In his third installment on the climate change debate, Gray Reed energy partner Paul Yale discusses the assertions of Bjorn Lomborg in his book False Alarm:

  • Lomborg relies on two major sources: Reports from the UN Intergovernmental Panel on Climate Change and the US Government’s National Climate Assessment.
  • He says their forecasts about temperatures at the end of the 21st century assume nothing will be done to mitigate CO2 increases. Emissions are declining in the developed world but are rising in the developing world mainly because of China, India and Southeast Asia.
  • The US alone cannot save the planet from the ravages of climate change by self-imposed restrictions on carbon emissions.
  • If China were to switch its power production to natural gas, global CO2 emission cuts would be massive and would dwarf the cuts already made in the US. Among other options are nuclear power and or quadrupling research and development budgets.
  • Wind and solar will bring land-use, intermittency, and battery storage problems.
  • The only way solar and wind power could enable the world to meet the Paris Accord goal of holding climate change increases to 2°C (a political goal) would be for all governments to collectively force citizens to eschew all fossil fuels in favor of wind and solar power. That is not likely to happen, and the costs would fall disproportionately on poor countries, who are the ones least able to afford the leap.
  • One billion people in the world use wood and dung for their primary energy supplies. Poor countries need a functioning power grid like the wealthy countries and this could come from nuclear power, with its high startup costs and safety concerns, or cheaper, more reliable and more flexible coal or natural gas. Wind and solar are not sufficient.
  • Polls indicate that the public is generally unwilling to pay the higher taxes and utility bills needed to convert the US power grid completely to wind and solar even if it were technologically feasible. He cites trillions of dollars in costs.
  • His conclusion: All of the above, and a worldwide carbon tax (you have to read the book for the details). A carbon tax would impact rural Americans disproportionately.

Your musical interlude.

Co-author Rusty Tucker

The Supreme Court of Texas has ruled that oil and gas leases under consideration in BlueStone Natural Resources II, LLC v. Walker Murray Randle, et al. did not permit deduction of postproduction costs from sales proceeds before royalties were computed, and a “free use” clause did not authorize the lessee to consume leasehold gas in off-lease operations without compensating the lessors.

The takeaway …

… at least that’s what they ruled in this cicumstance. The Court reiterated that regardless of a recitation here or an observation over yonder, it will not adjudicate the supremacy of one contract clause over another or one arbitrary rule of construction over another. Rather, it will construe each contract according to its terms.

The royalty clause Continue Reading Texas Supreme Court Weighs in on Post-Production Costs

Co-author Rusty Tucker

Yesterday we discussed aspects of PPC Acquisition Co., LLC, et al. v. Delaware Basin Res., LLC, et al. Today we consider whether the retained-acreage clauses created a special limitation or a covenant and the relationship between the clauses and Field Rules in place at several different times. Did Field Rules establishing 640-acre units expand  acreage each lessee could retain? (The clauses are highlighted in the opinion and facts are in yesterday’s post.)

What’s the difference? Continue Reading Texas Court Parses Three Retained-Acreage Clauses – Part 2

Co-author Rusty Tucker

PPC Acquisition Co., LLC, et al. v. Delaware Basin Res., LLC, et al. addressed retained acreage clauses in three separate oil and gas leases covering the same 640-acre tract in Reeves County, Texas.

Did the lessees hold acreage under the leases based on one producing well, the Colt #1 that was completed in 2003? OR, did the lessees’ failure to drill additional wells, re-classification of the well from gas to oil, and failure to timely file a RRC Form P-15 with a limited acreage designation terminate the leases for all or part of the acreage?

The facts Continue Reading Texas Court Parses Three Retained-Acreage Clauses – Part 1

Co-author Rusty Tucker

In Susan Davis Van Dyke et al. v. The Navigator Group. et al., the Eastland court of appeals applied recent fixed-versus-floating NPRI principles to a double-fraction mineral interest reservation.

In a 1924 Deed Mulkey conveyed property to White and Tom and reserved “one-half of one-eighth of all minerals …”

Davis (heirs and assigns of Mulkey) claimed ownership of half of the minerals pursuant to the reservation. Navigator (heirs and assigns of White and Tom) claimed that Davis only owns 1/16th and that Navigator owns the rest. Ruling on dueling motions for summary judgment, the trial court agreed with Navigator and declared, among other things, that the Deed was unambiguous and that the Mulkeys reserved 1/16th of the minerals (1/2 of 1/8th) and conveyed 15/16ths to White and Tom.

Davis asserted claims under the estate misconception theory and the presumed grant doctrine and asserted estoppel defenses. This post can’t do justice to the court’s deep dive into these theories. See this long form summary for more detail. Continue Reading Fixed-or-Floating NPRI Principles Applied to Texas Mineral Reservation

This is the second in a series of Gray Reed energy lawyer Paul Yale‘s examination of three books that raise questions such as:

Can we save the polar bears and the whales, …  Are they in need of saving?

