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Takeaway Capacity in the Permian and Reflections on Judicial Elections in light of Murphy v. Adams

Wade Caldwell, San Antonio attorney and President of NARO-Texas, published the article below in the recent NARO newsletter. He has kindly allowed me to republish it here.

And Happy New Year.

The Take Away

By:  Wade Caldwell, President, NARO-Texas

Two thoughts (or takeaways) on one of the most flexible words in the English language – “takeaway”.  The first is on takeaway capacity.  In the Permian Basin these days, it is a big deal.  Soaring production has made the U.S. the largest oil producer in the world in a stunningly short period of time. This means that plants, pipelines, trucks and railcars are filled to capacity with product.  The prices mineral owners are starting to see in their checks are showing the effect, as the discount for oil, gas, and NGLs paid in the Permian has worsened, compared to established markets, to be a significant loss or revenue.  Recent gas prices at the Waha Hub hovered in the $1.40 per mcf range, meaning the loss of over fifty percent (50%) on a royalty check.  Pipeline and transport companies are rushing to catch up, but the problem is not expected to dissipate for some time, as in years.  The lesson for mineral and royalty owners is to support the upcoming legislative efforts on transportation.  Also, if you have to drive through West Texas, well maybe select another route unless you like dodging fast moving trucks.

Since NARO-Texas only represents mineral and royalty owners (and not surface owners), expect us to be on the sidelines when it comes to the upcoming battle over eminent domain that will be a prominent issue in the legislature this year.  However, the takeaway capacity problems will not dissipate until the infrastructure gets built, production levels off, and government does its part to support the infrastructure expansion that is needed.  Everyone will need to do their part.

The second takeaway is about the state election results on judicial races.  As you have seen from some of my prior columns, mineral owners should have some concern about some of the opinions coming out of our 9-0 Republican Supreme Court, when it comes to disputes with producers.  A recent 5-4 decision ruled that an “offset” well in the lease meant that the operator can drill the offset well anywhere it wanted in the tract, instead of along the lease line that was being drained.  Apparently, there are five (5) justices on the Texas Supreme Court who do not know what an offset well is.

As long as we continue to elect judges on a partisan basis, we will continue to have problems with judges feeling “obligations” to those who give them money to help get elected or reelected.  Oil and gas companies give a lot of money to judicial candidates.

However, the bigger problem with electing judges on a partisan basis is shown in the recent election.  Every Republican judge running against a Democratic opponent lost in the Austin, Corpus, Dallas, Houston, and San Antonio Courts of Appeal.  In Bexar County, which has traditionally had a mixed bag of Republican and Democratic judges at the courthouse, every Republican district and county court judge lost, all the way down to the district and county clerk.  The same result in Dallas, Harris and Travis Counties.

Regardless of your party affiliation, this should concern you.  Experienced, good judges of both parties are getting turned out in all of our major cities every election cycle, simply because of the popularity, or unpopularity, of people at the top of the ticket.  Conversely, it means that someone with no experience and a law license can sign up against a respected incumbent and win themselves a $158,000.00 a year job.  And there are plenty of grossly unqualified people being elected.

The takeaway is that electing judges, at least in larger counties, has become an obvious, complete failure.  Maybe this is an instance when taking away a ballot choice is a good thing.



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