Larceny, that business enterprise with a knack for (fleeting) success regardless of the state of the economy, was busy last year. As Obi-Wan Kenobe would say it: You will never find a more wretched hive of scum and villainy as the bad guys of energy in 2020. Here we go.

__________________________________________________________________________

PdVSA

First up, as predictable as the Cowboys underperforming, Venezuela’s national oil company, PdVSA, returns to these pages.

Perps: Lennys Rangel, former head of procurement for a PdVSA subsidiary.

Three other perps have been accused in related prosecutions.

Crimes: Rangel Pled guilty to conspiracy to commit an offense after indictment for receiving $5MM inbribes to secure procurement contracts for a PdVSA joint venture and conspiring to launder the money.  The other two were convicted of similar crimes.

Sentence: Awaiting for Rangel, jail terms for the other two.

___________________________________________________________________________

… and more Venezuela

Giving an unintended assist to the green energy movement, Venezuela continues to dismantle its oil business.

Perps: Pres. Maduro and the military officers he put in charge of the national oil company.

Crime: Stupidity. There should be a law against it. In August 2020 Forbes reported that the last drilling rig left the country.

Sentence: Since 1999, poverty and joblessness, served by the citizens of Venezuela.

____________________________________________________________________________

International Intrigue, as reported by attorney Michael Volkov’s blog on criminal law issues.

Perp: Javier Aguilar, oil trader for energy commodity and trading company Vitol Oil.

Crime: Indicted for bribery of Ecuadorian government officials to secure a $300 million contract to purchase fuel oil, plus money laundering.

Sentence: None yet, but there are recorded phone calls and the cooperation of two unnamed witnesses.

PS: Vitol itself paid $163.7 million to settle related FCPA charges.

____________________________________________________________________________

No year is complete without a Ponzi scheme

Perp: Several Big Law firms, the link being one lawyer.

Crime: None. Sued by a receiver for gross neglegence and aiding and abetting investment fund Equital in a Ponzi scheme. The firms never required waivers of multiple conflicts of interest, and the hundreds of thousands of dollars in legal fees were in exchange for aiding and turning a blind eye to the fraudulent activities … so says the receiver.

Sentence: Sleepless nights, irritability, inability to concentrate, large legal fees.

Moral: This is about real estate; but lawyers, conultants and professionals in any industry, not to mention investors, you’d better know your client/promoter.

Caveat: Receivers, like bankruptcy trustees, tend to sue anybody with a deep pocket or insurance … just sayin’.

____________________________________________________________________________

A Iraq two-fer 

Perp 1:  Basil Al Jarah, former Iraq country manager for Unaoil, an oil consulting firm.

Crime: Paying $17MM in bribes to Iraqi officials to secure $1.7B in construction contracts.

Sentence: Three years and four months.

Perp 2: Ziad Akle  also of Unaoil.

Crime: Convicted of paying $500,000 in bribes to Iraqi officials to secure mooring buoy contacts.

Sentence: Five years.

____________________________________________________________________________

Fault lines in the seismic data

Perps: Former executives of seismic data company SAExploration, CEO and Chairman Jeffrey Hastings, CEO and COO Brent Whitley, CFO and GC  Brian Beatty, and VP of Operations Michael Scott.  Hastings is the subject of criminal charges in the Southern District of New York.

Wrongdoing: Allegations of multiyear accounting fraud, falsely inflating the company’s revenue by approximately $100 million and concealing the theft of millions of dollars by the executives.

Sentence: Ransacked reputations; this is an SEC enforcement action; the company’s website reflects that the former officers have been purged.

___________________________________________________________________________

Garden-variety fraud in Houston, as reported by the Houston business and energy blog by Andrew Jowett.

Perp: Arael Doolittle, owner of Sariel Petroleum.

Crime: Four counts of wire fraud, eight counts of engaging in monetary trasnactions in criminally derived funds. Bilked 21 investors in oil deals by invoking the name of a Chevron-affiliated company and used phony letters, email addresses and bank account.

Sentence: Potential 20-year maximum sentences and possible $250,000 maximum fines.

   __________________________________________________________________________

Lagniappe for lawyers 

Perp: Scott Blauvelt; Hamilton, Ohio.

Crime:  Driving naked … more than once. (Exposing his privates to a female stranger didn’t help.)

Sentence: Suspension of his law license.

Our musical interlude, for our honorees … and one just for Venezuela.

Author Joshua D. Smeltzer*

The recently passed Consolidated Appropriations Act, providing additional COVID pandemic relief, also includes important extensions for renewable energy tax credits. These extensions represent a significant tax benefit for renewable energy companies and their potential investors. However, if not done correctly taxpayers can lose the tax benefit and potentially face tax penalties. Here’s what you should know about the potential tax benefits and what to consider when claiming the credits.

