Texas Court Holds that Permit of Injection Well May be Challenged Outside Railroad Commission and Travis County Via Injunctive Relief

Posted by: Chris Halgren in Case Law Update, Primers and Insights

Brief Overview: What You Need to Know

On January 18, 2017, in Ring Energy v. Trey Resources, Inc.,^[1] Ring Energy v. Trey Resources, Inc., 2017 WL 192911(Tex. App.—El Paso January 18, 2017, no pet. h.). the El Paso Court of Appeals, in a case of first impression, addressed whether a trial court outside of Travis County (where the Texas Railroad Commission (the “RRC”) is based) has jurisdiction to issue an injunction prohibiting a party with a valid RRC injection well permit from operating its injection well based on a complaining party’s claim that the injection would cause imminent and irreparable “waste,” even though the complaining party (1) had not yet sustained any actual injury, (2) did not oppose the permit prior to issuance, and (3) did not take advantage any other administrative remedy that might have been available. Read More »

Footnotes[+]

Footnotes
↑1	Ring Energy v. Trey Resources, Inc., 2017 WL 192911(Tex. App.—El Paso January 18, 2017, no pet. h.).

18Jan

Denbury v. Texas Rice: Clarifying the Test for Common Carrier Status, Power of Eminent Domain

Posted by: Austin Brister in Case Law Update, Primers and Insights

On Friday, January 6, 2017, the Texas Supreme Court issued its long-awaited opinion in Denbury Green Pipeline–Texas, LLC v. Texas Rice Land Partners, Ltd. (“Texas Rice II”), ^[1]15-0225, 2017 WL 65470 (Tex. Jan. 6, 2017). holding that:

Denbury’s evidence of a post-construction transportation agreement with an unaffiliated customer was relevant to the “reasonable probability test,”
rejecting a rule that the requisite intent must exist at the time the pipeline was contemplated,
rejecting the appellate court’s “substantial public interest” test, and
holding that Denbury had “conclusively” established its qualification as a common carrier with the power of eminent domain.

The opinion provides clarity as to the test previously set forth in Texas Rice Land Partners, Ltd. v. Denbury Green Pipeline–Texas, LLC (“Texas Rice I”), ^[2]363 S.W.3d 192, 202 (Tex. 2012). and the types of evidence relevant to that determination.

Footnotes[+]

Footnotes
↑1	15-0225, 2017 WL 65470 (Tex. Jan. 6, 2017).
↑2	363 S.W.3d 192, 202 (Tex. 2012).

31Aug

Royalty Litigation – An Overview of Current Trends

Posted by: Chris Halgren in Primers and Insights, Royalty Litigation

Chris Halgren is presenting today at the Houston College of Law for its 29th Annual Energy Law institute on the topic “Royalty Litigation: An Overview of Current Trends.” The slides are embedded in this post below.

Royalty litigation by Chris Halgren

13Jan

Texas: Statutory Subordination of Mortgages

Posted by: Austin Brister in Primers and Insights

Texas House Bill 2207, effective January 1, 2016, statutorily subordinates certain real estate mortgages to oil and gas leases, introducing an interesting tweak to the long-standing and well-established “first in time, first in right” rule. However, this statute is not without its limitations. For example, it only applies to foreclosure sales for which the foreclosure notice occurs or the judicial foreclosure action commences on or after January 1, 2016. Additionally, the statute goes on to clarify that, although the lease is to survive the foreclosure, the right to use the surface estate may be terminated and extinguished by the foreclosure to the extent the security interest had priority over the lessee. If you are doing a foreclosure search to find your next property, read further to see how things happen in Texas.

29Dec

Oilfield Bankruptcy and Game Plan

Posted by: Kevin Beiter in Primers and Insights

Oil and gas price volatility is as much a part of the energy business as drill bits. Few predicted that the current down-cycle would be as long or as deep as it is proving to be. While global events could turn and prices improve, lower prices seem to be a reality for now. Lower prices impact the finances of everyone in the energy industry. Insolvencies, business failures, and members voluntary liquidation are inevitable in this environment; and when they occur, they affect everyone, at all levels, and in all aspects of the industry, that is why companies such as the Cibik & Cataldo Law Firm are sought after to help deal with this issue. Though industry participants can’t change the price of oil, they can protect their interests in other ways. In times like this, fortune favors the prepared. So if oil companies are ready for lower prices and possible financial struggles, they’ll be better prepared if they know what their options are, such as debt relief vs bankruptcy as examples.

