22Jun

Utica Update: The Supreme Court of Ohio Weighs In On the Dormant Mineral Act

The Supreme Court of Ohio has begun to resolve the confusion surrounding Ohio’s Dormant Mineral Act (“DMA”) as it issued its first decision on the DMA in Dodd v. Croskey on June 18, 2015.  The Court held that, under the 2006 version of the DMA, a claim to preserve that was filed after the expiration of the 20-year window but within 60 days of service of the surface owner’s notice of abandonment was sufficient to preserve a severed oil and gas interest.

The confusion results from two very different versions of the statute that co-exist – one enacted in 1989 and the other enacted in 2006.  The main difference between the two versions, aside from each focusing on different 20-year windows to determine when a severed oil and gas interest should be deemed abandoned, is that the 1989 version provides that a severed oil and gas interest will automatically revert to the surface owner without any notice afforded to the owner of that severed interest whereas the 2006 version sets forth a procedural vehicle that the surface owner must initiate before a severed oil and gas interest can be deemed abandoned.

Read More »

18Jun

TX Supreme Court: Chesapeake May Not Deduct Post-production Costs from Overriding Royalty

In a 5-4 decision, the Texas Supreme Court issued its opinion in Chesapeake Exploration, L.L.C. v. Hyder, 14-0302, 2015 WL 3653446 (Tex. June 12, 2015), holding that Chesapeake is prohibited from deducting postproduction costs from an “overriding royalty interest” described in a lease. The Majority noted that while overriding royalty interests are generally subject to post production costs, the language used in the lease creating the Hyder overriding royalty shifted the burden of paying these postproduction costs to Chesapeake, alone.

Read More »

11May

Noble Energy to Acquire Rosetta Resources

Early this morning (Monday, May 11, 2015), Noble Energy announced that has entered into a definitive merger agreement under which it will acquire Rosetta Resources.

Since the onset of the oil collapse in October 2014, experts have been forecasting a massive wave of A&D activity in the oil and gas space. These forecasts have been steady since late 2014, but there has been very little consolidation activity thus far.

The Noble-Rosetta deal may mark the beginning of a huge wave of A&D activity in oil and gas.

Under the definitive merger agreement, which was unanimously agreed to by the directors for both companies, Noble will be acquiring Rosetta in an all-stock transaction, at a 38% premium over Rosett’a Friday close of $19.33.

The deal aims to bring Noble into two gigantic, oil-rich, and highly economic, shale plays: the Eagle Ford and Permian Basin. Rosetta currently has an assets base including approximately 50,000 net acres in the Eagle Ford and 56,000 net acres in the Permian.

This marks the first time since the oil downturn that a major U.S. oil and gas company has acquired another oil and gas company.

If you have been to one of my recent presentations on “A&D During the Oil Downturn,” then you have heard me outline several reasons experts believe this A&D activity has been delayed, and what companies are doing to prepare for these acquisitions.  Many sellers are likely to be strapped for cash, which introduces numerous potential issues for a due diligence team to tackle.

Share your thoughts below.

6Apr

Anatomy of a Joint Operating Agreement

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:

  1. Cover page,
  2. Table of contents,
  3. 15 sections of standard provisions labeled as “articles,”
  4. An article designed exclusively for custom provisions, and
  5. Several placeholders for exhibits which parties may identify.

Read More »

17Sep

The 1989 JOA: Horizontal Modifications and Other Crucial Updates

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?

Read More »

1Sep

Introduction to Joint Operating Agreements

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   [ + ]

9Aug

Wyoming: Can Lessees Pool Overriding Royalty Interests?

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.

Read More »

Footnotes   [ + ]

19Jun

Legalese: Standard Interpretive Boilerplate

“Legalese Schmegalese.” I first started reviewing contracts back in my days working with TIC Wyoming, Inc., a subsidiary of the Kiewitt  Corporation, reviewing large scale heavy industrial construction contracts for construction jobs such as oil refineries, natural gas compressor stations, and coal mine facilities.

I’ll be honest with you: my first impression of all the boilerplate legalese at the end of a contract was that it was totally unnecessary. I had the impression that these provisions were not ‘essential deal terms,’ and were drafted by some uptight committee of scholars.  This attitude is not uncommon amongst transactional attorneys – they are often concerned with ‘getting the deal done’ and making sure the ‘deal works.’

Since then, however, I have developed a different attitude. While the essence of the deal may be encapsulated in the other provisions of the document, subsequent dispute negotiations, arbitration, mediation, and litigation almost always involves the boilerplate language in one way or another. Read More »

29May

Farmout Agreements: Key Decisions and Negotiation Points

Introduction

As I stated in my Part One of my Farmout Agreement Series, farmout agreements can be somewhat less “straight-forward” than other common oil and gas agreements.  Contracts, Leases, JOA’s, for example, are each highly standardized and have one or more publishers of highly-adopted forms.  Farmout Agreements, on the other hand, range from mere one-page letter agreements to highly formalized and lengthy contracts, prepared and negotiated over several rounds of back and forth red-lining.  An attorney cannot simply turn to his form books (or form folder for the tech savvy), and is unlikely to find any comprehensive checklists for drafting the agreement.

While there is no standardized form, a standard set of terminology has certainly developed that will guide most decisions, negotiations, and drafting exercises.  Below, we’ll consider several of the most crucial provisions of a farmout agreement, including:

  1. The Duty Imposed;
  2. The Earning Barrier;
  3. The Interest to be Earned;
  4. Number of Wells to be Committed to the Agreement; and
  5. Timing of Issuance of Farmout Acreage.

Read More »

27Feb

Non-Participating Royalty Interests – A Simple Concept with Complex Rules

I had an excellent time this week presenting to the Houston Association of Lease and Title Analysts on February 25, 2014, at the Houston Petroleum Club.  It was a great turnout, as I believe we had almost 250 attendees.  We covered the basics of NPRI’s, before diving into some of the more complex resulting rules, such as ratification, community leasing, and some complications created by Horizontal Drilling.

I’ve included a copy of my powerpoint presentation below please contact me if you’d like a copy of this presentation.  Thank you very much to HALTA for having me, and thank you to everyone that attended.  Please don’t hesitate to shoot me an email with any questions or comments.

Also, note that I’ll be publishing a follow-up article in the ALTA Magazine soon, and will also be presenting at the 29th Annual NALTA Conference in Nashville.

Photo some rights reserved by djonesphoto

© Copyright 2012-2018, McGinnis Lochridge LLP. All Rights Reserved. DISCLAIMER: The information in this article is for general information purposes only. This article should not be substituted for legal advice and should not be taken as legal advice for any individual case or situation. This information is not intended to create, and receipt or reading this article does not constitute, an attorney-client relationship. You are encouraged to contact an attorney for legal advice concerning the information provided in this article.
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