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Energy & the Law

Mixed Result in a Louisiana Legacy Pollution Case

Posted in Lease Disputes, Pollution
Co-author Ann Weissmann

The Dietz family sued several lessees for injunctive relief and restorative damages arising out of leases on two non-contiguous tracts in Acadia Parish. In Dietz, et al. v. Superior Oil Company, et al  the trial court granted the lessees’ dilatory exceptions of prematurity and improper cumulation and dismissed the plaintiff’s suit without prejudice.

The family asserted that the lessees improperly used and abandoned oil field waste storage pits and exploration and production equipment, causing contamination of the soil and groundwater. The defendants filed the exceptions to avoid the suit.

Prematurity 

The defendants’ dilatory exception of prematurity asserted that they were not given notice prior to the suit as required by Mineral Code Article 136 and that the claims were premature, as the lease was still in effect.

The trial court’s grant of the prematurity exception was because the defendants had not been given written notice as required by Article 136. The appellate court found that the trial court erred in granting the prematurity exception. Claims for restoration of contamination are not governed by Mineral Code Article 136 and do not require advanced written notice as these claims “are separate and distinct from any claims that defendants failed to develop and operate the property”.

A suit for contamination of soil and groundwater may be brought before the lease expires. The lessee has obligations set out in the Mineral Code and in Civil Code Articles 2683, 2686, 2687 and 2692. Civil Code Article 2683 specifically defines the Lessee’s obligations. While Article 2683 has obligations which arise at the end of the lease, there is “absolutely no language to suggest that the other obligations imposed by these codal provisions are not operational until termination of the lease.”

Improper Cumulation

The trial court’s grant of the exception of improper cumulation was because there was a lack of community of interest between the joined parties. These exceptions were affirmed. In order to determine if there is a community of interest between the parties, the courts will look to see if the causes of action arise from the same facts and present the same legal and factual issues. Is there an overlap “present between the cases to make it commonsensical to litigate them together”? Proof of damages and liability would be different for each party. There were numerous defendants and non-contiguous lands, with each defendant having different lease obligations with different facts being proven for each operator. Therefore, there would be a lack of overlap required for a proper cumulation. The court affirmed dismissal of the suit without prejudice.

Driven to know the elements of improper cumulation? See Code of Civil Procedure Article 463.

Takeaways

I see two: 

The plaintiff-landowners lost this round but lived to fight another day.

The is no end soon to pollution claims against legacy producers in Louisiana oil fields.

In a case from Acadia Parish, how can we not pay musical tribute to J. D. Miller’s recording studio in Crowley.  Here is an example. 

For Success Against a Pipeline, Go to the Right Court

Posted in Eminent Domain

The first step in successfully challenging the Keystone Pipeline: Choose a court that has jurisdiction. Mr. Bishop learned that lesson the hard way in Bishop v. TransCanada Keystone Pipeline.

Mr. Bishop lived in Nacogdoches County, Texas, when TransCanada attempted to negotiate an easement and pipeline right-of-way. Those negotiations failed and TransCanada brought a condemnation proceeding. Bishop believed TransCanada didn’t have the right of eminent domain and didn’t agree with the special commissioners assigned to the project (the process for Texas condemnation proceedings that aren’t resolved by agreement). The parties settled and executed a mediated settlement agreement.

Mr. Bishop wasn’t happy with the document, and as a pro se plaintiff (that is, without a lawyer to speak for him), filed a new suit in the County Court at Law of Nacogdoches County. He alleged in his petition that the agreements were as a result of coercion, duress and fraud. The question for the court was whether the dispute was over the ownership of land or over a breach of a contract. The significance is that as a statutory county court, the County Court at Law of Nacogdoches County does not have jurisdiction over “a suit for recovery of land.”

The real question was whether an easement involves an interest in land. In his petition Bishop requested that the court prohibit TransCanada from exercising its rights under the easement negotiated at the settlement and to rescind the easement and pipeline rights-of-way. The appellate court concluded that an easement is an interest in land and that the county court at law had no jurisdiction.  Mr. Bishop’s claims were dismissed.

