Texas Oil and Gas Attorney Blog

Texas oil companies, mineral owners and oil and gas attorneys are all familiar with the Texas Railroad Commission. The Commission regulates oil and gas drilling and production and oil and gas pipelines in Texas. The Commission is pretty diligent in making sure abandoned wells are properly plugged. Unfortunately, on one occasion, they apparently plugged the wrong well!

The well was located on a tract owned and operated by American Coastal Energy. American Coastal Energy filed for bankruptcy. Gulf Energy held a lease on the area containing  the well and reached an agreement with the Commission to take over the well. In exchange, Gulf Energy provided $400,000 to cover the cost of eventually plugging the well if and when Gulf Energy decided to abandon the well. The Commission agreed to postpone plugging the well.

The Commission hired Superior Energy Services, LLC to plug other abandoned wells in the same tract as the Gulf Energy well. While plugging the other wells in the area, Superior Energy also plugged the Gulf Energy well, apparently at the specific instruction of the Commission staff. Due to a clerical error, someone at the Commission transposed the coordinates for the Gulf Energy well with another well.

Texas landowners and oil and gas attorneys have been watching Senate Bill 740 with interest. This bill, introduced by several Texas senators, would have increased landowner protections in the event a pipeline company sought to obtain an easement on their property using eminent domain. You can read the full text of the bill here.

The bill contains amendments to the “Bill of Rights” contained in the Texas Government Code and numerous amendments to the Texas Occupations Code dealing with right-of-way agents, but most importantly, it contains amendments to the Texas Property Code dealing with offers to land owners by pipeline companies seeking pipeline easements. Examples of the new provisions are:

• a requirement pipeline company must provide any new, amended or updated appraisals to the property owner within a specific time

There is a controversy between the Texas Railroad Commission and the US Army Corps of Engineers that is being followed closely by many Texas oil and gas attorneys and mineral owners. The Texas Railroad Commission is the state’s oil and gas regulator, and last year it bumped heads with the U.S. Army Corps of Engineers concerning whether the Corps has the authority to implement rules about where oil wells and injection wells can be drilled.  The dispute surrounds the Joe Pool Lake, located in Tarrant County, Dallas County and Ellis County, and specifically whether drilling and injecting should be permitted within a certain distance of the dam.

Injection Wells Linked to Increases in Seismic Activity

There have been claims asserted in some circles that fracing or the use of injection wells to dispose of waste water has been linked to an increase in seismic activity near drill sites. The Corp recently obtained a study concerning the impact induced seismic activity could have on the structural integrity of the Joe Pool Lake dam. The study concluded that with respect to production, a 5,000-foot standoff distance — which is slightly larger than the one set by the Army Corps — had little effect on subsidence, or caving and settling, at the dam. In fact, the study did not recommend any change in the current ban area. Somehow, despite the study’s conclusions, the Army Corps is concerned that drilling within four thousand feet of the Joe Pool Lake dam or hydraulic fracturing within five miles of the dam could increase the risk of man-made earthquakes in the area, which could in turn structurally damage the dam. (There is already a drilling ban in effect within three thousand feet of the dam). The expansion of the ban area would encompass land from the cities of Grand Prairie, Arlington and Dallas.

The Texas Supreme Court recently delivered an opinion that was not surprising to Texas oil and gas attorneys in the case of Forest Oil Corporation v. El Rucio Land and Cattle Co. The Court originally denied the review of the Corpus Christi Appeals Court decision affirming a $15 million dollar arbitration award against Forest Oil Corporation (now Sabine Oil & Gas), however, after a motion for rehearing the Court granted the petition for review. The primary issue is who has jurisdiction of a landowner’s claim against an oil and gas company for the contamination of a landowner’s property.

Background

Forest Oil leased roughly 1500 acres from McAllen Ranch (owned by James McAllen) in the mid-1980’s, where it has been producing and processing natural gas. About a decade after the lease was signed, McAllen Ranch and Forest Oil entered into another agreement in which Forest agreed to remove and clean up any hazardous materials from the lease site. The parties agreed that any disputes would be resolved by arbitration rather than by going to court.

A case that has gained attention in the Texas oil and gas industry is the case of Samson Exploration v. T.S. Reed Properties which is currently awaiting a decision by the Texas Supreme Court. The case involves three gas wells and two mistakenly overlapping pooling units in Hardin County, Texas.  The boundaries of the first unit were amended by the well operator, but the boundaries of the second unit were not. The two main issues, as stated by the Texas Ninth Court of Appeals, are : “First, whether the stakeholders participating in (the first unit) can recover damages from the operator of the unit when the operator amended the boundaries of the unit to exclude a well that was within the boundaries of the original unit, and where the stakeholders accepted royalties attributable to the amended unit without challenging the operator’s authority to amend the original unit’s boundaries. Second, whether the stakeholders in (the second unit), based on their claims for breach of contract, can recover damages from the operator due to the operator’s failure to pay royalties on oil and gas produced from a well that the operator contends was (originally)  included in that unit by mistake”.

In October 2015, the Texas Ninth Court of Appeals opinion ruled that the stakeholders in the first unit had ratified the amendment to the unit by accepting royalties attributable to the amended first unit. Therefore, those stakeholders should recover nothing. The Ninth Circuit further determined that the stakeholders in the second unit could recover damages from the well operator for the operator’s failure to file an amendment to the description defining the pooling unit’s boundaries, but that the award of damages in the trial court was excessive because it awarded royalties for prior to the time the unit existed.

Many in the Texas oil and gas industry, like Texas Alliance of Energy Producers, support Samson’s claim that the royalty owners in the first gas unit ratified the unit amendment by accepting royalties after the unit was amended, and that they should not be required to pay royalties from one well to lessors in both gas units.