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

Are you buying oil and gas leases in Ohio and expecting to be paid for your work? Consider Dundics v. Eric Petroleum, in which the Ohio Supreme Court concluded that land professionals who do not possess an Ohio real estate broker’s license are not entitled to bring suit to recover compensation for acquiring oil and gas leases. Continue Reading Landmen, Ohio Has a Surprise For You

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

Did Texas law or New Mexico law apply to knock-for-knock indemnity provisions in a Master Work and Services Agreement?  When a contract explicitly calls for Texas law, that is likely to be the outcome, as it was in North American Tubular Services LLC v. BOPCO, LP.

Takeaways

  • Decide before something bad happens what law you want to apply to a transaction.
  • Think about it. You’ll have to live with the choice.
  • Providing a safe work place is a moral imperative; financial risk goes a long way toward assuring the imperative is satisfied.
  • (Better left for another post: Does that also apply to leaking methane?)
  • The parties’ choice of law was was bolstered because under the contract the indemnity and insurance requirements would be liberally construed in order to effectuate their enforceability.
  • It would have helped the choice of law if the contract had also said that the choice was without regard for the chosen state’s conflict of law provisions.

Continue Reading Choice of Law Matters in an Oilfield Indemnity Suit

Co-author Ethan Wood

Let’s begin with a quiz. True or false:

  • Apache Resources, LLC (n/k/a “Pueblo Resources, LLC.” Wonder why?) is Apache Corporation.
  • Plains Natural Resources, LLC is Plains Exploration & Production Company.
  • Ridge Natural Resources, LLC is Oak Ridge Natural Resources, LLC.
  • Range Royalty, LLC is Range Resources Corporation.

If you answered “false” to all four, congratulations. In each category the latter companies are reputable independent oil and gas producers. The former are … well, let’s just call them “mineral buyers” (seemingly coordinated in their efforts in some murky way), one of which was the winner – for now – in Ridge Resources, LLC et al v. Double Eagle Royalty, LP Continue Reading An Arbitration Ruling That’s About More Than Arbitration