Tag: oil and gas

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.

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 »

20Jan

Where the Use of Forms Goes Wrong

The Proliferation of Forms:

The wide-spread use of forms in the oil and gas industry has created nothing short of a revolution in allowing land professionals to expedite the process of putting complex agreements in place.  Additionally, this “forms culture” has dramatically helped to ensure excellent quality legal drafting and coverage of legal concepts in a continuously developing and complex legal regime — oil and gas law.

One example of such a widely used form is the Model Form Joint Operating Agreement published by the AAPL. Additionally, several publishers have created their own version of the ubiquitous “Producer’s 88” oil and gas lease form (which, on an unrelated note, has caused great confusion due to the same name being used for a wide variety of lease forms).  The Association of International Petroleum Negotiators have also developed several forms for use in the oilpatch.  As one last example, Kanes Forms has published a wide variety of forms, such as affidavits, mineral and surface deeds, assignments, and various agreements for use in the oil and gas industry.

But is this widespread reliance on forms purely positive?  If not, then what are some of the major landmines to be aware of?

Where Are Forms Inadequate?

One of the first lessons I learned back when I was drafting and negotiating agreements in the construction industry was this: forms are a great starting place, but they shouldn’t be used blindly.   The exact same principal applies in Oil and Gas.  Some of the reasons for this include: Read More »

6Jan

Mineral Liens: Collecting Unpaid Debt for Oilfield Service Companies

Purpose and Application of Mineral Liens

Everyone in the construction industry is intimately familiar with the “Mechanic’s Lien,” which gives a security interest in the title to real property (and sometimes personal property) to those who have supplied materials or labor to improve the property.  In some jurisdictions, the liens are broken down further into sub-groups, such as the the “Materialman’s Lien,” “Construction Lien,” “Supplier’s Lien,” or “Laborer’s Lien.”  But one lesser known type of lien can be crucial to oilfield service companies in collecting on debts owed to them: the Mineral Lien.

Liens are similar to a sort of mortgage or deed of trust on the property, acting like a cloud on title, and having the effect of hooking the owner into paying you for your services or labor before selling, financing, or refinancing the property.  Mineral Liens were designed specifically for companies like oilfield service companies, to give them an easier route to collecting their debts, and receiving money rightfully owed to them. Read More »

1Jan

Dirty Tricks & Cheap Moves in the Oilpatch

High risk, high reward.  We in the oil and gas industry have been toughened; have been forced to learn to traverse the risk, and to reap the rewards.  Heck, oil and gas exploration and production is practically as synonymous with the “American Dream” as we can get.  The plentiful rewards that lie at the end of a successful oil and gas venture lead many into an epic journey fueled by palpable ambition and great effort.  We’ve all heard amazing tales tracing the paths of the oil and gas trailblazers, the ones who got lucky, and those who were willing to sacrifice to get there (if not, see “The Prize“).  But every possible path to high reward is guarded by a common vault-door: acceptance of high risk.

Unfortunately, as these stories show us, this risk to reward balance can and has lead many to lying, cheating, dishonesty, half-truths and otherwise misleading conversations, deals and agreements (again, see “The Prize”). However, this is all directly in conflict with the prevailing “unspoken rule” in the oil and gas business: honesty and fair dealing.  Call it what you will, “old boys club,” “gentlemen’s business,” “good ol’ boys,” etc.  The oil and gas industry is undeniably all about the relationships you have built, and the trust and rapport you have developed.

Nevertheless, in helping my clients negotiate and close all sorts of deals and resolve various disputes, I have inevitably ran across several “dirty tricks” and “cheap moves.”  The following is an explanation of some of these dirty or cheap oil and gas negotiation tactics, how to avoid them, and suggestions for responding when the tactics are spotted.
Read More »

26Dec

Farmout Agreements: The Basics, Negotiations and Motivations

Farmout Agreements are one of the most widely used agreements in the oil and gas industry.[1]Special thanks to Professor Lowe for his excellent article on this subject, Analyzing Oil and Gas Farmout Agreements, Sw. L.J. 759 (1987). However, there is no largely adopted model form. As such, they vary a great deal. Kanes Forms has provided several Farmout Agreement Forms, but these have not been adopted as an industry standard, and so every farmout agreement approached must be fully analyzed and every term must be understood. This multi-part article will summarize the common ground, and provide a framework for analyzing the various options for certain provisions. Read More »

Footnotes[+]

5Mar

Terminology Behind Federal Leasing

“Common” Oil and Gas Law

As time passes, the “academic minds” have recognized more and more that Oil and Gas Law is not simply a mixture of advanced property law and advanced contract law.  To the contrary, the advent and progression of the energy era as well as continued advancement into non-conventional plays has seen the formation of a robust energy culture, so sophisticated and business savvy that its typical negotiations have become forms, those forms became largely standardized, and has allowed a body of case law to envelope its every detail to the point that a new body of law has emerged: oil and gas law. [1]See Bruce M. Kramer, “Property and Oil and Gas Don’t Mix: The Mangling of Common Law Property Concepts,” 33 Washburn LJ 540 (1993). Read More »

© 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.
OR
ARE YOU KEEPING UP TO DATE?
We keep clients and subscribers updated on case law alerts and insightful articles. Join more than 2,000+ in-house attorneys and landmen who receive our occasional alerts and summaries. All for free!
Note: When choosing facebook or google, alerts will be sent to the email listed in that account.
close
OR
ARE YOU KEEPING UP TO DATE?
We keep clients and subscribers updated on case law alerts and insightful articles. Join more than 2,000+ in-house attorneys and landmen who receive our occasional alerts and summaries. All for free!
OR
ARE YOU KEEPING UP TO DATE?
We keep clients and subscribers updated on case law alerts and insightful articles. Join more than 2,000+ in-house attorneys and landmen who receive our occasional alerts and summaries. All for free!
Note: When choosing facebook or google, alerts will be sent to the email listed in that account.
ARE YOU KEEPING UP TO DATE?
We keep clients and subscribers updated on case law alerts and insightful articles. Join more than 2,000+ in-house attorneys and landmen who receive our occasional alerts and summaries. All for free!