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

Co-author Paul Yale

Issues surrounding the legality of allocation wells in Texas have been percolating for some time, and lately we’ve heard of potential litigation. So, what’s the fuss about? The results in Klotzman (a Texas Railroad Commission dispute) and Spartan et al v. EOG (a district court case) didn’t resolve the legal questions. Both settled before a ruling. Browning Oil Company v. Luecke provided theoretical underpinnings but didn’t go far enough.

Why does the controversy exist? Continue Reading Is the Allocation Well Debate About to Boil Over?

UPDATED

In light of the adverse effects the storm, floods and tornadoes will have on oil and gas production, transportation and processing operations, we offer several bits of advice:

Force majeure

Winds and floods are among the very reasons for the seldom-invoked force majeure provisions of your oil and gas leases, operating agreements, transportation agreements and other contracts. If your operations are affected by the storm, study your contracts and be mindful of what you will need to do and when in order to invoke the protections force majeure clauses offer. Continue Reading Hurricane Harvey and Oil and Gas Operations – What To Do

Co-author Sheena Shaghaghi

Benjamin Franklin would be relieved. Just when it seems that the taxman always wins, he doesn’t.  In CGG Americas, Inc. v. Commissioner the U. S. Tax Court concluded that a taxpayer need not own underlying hydrocarbons in order to take a deduction for geological and geophysical expenses. Counterintuitive, you say? Read on.

Continue Reading Seismic Expenses are Deductible for the Seismic Shooter

Co-author Brooke Sizer

Prevails over what, you ask? In Gladney v. Anglo-Dutch Energy, LLC, a conditional allowable from the Office of Conservation didn’t supersede lease royalty obligations.

How did we get here?

Anglo-Dutch completed a gas well on the Gladneys’ lease and then filed a pre-application notice for a compulsory drilling and production unit and applied for a conditional allowable. On May 17, 2012, the application was granted:

All monies generated from the date of first production, the disbursement of which is contingent upon the outcome of the current proceedings before the Office of Conservation for the Frio Zone will be disbursed based upon results of those proceedings.

The next day Anglo-Dutch began sales of production from the well and later submitted a formal unit application. Order No. 124-Y established the unit, effective on and after October 30, 2012.

Perhaps to the surprise of Anglo Dutch, but certainly to its chagrin, the Gladneys demanded payment of the full one-fifth royalty for production from the well prior to October 30th, rather than settle for their share of production on a unit basis.

Anglo-Dutch refused, relying on the conditional allowable which, it said, superseded its lease obligations.

The trial court ruled for Anglo-Dutch, holding that the “allowable covers the royalty payments” because the allowable dated back to first production. The court found no provision in the lease which would require that the Gladneys be paid more than that provided by the commissioner under the allowable and the unitization order.

Reversal from the court of appeal

The court of appeal reversed. “The Mineral Lease … clearly provided Plaintiffs were to get lease-basis royalties on all production from the well and that lease governed the parties’ relationship prior to the unitization order, which was not effective until October 30, 2012.”

Under the Order, the effective date of the unit was October 30, 2012, not the first date of production. The Gladneys were entitled to a full one-fifth royalty from first production until the effective date of the Commission’s Order.

The Gladneys argued, and the court agreed, that the Office of Conservation can’t impede private contract rights. According to an affidavit from a long-time Office of Conservation representative, the conditional allowable was not meant to abridge privately negotiated contract rights. That is consistent with settled Louisiana jurisprudence that meddling in private contracts is beyond the Office of Conservation’s authority.

The court helps those who help themselves

 The court was unpersuaded by Anglo-Dutch’s plea that it had no choice other than to pay royalty on a unit basis because otherwise it would have had to pay double royalties. Anglo-Dutch could have amended its lease obligations through a royalty escrow agreement. The Gladneys noted that they suggested this alternative and it was rejected, and that such an arrangement is a common practice in these situations. The court also rejected the argument that the Gladneys were improperly attacking the Commission’s actions.