Will we drown by 2100? (Not “we” as in you and me, but you know what I mean.)

Will the heat kill, or can anyone accurately predict what’s going to happen in 2100?

What is the effect on the economy?

What about droughts and wilfdfires?

For today’s musical distractions, we pay homage to the organ:

Garth Hudson

The Farfisa

Music from church

What could possibly go wrong when drill pipe and a delivery ticket are sent to a well location? Well …

The facts

In Knight Oil Tools v. Rippy Oil Company, Knight rented drill pipe to Rippy for an Eagle Ford well.  A delivery ticket represented that the pipe complied with API premium class standards. The pipe, marked with two white bands, was supposed to meet standards for API premium class pipe. Some of the pipe did not comply with the standards.

(The physical condition of used drill pipe is indicated by an industry-recognized system of colored bands, with each color representing a certain physical condition.)

The pipe broke in the hole because of what the parties agreed was fatigue. Rippy abandoned the well and an offset well was unsuccessful. Rippy sued Knight to recover damages for the lost well and Knight counterclaimed for unpaid invoices.

Partial summary judgment for the customer Continue Reading Defective Drill Pipe+Delivery Ticket=Lawsuit

Gray Reed’s in-house Cassandra, energy partner Paul Yale, has set out to educate energy industry professionals, and anyone else willing to learn, on the latest developments in the climate change debate. Here is Part One, in which Paul reviews three books with differing points of view:  The Uninhabitable Earth: Life After Warming, by David Wallace-Wells; Apocolypse Never: Why Environmental Alarmism Hurts Us All, by Michael Schellenberger; and False Alarm, How Climate Panic Costs Us Trillions, Hurts the Poor, and Fails to Fix the Planet, by Bjorn Lomborg.

Beyond educating, Paul’s review arms advocates on all sides of the debate with reasons to be convinced that we are doomed, reassured that all will be well, or hopeful for wiser solutions.

If the Administration’s energy policy feels like a root canal without anesthesia, remember the world still needs you.

 

 

Co-author Brittany Blakey

The lesson from In re First River Energy LLC:  Even though Texas lien law does not require the filing of a financing statement for perfection, file one anyway. It will be helpful in the event a dispute is decided under the laws of another state.

The transactions

Texas and Oklahoma producers sold oil and condensate to First River Energy, a midstream service provider, which was expected to pay the producers by the 20th of the month following delivery. First River was organized under Delaware law and headquartered in Texas. First River filed Chapter 11 bankruptcy in Delaware, by which time it had resold the producers’ oil to downstream purchasers and had $27.6 million+/- in accounts receivable, while the producers’ invoices were outstanding.

The producers from the two states asserted statutory perfected purchase money security interests in the proceeds of the oil and condensate under two statutes: Texas UCC §9.343, or the Oklahoma Lien Act, (Okla Stat. Ann. Tit. 52 §549), respectively. First River’s bank had a competing security interest in the debtor’s funds on deposit and other assets, including accounts and proceeds thereof, by virtue of security agreements executed under Delaware law. The bank’s interest was undisputed. Continue Reading Red River Statutory Rivalry: Texas Lien Statute is Fatal to Texas Producers’ Security Interests

Author David Gair*

In Exxon Mobil Corp. v. United States of America, from the United States District Court for the Northern District of Texas, ExxonMobil learned the hard way that filing amended tax returns can be very costly.

Some of the reasons why an amended return is dangerous are below, but first to the case:

ExxonMobil was involved in oil and gas ventures in Qatar and Malaysia, which for tax purposes were treated as partnerships and reported on the company’s consolidated tax returns. ExxonMobil had historically treated those transactions as mineral leases. In 2014 and 2015, ExxonMobil filed amended tax returns treating the transactions as purchases for tax years 2006-2009 and claiming refunds for overpaid income taxes in the amount of  $1.35 Billion. The IRS not only disallowed the refund claims but also imposed a penalty under 26 U.S.C. § 6676 of approximately $200 million.

ExxonMobil ultimately escaped the penalty but it was not easy and it surely cost them a lot of money to fight it.

Section 6676 imposes a 20 percent penalty for filing an erroneous amended return.  A taxpayer can defend against that penalty by proving to the IRS that it has a reasonable basis/reasonable cause for the amendment.  That determination is highly factually based and ripe for litigation.  In short, penalties can be hard to avoid.

The dangers of amended returns claiming refunds:

  • IRS thinks fraud – Illegitimate tax shelter promoters develop schemes to file amended returns and obtain huge refunds. Thus they are viewed skeptically by the IRS. Any guaranty the promoter offers about success is usually worthless. Big refunds make the IRS think something untoward is going on, even if it is not.
  • You will face an audit – Amended returns claiming refunds will almost assure you of an IRS audit. The cost and stress associated with an audit is substantial.
  • There will be delays ­– It is not uncommon to face delays of months, if not years, in resolving your amended return.

Continue Reading ExxonMobil Discovers That Amended Tax Returns Are Dangerous