28Sep

Forecasting a Rise in Lease Termination and Royalty Litigation Amidst Prolonged Oil Slump

Posted by: Jonathan Baughman in Primers and Insights, Royalty Litigation

Originally appearing in the Energy Expert Analysis Section of Law360.

Law360, New York (September 25, 2015) — Over the last five years, American shale production has more than tripled. Since last October, however, the oil and gas industry has trudged through a long and pronounced slump in crude oil prices in what has been termed the “Oil Bust of 2015.” Oil prices dropped below $40 a barrel last month for the first time in over six years, and major relief from this slump may be distant as EIA recently announced that it expects crude to average $59 per barrel in 2016.

This low-price environment has been unfavorable for most royalty owners, as low oil prices generally lead to proportionately low royalty payments. It has also lead to a slow-down in additional drilling and development activity as many oil and gas companies slashed budgets for 2015 and 2016. Drilling contractors have stored hundreds of rigs, and oil and gas companies have drastically reduced their workforces. A strong indicator of this slow-down can be found in the Texas Railroad Commission drilling statistics, showing 964 permits issued last month in Texas, compared with 2,440 in August of 2014. Read More »

6Apr

Anatomy of a Joint Operating Agreement

Posted by: Austin Brister in Primers and Insights

In Introduction to Joint Operating Agreements, we reviewed several of the critical roles the Joint Operating Agreement plays within the oil and gas industry. One of the first steps to understanding the JOA is to understand the anatomy of its several components. The AAPL Joint Operating Agreement is organized into the following sections, in order:

Cover page,
Table of contents,
15 sections of standard provisions labeled as “articles,”
An article designed exclusively for custom provisions, and
Several placeholders for exhibits which parties may identify.

17Sep

The 1989 JOA: Horizontal Modifications and Other Crucial Updates

Posted by: Austin Brister in Primers and Insights

The 1989 JOA is one of the most common O&G forms. However, updates are need in response to 25 years of case law and continually evolving custom & practice.

Introduction

As we discussed in the last article pertaining to Oil and Gas Joint Operating Agreements, the JOA is one of the most commonly used instruments in the oil and gas industry today. A JOA provides the crucial foundation upon which multiple leasehold cotenants can cooperate in the joint exploration, development, and production of oil and gas properties. For example, JOAs cover the terms and conditions under which the operator is to conduct operations, such as drilling the initial well, it provides a voting mechanism for future operations, and establishes a basis for which the costs of operations are to be paid. In addition, the Form 610 describes how the cost and revenue sharing percentages of the parties are to be calculated, how the operators and non-operators will handle title issues, and also covers the potential future acquisition and/or disposition of interests within the contract area.

By far the most common form is the AAPL Form-610. However, the last major revision of the Form-610 was made in 1989. THerefore, this form simply does not take into account the last 25 years of crucial case law updates and changes to industry custom and practice. As a result, many believe an update is sorely needed.

Recently, as will be discussed below and in future articles on this blog, the AAPL has created a new committee to update and revise the JOA to create a new major revision. Perhaps it will be referred to has the “2014 Form-610” or the “2015 JOA.” As of the date of this article, the committee has not yet finished this revision.

However, the committee has created and published a new minor revision to the 1989 JOA, designed to cover crucial aspects relating to horizontal operations. In the next article in this series, we will cover many of the modifications introduced by the committee in the Horizontal version of the 1989 Form 610 JOA. Then in later articles, we will cover several important cases that have been decided in the last 25 years, many of which are routinely addressed in the Additional Provisions section of most JOAs today.

But for the topic of this article, what is this history of the AAPL Form 610 JOA? Why did AAPL publish a Horizontal version? Why has the AAPL formed a committee to produce a new major revision? Does it need a major overhaul? What are some shortcomings that have been experienced over the past 25 years?

