world production in 2010 was about 137 BOE/day. These top twenty companies together produced about 60% of that total.
For a good article on these numbers, see Forbes’ article, The World’s Biggest Oil Companies – 2013, here.