Anglo-Dutch should have listened to Alabama Shakes.

white collar crimeLet’s look back at a cavalcade of crooks, criminals and miscreants who met up with justice in 2016.  We do it to be reminded of the others who will be lurking in the 2017 shadows.

Perp: David Kent, founder of Oilpro.com

Offense: Wire fraud by computer hacking.

How: Created a “backdoor entry” into the computer system of Rigzone  (the company he founded and sold for $51 million) and downloaded the “entire website” onto an external drive that disappeared after he left Rigzone. Then began soliciting Rigzone’s customers.

Sentence: Awaiting, if you’re talking jail time; the civil litigation will likely result in money damages against him and his co-conspirators.

__________

Perp: Sameer Sethi. This is an SEC civil action.

Offense: Fraudulent sale of securities. (SEC v Sethi Complaint)

How: All sorts of false and misleading statements and omissions to investors of Sethi Petroleum, LLC, to the tune of $4 million.

Result: Cease and desist order. (Memorandum Opinion and Order)

__________

Perps: Gregory P. Warren and Thi Houng Le.

Offense: Mail and wire fraud, conspiracy.

Sentences: After a four-week trial, Le, 84 months in federal prison; Warren, 204 months in federal prison; both, 3 years of supervised release, $25,000 fine.  5 others, including the lawyers who were given the lists, were acquitted.

__________

Perp: James VanBlaricum 

Offense: Mail fraud, Ponzi scheme.

How: Represented to 53 investors in Signal Oil & Gas an ‘assured’ rate of return of nine to 15 percent and full refund of their initial investment after a three to five-year investment period. $2 million of $2.6 million raised were commingled with other funds and more than half of investor funds went to payroll and day trading.

Sentence: Awaiting.

___________

Perps: Robert L. Baker and three others. This is an SEC enforcement proceeding.

Offense:  Sale of unregistered securities.

How: Worked for Chris Faulkner and Brietling Oil and Gas, which explains a lot. They collectively received nearly $9 million in undisclosed transaction-based commissions; none were registered with the Commission as a broker or associated with a registered broker-dealer.

Penalty: None as of this time.

_________

Perp: Jeffrey Wilson (See, it happens in renewables too!)

Offense: Tax and securities fraud.

How: Falsely portrayed a biofuels company as a legitimate manufacturer in order to receive federal tax incentives. All they were doing was moving the product from one state to another.

Sentence: Awaiting, after an eight day trial.

__________

Perp: Susan Gay Pruitt

Offense: State securities fraud.

How: Amateurish. Plugged numbers from producers’ websites into her projects, which she hadn’t invested in in the first place. Defrauded investors of $225,000.

Sentence: 22 years by a Collin County, Texas, state court. Seems overly harsh relative to others. If she knew she was risking 22 years, should she have swung for the fences …you know, steal more to make it worth her while?

__________

Perp: SandRidge Energy, Inc. This is an SEC enforcement proceeding.

Offense: Violated Securities Exchange Act of 1934

How: Fired whistleblower who raised concerns about the process for calculating publicly reported reserves; Then put language in the employee’s separation agreement that prohibited participating in any government investigation or disclosing information potentially harmful or embarrassing to the company.

Fine: $1.4 million and cease and desist order.

A musical interlude dedicated to our subjects.

And another one for those who prefer English.

frac trailerCo authors David Leonard and Austin Carlson

If you were able to keep your frac trailers from the clutches of your avaricious creditors during the past several unpleasant years, you could be in luck. Owners and lessors of frac trailers may be entitled to a refund for sales tax paid in connection with the purchase, lease, service, or repair of the trailers.

How did this happen?

This new guidance arises from an audit of FracCo (the company was anonymous) in which the Texas Comptroller imposed a tax bill of $9.3 million, plus $1.6 million in interest.  FracCo argued it was entitled to a credit because it had erroneously paid sales tax in connection with the purchase of the trailers.  The trailers consist of a radiator, engine, transmission, and pump, all mounted on a base trailer, and include fuel tanks and racks to carry high-pressure iron and discharge hoses.