Takeaway

If you are making a trip to the courthouse, bring along a lawyer.

Is There Schizophrenia About Fracking?

Posted in Climate Change, Hydraulic Fracturing

Schizophrenia : A mental disorder characterized by a breakdown of thought processes and by impaired emotional responses. Common symptoms include delusions, such as paranoid beliefs; hallucinations and disorganized thinking.

Somebody is crazy, or at least very, very wrong, about the hydraulic fracturing debate.

Earthquakes and Fracking

In the controversy over “frackquakes”, brave small-town citizens are standing up to the rapacious oil drillers and their regulatory co-conspirators. Or, a outsiders are stirring up the locals and meddling in matters not of their concern.

Ecowatch sees it this way: Texans’ opinions about fracking are changing. The damage from “frackquakes” is “considerable”, including a 5.7 magnitude frackquake near Prague, Oklahoma. This turns fracking into a property rights issue and communities, even in Texas, have had enough. About 1,000 “concerned citizens” packed a public meeting about frackquakes near Azle. There was an “uproar” when the Railroad Commissioner holding the meeting announced a study of the issue but refused to answer questions. The leaders of the opposition are pleased that the local protestors are mad.

Meagan Baker in Energy in Depth sees it differently: “Fear and misinformation” are used to link fracking and earthquakes. Leading the protestors in Azle are national organizations such as Earthworks and Downwinders at Risk, funded by out-of-state “big money foundations”.  An essay by Cliff Frolich of the University of Texas Institute for Geophysics noted a correlation between injection wells and small quakes that are not harmful. A study by the National Research Council concluded that only a small fraction of injection and extraction activities have induced seismicity at levels noticeable to the public. These findings are similar to studies by the US Geological Survey, US Department of the Interior, and state geologists from Oklahoma and Colorado.

Water Use and Fracking

USA Today reports that in a recent study Ceres says the overuse of freshwater in fracking operations is a terrible threat to water-starved regions of the United States. Fifty-five percent of wells requiring hydraulic fracturing are in drought-stricken areas and half are in regions under “high or extremely high water stress”. The focus of the article is that the use of fresh water in fracking diminishes the availability for other uses. 

Triple Pundit  adds to the alarm by quoting huge volumes for use in fracking but none for other, more intensive, uses. (Where is the context?)   

Here is the entire Ceres report

In Forbes, David Blackmon questions Ceres’ point of view and impugns their motives. The report focuses on the threat on water sources imposed by fracking, without casting similar aspersions on other sources of water use.

Energy in Depth piles on, attacking Ceres as failing to take into account the effect onthe environment of  water use by chemical, mining, electric power, agriculture, food and beverage, textiles, semi-conductors and construction materials industries. Example: The amount of water used by fracking amounts to 1.3 percent of the amount used in carwashes.

So Who’s Crazy?

If you believe science trumps emotion and alarmism in these matters, you gotta figure the anti’s are the crazies. or are they, if their audience isn’t paying attentionto the details?  

It was 50 years ago this month that the Beatles first arrived in America, in a revolution as big as fracking. Not convinced? Compare the 1963 Beatles to the number 1 hit of  1962.

Rumblings From a Louisiana Seismic Agreement

Posted in Contract Disputes, Litigation
Co-author Ann Weissmann

If the significance of a lawsuit can be gauged by the 23 lawyers and 10 firms identified in the opinion, Olympia Minerals, LLC, et al v. HS Resources, Inc., et al., is as noteworthy as Bush v. Gore, Brown v. Board of Education, and even Kramer v. Kramer.

The Contract

The Olympia entities were the property owner and working interest owner of land in Calcasieu and Beauregard Parishes. Under the “North Starks Project Agreement”, HSR and Aspect Resources were to conduct a 3-D seismic survey of 135 square miles of land and to lease a minimum of 15% of the land. In exchange, HSR and Aspect received a 12-month non-exclusive geophysical permit covering all interests and a 12-month exclusive option to sublease the land.