The Investment Tax Credit

The Investment Tax Credit (ITC) under Internal Revenue Code Section 48 was extended by two years. This tax credit is popular for solar energy projects as well as other technologies (e.g. fuel cells, microturbines, small wind energy.) In general, solar projects beginning construction in years 2020 through 2022 are eligible for a 26% ITC, 22% ITC in year 2023, and 10% after 2023. The ITC is similar for other technologies except that it drops to 0% if construction begins after 2023, or if the project is placed in service after 2025.

The Production Tax Credit

The production tax credit (PTC) under Section 45 was also extended for one year. This tax credit is primarily used for wind projects and they can now begin construction in either 2020 or 2021 and be eligible for a 60% PTC. However, the one year extension also applies to other PTC-eligible technologies (i.e. biomass, geothermal, landfill gas, trash facilities, qualified hydropower and marine and hydrokinetic renewable energy facilities). If construction begins after 2021 then there is no eligibility for any PTC. However, a new tax benefit was also added by the new law in the form of a standalone ITC for offshore wind. These are facilities located in the inland navigable or coastal waters of the United States. Offshore wind projects are eligible for a 30% ITC for projects beginning construction before 2026 without any apparent phase down provisions.

“Legislative grace”

Tax credits are considered, by the IRS and the courts, as a matter of “legislative grace” and the burden is on a taxpayer to prove entitlement.  As such, renewable energy companies and their investors should be careful when incorporating these benefits in their agreements. The IRS and, if necessary, the courts have several tools available to them to recharacterize a transaction and remove claimed tax benefits if they feel that the transaction isn’t what it purports to be. Questions usually occur if the actions or agreements involved fail to show a genuine business venture with motivations beyond tax avoidance. The agreements and actions of the parties must document a clear business purpose outside of the tax benefits and show that all parties have a meaningful upside and downside potential outside of any tax benefit.

Indemnification – yes or no? 

An investor may desire, and a company may be willing to provide, certain guarantees or indemnifications that could prove problematic if the tax credits are later challenged by the IRS.  For example, direct or indirect guarantees of the investor being able to claim the credit, cash equivalents of the credits, guaranteed repayment of capital contributions because the credit can’t be claimed, or guarantees of repayment or indemnification if the credit is challenged by the IRS might cause problems. Therefore, the terms of the agreement must be evaluated carefully for provisions that could raise questions about the parties having a real stake in the transaction. Despite risks, if done correctly, these tax credits provide a great incentive for investors to direct money into the renewable energy sector that companies can use to help fund projects.

Tony Rice RIP

*Joshua is a talented addition to Gray Reed’s tax department.

Co-author Skyler Stuckey

In Endeavor Energy Resources, L.P. v. Energen Resources Corp. et al. the Supreme Court of Texas construed a continuous development clause in an oil and gas lease covering 11,300 acres in Howard County. After the primary term, lessee Endeavor could retain acreage by drilling a new well every 150 days. The clause gave Endeavor “ … the right to accumulate unused days in any 150-day term during the continuous development program in order to extend the next allowed 150-day term between the completion of one well and the driling of a subsequent well.

After the primary term, Endeavor drilled 12 wells that extended the lease. Endeavor began drilling a 13th well 320 days after completing the preceding well. In the ensuing period Energen top-leased the supposedly non-retained parcels. Litigation ensued.

The dispute focused on how to calculate the number of “unused days”. Endeavor argued that it could carry forward unused days across multiple 150-day terms.  Energen argued that unused days in any given 150-day term could be carried forward only once, to the next term. Continue Reading Texas Supreme Court Deems Continuous Development Clause Ambiguous

Enterprise Products Operating v. Trafigura, A G. asks, Who should pay when a “black blob” that had “the stench of a skunk” was left behind after $27 million worth of an odorless product is delivered from a ship? The case holds that:

  • a plaintiff can recover for losses paid by its insurance company and
  • the parol evidence rule can be avoided in favor of the parties’ course of dealing.

Continue Reading Contaminated Butane and Propane Creates Fight Over General Terms and Conditions

Now that our new president has been elected (Proud Boys, its over!), let’s take a look at what people smarter than I are predicting it will mean for the domestic oil and gas industry and the climate. In summary: bad for one, no meaningful help for the other, and the fury of the fiscal kraken will be unleashed. (As usual these are summaries; see the articles for a fuller picture). Continue Reading Predicting the Effect of Biden’s Election on the Oil Industry and the Climate

In May et al v. Succession of Mayo Romero et al a Louisiana court of appeal denied the plaintiff’s efforts to suspend the running of liberative prescription in the face of peremptory exceptions. The discovery rule is one theory under which the doctrine of contra non valentum can save a late-filed lawsuit. Call it what you want, but opening a succession to investigate claims and sitting on those claims for 13 years is not likely to yield a beneficial result for the plaintiff.  Continue Reading Discovery Rule Can’t Save a Louisiana Succession’s Untimely Claim

Co-author Rusty Tucker

BlueStone Nat. Res. II, LLC v. Nettye Engler Energy, LP is another Texas case deciding whether language creating a nonparticipating royalty interest prohibited deduction of post-production costs. (Spoiler alert: it didn’t. Read on to learn why.)

The Deed

By a 1986 Deed Engler’s predecessors conveyed land to BlueStone’s predecessor. Grantor reserved an undivided 1/8th NPRI in the minerals and was entitled to 1/8th of gross production, “ … to be delivered to Grantor’s credit, free of cost in the pipe line, if any, otherwise free of cost at the mouth of the well or mine … .” (emphasis ours). Continue Reading Texas NPRI Burdened with Post-Production Costs

Co-author Rusty Tucker

Dayston v, LLC v. Brooke, voided a real estate contract because it failed to satisfy the Texas statute of frauds. Let’s see how the drafting mishap occured.

The description

A Farm and Ranch Contract between Dayston as seller and Brooke as buyer described the land to be conveyed this way: (Caveat, this is abbreviated, the entire description is in the opinion): “[t]he land … described as follows: 3379 FM Hwy 913, 515 Tennyson Dr, and +/- 81.50 DC … or as described on attached … Exhibit A.”, which further described the land as:

“3379 FM HWY. 913 …

To Include:

Legal: Acres: 8.290, … ;

Legal: Acres: 1.740, … ;

515 TENNYSON DRIVE …

To include:

Acres: 8.246, … SIMS CREEK SUBD, TRACT 1;

Legal: Acres: 10.290, … ;

81.50 Acres – Part of … (1.91 ACS) Parcel

*Please note the 81.50 acre parcel is being surveyed and renamed.Title company will convey the new legal address once completed.”

The claims

Brooke sued Dayston asserting that the contract was void due to an insufficient legal description and asked for return of earnest money.

Dayston replied that the description was sufficient, that there was a genuine issue of material fact because a person (Brooke) familiar with the area could locate the land with reasonable certainty, the contract allowed a survey “within 5 days of the effective date” of the contract, and the survey was referenced in the contract, thus satisfying the statute of frauds.

The trial court declared the contract void for an insufficient legal description and ordered the earnest money returned. The extrinsic evidence was inadmissible to cure the inadequate description.

What is required for a sufficient legal description?

You should know these rules pertaining to the statute of frauds:

  • The writing must furnish “within itself or by reference to other identified writings then in existence, the means or data by which the particular land to be conveyed may be identified with specific certainty.”
  • Although courts may construe multiple writings prepared for the same transaction as one contract, any documents referred to and incorporated in the contested agreement must be in existence at the time the parties executed the contested agreement.
  • If the writing and other identified writings do not sufficiently describe the property to be conveyed, then it violates the statute of frauds and is voidable.
  • Although the description does not have to include metes and bounds, it must furnish enough data to identify the property with reasonable certainty.
  • When it is possible that more than one tract of land fits the description, the statute of frauds is not satisfied (eg., an unidentified portion of a larger tract).
  • Although courts allow parol evidence when the writing contains a “nucleus of description”, the extrinsic evidence cannot be the sole means to “supply the location or description of the land,” but can only help identify the land “‘from the data in the [writing].’”
  • A street address, standing alone, may be insufficient if there is uncertainty about the amount of land in the conveyance.

On its face “+/- 81.50” acres was an indefinite amount of land. The exhibit added clarity but still described the land as two street addresses, listing the accompanying acres, and 81.50 acres from two larger tracts of land. The description was insufficient to identify the land with certainty.

Dayston argued that the insufficient legal description was cured, the property could be located with reasonable certainty because Brooke personally visited there on many occasions, and a survey was incorporated into the contract by reference.

These arguments were unpersuasive because the “knowledge and intent of the parties will not give validity to [an agreement].” Because the parcel was being surveyed and the new legal address would be provided “once completed,” the survey was not “then in existence” at the time of the contract was executed as required under the law. Dayston’s extrinsic evidence was inadmissible.

Worried about the future of our great country after the election? Don’t be.

Co-author Rusty Tucker

In re Plains Pipeline, L.P., is a suit to adjudicate title to groundwater. Did the trial court err in allowing a party to drill seven test holes on a tank farm? (Spoiler alert: It didn’t.) This decision evaluates an order in a unique civil discovery situation, and the underlying claims exemplify approaches to disputes over groundwater rights. Continue Reading A Unique Discovery Request in a Texas Water Rights Fight

The battle lines between pipeline companies and landowners are still being drawn. In Bayou Bridge Pipeline v. 38.00 acres nobody had a gun, nobody got taken away, and one side was right and one side was wrong.

There were two survivors:

  • The constitutionality of Louisiana’s statutory scheme for expropriation of private land for oil pipelines, and
  • BBP’s gamble to trespass and begin work before a judgment was obtained.  As BBP said, “time is money”.

Note to non-Louisiana lawyers: Unlike Texas at least, a Louisiana pipeline must obtain a judgment of expropriation before going on the property. Continue Reading Louisiana Oil Pipeline Expropriation System is Constitutional