The EPA has issued its draft plan to study the impacts of hydraulic fracturing on drinking water in the U.S. Two state regulatory authorities have absolved frac’ed wells from responsibility for contaminating drinking water in Colorado and Texas. Maryland’s top einvornmental regulator urged lawmakers to impose a two-year moratorium on frac’ing, as Maryland’s legislature considers additional laws to regulate the practice. Meanwhile, the boom in shale gas drilling continues.
Recently some of my clients have received notices of class action settlements in Coll v. Abaco Operating, LLC, et al., in the U.S. District Court for the Eastern District of Texas, Marshall Division, C.A. No. 2:08-CV-345 TJW. The case reveals a little-known aspect of royalty payments: many companies never reimburse their royalty owners for refunds of severance taxes.
Most royalty owners know little about severance taxes except that they are a deduction that regularly appears on their royalty check stubs. Texas imposes a tax on the value of all oil and gas produced in the state: 7.5% for gas and 4.6% for oil. Most producing states impose similar severance taxes. Pennsylvania has been debating whether to pass a severance tax in light of its budget problems and recent development of the Marcellus Shale in that state. Texas’ severance taxes are paid into its “rainy day fund” that has been much in the news of late.
Here is the closing statement of Range Resources filed with the Texas Railroad Commission after its hearing on complaints that Range’s Barnett Shale wells in Parker County have contaminated groundwater. It provides a good summary of the events to date and the evidence produced at the hearing. Range Production Company Closing Statement.pdf
Here is a link to a summary of the Range dispute prepared by Gene Powell, Editor of the Powell Barnett Shale Newsletter.
Josh Fox’s movie Gasland has been nominated for an academy award for best documentary. Gasland, widely criticized by the oil and gas industry, alleges that hydraulic fracturing is the cause of contamination of underground water resources across the country. (See my previous post about controversy surrounding the movie here.) The nomination, and the Fox’s movie about the alleged dangers of frac’ing, have made him into a celebrity.
In response to the Oscar nomination, Energy in Depth, a website sponsored by oil and gas associations including the Independent Petroleum Association, Texas Independent Producers and Royalty Owners’ Association, the Independent Oil & Gas Association, and Colorado OIl and Gas Association, has published a letter (Energy In Depth letter.pdf) addressed to the Academy of Motion Picture Arts and Sciences. In the letter, Energy in Depth calls the film an “expression of stylized fiction” not meeting the Academy’s criteria for a documentary. The letter says that the movie misstates the law and the rules, mischaracterizes the frac’ing process, and “flat-out makes stuff up.”
Josh Fox does not take this lying down. He has published a detailed rebuttal of Energy in Depth’s letter. Josh has own his own website, www.gaslandthemovie.com, and his own facebook page about the movie and the frac’ing debate, and he was even awarded the Yoko Ono “Grant for Peace.” Clearly, he is enjoying his celebrity. Josh’s rebuttal is no small refutation. It runs to 38 pages and contains responses from his “amazing team of experts,” including Ron Bishop, PhD, lecturer in chemistry and biochemistry at SUNY Oneonta, Anthony Ingraffea, PhD, the D.C. Baum professor of engineering at Cornell,and Weston Wilson, a retired EPA engineer. Energy in Depth’s letter to the Academy is not likely to lessen Josh’s time in the limelight and may actually increase his chances of grabbing that Oscar.
I always counsel my clients to provide in their oil and gas leases that they have the right to inspect and copy all documents of the lessee necessary to determine whether royalties have been paid correctly, and to audit the records of the lessee to confirm accurate payment of royalties. Royalty owners generally assume that the royalty payments they received have been calculated and paid as required by their leases. This is not always the case, as illustrated by a recent case, Shell Oil Company SWEPI LP v. Ross, 2010 WL 670549 (Tex.App.-Houston [1st Dist.], decided February 25, 2010. The case illustrates typical schemes used by producers to underpay royalty owners, and their efforts to prevent royalty owners from knowing how royalties are calculated and, when the royalty owners discover the underpayment, to prevent royalty owners from recovering the underpayment.
In Shell v. Ross, the trial court and Houston Court of Appeals held that Shell had underpaid royalties due to Ross. Shell has appealed to the Texas Supreme Court. The Texas Supreme Court refused to consider the case, but Shell has filed a motion for re hearing that is still pending. Other producers are very interested in the case: friend-of-the-court briefs have been filed by Chesapeake, Texas Oil & Gas Association, and the American Petroleum Institute asking the Court to reverse the Court of Appeals.
