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Charles Sartain

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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

Co-author David Leonard

In a precursor of disputes sure to come, in Lyle v. Midway Solar, LLC, a Texas court of appeals delivered a win for solar energy by applying the accommodation doctrine in favor of a solar developer’s actual use of the surface of the land over speculative future development of the mineral estate.

The lesson for mineral and surface owners

Mineral owners: This decision should remind you to diligently monitor surface use and, as appropriate, intervene in the development process with informed feedback about your actual or potential surface use needs.

Surface users: Conversely, you should be willing to incorporate informed feedback from mineral owners into the design of surface projects. An arbitrary and unilateral designation of drilling areas is unlikely to suffice under many circumstances.
Continue Reading Solar Beats Minerals in a Texas Accommodation Doctrine Battle

Co-author Brittany Blakey

After a trial court order, two appellate opinions, a dissent, and another appellate opinion, the tension between a well operator and an adjacent mineral owner over whether hydraulic fracturing can constitute a subsurface trespass in Pennsylvania has, for the most part, been resolved. In Briggs v. Southwestern Production Company, several points of Pennsylvania law have been confirmed:

  • Well operators may use hydraulic fracturing to drain oil and gas from under another’s property, at least in the absence of physical invasion.
  • The rule of capture does not preclude trespass liability if the operation creates a physical invasion.
  • The mineral owner’s complaint must specifically allege that the operator engaged in horizontal drilling that extended onto their property or that the operator propelled frack fluids and proppants across the property line.

Continue Reading Pennsylvania Rule of Capture Still Bars Subsurface Trespass Claim

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.

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PdVSA

First up…

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…

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