The NSPA said: 

  • “HSR and Aspect shall lease a minimum of 15% of the EPMI Lands subject to the exclusive option, and shall work jointly with EPMI (the original contracting party) to prioritize the … Lands that may be subject to prescription and actively manage the exploration program to maximize … preservation of its mineral interests.”
  • “HSR and Aspect shall notify EPMI prior to commencement of the survey of the final shoot outline and shall furnish a copy of the pre-plot to EPMI. HSR and Aspect shall not be obligated to include all … lands optioned hereunder in the final survey outline.”
  • “HSR and Aspect shall provide to EPMI a copy of the 3-D seismic data across the Lands…the seismic data furnished to EPMI shall include field and support data”.

The Facts

Aspect completed a 3-D seismic survey of the south half of the land and delivered the results to EPMI, which were later delivered it to Olympia. Olympia then realized that the field data had not been delivered. This information was important to Olympia. HSR and Aspect also failed to lease at least 15% of the land.

The Questions for the Court

  • Did Aspect have an obligation or an option to lease 15% of the mineral interest?
  • Did Aspect have a duty to conduct a seismic survey over all the lands?
  • Was Aspect required to deliver all seismic data, including the field data, to Olympic?

Olympia sued HSR and Aspect , alleging breach of the agreement and sought dissolution, damages and specific performance of the portion of the contract requiring aspect to turn over all of the field data.

The Result

Aspect failed to perform all three of the major obligations in the NSPA within the 12 month period and breached the contract. The contract was not an option, but instead an obligation, to lease the 15% minimum.

The court relied on La. Civil Code Articles 2049 and 2050 requring interruption of contractual provisions so as to give each the meaning suggested by the contract as a whole. To give meaning to ”HSR and Aspect shall not be obligated to include all EPMI Lands optioned…” would negate the survey obligation altogether. Therefore, Aspect breached its obligation to conduct a seismic survey over all the land.

The appellate court upheld trial court findings that HSR and Aspect breached the requirement that field data be made available to Olympia and exacerbated the breach by failing to provide the data upon request. The court ordered specific performance of Aspect’s obligation to deliver the field data and associated records and awarded $1,101,875 in lost bonuses and rentals. An award of $7,000,000 in lost royalties was deemed to be speculative.

A Factor

Apparently important to the court’s ruling was HSR and Aspect’s “conscious and calculated business decisions” to breach the contact and their “blatant refusal to perform that obligation  … “.

A case from southwest Louisiana crys out for some John Delfaose.

Title Troubles in Texas, North Dakota and Montana: Right of Way v. Fee Conveyance

Posted in Land Titles, Title Issues

If you examine titles or read title opinions, this post is for you.

By Taylor Grove Lamb

 I was recently examining instruments for an East Texas title opinion when I came across an instrument that, at first glance, appeared to be an easement. Scanning the document, I saw the phrases “right of way” and “road”—leading one to believe this was a simple conveyance of a right of way. However, upon closer inspection, the instrument quit-claimed a “strip of land” totaling one and three-tenths acres, “[t]he same being the additional right of way necessary for the revision and betterment of the Marshall Jefferson road.”

 According to longstanding Texas Supreme Court law, “a deed which in the granting clause grants, sells and conveys a tract or strip of land conveys the title in fee, even though in a subsequent clause or paragraph of the deed the land conveyed is referred to as a right of way.” Texas Electric Ry. Co. et al v. Neale et al., 252 S.W.2d 451, 453 (Tex. 1952) [emphasis added].

Even though this instrument identifies the property as a “right of way”, the granting clause conveys “a tract”—this tiny distinction, the placement of two words, results in the conveyance of fee simple interest. Simply put, “[s]ubsequent recitals in an instrument as to use do not operate to limit the grant to a mere easement, if the granting clause conveys the land itself or the fee title thereto…” Texas Practice Series: Land Titles and Title Examination, §18.21 (Third Ed.).

Takeaway 

Examiners: Always be careful to not get caught up in the title of an instrument.  Read through the entire text and do not be tricked or misled by the phrase “right of way” if the granting clause identifies the interest conveyed as a “strip” or “tract”, especially in Texas.

There you have it. This calls for a musical interlude.

Coming soon: How is this issue treated in Montana and North Dakota?

