The Energy Law Blog : Energy Lawyer & Attorney : Liskow & Lewis Law Firm : Gulf Coast, Offshore

The Louisiana Department of Natural Resources has issued a proposed amendment to Statewide Order 29-B that details the procedures the Department will follow in implementing oilfield clean-up plans referred to the Department under Act 312 of 2006.  The Legislature passed Act 312 in 2006 to address the problem that damages awards in oilfield remediation litigation were not required to be expended on remediation.  Under the Act, the Department is involved in formulating a remediation plan, and the remediation funds are to be deposited in the registry of the court and actually spent on remediation.  The Commissioner of Conservation will conduct a hearing on the proposed regulations on Wednesday February 28, 2007.  Comments may be submitted at the hearing, or may be submitted in writing up to March 7, 2007.  To view the proposed regulations, click here.  Most notably, the draft regulations state that remediation plans must comport with the standards set forth in Order 29-B. 

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The Oil & Gas Journal's Annual Forecast & Review will be available as a live webcast on 1:30pm, CST Thursday, January 25. To watch the webcast of this valuable industry information:

1. Click on www.ogjonline.com

2. Scroll down to webcasts

3. Click on "Annual Forecast & Review " to go to the registration page.

The webcast will continue to be available online for one year following the live presentation.  Liskow & Lewis is a sponsor of this webcast.

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The Associated Press reported today that a federal jury found Kerr McGee liable for additional royalties on crude oil produced from federal properties and sold through Texon.  The case is noteworthy in that it was brought as a False Claims Act case by Bobby Maxwell, an auditor with the Mineral Management Service, who alleged that his superiors at the MMS refused to pursue his recommendation to demand additional royalties from Kerr McGee.  The underlying allegations were that Kerr McGee sold crude oil to Texon, and received marketing services and other non-cash considerations, on which royalty was not paid.  Kerr McGee had denied the allegations and claimed that no additional royalties were owed.

The MMS issued a press release maintaining its original position that Kerr McGee had properly paid its royalties on these transactions, and that federal auditors should not be able to bring False Claim Act cases because of the conflict of interest that arises in seeking personal recovery upon information that they are paid by the taxpayers to collect.  Kerr McGee has indicated that intends to appeal the verdict.

This is  one of several False Claim Act cases filed by former or current employees of the MMS, claiming that royalties were underpaid to the federal government on oil or gas production.

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On January 8, 2007, a Louisiana trial judge held Act 312 of 2006 to be unconstitutional.  The Louisiana Attorney General's office immediately filed notice that it will take a suspensive appeal directly to the Louisiana Supreme Court.  M.J. Farms, Ltd v. ExxonMobil Corporation 24,055 (La. 7th J.D.C. Jan. 8, 2007).  Act 312, which became effective June 8, 2006, requires involvement of the Louisiana Department of Natural Resources (DNR) in litigation alleging environmental contamination, including submission of any remediation plan to DNR for approval, and the deposit of remediation funds into the registry of the court for expenditure on actual remediation rather than payment of those funds to the plaintiffs.  For further information on Act 312, click here. 

The plaintiff in M.J. Farms argued that retroactive application of the Act to a suit pending at the time the statute was promulgated unconstitutionally divests the plaintiff of a property right, that is, the cause of action to recover money damages for environmental contamination.  The Louisiana Attorney General opposed that motion, asserting that the statute only concerns remediation of public harm, and does not deprive landowners of claims for redress of private harm.  The January 8, 2007 ruling by Judge Johnson of the Louisiana Seventh Judicial District Court held Act 312 to be unconstitutional and unenforceable.  The opinion is available here.

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Two developments this week will increase protections for South Louisiana' s Port Fourchon and Louisiana Offshore Oil Port (LOOP).  Port Fourchon handles more than 75% of the oil and gas production from the Gulf of Mexico, while LOOP is the only port in the U.S. capable of offloading the deepest draft tankers.  First, the Department of Homeland Security (DHS) added Port Fourchon and LOOP to the list of ports eligible for federal security grants under the Port Security Grant Program, which provides funding to improve protection of critical infrastructure against terrorism.  Click here for an overview of the 2007 DHS Infrastructure Protection Program.  Second, the State of Louisiana accepted a bid to elevate Louisiana Highway 1, which is the only highway leading to Port Fourchon and LOOP, to 22 feet above ground.  The roadway is a critical lifeline that carries nearly 1000 trucks per day transporting goods and workers to Port Fourchon, and from there to exploration and production operations in the Gulf.  The elevation project will protect this corridor from flooding and erosion.  For more on this project, click here. 

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In 1988, FERC, pursuant to the Natural Gas Act of 1938, issued Standards of Conduct to regulate natural gas pipelines' interactions with their marketing affiliates.  The Standards required pipelines and ther marketing affiliates to function independently and imposed restrictions the the sharing of information between them.  In 2004, FERC extended the reach of the Standards so that they applied to the pipeline companies' relationship not only with marketing affiliates but other entities in the industry. 

In National Fuel Gas Supply Corp. v. Federal Energy Regulatory Commission, 468 F.3d 831 (D.C. Cir. 2006),, the D.C. Circuit struck down the order extending the reach of the Standards of Conduct.  The court found that "FERC's asserted factual premises d[id] not withstand scrutiny and that the Order [did] not reflect the reasoned decisionmaking required by the Administrative Procedure act."

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In Waterfowl Limited Liability Co. v. United States, No. 05-30219 (5th Cir. Dec. 12, 2006), the United States Court of Appeals for the Fifth Circuit granted the petition for panel rehearing, withdrew its earlier panel opinion, and held that Louisiana law did not apply to a settlement agreement that arose out of earlier litigation over mineral servitudes.   Continue Reading...

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By Stevia M. Walther

A deed reserving a mineral servitude for a period of ten years does not create a ten-year fixed servitude, but instead re-affirms the statutory ten-year prescription of nonuse applicable to mineral servitudes established in article 27 of the Louisiana Mineral Code. Thus, the right did not expire after the passage of ten years, but was kept alive by mineral production. In St. Mary Operating Company v. Lester Joseph Champagne, 06-984 (La. App. 3 Cir. 12/06/06), 2006 La. App. LEXIS 2750, the Louisiana court of appeal determined that a reservation “all of the minerals underlying or which may be produced from the above described tracts for a period of ten years” was a mineral servitude, not a mineral royalty, and that the servitude was subject to the statutory prescriptive period.

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On February 13, the Texas Supreme Court will hear arguments in a case involving important issues to the Texas oil and gas industry, including whether or not Texas recognizes an independent private cause of action for waste based on violations of Texas conservation laws and whether an oil and gas lessee commits waste by plugging abandoned wells with minerals remaining in the reservoir. The Court will also hear arguments on the applicability of the discovery rule and fraudulent concealment to claims by oil and gas lessors.

Liskow & Lewis attorney Butch Marseglia submitted an amicus curiae brief on behalf of The Texas Oil & Gas Association. For a copy of TxOGA’s brief, click on the following link Amicus Curiae Brief of TXOGA - Received: 10/16/2006 .

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Contributed by  Andrew Wooley

In Via Net v. TIG Insurance Co., the Supreme Court of Texas recently concluded it was not reasonable for a party to believe it was an additional insured under another party’s commercial general liability policy, based only on a certificate of insurance provided by the other party’s insurance broker. After noting that certificates of insurance generally do nothing more than acknowledge the existence of a policy and its general terms, and do not specify “the numerous limitations and exclusions that often encumber such policies,” the court stated “those who take such certificates at face value do so at their own risk.”

While the specific legal issue in Via Net was whether a party’s reliance on a certificate of insurance provided by another party’s insurance broker was sufficiently reasonable to toll the statute of limitations until the aggrieved party learned it was not, in fact, an additional insured, the lesson in the case for those who intend and expect to be named as an additional insured under someone else’s insurance policy is to require verification of that beyond a mere certificate of insurance, e.g., copies of the policy and the endorsement adding the party as an additional insured. The opinion in Via Net is available on Westlaw at 2006 WL 3759389 and is also available on the Texas Supreme Court’s web site at http://www.supreme.courts.state.tx.us/historical/2006/dec/050785.htm.

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