Co-author Lydia Webb

Q: How many New York federal judges does it take to make a mess of Texas property law?

A: In In Re: Sabine Oil and Gas Corp., five. One to get it wrong, another to affirm the wrongness, and three more for reinforcement.

For the third time, a federal court in New York has allowed an E&P debtor to reject its gas gathering agreements because its midstream counter-parties could not establish that the agreements were covenants running with the land under Texas law. This time it was the Second Circuit, which upheld a district court ruling, which upheld a  bankruptcy court ruling.

E&P debtor Sabine sought to reject a series of above-market gas gathering agreements. The bankruptcy court allowed the debtor to do exactly that, over the objection of the midstream counter-party. The question on appeal: Under Texas law, are midstream agreements covenants running with the land (and thus, cannot be rejected in bankruptcy)?

This result could have wide-reaching negative effects on the oil and gas industry.  We won’t delve deep into the weeds of the legal analysis.  But we will raise a serious question about the process.

Horizontal privity?

The key question was whether Texas law requires a showing of horizontal privity as part of the covenant analysis.  The New York courts concluded that Texas requires horizontal privity, which was not satisfied under the present circumstances. This allowed Sabine to escape from its midstream agreements.

Horizontal privity requires that the parties make their covenant in connection with, and at the same time as, a conveyance of real property.  The Second Circuit acknowledged that the trend across the country is to do away with the horizontal privity requirement. However, the Court went on to rationalize that “[i]t would be improper for us to read a traditional requirement of real covenants out of Texas state law when there is no Texas law instructing courts to do so.”

The maddening reality

The test, according to the Texas Supreme Court, does not include horizontal privity as a requirement for a covenant to run with the land!

Rather than opining on the nuances of Texas property law, the Second Circuit could have (and should have) certified the question to the Texas Supreme Court so that the law could be uniformly applied by all federal courts in similar cases arising from contracts for the transportation or sale of Texas oil and gas production.  This option would have made the most sense and was proposed by several trade groups.

The Texas high court, the ultimate authority on Texas common law, should decide what it takes to constitute a covenant running with the land in this state – not a federal court sitting thousands of miles away and not at all versed in Texas property law. Leave it to the experts and let Texas tell the world how its laws should be interpreted and enforced.

Railroaded?

No, at least not in Dimmit County, Texas, under the facts of In Re: Wood Group PSN, Inc. et al. Twenty-nine contractors and producers were sued by Dimmitt County for damaging a 6.9 mile long non-asphalt county road by their trucks, heavy equipment and other oilfield traffic. Twenty-two moved to dismiss the case. The trial court, in its sound discretion while no-doubt mindful of who votes and where his paycheck comes from, denied the motions. The appellate court reversed.  Continue Reading Are Oilfield Contractors Liable For Road Damage?

Co-author Niloufar  “Nikki” Hafizi

The 2012 Macondo Well blowout and Deepwater Horizon rig explosion gave rise to a slew of lawsuits. Our subject today is one of them. In Houston Casualty Company v. Anadarko Petroleum Corp. the Beaumont court of appeals construed an insurance policy’s excess liability coverage provision. At stake was whether Underwriters had to indemnify Anadarko for over $100 million in defense costs. In an opinion much-decried by energy companies, the court thought not.

The Texas Supreme Court will review the decision, so let’s look at what the court of appeals said.  Continue Reading Texas Supreme Court to Consider Macondo Blowout Insurance Dispute

Are you buying oil and gas leases in Ohio and expecting to be paid for your work? Consider Dundics v. Eric Petroleum, in which the Ohio Supreme Court concluded that land professionals who do not possess an Ohio real estate broker’s license are not entitled to bring suit to recover compensation for acquiring oil and gas leases. Continue Reading Landmen, Ohio Has a Surprise For You

In his Hardcore History podcasts, Dan Carlin presents himself, not as a historian, but as a journalist who likes history. Herein is my attempt to present yours truly, not as an environmental lawyer, but as a trial lawyer with an interest in energy policy. Therefore, here are differing assessments of the Trump EPA’s rollback of the Obama EPA’s methane regulations.

Executive summary 

Producers: “Regs bad, industry good; we’re saving the planet.”

Enviros: “Regs good, industry bad; you’re poisoning the planet.”

Read more and decide for yourself Continue Reading What They’re Saying About the EPA’s Methane Rule

Did Texas law or New Mexico law apply to knock-for-knock indemnity provisions in a Master Work and Services Agreement?  When a contract explicitly calls for Texas law, that is likely to be the outcome, as it was in North American Tubular Services LLC v. BOPCO, LP.

Takeaways

  • Decide before something bad happens what law you want to apply to a transaction.
  • Think about it. You’ll have to live with the choice.
  • Providing a safe work place is a moral imperative; financial risk goes a long way toward assuring the imperative is satisfied.
  • (Better left for another post: Does that also apply to leaking methane?)
  • The parties’ choice of law was was bolstered because under the contract the indemnity and insurance requirements would be liberally construed in order to effectuate their enforceability.
  • It would have helped the choice of law if the contract had also said that the choice was without regard for the chosen state’s conflict of law provisions.

Continue Reading Choice of Law Matters in an Oilfield Indemnity Suit

Co-author Ethan Wood

Let’s begin with a quiz. True or false:

  • Apache Resources, LLC (n/k/a “Pueblo Resources, LLC.” Wonder why?) is Apache Corporation.
  • Plains Natural Resources, LLC is Plains Exploration & Production Company.
  • Ridge Natural Resources, LLC is Oak Ridge Natural Resources, LLC.
  • Range Royalty, LLC is Range Resources Corporation.

If you answered “false” to all four, congratulations. In each category the latter companies are reputable independent oil and gas producers. The former are … well, let’s just call them “mineral buyers” (seemingly coordinated in their efforts in some murky way), one of which was the winner – for now – in Ridge Resources, LLC et al v. Double Eagle Royalty, LP Continue Reading An Arbitration Ruling That’s About More Than Arbitration

Co-author Chance Decker

Is an overriding royalty interest lasting beyond the term of a lease-now-in-effect impossible to create?  You saw the recent Texas Supreme Court opinion invalidating an anti-washout clause in TRO-X v. Anadarko Petroleum Corp. Now, you see Tommy Yowell et al v. Granite Operating Company et al.  In light of these opinions one could wonder if an override is as valuable a tool in an oil and gas trade as it used to be.

An assault on overrides? Continue Reading Anti-Washout Clause Defeated by the Rule Against Perpetuities

Co-author Ethan Wood

Like breaking into CIA headquarters, sneaking into the Vatican, or hanging off the side of the Burj Khalifa, sometimes getting the deal done seems impossible. The key to any successful mission is planning for disastrous contingencies—be they rats in an air duct, malfunctioning suction gloves, or having to reach out to a third party to finance the bid you just won. Your mission—should you choose to accept it—is to learn how to avoid the fallout of an oil and gas acquisition gone bad by studying Pacific Energy & Mining Co. v. Fidelity Exp. & Prod. Co. Continue Reading Attempt to Prove a Texas Partnership Fails