1Sep

Introduction to Joint Operating Agreements

Posted by: Austin Brister in Primers and Insights

The joint operating agreement (“JOA”) is the most commonly used instrument in the oil and gas industry, surpassed only by the oil and gas lease. ^[1]Scott Lansdown, B. Reeder v. Wood County Energy LLC and the Application by Texas Courts of the “Exculpatory Clause” in Operating Agreements Used in Oil and Gas Operations, 8 Tex. J. Oil Gas & Energy L 202 (2013). A JOA provides the contractual basis for the cooperative exploration, development, and production of oil and gas properties among multiple leasehold cotenants. ^[2]Exxon Corp. v. Crosby-Miss. Resources, Ltd., 775 F. Supp. 969, 971-72 (S.D. Miss. 1991). By and large, the most commonly used JOA form is the “Form 610,” curated and published by the American Association of Professional Landmen (“AAPL”). ^[3]3 Ernest E. Smith & Jacqueline L. Weaver, Texas Law of Oil and Gas §17.1[A] (2d ed. 2012). Several other JOA forms have been adopted by the oil and gas industry, typically designed for use in specific circumstances, including (1) the Model Form of Offshore Operating Agreement AAPL Model Form 710-2002, and Model Form of Offshore Deepwater Operating Agreement AAPL-810 (2007), both designed for offshore oil and gas operations, (2) the Rocky Mountain Mineral Law Foundation Rocky Mountain Unit Operating Agreement Form 2 – Divided Interest, designed for use in Federal Exploratory Units, and The American Petroleum Institute Forms, which are generally used for enhanced recovery operations as to fieldwide units. However, the AAPL Model Form 610 remains the most common JOA form for domestic onshore oil and gas production.

In this multi-part series, we will explore many areas of JOAs, from basic to advanced. In this first article, we will take a look at the basic purpose and function of a JOA. Read More »

Footnotes[+]

Footnotes
↑1	Scott Lansdown, B. Reeder v. Wood County Energy LLC and the Application by Texas Courts of the “Exculpatory Clause” in Operating Agreements Used in Oil and Gas Operations, 8 Tex. J. Oil Gas & Energy L 202 (2013).
↑2	Exxon Corp. v. Crosby-Miss. Resources, Ltd., 775 F. Supp. 969, 971-72 (S.D. Miss. 1991).
↑3	3 Ernest E. Smith & Jacqueline L. Weaver, Texas Law of Oil and Gas §17.1[A] (2d ed. 2012).

9Aug

Wyoming: Can Lessees Pool Overriding Royalty Interests?

Posted by: Austin Brister in Primers and Insights

There is a debate among Wyoming oil and gas attorneys, and I wanted to weigh in. Some (maybe even many) Wyoming lawyers believe an overriding royalty interest simply cannot be pooled in Wyoming without the owner’s direct and express consent. Of course, this is only a debate in the context of voluntary pooling. However, I believe this issue is, at best, unsettled. I’d love to hear your thoughts in the comments below!

The Framework in Texas

Of course, Wyoming is not Texas. However, many states look to Texas law for guidance in oil and gas issues, simply due to the vast number of reported oil and gas cases in Texas over the last 100 years. So how have Teas courts weighed in on this issue?

The General Rule

In Texas, the general rule is that a lessee has no power to pool any type of royalty interest without consent of the owner. ^[1]PYR Energy Corp. v. Samson Res. Co., 456 F. Supp. 2d 786, 791 (E.D. Tex. 2006) clarified 470 F. Supp. 2d 709 (E.D. Tex. 2007). This would include overriding royalty interests as well. ^[2]Id. Therefore, in order to pool an overriding royalty interest, a working interest owner will need to either (1) obtain consent of the overriding royalty interest owner, or (2) fit into an exception to this general rule.

Footnotes[+]

↑1	PYR Energy Corp. v. Samson Res. Co., 456 F. Supp. 2d 786, 791 (E.D. Tex. 2006) clarified 470 F. Supp. 2d 709 (E.D. Tex. 2007).
↑2	Id.