Co-author Isreal Miller

Local taxing authorities frequently look to out-of-towners to bear what the locals consider the outsiders’ fair share of the burdens of increased oil and gas activity. The counties are often small and rural. (See the Dimmit County road tax).You can’t blame them, but  Reeves County (county seat: Pecos, 2010 pop. 13,783), Loving (county seat: Mentone, 2010 pop. 1,340), and Ward (county seat: Monahans, 2010 pop. 10,658) have been reminded by the big guys and gals in Austin that these efforts are not likely to succeed. It didn’t work for Huey Long and it isn’t working well now.

The Texas Supreme Court issued four opinions addressing the taxation of compressors used to deliver natural gas into pipelines: All four were consolidated for briefing with another case, EXLP Leasing, LLC v. Galveston Central Appraisal District. EXLP v. Galveston addressed most, if not all, of the issues raised in each of the four cases at hand. Specifically, the court upheld Texas Tax Code § 23.1241(b), which values the compressors based on the lease revenue they generated during the previous tax year divided by twelve. EXLP v. Galveston also determined that the taxable situs for the compressors was the county in which EXLP Leasing maintained a business address and storage yard (Washington County) and not in the various counties in which the equipment might otherwise be physically located or leased (e.g., Galveston County). Continue Reading Local Taxation of Oil and Gas Activities Fails Again

In a ruling that could benefit mineral owners who don’t regularly examine county deed records (to-wit, you?) the Supreme Court of Texas in Carl M. Archer Trust No. Three et al v. Tregellas held that the discovery rule delayed the running of the statute of limitations on behalf of the holder of a recorded right of first refusal to purchase mineral interests.

The trustees sued the Tregellases for buying the minerals without allowing the Trust to exercise its ROFR, contending that a contract was formed when they sued more than four years after the Tregellases’ purchase; the suit was their acceptance of the right to purchase the minerals, they said.

According to the Trellgases, the claim was barred by limitations because the suit was filed more than four years after the sale. The trustees responded that even if that were so, limitations should be delayed because they they had no obligation to search the county deed records.

The discovery rule described … Continue Reading Texas High Court Invokes the Discovery Rule

In Frederick v. Allegheny Township Zoning Hearing Board, et al, the Pennsylvania Commonwealth Court affirmed a local zoning ordinance allowing oil and gas operations in all zoning districts in the Township as long as they satisfied enumerated standards that were designed to protect the public health, safety and welfare of the citizenry.

Facts and Findings

CNX received a permit to drill a well. The ordinance imposes a 1,000 foot setback and prescribes notice requirements and operational limitations. Citizens owning neighboring tracts complained that the well was not compatible with agricultural and residential use, complaining about noise from pad site preparation and drilling activities.

The objectors did not challenge the Zoning Board’s fact findings. That was either a tactical mistake or a lost cause. One can’t tell from the opinion. The court noted these findings, among others:

  • This is an area that has historically had gas production. There are 242 conventional gas wells in the Township, some of which employ hydraulic fracturing.
  • One farm already has three gas wells plainly visible to persons driving by the property.
  • Nothing will be visible to the neighbors after the well has been drilled and completed.
  • The Zoning Board rejected as not credible the testimony of several experts sponsored by the objectors.

The questions on appeal

  • Did the ordinance violate substantive due process by instituting illegal spot zoning? No
  • Did the ordinance violate Pennsylvania’s Environmental Rights Amendment? No.
  • Did permitting oil and gas development in every zoning district violate the Municipalities Planning Code? No

The objectors’ right to substantive due process was not denied by the ordinance. The ordinance was not spot zoning because it did not treat one spot of land in a different manner than similar surrounding land. The court balanced the public interest served by the ordinance against confiscatory or exclusionary impact of regulation on individual rights. The objectors could not prove that the ordinance was arbitrary or unreasonable and unrelated to the public health, safety, morals and general welfare. The objectors’ “concern” about the negative impact on their health and their land values was deemed to be speculation.

The ordinance did not violate Pennsylvania Constitution Article 1 §27, the Environmental Rights Amendment.

  • The government’s duty to protect environmental resources does not require freezing of existing public natural resource stock.
  • The amendment’s requirements are tempered by legitimate development tending to improve upon the lot of Pennsylvania’s citizens.
  • Political branches are not required to enact specific affirmative measures to promote clean air, water, etc.
  • Objectors could not prove that the zoning ordinance does not reasonably account for the natural, scenic, historic and aesthetic values of the Township’s environment.

The ordinance does not violate Sections 603, 604 and 605 of the MPC. This appeal point was a reiteration of the substantive due process arguments that were rejected.

The court noted the statewide setback requirements and other rules imposed by the Department of Environmental Protection, which has authority to regulate how drilling is conducted, not where it is conducted. Whether the zoning ordinance was wise or the best means to achieve the desired result about is left to the legislature and not the courts.

What is this not like?

Coincidentally (or not) one can compare this act of a legislative authority to New York, which, as you and the beleaguered mineral owners of that state know, determined that the mere possibility of injury was enough to ban fracking throughout the entire state.

