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The Texas 14th Court of Appeals recently decided the case an interesting case,  Clay Exploration, Inc. v. Santa Rosa Operating, LLC, concerning who has the right to execute oil and gas leases for unknown owners. In 1889 Frederick Kastan and Gustav Heye purchased 102 acres in Grimes County, Texas. Subsequently, Kastan left Texas and moved to Germany. In 1999, after conducting an unsuccessful effort to locate Kastan or his heirs, Marathon Oil petitioned a local court for a receiver to sign oil and gas leases for the 102 acres purchased by Kastan and Heye. Marathon’s petition requested that the receiver “take charge of and execute an oil, gas, and mineral lease, or leases” on behalf of unknown owners of the mineral rights, which included Kastan and his unknown heirs. This is pretty standard practice in Texas when an oil company can’t locate all the owners. The trial court appointed a receiver, Charles Ketchum, and ordered Ketchum to execute mineral leases with Marathon. The Marathon leases required Marathon to drill and produce within three to five years or the lease would expire.

Apparently the Marathon leases expired, and in 2011 two new oil companies, Clay Exploration, Inc. and Santa Rosa Operating, LLC decided they wanted to lease the 102 acres.  Santa Rosa petitioned a local court to appoint another receiver to lease the Kastan mineral rights. While the Santa Rosa petition was pending, Clay Exploration contacted the original receiver, Ketchum, who signed a lease with Clay in January 2012.

In April 2012 Santa Rosa intervened in the original Marathon receivership action, alleging that Ketchum had only been authorized to sign a lease with Marathon and no one else. Meanwhile, Santa Rosa located the unknown Kastan heirs and obtained leases directly from them. Santa Rosa filed a motion to set aside and invalidate the Clay leases on the grounds that Clay was aware that the Kastan heirs were no longer unknown and that Ketchum was authorized to sign a lease only with Marathon.” Santa Rosa also alleged that Marathon never drilled or operated on the tracts, although there was apparently no evidence on this. In response, Clay filed a motion to confirm the lease they signed with Ketchum.

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The case of Rippy Interests LLC. v. Nash, LLC is interesting because it examines what type of operations will keep a Texas oil and gas lease in force after the primary term has expired, and also what constitutes a repudiation of an oil and gas lease in Texas.

On January 18, 2006 Range Production I, L.P. acquired a mineral lease (hereinafter the “Range Lease”) on acreage in Leon County owned by Nash LLC. The primary term of the lease was for three years, with an option to extend the lease for an additional two years. Range exercised the option and extended the term of the Range Lease to January 18, 2011. In the fall of 2009, Range assigned its lease to Rippy Interest LLC. A year later, Rippy received a drilling permit to drill a well on the Range Lease.

The same month that Rippy received the drilling permit, Nash LLC granted a top lease for the acreage to KingKing, LLC (hereinafter the “KingKing Lease”), which was expressly subordinate to the Range Lease and would only take effect upon the expiration of the Range Lease. The Range Lease contained the following two clauses, which are fairly standard clauses (in one form or another) in Texas oil and gas leases:

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Oklahoma Attorney General E. Scott Pruitt is being considered for the post of U.S. Environmental Protection Agency administrator. This is good news for the Texas oil and gas industry as well as for Texas royalty owners. He seems like a great choice because of his balanced approach. He has been quoted as saying that “We can simultaneously pursue the mutual goals of environmental protection and economic growth, but that can only happen if EPA listens to the views of all interested stakeholders, including the states, so that it can determine how to realize its mission while considering the pragmatic impacts of its decisions on jobs, communities, and most importantly, families.” Committee chair John A. Barrasso said in his opening statement that 24 state attorneys general wrote him to express support for Pruitt.

For the last eight years, the EPA has been quite literally running amok. Officials at the EPA have enacted regulations that exceed the scope of the EPA’s authority from Congress in the form of the Clean Air Act and Clean Water Act. Congress has the obligation and the procedure to cancel these regulations, but completely failed to do so. The EPA has brought lawsuits against individuals for what the EPA considered to be infractions of these unconstitutional regulations, causing these individuals to incur attorney’s fees and court cost expenses that they could not afford, only to find these lawsuits dismissed later by a court as unfounded.

The need for a balanced approach is critically important to both the environment and the economy and hopefully Mr. Pruitt can bring this approach to his new role.

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A recent study on emissions related to U.S. natural gas transmission and storage operations by the Energy Institute of Colorado State University found that total emissions were 27.5% lower than emissions calculated by the U.S. Environmental Protection Agency’s 2012 Greenhouse Gas Inventory.

The Data

The study estimated the methane emissions from natural gas transmission and storage operations in the United States by evaluating data collected during 2012 including 2,292 on-site measurements, emissions data from 677 facilities, and activity data from 922 facilities. The report estimates that total methane emissions from transportation and storage is 1,503 Gigagrams/yr with a confidence interval of 1,220 to 1,950 Gigagrams/yr. The EPA’s Greenhouse Gas Inventory estimate is 2,071 Gigagrams/yr with a confidence interval of 1,680 to 2,690 Gigagrams/yr. The EPA Greenhouse Gas Inventory estimates an overall methane loss rate of 6.2 Tetragrams/yr which is approximately 1.3% of all methane transported in the U.S.

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The case was appealed to the Texas Supreme Court. The Court’s opinion states that a taking for inverse condemnation purposes occurs when the government “intentionally took or damaged property for public use, or was substantially certain that would be the result” citing City of Keller v. Wilson, 168 S.W.3d 802, 808 (Tex. 2005). Sovereign immunity does not shield the government from liability.

