26Feb

Class Certification Denied in Royalty Class Action Suit

Regmund v. Talisman Energy USA, Inc., No. 4:16-CV-02960, 2019 U.S. Dist. LEXIS 110363 (S.D. Tex. 2019)

The Plaintiffs, a putative class of lessors under oil and gas leases, brought claims against Talisman Energy USA, Inc. (“Talisman”) relating to Talisman’s “volumetric” method of calculating royalties. Some of the gas produced is “wet gas,” which requires stabilization prior to sale, which results in a reduction or “shrinkage” of the volume sold. Talisman commingled the production from numerous leases for processing at the stabilization facility, and then allocated the sales volumes back to individual leases on the basis of wellhead metered volumes (a “volumetric” allocation), and applied an estimate of overall shrinkage.

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21Feb

Buyer Not Entitled to Offset for Unpaid JIBs Mistakenly Omitted From Post-Closing Statement

Sundance Energy, Inc. v. NRP Oil & Gas LLP, 2019 Tex. App. LEXIS 7223 (Tex. App.—Houston [1st Dist.] Aug. 15, 2019, pet. filed)

This case out of the Houston First Court of Appeals involves a breach of retained liabilities provisions in a purchase and sale agreement, focusing on the legal and factual sufficiency of the jury’s damages award in light of its alleged failure to account for the seller’s evidence of an offset, whether the attorneys’ fees awarded by the trial court were reasonable and necessary, and whether it was an error for the court to admit evidence of attorneys’ fees in light of untimely disclosures.

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19Feb

Reworking Operations Held Not to Satisfy Continuous Development Clause

HJSA No. 3, Ltd. P’ship v. Sundown Energy Ltd. P’ship, No. 08-18-00113-CV, 2019 Tex. App. LEXIS 7254 (Tex. App.—El Paso Aug. 16, 2019, no pet. h.)

This oil and gas lease termination dispute centered on a disagreement as to what type of “drilling operations” constituted “continuous drilling operations” under a continuous development clause. The court held that the lessee’s reworking of existing wells did not satisfy the continuous development clause, resulting in a partial termination of the lease. The court held that, while the lease contained a definition of “drilling operations” that expressly included “reworking,” that was a general definition that did not control over the more specific terms in the continuous development clause. In reaching its conclusion, the court analyzed the role of several lease provisions, including the continuous development clause, retained acreage provision, temporary cessation clause, and an agreed definition of “drilling operations.”

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14Feb

Employment Law Update: The Fifth Circuit Addresses Day-Rate Compensation Schemes Under the Fair Labor Standards Act

This summer, the Fifth Circuit Court of Appeals addressed an often used and hotly litigated compensation  practice adopted  by oil and gas companies—day rates. Commonly utilized in the energy sector, companies engage highly skilled workers (such as drilling or well consultants) through an independent contractor arrangement and pay a “day rate” for the services of those individuals—a predetermined amount paid based on each day worked, regardless of the number of hours actually worked. Recently,  this  day-rate  compensation  scheme has spawned legal challenges across the United States. Specifically, in these lawsuits, workers allege (i) they were incorrectly classified as independent contractors under the Fair Labor Standards Act (“FLSA”) and (ii) they are owed unpaid overtime compensation for hours worked over forty (40) per week.

In August 2019, the Fifth Circuit Court of Appeals (which covers Texas, Louisiana, and Mississippi) granted a “win” for employers adopting the day-rate compensation  structure. Specifically, the Fifth Circuit  in  Faludi v. U.S. Shale Solutions, L.L.C. held a worker paid a day rate was exempt as a Highly Compensated Employee (“HCE”) under the FLSA, and, therefore, was not entitled to overtime compensation. Although the court’s holding in Faludi was limited to whether workers paid pursuant to a day-rate scheme are paid on a “salary basis” as required for the HCE exemption, the Faludi decision marks an important shift in wage and hour litigation facing the energy sector.

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16Sep

U.S. Regulation of Cross-Border Transactions in the Oilfield Sector

International Trade

Companies considering business opportunities outside of the United States must be prepared to deal with a myriad of new laws and regulations. There may be foreign laws to contend with, of course, but there are also U.S. laws related to international trade that companies operating only domestically likely have never encountered. There are multiple U.S. government agencies that regulate the transfer of equipment, software, technology, and services from the United States to foreign countries through “export control” and sanctions regulations. These regulations cover shipments leaving the United States; shipments of certain U.S. origin goods amongst foreign countries; data transmissions from the U.S. to other countries; and the provision of services to or receipt of services from certain countries, organizations, and individuals. These regulations can even apply inside the U.S. when sharing certain information with foreign persons, including prospective business partners and investors, and they can also apply to any facilitation of foreign transactions by U.S. persons.

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9Sep

Severed Mineral Estates and Surface Use Disputes Part One: Extent of Implied Easement

Due perhaps to geologic serendipity, Texas has a long and extensive history of oil and gas exploration and production. Consequently, much of Texas’ lands have experienced severance of mineral from surface estate and resulting complications of concurrent occupancy by parties whose interests are not always fully aligned. In Texas, the owner of a severed mineral interest (and its mineral lessee) generally enjoy an implied right to enter upon the surface and to use the surface estate for the purpose of exploring, drilling, producing, transporting, and marketing the minerals. The Texas Supreme Court has described this implied right as “a well established doctrine from the earliest days of the common law.” The underlying rational is that a grant, lease, or reservation of minerals would be worthless if the grantee, reserver, or lessee did not have access to and use of the surface estate.

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26Aug

Texas Supreme Court: Executive Duty Breached by Refusing to Lease

Texas Outfitters, Ltd., LLC v. Nicholson, 572 S.W.3d 647 (Tex. 2019)

The Texas Supreme Court recently issued its opinion in Texas Outfitters v. Nicholson, addressing the duties an executive mineral owner owes to non-executive owners. The case focused on when an executive owner has a duty to sign a lease and to what extent efforts to protect or benefit the surface estate can impact this duty. The Court affirmed the trial court’s judgment holding that the executive breached its duty and affirmed the trial court’s award of $867,654.32 plus interest and costs.

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19Aug

Post-Production Cost Fights Continue: Supreme Court Holds the Phrase “Into the Pipeline” Set a Valuation Point for “Amount Realized” Royalties

Burlington Resources Oil & Gas Co LP v. Texas Crude Energy, LLC, 2019 Tex. LEXIS 196 (Tex. March 1, 2019)

In Burlington Resources, the Texas Supreme Court held that an oil and gas royalty assignment that required the royalty to be delivered “into the pipeline” permits the payor to deduct post-production costs from the royalty owners’ payment, even if the agreement purports to prohibit such a deduction.

For years, Texas courts have found that when an oil and gas lease provides that royalty will be paid “at the well” or “at the mouth of the well,” the lessee generally can pay royalties net of all reasonable postproduction costs — even if the lease purports to prohibit such deduction. The reasoning has been that such language places the “valuation point,” (ie, where the production must be valued for royalty payment purposes) at a point before any post-production costs would have been incurred. In leases with a valuation point “at the well,” the Supreme Court has held that language prohibiting deductions for post-production costs as “surplusage” — or meaningless. In Burlington Resources, the Supreme Court held that the phrase “into the pipeline” mirrors the “at the well” designation and requires the same result.

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