In a vindication of landowners’ rights, the Texas Supreme Court prohibited a pipeline owner from using eminent domain to take private property.   In Texas Rice Land Partners, Ltd. v. Denbury Green Pipeline-Texas, LLC, the court said that a pipeline must show that it satisfies the requirements for common-carrier status before it will be allowed to use eminent domain.  (Note, this is a new opinion in the case, superceding the opinion delivered on August 26, 2011).

The court said that the Constitution’s protection of  private property rights requires more of a party seeking eminent domain power than ”checking the right boxes in one-page Railroad Commission form” through a process in which the landowners who will be affected have no participation.  The court rejected the proposition that all the pipeline had to prove was that the pipeline would be available for public use.  There must be a “reasonable probability” that the pipeline will at some point serve the public by transporting gas for one or more customers who will either retain ownership of their gas or sell it to parties other than the carrier.

This case highlights the difference between Texas and other producing states.  See, for example, a Louisiana case allowing the use of “expropriation” as they call it there, if there is “any allocation to a use resulting in advantages to the public at large”.

This case has implications in many situations.  One that comes to mind is the producer who uses a wholly-owned pipeline subsidiary to move production across the lessor’s property, calling it a common carrier and invoking the right of eminent domain to overcome surface use restrictions in the lease.

Maybe you’ve been there.  All signals are “go” for closing on your PSA.  Then the buyer chooses not to complete  the transaction.  What to do? A question your lawyer will think about when asked to enforce a purchase and sale agreement: Does it describe the property well enough to comply with the statute of frauds?  Preston Exploration v. Chesapeake Energy teaches several lessons on this subject:  First, in this case the need for title work before closing did not make the contract unenforceable.  Second, it isn’t always easy to know whether the statute has been complied with (The trial court held for the purchaser who backed out; the appellate court sided with the seller).  Third, related instruments can be read together to determine the intent of the parties.

The statute of frauds requires that a contract for the sale of real property be in writing.  The statute is satisfied when a writing furnishes, within itself or by reference to some other existing writing, the means or data by which the land to be conveyed may be identified with reasonable certainty.

The parties executed a PSA for a $110 million transaction.  The purchaser said it wouldn’t close, asserting that the exhibit describing the leases to be conveyed wasn’t final because title work had to be done.  The lower court said there was no meeting of the minds on what was to be conveyed.  The appellate court saw it another way: The question wasn’t about whether there was a meeting of the minds (a prerequisite to enforcement of any contract).The question  was whether the documents adequately described what was to be conveyed.  The court said they did.   The need for additional title examination meant only that some leases might not be conveyed, but the parties had agreed on the subject matter of the agreement.  The exhibit described the leases by recording information, which satisfied the statute of frauds.

For more than you want to know about the Texas statute of frauds, see a presentation I made on the topic. 2007-Statute of Frauds SBOT

The Dallas Gas Drilling Task Force has issued recommendations for regulation of hydraulic fracturing.  The task force focused on zoning requirements, permitting requirements, air quality issues, and water-related issues.  A few highlights:

  • Locations will be more difficult to find. Wells must be 1,000 feet from residences, churches, schools and other community buildings.  Setbacks of 500 feet would be permitted by majority vote of the City Council.
  • Vacant park land might not be the answer.  Drilling would be permitted on park department land if it is not currently used for a park, is adjacent to an industrial use area, and is not in an environmentally sensitive area.
  • There are no water conservation restrictions; however, the Dallas Water Utilities is urged to consider water use by drilling operations in his drought contingency plans.
  • Drilling costs are likely to be increased.  Salt water disposal wells are prohibited. Operators will be required to pay for water monitoring and must test for a number of specified chemical compounds that could be connected to drilling activities.  The operator must test the soil before, during, and after drilling and comply with remediation laws.
  • There are noise abatement requirements.  Fracking may not exceed 10 decibels above ambient noise levels; other operations cannot be more than five decibels above ambient noise in the daytime and three decibels above at nighttime.
  • The EPA could be more involved in the future.  The recommendations in several places require compliance with standards consistent with TCEQ or EPA regulations.

Go to www.dallasgasdrillingtaskforce.com to see the recommendations and other deliberations of the task force.

A “strip” is just what it sounds like: A narrow parcel of land.  A”gore” is a strip in another form, such as a triangle or other odd-shaped parcel.  When a grantor conveys land he owns adjacent to a narrow strip that thereby ceases to be of benefit or importance to him, he also conveys the narrow strip unless he reserves the strip for himself by plain and specific language.  These random tracts can be valuable when there is oil and gas production and can be lost without careful contract drafting.

Escondido Services, LLC v. VKM Holdings, LP, Escondido Services, 321 S.W.3d 102 (Tex. App—Eastland)

 

Continue Reading Beware of Strips and Gores

Effective February 1, 2012, the Texas Railroad Commission implemented a new rule that will require operators and service and supply companies who disclose the chemical contents of fracking fluids.  This rule implements a statute passed in the 2011 legislative session.  The rule requires disclosure of the nature and content of additives and chemical ingredients used in frac fluids, as well as the water volume used in each frac.

Texas Railroad Commission Statewide Rule 3.29

Now, citizens living the area of a a well that has been subject to hydraulic fracking will have the opportunity to know the constituents of the frac fluid going into the wellbore.  At the same time, the regulations protect operators and service and supply companies in several ways.  First, there is a provision to protect confidential information defined in Texas law as a trade secret.  The regulations prevent an operator or service or supply company from unreasonably or falsely claiming that the components of their frac fluids are trade secrets.  Also, reporting entities are not responsible for errors made by persons not under their control, such as providers of cnemiicals to the operator or service company who are not themselves subject to reporting requirements.  An added bonus for citizens and municipalities concerned about the water usage associated with fracking is the requirement that the volume of water used in each frac job be reported.

The regulations, and the legislation itself, was a result of cooperation between energy industry representatives and environmental organizations and are a good example of government regulations that go far enough to address a problem without going overboard with unecessary details and requirements.

For information on the contents of any particular fracing operation, anyone can go to the website appointed to publish the reports, FracFocus,

Beware of the law – and the location – you choose to resolve your contractual disputes. Choice of law and forum selection provisions are commonly used, often misunderstood, and frequently overlooked contract clauses that can significantly alter a litigant’s legal rights and remedies.

Stokes Interest, G.P. v. Santo-Pietro, 2010 WL 2929534 (Tex. App.—El Paso)

The partnership agreement said the law of California would govern disputes and a court in Beverly Hills would be the exclusive venue. The underlying asset, an oil and gas lease, was located in Reeves County, Texas. The dissatisfied partner, a Texan, understandably sought to litigate his breach of warranty, fraud and fraudulent misrepresentation claim in a Texas court. The district court and the appellate court took a look at the forum selection provision and dismissed the lawsuit, requiring the partner to pursue his claims in Bevely Hills.

Continue Reading Jed Clampett Redux: The Dispute Began in Reeves County and Ended in Beverly Hills

If you operate wells, gas plants and similar facilities in populated areas, address your neighbors’ concerns. This could lead to increased costs and inconvenience in operations, but it might be cheaper in the long run. It sometimes isn’t enough to comply with laws and regulations if your activities are objectionable to your neighbors. In this case, a natural gas compressor station was a permanent nuisance.

Natural Gas Pipelinc Company v. Justiss

In Texas, an operation or facility is a “permanent nuisance” if a condition exists that substantially interferes with the use and enjoyment of an owner’s land by causing unreasonable discomfort or annoyance to persons of ordinary sensibilities and the conditions are sufficiently constant or regular that they their future impact can be reasonably evaluated. Foul odor, dust, noise, and bright lights have been held to be nuisances if they are sufficiently extreme.

Continue Reading Is Your Compressor Station a Nuisance?

What happens when the owner’s promise that it has conducted due diligence collides with the contractor’s fixed price obligation?  It’s time to replace the 60-year old pipeline you acquired years ago along with millions of dollars of other assets that you actually cared about.

Continue Reading The Burden of Due Diligence

The contract of sale for the property mentions that you, the seller, intend to reserve the hard minerals, but not the oil and gas beneath the property. The deed to close the transaction contains no reservation of anything.

Cornerstone Land, Ltd. v. Pierce 2010 WL 4243677 (Tex. App.—Waco 2010)

Shouldn’t the reservation in the contract of sale put the buyer on notice of the your intent to reserve the minerals? That’s what the buyer gargued to the court. But it doesn’t. The seller retained the hard minerals.

As title lawyers know, a purchaser is bound by every recital, reference and reservation contained in or fairly disclosed by any instrument which forms an essential link in the chain of title under which he claims. However, this court chose not to agree that the contract of sale was an essential link in the buyer’s chain of title. Rather, it was no link at all. When the deed was signed, the contract of sale was merged into the deed and thus, in essence disappeared.

This case reminds those of us who prepare contracts, and the others of us who intend to be bound by them, to slow down, read the document carefully, and be certain it says what we intend for it to say.

Cornerstone Land, Ltd. v. Pierce 2010 WL 4243677 (Tex. App.-Waco 2010).

 “It is better to stop a bad law than pass a good one.” Calvin Coolidge.

Is Washington listening to Silent Cal?

This post is about what the energy industry- oil and gas in particular – might expect from the Administration in its second term. Disclaimer: I don’t sponsor any of these predictions. The authors know more about these subjects than I do.

Let’s gaze into the crystal ball:

Carbon Tax

The National Center for Policy Analysis explains the perils of a carbon tax, predicting one will be proposed. Sterling Barnett acknowledges that there are benefits to a carbon tax that are a preferable to a cap and trade scheme: A carbon tax is transparent and it would be clear to everyone that it is money paid directly to the government, whereas a cap and trade scheme would be a disguised tax.

He concludes that a carbon tax is a bad idea because “there is never a good time for a bad tax.” A tax on something as important as energy, which he considers the “foundation of modern society”, would affect everyone in virtually every activity they undertake. Further, he considers a carbon tax to be highly regressive and hence a disproportionate burden on the poor.

NGL Exports

As the Department of Energy reviews the pros and cons of exporting US natural gas, The Wall Street Journal reports that large chemical companies who burn lots of natural gas oppose exporting energy in order to keep gas cheap, but oil and gas producers argue that exports are positive for the economy, the balance of trade, and other benefits.

Chemical companies are building new plants in the US to capitalize on our cheap energy, which in itself is a job creator. No one knows what the demand may eventually be and exports may enter economic growth in that way.

Daniel Yergin, for one, believes that there are shale fields yet to be tapped and concludes that exports would be a good thing. In the end, the WSJ says let the market decide.

Keystone Pipeline

The Natural Resources Defense Council thinks approval of the Keystone XL pipeline is a bad idea, arguing that the pipeline would kill more jobs than it creates by reducing investment in “the clean energy economy” and that the pipeline would transport dirty, high sulfur tar sands oil, which itself uses less amounts of energy and water to produce and clean up. They believe we need to do everything we can to avoid importing tar sands oil to the United States (The link above offers more reports and analysis from their point of view).

Business Insider reports that the pipeline will be approved, with a few tweaks in the route to avoid environmentally sensitive areas.

The Role of Fossil Fuels in the Obama Energy Policy

Platts reports that Jack Gerard, president of the American Petroleum Institute professes to be encouraged that about President Obama’s commitment to oil and gas development in campaign statements leading up to the election.  Huh?

According to Inside Climate News, the congressional lineup has changed with the defeat of several congressmen characterized by this group as opposed to “clean energy”. This is an indicator of continued pressure to be placed on the president to favor alternative energy sources. (Notice how the Heritage Foundation is “Right Wing” but the environmental groups are not “Left Wing”).

Taxes

From Reuters:  The IPAA and others expect a rough four years, from potential elimination of the intangible drilling cost deduction to increased regulation of CO2 emissions, which will affect coal and oil and gas producers. And this piece doesn’t mention potential regulations on fracking, which is on the agenda.

Looking to 2016

Here is an exclusive look at the early front-runner for the 2016 Republican nomination.

Regardless of your point of view, here is some wise musical advice.