FracCo purchased and/or leased its trailers from an affiliate—thereby creating a taxable event.  FracCo argued motor vehicle taxes applied to this transaction; the Comptroller disagreed and argued sales and use taxes applied because the frac trailers were not “motor vehicles”.

The ruling

An Administrative Law Judge decided in favor of FracCo. The frac trailer qualifies as a motor vehicle because it was designed to tow and carry property separate from itself—i.e., the high-pressure iron and discharge hoses.  See 34 Tex. Admin. Code § 3.08(a)(2).

What are the implications?

In a word, significant for some.  Texas imposes a general sales and use tax as well as a motor vehicle sales tax. Each has significantly different rules and applications.  The sales tax is applicable to purchases, leases, and repairs.  In contrast, the motor vehicle tax applies only to purchases, not to leases or repairs.

If you have paid sales and use tax on the lease or repair of a frac trailer, you may be entitled to a refund.

Read this and know what to do

To avail yourself of a refund in light of this ruling:

  • determine whether you have paid sales tax in connection with the purchase, lease, service, or labor of a frac trailer.  If so, then,
  • determine whether the frac trailer is constituted in the same or similar manner as FracCo’s. This is to insure it qualifies as a “motor vehicle” for tax purposes.

If sales tax was paid on a qualifying trailer, request a refund from the Comptroller as soon as possible.  To request a refund, a taxpayer must:

  • Submit a written claim detailing each reason for the refund;
  • Identify the time period during which the claimed overpayment was made; and
  • Submit the claim within the limitations period (generally four years from the due date).

In response, the Comptroller may request documentation, such as accounting data and sales paperwork. If the Comptroller denies the refund, the next step is to request a refund hearing within 30 days of the denial.

Can’t get enough of those girl singers

One you should know and one you probably don’t.

wolfEffective this past August 3, the EPA has new regulations for methane and volatile organic compound emissions from oil and gas operations  As you know, reducing methane emissions is a key component of the President‘s climate change agenda.

Why should I care?

Because if you own or operate an oil and gas production, processing, transmission or storage facility, you will be required to comply with the new rule by no later than June 3, 2017. Other than that, don’t worry, be happy, and continue to go about your daily business in blissful ignorance of the impending regulatory burden.

What does it mean?

More expenses for operators of the aforesaid facilities, more demand for good inspectors, more operations for the EPA to meddle in oversee, and a risk of fines for a substantial failure to comply, whether willfully or by inadvertence.

Last weekend I heard Keith Kottrill of Innovative Ventures present a synopsis of the new standards.

The summary is an attempt in 22 pages to capture the spirit and effect of the new rule. It was not prepared by a lawyer and is not intended as a legal analysis. It is the product of Keith and his colleagues who will be implementing and conducting the on-site testing required by the rule. It should be viewed, relatively speaking if you aren’t an engineer, as a good place to begin to understand the rules.

Highlights

  • Get familiar with the term “Quad Oa”, an informal reference to the new rule.
  • There are two main parts of the rule: Control devices or practices must reduce methane and VOC emissions from certain equipment by 95%, and fugitive emission leak detection and repair (LDAR) applies only to well sites and compressor stations.
  • The rule applies to “affected facilities”, specific types of equipment or facilities that are new, modified, or reconstructed after September 18, 2015. Beware, those terms have certain, definite meanings under the rule.
  •  There will be a reporting and paperwork burden.
  • Look forward to quarterly inspections of some midstream facilities.
  • Generally, repairs must be made within 60 days.
  • See pages 13 and 14 for the EPA’s estimated industry-wide costs of compliance, including projected economic benefits. Honk if you believe the costs will be far higher.
  • The rule is based partially on a model called the the “Social Cost of Methane”, and the “methane-related monetized climate benefits” of the rule. Honk twice if you believe those models are based more on ideology than on science.

Time will tell how this rule will work. Among other things, supporters and detractors alike will learn the true extent of methane leakage in our oil and gas infrastructure.

A musical interlude

Today, girl singers you might not have heard of: