Good news for T exas veterans who want to buy land! In his first act as chairman of the Texas Veterans Land Board (TVLB) Texas Land Commissioner George P. Bush increased the land loan limit . The previous land loan limit was $100,000. Texas veterans are now eligible for low-interest land loans up to $125,000. This is the apparently the maximum loan by the TVLB allowed by Texas law.
The TVLB loan requirements are:
1. For the purchase of one acre or more.
A federal appellate court decision demonstrates some lessons for Texas mineral owners. That decision was issued by the Fifth Circuit Court of Appeals in the case of Breton Energy, L.L.C., et al. v. Mariner Energy Resources, Inc., et al. The Plaintiffs in this case own and operate an off-shore lease in the Gulf of Mexico that includes an area known as the K-1 sands. The Defendants own and operate an adjacent off-shore lease that covers an area known as the K-2 sands. The Plaintiffs claimed that the Defendants engaged in “unlawful drainage” from the Plaintiffs’ lease in violation of federal and state law.
The Facts:
Breton Energy LLC and Conn Energy Inc. sued International Paper Co. and its successors in interest, consisting of eleven oil companies including Apache Corporation, Chevron and I.P. Petroleum Co. The Plaintiffs claimed specifically that IP Petroleum perforated and drained an oil reservoir under the Plaintiffs’ lease on the Outer Continental Shelf in the K-1 sands. The Plaintiffs also claimed that IP co-mingled resources from this reservoir with hydrocarbons from a nearby reservoir, making it impossible for the Plaintiffs to produce oil and gas from its own wells.The evidence showed that I P Petroleum, even though it had been ordered by the federal Minerals Mining Service not to complete wells in both the K-1 and K-2 sands, did in fact complete wells in both areas. There was also evidence that I P Petroleum’s production exceeded their estimate by almost 30%, which would make sense if they were producing from someone else’s reservoir as well as their own.
The District Court dismissed the Plaintiffs’ claims, and they appealed to the Fifth Circuit.
This blog frequently shares news regarding developments in the oil and gas industry, particularly in Texas, and how growth in that industry effects Texas mineral owners. As the industry grows, increased opportunities arise for Texas land owners, such as the opportunity to negotiate oil and gas leases. (for more information on leasing, please see my previous blog on this topic that you can access here.
Texas has an oil output of more than 3 million barrels per day, which is one third of the total U.S. oil production. Texas could soon outpace the second biggest oil producing country in Organization of the Petroleum Exporting Countries (OPEC), which is Iraq (after top producer Saudi Arabia).
Production data from the Permian basin shows that in the last year it has become the largest crude oil producing region in the U.S. In 2013, Permian oil was 18% of total U.S. crude oil production according to the U.S. Energy Information Administration. Production in the Permian basin has increased to 1.35 million barrels per day up from 850,000 b/d in 2007 and is exceeding production from the federal leases in the Gulf of Mexico.
The Permian Basin is on its way to becoming the most productive oil play in the United States. In the next few years, the Wolfcamp Shale in this basin could by itself overtake the Bakken Shale in North Dakota and Montana in the amount of money spent for exploration and production in tight oil plays.
Currently, the exploration of the Wolfcamp Shale is occurring in the following Texas counties: Glasscock, Sterling, Reagan, Irion and Crockett. As the area is explored further, adjacent counties may be involved.
Wood Mackenzie, a research and consulting organization, did an analysis on Wolfcamp recently and came to the conclusion this could happen as early as 2017. At present, Wolfcamp comes in third in expenditures after the Bakken and Eagle Ford Shales. This year’s expenditure in the Wolfcamp is more than $12 billion, mainly due to an increase in drilling rigs in the first and second quarter of 2014, which is 80% of what was spent this year in the Bakken Shale. Wood Mackenzie increased its projections for Wolfcamp capital expenditures in 2015 by more than $4.3 billion to $13.9 billion. Crude and condensate production is about 200,000 barrels per day now but is expected to reach 700, 000 barrels per day by 2020.
When the news discusses Texas‘ big oil and gas shale plays, they usually mean the Eagle Ford and the Barnett shale. The University of Texas at San Antonio produced a study recently, the “Economic Impact of Oil and Gas Activities in the West Texas Energy Consortium Study Region”, that highlights the opportunities in the Cline shale.
The study estimates that by 2022 the Cline shale will bring more than 30,000 jobs to west Texas and have a $20 billion dollar economic impact. The Cline shale covers less surface area than the Eagle Ford or Barnett, but its hydrocarbons are denser. There is a potential for 3.6 million barrels of oil per square mile to be recovered, for a total of about 30 billion barrels. These numbers indicate that the Cline shale may be larger than both the Eagle Ford and the Bakken field in North Dakota. In fact, the Cline shale may be bigger than both those two plays combined.
The study was done by the Center for Community and Business Research, part of the Institute for Economic Development at UTSA. The study notes that in 2012 $14.5 billion was added to the west Texas economy by oil and gas development and 21,450 full time jobs were created from the oil and gas industry in west Texas. These employees received $1 billion was paid in salaries and benefits in 2012 alone. The study estimated that about 854 vertical wells and 57 horizontal wells were completed in 2012 in this region. The goal of the study was to create a 2012 baseline of industry activity in the region and create forecasts through 2022. “This baseline study is intended to help communities in West Texas plan and prepare for the prospect for increased oil and gas production in the area down the line. For many counties, activity is clearly in the early stages,” said Thomas Tunstall, the research director for this study.
The Railroad Commission of Texas (the RRC) is planning to amend their permit rule for oil and gas pipelines. The section to be amended, section 3.70, involves the pipeline permit procedure. The RRC invited comments on the changes until August 25, 2014. The issue has become a hot topic, especially since Texas already has substantial case law on what constitutes a common carrier.
Current Texas Law
Texas law requires that to be considered a common carrier a pipeline must serve a “public purpose” in carrying products for third parties for compensation, as discussed in the Denbury Green opinion by the Supreme Court of Texas. (You can access my previous blog post about this case here). In the Denbury Green case, the Supreme Court said that when a landowner challenges a pipeline’s claim of common carrier status, the burden is on the pipeline company to prove it meets the definition of a common carrier.
The Texas Railroad Commission approved a substantial amendment to its oil and gas pipeline permit rule on December 2, 2014, and the amendment has major significance for Texas landowners and Texas mineral owners. The rule is Texas Railroad Commission Rule 3.70, and the amended rule goes into effect on March 1, 2015.
The Railroad Commission received a substantial amount of written comment from individuals, oil companies and trade organizations. Comment and testimony was also received at the public hearing on the proposed amendment held in Austin, Texas on September 22, 2014. The amended Rule 3.70 and the discussion of public comments by the Commission’s General Counsel can be accessed here.
The amended Rule 3.70 provides that each operator of a pipeline or gathering system (other than production lines or flow lines that are general confined to the leased premises) must obtain a permit from the Commission and renew the permit annually. The permit application must now include the following:
The United States Fifth Circuit Court of Appeals recently published their decision in Holt Texas, Limited and Transamerican Underground, Limited v. Stephen J. Zayler, a case which concerned a bankrupt oil and gas company. Holt Texas, Ltd. (“Holt”) and Transamerica Underground Limited (“TAUG”) who were subcontractors of the now bankrupt T.S.C. Seiber (“Seiber”) appealed the District Court’s judgment which in turn affirmed a Bankruptcy Court order. The District Court held that funds of an interpleader action filed by Encana Corporation (“EnCana”) were not property of Encana but property of the bankrupt company Seiber. On appeal, Holt and TAUG challenged the District and Bankruptcy Courts’ conclusions that first, the Texas Construction Trust Funds Act (“CTFA”) did not apply to these funds, and secondly, that Appellants did not have valid, perfected mineral liens on these funds under Chapter 56 of the Texas Property Code. The Fifth Circuit Court of Appeals vacated the District Court’s judgment and remand for further proceedings.
Background: In 2008 Encana engaged Seiber to build a natural gas pipeline in Robertson County, Texas. Holt and TAUG were the subcontractors; Holt provided heavy machinery and TAUG installed over two thousand feet of pipe. The agreement between Encana’s and Seiber specified that if a subcontractor was not paid by Seiber, Encana would be able to withhold all remaining sums and make no further payment to Seiber. In August 2009 TAUG notified Encana that it had not been paid recently, and would seek payment of the $96,3000 that TAUG claimed it was owed. In September 2009 Encana filed an interpleader in federal district court, paid $345,000.00 into that court’s registry and sought a declaration shielding it from any further liability for the unpaid amounts owed by Seiber. In October 2009 Seiber filed a voluntary petition for bankruptcy relief under Chapter 11 of the Bankruptcy Code, which was quickly converted to a Chapter 7 petition. TAUG then filed an Affidavit Claiming Mineral Lien against Encana’s property in November 2009. Holt filed its Affidavit Claiming Mineral Lien in March 2010. Encana was discharged from the interpleader in April 2012 and a discharge order was entered. The remaining parties filed competing motions for summary judgment: Holt and TAUG argued that two sets of Texas statutes (the Construction Trust Funds Act and the Texas mechanics lien statutes) that are intended to protect subcontractors require that the interpleader funds be awarded to them. The Bankruptcy Court held that neither law applied and that the interpleader funds were part of the bankruptcy estate of Seiber. Holt and TAUG appealed to the District Court, which affirmed the ruling of the Bankruptcy Court. Holt and TAUG then appealed to the Fifth Circuit.
Arguments: The Fifth Circuit discussed whether the interpled funds were property of the bankruptcy estate of Seiber or not. The opinion discussed that this question turns on who had legal possession of the funds after deposit into the registry of the court but before any action was taken by the court as to those funds. Chapter 56 of the Texas Property Code provides mineral subcontractors with a statutory lien “to secure payment for labor or services related to the mineral activities.” Tex. Prop. Code. §56.002. Chapter 162 of the Texas Property Code states that “Construction payments are trust funds under this chapter of the payments are made to a contractor or subcontractor … under a construction contract for the improvement of specific real property in this state.” Tex. Prop. Code §162.001(a). Section 162 protects subcontractors without requiring notice or other action by the subcontractor, such as sending a notice or filing an affidavit.
Recently the Fifth U.S. Court of Appeals issued an interesting decision in the case of Warren et al. v. Chesapeake. This very important case for Texas mineral owners is based on a lawsuit against Chesapeake Exploration for what the Plaintiffs claimed was the wrongful deduction of post-production costs from the Plaintiffs’ gas royalty payments.
The Facts
The Warren case involves three oil and gas leases in Texas. Charles and Robert Warren entered into leases with FSOC Gas Co. Ltd. Those leases were then assigned to Chesapeake, who used an affiliate, Chesapeake Operating, to drill and operate the wells. Chesapeake deducted post-production costs from the royalty payments to the Warrens as well as from royalties to Abdul and Joan Javeed who joined the case as plaintiffs later. Chesapeake claimed that the leases authorized the deductions. The Plaintiffs asserted that Chesapeake breached the leases because the deductions did not comply with the lease provisions on calculating royalties. The complaint also included class action allegations on behalf of other royalty owners with similar leases with Chesapeake Exploration.
New oil and gas pipelines are being constructed in Texas at an almost frantic pace. Just this week, Lone Star NGL LLC announced that it has received the go-ahead from its board to lay a new natural gas liquids pipeline from the Permian basin in West Texas to Mont Belvieu, Texas near the Gulf of Mexico. Lone Star is a joint venture formed by Energy Transfer Partners LP and Regency Energy Partners LP. Both companies have headquarters in Dallas, Texas.
The new pipeline will extend for 533 miles and will be both 24 inches and 30 inches in diameter. The exact route has not been announced but possible routes will probably be from the Permian basin area shown on the map in green and the Gulf of Mexico. As you can see from the map, this new line has the potential to impact many Texas counties and also to effect many Texas landowners.
Pipeline easements are complex documents. A landowner may have to live with the easement the sign for the rest of their life time and for the duration of their descendants’ lifetimes as well. There are many things a landowner can require in a pipeline easement or right-of-way that the pipeline company is simply not going to offer you. You have to know how to ask for them and how to negotiate for them.
