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

By Leta Seletzky:

In Seagull Energy E & P, Inc. v. Railroad Comm'n, No. 03-0364, 2007 WL 1299163 (Tex. May 4, 2007), the Texas Supreme Court affirmed a decision by the Austin Court of Appeals upholding the Railroad Commission of Texas' authority to regulate both drilling and production of commingled oil and/or gas deposits and to treat commingled deposits as one reservoir. The petitioner, who unsuccessfully sought a permit from the Commission to reopen a shut-in well to produce from one of three discontinuous, lenticular gas sands in a field, argued that the permit it sought was a drilling permit rather than a production permit, and thus the Commission lacked authority to deny it. The petitioner also asserted that the Commission's denial of the permit amounted to an unconstitutional taking of gas in the sand from which the well would produce. The Court rejected these arguments, holding that the Commission has broad authority to regulate commingled oil and gas. The Court also concluded that a mineral owner's property interest in its fair share of minerals on and under its property does not extend to specific oil and gas beneath its property and is in any event subject to the state's police power to conserve and develop natural resources. 

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By Jana Grauberger:

Recently, Amy Myers Jaffe of Rice University's Baker Institute spoke to the Women's Energy Network of Houston on the topic of "The Changing Role of National Oil Companies in International Energy Markets." One interesting fact she presented is that, based on the amount of oil and gas reserve holdings, 14 of the top 20 upstream oil and gas companies in the world are national oil companies or newly privatized national oil companies. The focus of her speech was to share some of the results of case studies that the Baker Institute has done on several of these national oil companies to explore their company cultures, priorities, etc. To learn more about this project and to view the actual case studies, see the attached link.

www.rice.edu/energy/research/nationaloil/index.html

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In Duplantier v. BP Amoco, et al., the Louisiana Fourth Circuit court of appeal recently issued a ruling on trial court procedure under Act 312 of 2006, La. R.S. 30:29.  Click here to view the opinion.  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 more on Act 312, click on this blog's "Environmental" archive.

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By Jana Grauberger

Two recent federal district court decisions have reached differing results in considering the scope of exculpatory clauses in JOA disputes. In PYR Energy Corp. v. Samson Resources Co., 470 F. Supp. 2d 709 (E.D. Tex. 2007), the court found itself bound to follow Fifth Circuit precedent set in Stine v. Marathon Oil Co., 976 F.2d 254 (5th Cir. 1992), which held JOA exculpatory language limiting operator liability to situations of gross negligence of willful misconduct applicable to all good faith actions undertaken by the operator under the JOA, including performance of its contractual duties. By contrast, in Forest Oil Corp. v. Union Oil Co., 2006 WL 905345 (D. Alaska Apr. 7, 2006), the court followed the Tenth Circuit and refused to require a showing of gross negligence or willful misconduct in holding an operator liable for breach of contract regarding its duties to charge for NORM disposal.

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By Jana Grauberger

Oil prices of $60/barrel are expanding the industry and providing incentive and opportunities for more small independent "wildcatter" companies. For some interesting statistics concerning exploration trends and a profile of one wildcatter, Cobalt International Energy, see the attached article from the New York Times.

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By Dana M. Douglas

On April 20, 2007, the Louisiana Department of Natural Resources (“DNR”) issued regulations establishing procedures for agency hearings and the submission and approval of remediation plans under Act 312 of 2006.  Act 312, which enacted La. R.S. 30:29, made sweeping changes to the procedures for litigation involving potential environmental damage to oilfield sites, in order to ensure that remediation awards are actually expended on remediation.  To view the new regulations, which are codified at La. Admin. Code tit. 43, § XIX, Ch. 6, click here.  Most significantly, the regulations establish that Statewide Order 29-B is the basis upon which the agency will evaluate such remediation plans.