To prove inverse condemnation, a plaintiff is required to show three elements:

1. Intent

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The Texas Supreme Court’s opinion in Harris County Flood Control District v. Kerr et al. ruled on a Texas homeowner’s claim of inverse condemnation by Harris County, Texas and the Harris County Flood Control District.  As many of you know, many government agencies have the power of eminent domain, or condemnation, in which the government directly takes private property for a public purpose. However, sometimes the actions of a government agency can damage property without actually condemning the property itself. For example,  a city widens a street and takes the entire parking lot of a local grocery store. The city offers to pay for the lot, but the grocery store has lost all its business since no one can park. The owner of the grocery store can claim that they want reimbursement for the value of their entire business, which was destroyed by the city’s widening of its street. This is an example of inverse condemnation.

Background of the Case:

The plaintiffs were residents and homeowners in the upper White Oak Bayou watershed located in Harris County, Texas. The majority of the homes in the area were built in the late 1970s and early 1980s in an area with a history of flooding. However, for the first 20-25 years after construction, the homes suffered little to no flood damage. Starting in 1998, homes in the area began experiencing flood damage from storms, and continued to experience repeated flood damage ever since.

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In September 2015, the Texas Governor signed into law Texas Senate Bill 478 , which adds  Section 22.019 to Chapter 22, Subchapter A, of the Government Code. The new law reads as follows:

Sec. 22.019. PROMULGATION OF CERTAIN LANDLORD-TENANT FORMS. (a) The supreme court shall, as the court finds appropriate, promulgate forms for use by individuals representing themselves in residential landlord-tenant matters and instructions for the proper use of each form or set of forms.

(b) The forms and instructions must:

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In 2015, Enterprise Product Partners announced plans for a new pipeline that will run over 400 miles from Midland, Texas to Sealy, Texas. The yet-to-be-named pipeline will originate at Enterprise Product Partners’ trading and storage hub in Midland and will connect with the eighty mile Rancho II pipeline in Sealy. The Rancho II pipeline came on line in 2015 and will connect Sealy with the storage hub, the Enterprise Crude Houston Oil (“ECHO”) terminal, located in the southeast of Houston, Texas. The ECHO terminal was developed by Enterprise Product Partners in 2010 and functions as a central storage and distribution hub. The connection to ECHO will allow Enterprise Product Partners to access the Gulf of Mexico via Texas City. Enterprise is planning on continuing to take advantage of a recently passed exception to the 1970’s crude export ban by offering approved processed condensate at the Gulf. Currently Enterprise Product Partners is one of the most active condensate exporters in the region.figure1_148

The unnamed pipeline will have a capacity of 540 million barrels per day and is expected to come on line in the second quarter of 2017. The new pipeline will be capable of segregated transport and used to transport four different grades of crude: West Texas Sour, West Texas Intermediate, Light West Texas Intermediate, and condensate. The pipeline will be fed by both tanker trucks and pipelines that currently terminate at the Midland Hub. A map of the currently proposed pipeline which was presented in an Enterprise Product Partners presentation is shown to the right.

If you live in one of the counties through which this pipeline will be installed, you may be getting a call from a land man representing Enterprise. Keep in mind that there are many legal and safety issues involved in having a pipeline installed across your property. In addition, there is no such thing as a “standard pipeline easement form”despite what the land man may tell you. You and your property are best served by seeking the input of an experienced Texas oil and gas pipeline attorney to assist you in evaluating the easement offer and in getting just compensation for the easement.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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The United States Court of Appeals for the Fifth Circuit issued an unpublished opinion last year in Waggoner v. Denbury Onshore, LLC, et al. concerning the application of state antitrust law to  royalty payments. It should be noted that while the opinion is instructive on how the 5th Circuit Court of Appeals views the issues discussed, the opinion is explicitly not intended as precedent, except under the limited circumstances set forth in the Fifth Circuit Rule 47.5.4.

Background of the Case:

In 1984, James Waggoner acquired an oil, gas, and mineral lease for a section of a carbon dioxide (CO2) formation in Rankin County, Mississippi. Subsequently, Shell Western E&P Inc., a subsidiary of Royal Dutch Shell Inc., petitioned the Mississippi State Oil and Gas Board for authority to pool the interests in a large section of land, which included Waggoner’s interest. Waggoner entered an agreement with Shell to place 77 acres of his land into the pooled tract of land in exchange for a 6.25% overriding royalty interest in the well until payout with an option to convert the overriding royalty interest into a 40% working interest at a later date. Waggoner and Shell  also entered into an Operating Agreement that dictated that the price of CO2 (upon which royalties were to be calculated) would be the “volume weighted average price”. After the well paid out, Waggoner converted the overriding royalty interest into a working interest, which allowed Waggoner to take either a proportional share of the CO2, or a proportional share of the volume weighted average price of the CO2 that Shell received.

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The United States Geological Survey (“USGS”) has just announced the assessment of this country’s largest oil and gas shale deposit located in Texas. You can review a copy of the actual assessment here.  The area where the deposit is located is known as the Wolfcamp shale contains 20 billion barrels of oil and 16 trillion cubic feet of natural gas. That is Almost three times more petroleum than found in North Dakota’s Bakken shale in 2013. As can be seen in the map shown here, this deposit covers a wide swath of West Texas.161100_midland-basin-map_usgs_custom-697deb603c4ac20a54a7a62db946fe56b5c0a3af-s800-c85

In addition, Apache Corporation recently announced that it has found billions of barrels of oil in West Texast, in an area it has called Alpine High. Apache estimated that this area region holds about 3 billion barrels of oil and 75 trillion cubic feet of natural gas.  Alpine High is located in the Delaware Basin, which is a sub-basin in the southwest corner of the Permian Basin. The Permian itself is mostly located in west Texas, with a small area straddling southeastern New Mexico. as can be seen in the map below, Alpine High  is located to the West of the reserves announced by the USGS.

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