Fear Alone Won’t Get You an Injunction

Posted in Litigation

With apologies for being absent for a week, I ask you to ponder this question when you embark on a fight with the officers and directors of the energy company you own a part of:  How does your subjective fear of harm factor into your right to injunctive relief? Not much, according to a Texas court in Schmidt, L.P., L.L.C. v. Richardson.

Disgruntled shareholders of Sun River Energy, Inc. feared that certain officers and directors, having issued themselves notes secured by mortgages on minerals owned by the corporation, and having not been paid, would foreclose on the properties, thereby depriving the remaining shareholders of their value in the corporation. The notes were for unpaid salaries, and the allegation was that the notes and mortgages were a scheme to fraudulently transfer the company’s assets to those certain officers and directors.

The plaintiffs obtained an injunction in the trial court. The court of appeals reversed on the basis that the threat of irreparable harm that a plaintiff must prove for a injunctive relief must be imminent.

At issue was a provision typical in many mortgages: If the mortgagee “deems … himself insecure and in good faith believes that the prospect of payment . . . is impaired . . .” he may foreclose. According to the court, because the six month period for repayment of the notes had long past, the remedy for insecurity resulting from a good faith belief in the “prospect” for payment was no longer relevant. By that language, the mortgages could not at the moment of the appeal create an “imminent” threat of injury. The language did not apply to the parties’ current situation. 

The court relied on a Texas Supreme Court opinion that “fear or apprehension of the possibility of injury” is different from actual injury. Fear and apprehension would not support injunctive relief and does not establish imminent harm. The basis must be more objective.

A factor that likely influenced the court was the defendants’ statements that they had not decided whether or not they would foreclose on the notes. One wonders if the court believed that the defendants would be crazy to foreclose after that statement under oath and incur the wrath of the trial court who, you will remember, granted the injunction in the first place.

Takeaway

What you have here is shareholders not playing well together. This reminds me of the aphorism: Your company agreements and other contractual obligations are no better than the character of the people with whom you are dealing. No disparagement of either side is intended: In this case, as in many, you can’t tell who are the good guys and who aren’t.

Lawyer Practice Tip

Lawyers for the plaintiff: If your injunction order doesn’t say the threat is “imminent”, you will lose in this court of appeal.

Technology Will Silence the Critics of Drilling

Posted in Climate Change, Hydraulic Fracturing

Technology and innovation will resolve the issues, real and imagined, that confront hydraulic fracturing. I arrive at that opinion because of history:

Before 1914, France had three dozen airplanes, more than all other air forces in the world put together. Germany, Britain, Italy, Russia, Japan and Austria all had no more than four planes each and the United States had just two. During the four years of World War I Britain built 55,000 planes, Germany 48,000 and Italy 20,000. During the course of the war, bombs went from nothing more than “wine bottles filled with gasoline or kerosene with a simple detonator attached” to aerial bombs weighing up to 2,200 pounds. (From One Summer, America 1927, by Bill Bryson).

(In order to boost readership I searched for similar developments in beer manufacturing. I’m sure there’s at least one. I just couldn’t find it.) 

With that out of the way, what’s the connection to energy? When faced with problems it must solve, industry, including oil and gas, develops solutions.  

A few examples:

  • Considering the total water usage for various means of electricity generation, natural gas saves water, even counting use associated with hydraulic fracturing. So says a study by the University of Texas at Austin published in Environmental Research Letters.  For every gallon of water used to produce natural gas through hydraulic fracturing, Texas saved 33 gallons of water by generating electricity with that natural gas instead of coal (in 2011, the last year for which information was available).
  • According to StateImpact (a publication of NPR stations) GasFrac is pioneering waterless fracking technology.
  • Apache Corporation has devised a way to minimize the use of fresh water in fracking, relying instead on chemical treatment of produced and brackish water.
  • EVO CNG  intends to establish CNG fueling stations for long-haul trucks and other vehicles in Fort Worth (its first), Dallas, San Antonio, Austin and El Paso, Texas.
  • According to the New Hampshire Union Leader (of all places) fracking is greener than environmentalists want to admit.

