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

By Michael A. Mahone, Jr.

The Louisiana Mineral and Energy Board is currently reviewing an incentive proposal that would offer a “royalty relief incentive” on new drilling leases along the Louisiana coast. Specifically, the proposal would offer royalties for a period of three years for wells drilled to a depth of fifteen thousand feet along the coastal zone. The royalties would begin at one-sixth and then switch to eighteen percent once production volume reaches five billion cubic feet. The purpose of the incentive is to stimulate drilling in southern Louisiana, which has been declining as of late due to the rapid investment in natural gas plays in the northern portion of the State, most notably in the Haynesville Shale gas field. This proposal would also better position Louisiana to compete for investment and drilling with other states, such as Texas and Pennsylvania. Discussion and a possible vote on this proposal are expected at the next Board meeting on May 12.
 

For more information see neworleanscitybusiness.com/blog/2010/04/15/proposal-encourages-oil-gas-exploration-in-south-louisiana/

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By Stephen Wiegand

EPA recently announced its position regarding the timing of the regulation of greenhouse gases under the Clean Air Act’s Prevention of Significant Deterioration (PSD) Program.

A PSD permit is required before a new industrial facility can be built or an existing facility can be modified in a way that significantly increases pollutant emissions. In Massachusetts v. EPA, 549 U.S. 497 (2007), the Supreme Court held that greenhouse gases are “pollutants” under the Clean Air Act but left open the specific question of whether greenhouse gases could be regulated under the PSD Program. In December 2008, then-EPA Administrator Stephen Johnson issued a memorandum indicating that the PSD Program applies to pollutants that are subject to either an actual provision in the Clean Air Act or a regulation adopted by the EPA under the Act which requires actual control of emissions of that pollutant. However, pollutants such as carbon dioxide, for which EPA regulations only require monitoring and reporting, are not subject to PSD permitting.

In October 2009, new EPA Administrator Lisa Jackson announced that EPA would reconsider and accept public comment on the Johnson memorandum. On March 29, 2010, EPA announced its final decision regarding the reconsideration. Specifically, EPA determined that PSD permitting is not triggered for pollutants such as greenhouse gases until a final nationwide rule requires actual control of emissions of the pollutant. Thus, in the case of greenhouse gases, EPA announced that the PSD requirements will likely not be triggered until January 2, 2011, the date upon which EPA’s rule limiting the greenhouse gas emissions for cars and light trucks is expected to take effect.

For more information on the announcement, see the EPA New Source Review.
 

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By Natalie Barletta:

            In Shell Oil Co. v. Ross, No. 01-08-00713-CV (Tex. App.—Houston [1st Dist.] February 25, 2010, no pet. h.), Ross, a mineral interest owner, brought a breach of contract, unjust enrichment, and fraud action against natural gas lessee, Shell. Ross alleged that Shell failed to pay royalties in accordance with the lease agreement and that it fraudulently deprived him of royalties by making payments “based on an arbitrary amount even below the internal transfer price.” He further alleged that Shell sent him royalty statements containing false representations that the royalties were based on actual sales prices. The trial court entered a judgment on the jury verdict in favor of Ross and Shell appealed. 

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By Natalie Barletta:

             The principal issue addressed in Valence Operating Company v. Anadarko Petroleum Corporation, 303 S.W.3d 435 (Tex. App.—Texarkana 2010, no pet.h.), is whether Valence actually commenced work on its proposal to drill four wells within the time specified by the parties’ joint operating agreement (“JOA”). The JOA contained a provision covering Valence’s proposal to drill the wells in the unit. The provision stated that the party desiring to drill “shall give” notice to the other parties to the agreement “specifying the work to be performed” and that the parties receiving notice “shall have thirty days after receipt of the notice” to give notice of their election to participate in the drilling operations. Anadarko did not consent to Valence’s proposed drilling operations. 

            Valence, therefore, became operator as to its proposed operations and was required to “actually commence work” by March 17, 2000. Once operations began, Valence was required to “complete [operations] with due diligence.” Anadarko, however, filed suit, arguing that Valence failed to commence operations before March 17, 2000. Valence conducted the following activities before the deadline expired: prepared an authorization for expenditures, received topographic map of locations, surveyed and staked locations and took pictures of well sites, obtained preliminary list of title instruments, held meetings to discuss locations and how to build on those locations, prepared detailed cost and facility estimates for the four wells, prepared preliminary run sheets, and obtained permits for the wells from the Texas Railroad Commission. After the deadline had passed, Valence built access roads, signed drilling contracts and began drilling. 

            The court held that Valence’s pre-deadline activities were not sufficient as a matter of law to establish actual commencement of work on the proposed operation within the meaning of the JOA. The issue was, therefore, properly submitted to the jury.

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By Marie Carlisle: 

           The principle issue addressed in Adobe Oilfield Services v. Trilogy Operating, Inc., No. 11-09-00162-CV (Tex. App.—Eastland January 29, 2010), involves the granting of a temporary injunction to prevent the filing of liens against oil wells. Trilogy entered into contracts with Adobe to drill six wells. Trilogy paid Adobe’s invoices for the first five wells, but was subsequently contacted by PNC Bank claiming a security interest in Adobe’s accounts receivables and a right to the amounts owed to Adobe for the sixth well. Trilogy held the amount still owed to Adobe in suspense, eventually depositing the funds into the registry of the Court. Adobe then threatened to file liens against all six wells for the unpaid amounts owed, causing Trilogy to file suit seeking injunctive relief to protect the wells from the threatened liens. Trilogy offered proof that it had a contractual obligation to protect the wells from liens, that the placement of liens on the wells would have a negative impact on Trilogy and its ability to serve as operator for the wells, and that it had paid all amounts owed to Adobe either directly via check or by depositing such sums with the Court. Trilogy also offered proof that Adobe had a contractual obligation to pay its subcontractors to prevent the filing of liens against the property. The trial court granted the temporary injunction, and the Court of Appeals upheld the injunction because Trilogy was able to show that it had a cause of action against Adobe, it had a probable right to the relief sought, and that there would be probable imminent and irreparable injury if the liens were filed.

            A secondary issue in the case involves whether or not the deposit of a sum of cash into the trial court’s registry is sufficient to satisfy the requirement of filing a bond with the court. Pursuant to the trial court’s order, Trilogy deposited $1000 cash as security for a temporary injunction field against it, as well as $300,000 cash into the registry of the court. The court’s order, however, was not conditioned as required by TRCP 684, and appellants asserted that this failure voids the temporary injunction. The Appellate Court, however, followed the decision of the Dallas Court of Appeals in finding that Rule 14c, which allows for the deposit of cash in lieu of a bond, automatically incorporates with a cash deposit the conditions for a proper statutory bond. See Seib v. American Savings & Loan Ass’n of Brazoria County, No. 05-89-01231-CV, 1991 WL 218642 (Tex.App.—Dallas 1991). 

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