Taj Mahal, as good now as he was before. Maybe better?

Co-author Ethan Wood

In Texas losing a title dispute doesn’t mean you committed myriad heinous torts by asserting your rights in the first place. The test: Were you reasonable in bringing your colorable but not correct claim? So says Dorfman v. J P Morgan Chase Bank, NA.

The title dispute

In 1929, the Moravitses conveyed mineral interests in Karnes County to McMullen. McMullen conveyed the executive right to McMullen Oil & Royalty Company but retained the royalties. McMullen’s royalty interest passed to his wife when he died and then to the Langille Trust.

The Moravits sons sued to cancel the 1929 deed. McMullen Oil disclaimed any interest in the tract. A 1944 judgment (not recorded until 1991) canceled the 1929 deed. The interests of McMullen Oil and the Langille Trust ended up in the Red Crest Trust, JP Morgan as trustee.

In 2010, Orca approached JP Morgan to lease the tract in question and other tracts that might have already been leased. The Orca landman mentioned to JP Morgan that “there seems to be a problem with the title” but as far as JP Morgan was concerned, “nothing in [their] records [showed] that the Red Crest Trust did not own that acreage.” JP Morgan leased to Orca, and refused to execute a quitclaim demanded by the Moravits sucessors. Litigation ensued.

The tort claims

The Moravits successors won on their trespass to try title, to quiet title, and declaratory judgment claims. They also made several tort claims—slander of title; negligence, gross negligence and negligent hiring, retention, or supervision; and tortious interference with property rights and existing and prospective contractual relationships. The trial court granted summary judgment to JP Morgan and Orca on those claims and the Fort Worth Court of Appeals agreed. Here’s why:

Slander of title

Slander of title requires evidence that:

(1) the plaintiff possesses an interest in the property slandered,

(2) the defendant published a false statement about title to the property,

(3) the statement was published with legal malice, and

(4) the publication caused the loss of a specific sale.

Elements 1 and 2 were established, but the court concluded that element 3—legal malice—was not present. JP Morgan and Orca had a reasonable belief that Red Crest Trust’s title was good. Although they were aware that there might be “a problem with the title,” there was no evidence that they acted deliberately without belief that JP Morgan had a reasonable claim to title. Item 4 failed as well. The Moravits successors also could not establish that they lost a specific sale.

Negligence                             

The negligence claims turned in large part on whether JP Morgan and Orca owed any duty to the plaintiffs. Because they had a reasonable basis for their claim to title, they owed no duty to the plaintiffs to not cloud their title or to quitclaim their possible interests.

Tortious interference

Tortious interference with property rights requires interference with one’s property rights without just cause or legal excuse. JP Morgan and Orca had “just cause” because they had a reasonable belief that JP Morgan’s title was good.

Interference with existing contractual relationships requires a willful and intentional act of interference with an existing contract. Again, because JP Morgan and Orca believed the Red Crest Trust had good title, they could not have willfully and intentionally interfered with an existing contract.

Interference with prospective contractual relationships requires an independently tortious act to prevent a relationship from occurring. Because the Moravits successors’ other tort claims failed, there was no independently tortious act.

With the lopsided rejection of Colorado Proposition 112, oil and gas workers in that state can return to work happy.  Had it passed, there were other options, one in the cosmos and one in Montana.

Any semblance of objectivity on the subject of the day is expressly disclaimed. This post contains distressing words, such as “oil and gas”, “fracking” and “jobs” that could cause severe emotional reactions in sensitive readers. If this post is contrary to your firmly held beliefs, proceed promptly to your downward facing dog.

As a thoughtful reader you might ask, Why should I vote against Proposition 112? Here are a few reasons: Continue Reading Colorado Proposition 112 – More Fuss

Co-author Chance Decker

It’s a tale as old as the oilfield: A non-operator doesn’t pay joint interest billings, operator sues, non-payer claims the expenses were unwarranted and the operator was negligent—no, grossly negligent—for incurring them in the first place. Welcome to OBO, Inc. v. Apache Corporation et al. Despite a creative argument by non-operator OBO that contract operator Apache didn’t have authority to charge JIB’s in the first place, OBO must pay.

The facts Continue Reading Contract Operator Not Liable for Breach of a Unit Operating Agreement

Referred to as the Setback Requirement for Oil and Gas Development, here is what Colorado voters will be asked to consider on November 6:

Shall there be a change to the Colorado Revised Statutes concerning a statewide minimum distance requirement for new oil and gas development, and, in connection therewith, changing existing distance requirements to require that any new oil and gas development be located at least 2,500 feet from any occupied structure in any area designated for additional protection and authorizing a state or a local government to increase the minimum distance requirement?

“Any area designated for additional protection” has been described as “sensitive areas”, such as “streams, intermittent streams, canals, and open spaces”. Current setbacks are 500 feet from homes and 1,000 feet from schools. Continue Reading Colorado Proposition 112: What’s the Fuss About?

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