Sam V. Laborde Marine, L.L.C., Civil Action No. H-19-4041, 2020 U.S. Dist. LEXIS 1585, (S.D. Tex. 2020)

Following removal from State Court, the Plaintiff challenged the federal trial court’s jurisdiction over the Plaintiff’s personal injury claim. Ultimately, the district court concluded that it had jurisdiction under the Outer Continental Shelf Lands Act (“OCSLA”), which grants federal courts jurisdiction over certain disputes arising out of conduct on the Outer Continental Shelf (“OCS”), codified at 43 U.S.C. 1331, et seq.

At the time of his injury, the Plaintiff was working as an inspector on a platform located on the OCS. However, the injury occurred while the Plaintiff was walking down the stairs of a nearby vessel where Plaintiff was being housed during his employment. The Plaintiff claimed that the OCSLA did not apply to his claim because it arose on the vessel, rather than the platform located on the OCS. The Plaintiff claimed that for the OCSLA to apply, his injury must have occurred while he was on a “proper situs.” In other words, the injury had to have occurred on the platform and the fact that it occurred on the vessel precluded federal court jurisdiction.

The district court rejected the Plaintiff’s argument, concluding that the Fifth Circuit has “explicitly rejected the argument that OCSLA jurisdiction includes a situs requirement.” The court noted that there is a perceived conflict between the Fifth Circuit’s 2013 opinion in Barker v. Hercules, which appears to refer to a situs requirement, and the Fifth Circuit’s 2014 opinion in In re Deepwater Horizon, which appears to reject the inclusion of a situs requirement. Rather, In re Deepwater Horizon applied a “but for” test, looking only at whether the facts underlying the action would not have occurred but for an operation on the OCS. The district court harmonized the two Fifth Circuit opinions by concluding that Barker’s “situs” element applied only when determining whether OCSLA’s choice-of-law rules would apply. When the question is focused on jurisdiction, then Deepwater Horizon’s broader “but for” test would apply.

The district court applied the “but for” test and concluded that the Plaintiff’s injuries would not have occurred but for his employment as an inspector on a platform located on the OCS. Accordingly, the district court concluded that it was vested with jurisdiction.

Given the recent historic developments of the global pandemic and the dramatic drop in oil prices, the oil and gas industry is facing new issues never before encountered at this magnitude. For instance, storage of oil and gas is expected to reach full capacity. Pipeline companies are refusing to accept production in their pipelines. Global demand has come to a dead halt. The Railroad Commission has been asked to consider implementing statewide proration. In many cases, producers are facing the dilemma of involuntarily shutting in wells at the risk of possibly losing valuable leases. How long these events will last is currently unknown but many in the industry expect the industry fallout will stretch out over the next 12-18 months, if not longer.

It is inevitable that the law governing oil and gas will once again take on new developments. Undoubtedly, over the ensuing months many in the industry will be faced with challenges which will, by necessity, invoke the reasonably prudent operator standard in the context of the lessor/lessee relationship. This article provides a reminder of those duties and the interplay of the standard in the relationship between the lessor/lessee.

Oil and gas price volatility has always been an inescapable element of the energy business. That said, the current confluence of events is unprecedented and would have been hard to predict. On March 6, 2020 when the COVID-19 crisis was slowly making its way into the domestic news cycle, a long simmering conflict between Saudi Arabia and Russia over production levels came to a head with Russia’s refusal to continue abiding with OPEC guidance for agreed production level reductions. Saudi Arabia’s subsequent decisions to dramatically increase production levels and discount oil pricing were met with tit-for-tat responses by Russia and other market participants over the next 2 days, sparking sharp increases in supply and reductions in market prices of as much as 30% on March 8. Then the true magnitude of the COVID-19 pandemic and its impact on the world economy and energy demand came to the fore. Subsequently, oil prices plummeted with WTI dipping into negative values in late April. As of this writing, prices have improved somewhat; however, IEA guidance sees global oil demand in a freefall due to the government actions to combat the COVID-19 contagion.

Operators across the nation are scrutinizing their leases in a wide-spread effort to navigate historic low oil prices, takeaway curtailment, storage shortages, issues introduced by the COVID-19 pandemic, and a host of associated issues.

These circumstances present a variety of complex lease maintenance issues. Most leases obtained during the shale boom are in their secondary terms, held either by production in paying quantities, shut-in provisions, an operations clause, or continuous development provisions. Each of these introduce a unique analysis, and each is susceptible to significant strategic challenges in the face of low commodity prices along with transportation and storage issues.

Below, we briefly explore twelve issues that may be encountered by lessees in Texas while navigating these unique challenges.

McGinnis Lochridge’s Oil & Gas Newsletter: Producer’s Edge keeps clients informed about Texas oil and gas case law, regulatory updates, and insightful articles relevant to the oil and gas community. 

In this edition, we present several insightful articles, including articles covering lessor/lessee issues to consider when navigating the “new normal,” surviving oilfield economic turmoil amidst COVID-19, and many more updates. 

Download the fourth issue of Producer’s Edge here.

Scribner v. Wineinger, No. 02-19-00208-CV, 2019 Tex. App. LEXIS 9170 (Tex. App.—Fort Worth Oct. 17, 2019, no pet.)

In this leasehold adverse possession case, the Fort Worth Court of Appeals held that an acknowledgement of the record title holder’s title by an adverse possessor will not defeat an adverse possession claim if the limitations clock had already run out before the acknowledgement occurred. The trial court granted summary judgment in favor of the oil and gas company on their affirmative defense of adverse possession and limitations title under the five-year statute.

NGL Water Sols. Eagle Ford, LLC v. R.R. Comm’n, No. 03-17-00808-CV, 2019 Tex. App. LEXIS 10302 (Tex. App.—Austin Nov. 27, 2019, no pet. h.)

This case involves a dispute as to whether a competitor saltwater disposal well operator is an “affected person” under 16 Tex. Admin. Code §3.9(5)(E) and, thus, whether such competitor has standing to challenge an application for disposal well permit.

NGL Water Solutions Eagle Ford (NGL) operated a saltwater disposal well under a permit issued by the Texas Railroad Commission (RRC). In April of 2016, one of its competitors, Blue Water, filed an application to operate a commercial injection well at a nearby location. NGL protested the application. At the RRC hearing, Blue Water claimed that NGL was not entitled to protest Blue Water’s application because NGL was not an “affected person”. NGL argued that Blue Water’s permit was not in the “public interest” because there was no present industry need for additional disposal capacity in the area, because NGL had existing injection wells with excess capacity in the area.

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.

As we head into the new year, several oil and gas cases are pending at the Supreme Court. Here are some of the key cases we are watching (status as of Jan. 1, 2020):

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 using companies similar to Plexus Freight (www.plexusfreight.com); 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.