Natural gas isn’t the cure-all for our environmental and energy ills –there is no doubt that wind and solar (and bio-fuels if you don’t count corn) will help as well – but it’s a big help.

The next challenge is leaking methane. I’m sure the industry will make progress there as well.

So, let’s celebrate a clean and bright energy future!

The Duhig Rule – State by State

Posted in Land Titles, Title Issues
Co-author Tara Trout Flume

As promised in our last post, here is a state-by-state review of the Duhig Rule -  who has adpoted it, who hasn’t, and who might.

TexasDuhig v. Peavey Moore Lumber Company, 135 Tex. 503, 144 S.W.2d 878 (1940) was a Texas case.  As a result, producing states have Texas to thank for the Duhig Rule.  

 According to Duhig, if there is a reservation of a “specific interest” without mention of the prior reservation, and all parties can’t be made whole, then the grantee is made whole at the grantor’s expense. Like Oklahoma, Texas allows reformation by equity in cases involving mutual mistake. Texas does not apply Duhig to quictclaim deeds.

Arkansas – Adopted Duhig for warranty deeds, but not quitclaim deeds.

California – Has not expressly adopted Duhig. Courts in that state generally try to give effect to the intent of the parties.

Colorado – Has applied Duhig in several cases.

Kansas – Has not explicitly adopted Duhig.

Louisiana – Follows Duhig, same as in Texas.

Mississippi- Has adopted Duhig.

Montana – Has not specifically adopted Duhig, but follows the doctrine of ‘estoppel by deed.’

New Mexico – Has adopted Duhig.

New York – Has not had much case law regarding the issue, but would likely follow, as they will not limit the estate of the grantee in the subsequent conveyance.

North Dakota – Adopted the Duhig Rule for warranty deeds, but a court declined to apply Duhig when the grantee had actual notice of prior reservations – very similar to Texas.

Oklahoma – Generally follows Duhig if a “Warranty Deed reserves a specific interest without acknowledging prior reservations, then the grantee is made whole at the grantor’s expense”. However, if there is mutual mistake, then equity allows reformation of the deed.

Pennsylvania – Likely would follow Duhig.

Utah – Has not formally adopted Duhig , and it is uncertain whether a Utah court would apply it.

Wyoming – Recognizes Duhig and follows Texas.

Where did this compilation come from?

We deviate from a remorseless pursuit of personal glory to give credit to George Snell of Steptoe and Johnson.  The information in this post is from a publication authored by George and Richard Rosprim of the AAPL:

Oil & Gas Law: Nationwide Comparison of Laws on Leasing, Exploration and Production by Topic (George A. Snell, III & Richard A. Rosprim, CPL, eds., 2011).

It’s an excellent publication of the AAPL, and a great resource for anyone dealing with land and title issues in multiple states.

A musical interlude to remember Phil Everly. RIP.

Beware, the Stealthy Duhig Rule

Posted in Land Titles, Title Issues
Co-author Tara Trout Flume

Johnson v. Finkle, from North Dakota, centers around the long-standing but oft-forgotten headache that is the Duhig doctrine. If you aren’t familiar, you should be. Here it is:

The Rule

“Where a grantor conveys land in such a manner as to include 100% of the minerals, and then reserves to himself 50% of the minerals, the reservation is not operative where the grantor owns only 50% of the minerals. The deed is construed as undertaking the transfer of 50% of the minerals to the grantee. Both this grant and the reservation cannot be given effect.  The grantor loses because the risk of title loss is on him.”

The facts in this case aren’t novel. So, first we have …

A Practice Tip

Duhig is important in at least two situations: The first, it seems, is when the grantor doesn’t know or doesn’t care how much of the minerals he owns and doesn’t realize that reserving half, let’s say, will leave him with none if all he owns is half.

The second is where the scrivener hasn’t considered the rule and hence doesn’t comprehend the effect of prior reservations. This can be addressed is by making the reservation and conveyance subject to prior reservations and restrictions.  Non-lawyers:  Please don’t try this at home.  Get good legal advice.