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As previously reported, the trial court in M. J . Farms v. ExxonMobil held Act 312 of 2006, governing remediation of oilfield sites, to be unconstitutional.  The Louisiana Supreme Court has now held that the plaintiff did not properly raise the issue of constitutionality at the trial court level, and remanded to allow the plaintiff to specifically plead the unconstitutionality of the act.  M. J. Farms, Ltd. v ExxonMobil Corp.,  No. 07-CA-0450 (La. 4/27/07).  The Court noted that appellate jurisdiction was not invoked because the issue was first raised in a memorandum rather than a pleading.

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By Jonathan A. Hunter

In Weyerhaeuser Co. v. A. D. Hinton,  No. 07-30117 (5th Cir., May 1, 2007), the Fifth Circuit upheld a decision by the Federal District Court for the Western District of Louisiana rejecting a challenge to a group of mineral servitudes created in 1971. The plaintiff landowner, Weyerhaeuser Company, asserted that a series of formal "acknowledgments" executed by its corporate predecessor to interrupt prescription were part of an attempt to create fifty-year mineral servitudes in violation of Louisiana law. In a Memorandum Ruling, the district court held that the challenged acknowledgments fully complied with Louisiana Mineral Code articles 54 and 55; accordingly, the acknowledgments interrupted prescription running against the mineral servitudes. Weyerhaeuser Co. v. A. D. Hinton, et al., No. 06-0272 (W.D. La., Dec. 29, 2006, Walter, J.). On May 1, 2007, the Fifth Circuit heard oral argument on Weyerhaeuser’s appeal. That same day, the Fifth Circuit issued its per curiam decision upholding the district court’s ruling.   Click here to view the ruling.

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In 2002, Jupiter Energy Corporation ("Jupiter") applied to the Federal Energy Regulatory Commission ("FERC") for a determination that two of its pipelines in the Gulf of Mexico were not for the primary purpose of transporting gas -- a purpose within the FERC's regulatory jurisdiction -- but were instead for the primary purpose of gathering gas -- a purpose beyond the FERC's regulatory jurisdiction.  Relying on a 1966 order that the pipelines in question were a transport system, the FERC determined that the pipelines were for the primary purpose of transporting gas.  Jupiter appealed, and the Fifth Circuit vacated and remanded. 407 F.3d 346 (5th Cir. 2005). 

On remand, the FERC arrived at the same conclusion, and Jupiter again appealed.  Once again, the Fifth Circuit vacated and remanded. No. 05-61173 (5th Cir. March 15, 2007).  The panel concluded that several features of the pipelines weighed in favor of the finding that their primary purpose was the gathering of gas.  Specifically, the panel held that "[t]he glaring shortfall in the Commission's order is the lack of a reasoned explanation to support its disregard of the length, diameter, operating pressure, and non-physical factor's of Jupiter's system, which all weigh in favor of a gathering function."

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At its April 11 lease sale, the Louisiana Department of Natural Resources will offer four offshore tracts, one in the Grand Isle area and three in the Main Pass area.  The Department will also offer 17 tracts in waters that the state designates as inland.  Six tracts are in the Chandeluer Sound area, two will cover portions of the Chandeleur Sound, and nine will be offered in the Main Pass area.

For more information, visit the Department's website here.

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United States Senators have introduced three new bills that may impact offshore drilling:

Senators Byron Dorgan, D.-N.D., and Larry Crais, R-Idaho, have introduced the Security and Fuel Efficiency Energy Act 2007, S. 875.  The legislation would allow offshore drilling in the Eastern Gulf of Mexico to as close as 45 miles off the coast of Florida.  The bill, currently before the Senate Finance Committee, would also allow an inventory off the coast of Virginia, North and South Carolina and Georgia, which could lead to more offshore drilling there as well.

Senator Mel Martinez of Florida has also introduced S. 876, which would amend the Cuban Liberty and Demoratic Solidarity Act of 1996 by denying a United States visa to any foreign agent or entity who contributes to the development of Cuba's oil exploration plan.  The bill would also impose sanctions on individuals or entities who invest more that one million dollats in the devlopment of Cuba's oil and gas resources.

Senator Herb Kohl, D.-Wis. has alos introduced the Oil Industry Merger Antitrust Enforcement Act, or S. 878, which will demand evidence from merging oil and gas entities that their transaction will not harm competition.

The text of all three bills may be found at the United States Congress's website here.

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By:  Clare Bienvenu

On January 3, 2007, EPA promulgated a final rule amending 40 C.F.R. part 63, Subpart HH, “NESHAP (National Emission Standards for Hazardous Air Pollutants) for Source Categories from Oil and Natural Gas Production Facilities” to include the regulation of area sources. See 72 Fed.Reg. 26 (January 3, 2007).  The final rule is posted here.  Subpart HH has historically regulated various emissions points for major sources of air toxics in the oil and natural gas production industry. This amendment adds the regulation of benzene emissions from tetraethylene glycol (TEG) dehydration units at minor sources. The significance of this new rule is that all TEG dehydration units in the oil and gas production industry are now subject to Subpart HH unless they meet the exemption criteria provided in the regulations.  While the amendment adds the regulation of area sources, it does not alter any of the major source standards. Accordingly, any TEG dehydration unit already regulated under Subpart HH’s major source standards must continue to comply with those requirements. 

This article will first discuss control requirements for area source TEG dehydration units, which vary based on whether the unit is located within a high population density area, referred to as an “UA plus offset or UC.” The article will next discuss applicable compliance dates, which vary based on the date the TEG dehydration unit was constructed or modified and whether the unit is located in an “Urban 1 County” and/or a high population density area. Notably, this rule is immediately effective for any source constructed or modified on or after July 8, 2005 and for certain sources constructed or modified on or after February 6, 1998.

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On January 30, 2007, a class action settlement was approved in Turner v. Murphy Oil U.S.A., Inc., 05-4206 (E.D. La).  The Turner case asserted claims for property damage resulting from a release of oil from tanks located at Murphy's Meraux, Louisiana refinery after Hurricane Katrina.  The $330 million settlement includes a $55 million buyout program, a $120 million compensation program, a credit for $83 million in compensation already paid, and a $71 million remediation program (including credit for $51 million already expended for remediation).  In addition, Murphy agreed to pay plaintiffs' attorneys fees, which the court set at $33.7 million.  The Governor of Louisiana, Kathleen Blanco, testified in favor of the settlment at the Fairness Hearing.  To view the Court's order approving the settlement, click here.

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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.  

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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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In the continuing dispute between federal offshore lessees and the Department of the Interior over missing price threshold provisions in 1998 and 1999 federal oil and gas leases, MMS announced today that it has signed agreements with BP, ConocoPhillips, Marathon Oil Company, Shell, and Walter Oil and Gas Corporation.   

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In BHP America Petroleum Co. v. Burton, 549 U.S. — (2006), the Supreme Court resolved a legal issue that has been at the center of federal royalty litigation for twenty years:  viz., whether 28 U.S.C. § 2415(a), which imposes a 6-year statute of limitations for Government “every action for money damages … founded upon any contract,” applies to administrative royalty payment orders issued by the Minerals Management Service (MMS). The Court held that it does not.  Read more . . .

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In Barasich v. Columbia Gulf Transmission, et al., Judge Sarah Vance of the Eastern District of Louisiana dismissed a suit in which plaintiffs claimed that oil and gas production and pipeline companies’ activities in South Louisiana marshes contributed to the destruction wreaked by hurricanes Katrina and Rita. The plaintiffs alleged that dredging of pipeline canals and wellsite locations damaged the marshland, thereby weakening a protective barrier against storm surge and increasing the storm damage suffered by citizens of South Louisiana. Judge Vance held that the complaint failed to state a claim under the Louisiana obligations of neighborhood or Louisiana tort law, finding plaintiffs’ claims to be too “attenuated because they are suing for hurricane damage from storm surge allegedly magnified by coastal erosion caused by the canals, not for a direct loss of acreage due to erosion.” 

 

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