The facts of the case require some explanation but illustrate well the importance of verifying the correct calculation of royalties.
Last week, a hearing was held before examiners at the Texas Railroad Commission to determine the source of water well contamination in Parker County. The Environmental Protection Agency had previously entered an emergency order finding that Range Resources was responsible for charging rural water wells with natural gas in Parker County, a finding that Range has vehemently denied. The Railroad Commission called the hearing after the EPA issued its order, to receive facts and testimony on the source of the contamination.
I have posted previously about this controversy, here, here, and here.
Range contends that the water wells are contaminated from gas migrating from a shallow gas-bearing formation just below the water table, the Strawn formation. The EPA’s order says that it did an isotopic fingerprint analysis of the gas found in the water wells matched the gas from Range’s nearby wells producing from the Barnett Shale.
The three current Texas Railroad Commissioners and the new incoming Commissioner David Porter all testified before the Texas Sunset Advisory Commission earlier this month, defending the RRC against criticism in the Sunset Commission staff report. The three commissioners are elected by Texas voters, and a position on the commission is often viewed as a steping-stone to higher office. Two current commission members, Michael Williams and Elizabeth Ames Jones, both considered running for U.S. Senate when Kay Bailey Hutchinson indicated she would step down to run for Texas Governor. State Senator John Whitmire, a member of the Sunset Commission, said that their running for U.S. Senate conflicted with their duties to the Railroad Commission. “You’re running for office, but while you’re doing that and regulating and making decisions, you’re running and actually raising money from the folks that you are regulating.” The criticism mirrors the Sunset staff report, which recommends changing the law to have the RRC run by a five-member appointed board. (For my summary of the Sunset staff report recommendations, go here.) Commissioners Victor Carrillo and Michael Williams said they would support a single elected RRC to replace the three-member commission but would oppose a five-member appointed board. Commissioner Jones said she supported the current three-commissioner governance structure.
The Sunset Advisory Commission is composed of ten members: four members of the Texas House of Representatives, four Texas senators, and two private citizens:
Senate Members:
Dallas attorney Windle Turley has filed three lawsuits in federal court in Dallas on behalf of landowners alleging contamination of their groundwater by Barnett Shale Wells: one on behalf of Jim and Linda Scoma of Johnson County, against Chesapeake, filed last June; one on behalf of Doug and Diana Harris, against Devon Energy, and one on behalf of Grace Mitchell against Chesapeake and Encana. The suits contend that plaintiffs’ groundwater has been contaminated by drilling and hydraulic fracturing operations. A copy of the Harrises’ suit can be viewed here. Turley says more such suits will follow. Turley’s website has a page dedicated to such suits, which says that, “when hydro-fracking occurs, it is possible for the property owner’s groundwater to become contaminated and/or for gases to be forced into the groundwater. When this happens, the oil company may be liable to the property owner for property damages and injuries. … The Turley Law Firm is very concerned over the damage done and future risk to property and individuals in the Barnett Shale area, and is filing damage suits on behalf of property owners.” Groundwater contamination lawsuits may become new fertile ground for plaintiffs’ attorneys.
Range Resources has written to Al Armendariz in EPA’s Dallas office again asserting that it is not responsible for the groundwater contamination in Parker County. Range’s letter can be viewed here: 12-27 Armendariz letter.pdf For my previous posts on this controversy, go here and here.
Range met with EPA staff on December 15, and it says that, as a result of the meeting, Range and EPA agree that “hydraulic fracturing in the Barnett Shale cannot be the cause of natural gas occurring in the domestic water wells identified by the EPA.” Range also made clear in the letter that, while it was complying with the requirements of EPA’s order, it did not believe that the EPA had authority to issue its order, since Range was not responsible for the pollution and the order was issued “without any prior notice or opportunity for Range to present important objective facts.”
Darell T. Brownlow, Ph.D, has published an article giving his analysis and opinion of the ability of the Carrizo Aquifer to supply water demands caused by fracing of wells in the Eagle Ford play. The article was published in the newsletter of the Texas Ground Water Association, Fountainhead, and can be found here: Brownlow Article.pdf
Dr. Brownlow, a hydrologist, concludes that there is plenty of water in the Carrizo, in most places, to meet the demands for frac water. His estimates:
