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Charles Sartain

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Like wild mushrooms after a warm summer rain, and undaunted by the COVIDs, the fraudsters, the grifters, and the “the spawn of the Devil’s own strumpet”* were prolific before meeting the wrath of the courts and the regulators in 2021. This year features several potential lifetime achievement awards for recidivism.

Corruption Goes Nuclear

Perps: Former Ohio Speaker of the House Larry Householder and utility First Energy, beneficiary of a $1.3 billion state bailout of the state’s nuclear energy industry.

Crime: Householder was indicted on racketeering and conspiracy charges for taking bribes from FirstEnergy. Others were charged for crimes.

How they did it: The utility paid $56.6 million to an outfit called Generation Now who allegedly siphoned it off to Householder and the others. The money came from customers of First Energy’s distribution and transmission units.

Sentences: Plenty but none yet to the calaboose. Householder’s trial date is coming up. Republicans and Democrats together expelled him from the House; First Energy CEO Charles Jones was fired; two others pled guilty; a lobbyist committed suicide; First Energy was fined $230MM and entered into a deferred prosecution agreement.

The big picture: Forbes’ Ken Silverstein predicts that it will jar an industry that is perpetually trying to regain its balance after much bad publicity. Plus, high capital costs for construction and cheap shale gas have curtailed nuclear development, presenting a problem for the environment. Example: When Southern California Edison closed its San Onofre nuclear station in 2013 CO2 emissions jumped by 35% (That’s green California for you). Factoid: 96 nuclear reactors in 29 states supply about 20% of the country’s electricity and 55% of the carbon free power.

Don’t you know his mother was disappointed

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Perp: Mark Plummer, host of the ironically-named Dallas radio show “Smart Oil and Gas”.
Continue Reading 2021’s Bad Guys in Energy

Co-author Brittany Blakey

First, a word for you scriveners: Preserve your reputation and the honor of your law school writing instructor by preparing clear and understandable contracts. Then your handiwork won’t be disparaged as “opaquely worded” “cryptic language”, suffering from “lack of accuracy and lack of clarity”, and “containing grammatical and logical errors”, as in…

Co-author Brittany Blakey

The Texas Supreme Court has granted petition for review of a 2019 decision in Dyer et al v. Texas Commission on Environmental Quality . At issue is whether rescission of a Railroad Commission no-harm letter before the TCEQ granted an injection-well permit rendered the permit void.

The Injection Well Act (Chapter 27 of the Texas Water Code) governs the permitting process for underground injection wells in Texas. The Act aims to maintain the quality of fresh water for the public and existing industries while trying to prevent injections that may pollute fresh water. Under the Act, a company seeking to construct and operate an injection well must apply to the TCEQ for a permit. The applicant must also provide a “no-harm” letter from the RRC stating that the injection well will not damage an existing oil or gas reservoir.

I’m an oil and gas guy. Why does this order concern me?

This case is about injection wells for industrial and municipal waste, not for oil and gas waste. But the court’s treatment of the Administrative Procedures Act and the effect of (dueling?) orders of state agencies could inform future actions and orders of both agencies.

The long and complicated timeline
Continue Reading Texas Supreme Court to Review Approval of Injection Well Permit

In resolving a dispute over post-production cost deductions from oil and gas royalties (PPC’s), the court in Shirlaine West Properties Ltd et al v. Jamestown Resources, LLC and Total E&P USA, Inc. opined that the case ” … is yet another episode in the endless struggle in the oil and gas context between lessors and lessees in the allocation of [PPC’s] in the calculation of royalty payments.”

Takeaway

Was the lessor’s gas royalty burdened by PPC’s? Yes. The market value royalty clause unambiguously fixed the wellhead as the valuation point for royalty calculation.

The royalty clause 

 The lessor did its best to be free of PPCs:

  • Royalty on gas was 25% of “ … market value at the point of sale, use or other disposition …
  • … to be determined “ … at the specified location and by reference to the gross heating value …”.
  • “The market value used in the calculation … shall never be less than the total proceeds received by Lessee in connection with a sale, use or other disposition … “.
  • Royalty “ … shall be free and clear of all costs and expenses whatsoever, except ad valorem and production taxes.”
  • … [N]otwithstanding any language herein to the contrary, all oil, gas or other proceeds accruing to Lessor … shall be without deduction for [PPC’s] …  and costs resulting in enhancing the value could be deducted ” … but in no event would Lessor receive a price lower than or more than the price received by Lessee.”
  • If Lessee realized proceeds after deduction for PPC’s “ … the proportionate part of such deductions shall be added to the total proceeds received by Lessee … . “.
  • Heritage Resources v. NationsBank would have no application.

Continue Reading Another Post-Production Cost Decision in Texas

Co-author Brittany Blakey

Ammonite Oil and Gas Corporation v. Railroad Commission of Texas illustrates the difficulties faced by lessees attempting to force-pool a tract under the Mineral Interest Pooling Act.  In this case, the applicant Ammonite failed to make a “fair and reasonable offer” to voluntarily pool before applying to the Railroad Commission.

Facts

Ammonite…

Co-author Brittany Blakey

When the form contract says one thing and the addendum says another, which one would you expect to prevail?

The central issue in Tier 1 Resources Partners v. Delaware Basin Resources, LLC was whether one tract that was subject to several identical leases automatically terminated at the end of the primary term. The answer to the question turned on the aforementioned choice.

The leases

The Bush lessors leased Sections 6 and 2, in Reeves County, Texas, to DBR. The leases were made of two parts: a 10-paragraph “Producers 88” form and an 11-paragraph addendum. The interplay between the Producers 88 and the addendum caused disagreement among the parties.

Paragraph 1 defined the land covered by the lease as “said land,” which expressly included Section 6 and Section 2. The habendum clause established a three-year primary term. Upon lease expiration, DBR’s interest would automatically terminate as to all lands and depths except those designated to be within a production unit. DBR could save the lease from automatic termination by conducting a continuous drilling program per the lease specifications.

The lessee’s problem  
Continue Reading Addendum Prevails over Form … Again

Co-author Brittany Blakey

In Emerald Land Corp. v. Trimont Energy (BL) LLC, a Louisiana federal court considered whether a lessee was required to remove flowlines buried beneath the surface and canal bottoms of property subject to mineral leases.

What the leases said

Each of three leases granted to lessee Chevron the exclusive right to construct lines, tanks, storage facilities, and other structures necessary “to produce, save, take, care of treat and transport” oil and gas products.  All three had identical damages provisions: “Lessee shall pay all damages caused by its operations hereunder to the land, buildings and improvements presently existing… [.]”  Chevron contended that the granting language included the express right to install buried flowlines in connection with its activities. No provision expressly required restoration of the land by removing buried flowlines or paying the cost of removal.

Addressing lease terms and Castex

Relying on the lease terms and Terrebonne Parish School Board v. Castex Energy, Inc., Chevron differentiated between buried flowlines (buried below “plow depth”, which here was at least three feet) from surface flowlines, alleging that buried lines did not cause damage to the land. Chevron admitted it had to remove the surface lines.

Emerald distinguished Castex arguing that, unlike the canals dredged on the property in that case, these flowlines were foreign equipment attached and buried on the property. Therefore, Chevron was obligated to remove the lines as part of its obligation to restore the land to its original condition minus normal “wear and tear.” Emerald also pointed to evidence showing that buried flowlines were exposed at the surface of the property and, presumably, created a hazard.
Continue Reading Louisiana Court Considers Buried and Surface Flowlines