The Facts Of Finkle

The Andersons owned 100% of the minerals.  In 1949 they sold a 1/2 mineral interest to the Youngbloods. In 1957, the Andersons entered into a Contract for Deed with the Johnsons that included a 1/4 mineral reservation. (In a contract for deed the seller retains title and finances the sale until the buyer pays in full, at which point title is transferred to the buyer.) In 1962 the Andersons gave a Warranty Deed to the Johnsons with this provision: “The grantor reserves a 1/4 mineral interest, including gas and oil, in the … premises, as of the date of this contract.”

Based on the language of the reservations alone, it appears that the parties intended the mineral ownership to be 1/2 to Youngbloods, 1/4 reserved by Andersons, and the remaining 1/4 conveyed to Johnsons.  (Finkle is the heir of the Andersons.)

Finkle argued that because the Johnsons owned the property under the 1957 Contract for Deed, they owned an outstanding mineral interest and Duhig shouldn’t govern. Not so fast, Mr. Finkle!  Nothing in the 1962 Warranty Deed indicated that the Andersons didn’t own all of the minerals at the time of the conveyance. And therein is the problem – the Johnsons had no notice that the Andersons didn’t own 100% of the minerals.  Based on the Warranty Deed, they intended to take 3/4 of the minerals.

The Ruling

Johnson didn’t have legal title to the property until the 1962 Warranty Deed. Recall that the grantor keeps legal title to the property until the grantor complies with the conditions of the contract. Thus, the Duhig rule applied, and the Andersons didn’t have a “large enough interest to satisfy both their grant to [the Johnsons] and reserve a 1/4 interest.” Thus, the Andersons weren’t able to reserve any of the minerals. This ultimately gave the Johnsons a 1/2 mineral interest in the property.

Next post: Which states apply Duhig?

This musical interlude portrays the heartache of those, like Mr. Finkle’s predecessors, who ignore the doctrine.

Pennsylvania Supreme Court Strikes Down Pro-Industry Law

Posted in Local Ordinances, Regulations
Author: Martin P. Averill

In Robinson Township v. Commonwealth of Pennsylvania, the Pennsylvania Supreme Court dealt a major blow to the energy industry. By a 4-2 decision the Court struck down a 2012 law (commonly known as “Act 13”) aimed at preventing municipal interference with oil and gas exploration.

Three different approaches

Interestingly, the precise rationale for the court’s decision was not agreed upon by a majority. Three justices concluded in a 162-page opinion that Act 13 violates a 1971 Environmental Rights Amendment to the Pennsylvania Constitution, which guarantees the right of citizens to “clean air and pure water, and to the preservation of natural, scenic, historic and esthetic values of the environment.”

Another justice concurred in the result but opined that Act 13 is unconstitutional because it violates substantive “due process of law” by preventing municipalities from protecting the rights of individual landowners within their jurisdiction from undue interference by neighboring landowners (here, from alleged harms caused by oil and gas exploration).

Two justices dissented on the basis that Act 13’s uniform standards for the oil and gas industry — including setback requirements, water protection measures and other limitations—were not an unconstitutional exercise of the state’s general police power to regulate the health, safety and welfare of its citizens. Of primary concern to the dissenters was the majority’s failure to accord the proper deference to the decisions of the state’s legislative branch—in other words, the age-old “judicial legislation” criticism—and the broader implications of the majority’s stance that local governments may lodge constitutional challenges against statewide legislation on behalf of individual citizens.

What’s next?

In the aftermath of Robinson Township, Pennsylvania’s prior law regarding oil and gas development will be in force. Pennsylvania jurisprudence prior to Act 13 memorialized a “how/where” distinction regarding local authority to govern the industry. Localities may regulate the “where” of development through their zoning powers, but may not regulate the “how” of development because the manner of conducting oil and gas exploration is expressly governed by the Pennsylvania Oil and Gas Act and regulations promulgated thereunder. This doctrine was most recently set forth in twin decisions of the Pennsylvania Supreme Court in 2009: Huntley & Huntley, Inc. v. Borough Council of Oakmont and Range Resources – Appalachia LLC v. Salem Township.