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In what is good news for royalty owners and mineral owners in the Permian Basin in Texas, the Energy Information Administration (“EIA”) recently issued a Drilling Productivity Report that projects that output from the Permian Basin will increase by almost 3000 barrels of oil per day.

The Permian Basin

The Permian Basin

The Permian Basin is located in West Texas and southeastern New Mexico and includes Andrews, Borden, Ector, Loving, Midland, Pecos, Ward and Winkler Counties. The increase in production is probably the result of not only new wells, but also greater efficiency in drilling operations.

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In rereading a news release issued by the United States Attorney for the Eastern District of Kentucky, I was struck again by how much money is taken in by oil and gas scam artists. The news release recounted that a California man named John G. Westine, Jr. was convicted of 26 counts of mail fraud and a count each of conspiracy to launder funds and securities fraud.

This scam had all the usual hallmarks of a fraud. First, he targeted people in a state other than where he resided. This makes it harder for defrauded investors to track him down. Secondly, he guaranteed returns to his investors. Nobody in the oil and gas industry who is legitimate will ever guarantee returns. Third, Westine created a number of bogus oil companies who “owned” a number of producing oil wells. He offered people shares in these oil wells and guaranteed royalties to the investors. He scammed 200 people out of more than $3 million!

Of course, the investors funds didn’t go to purchase shares in oil wells. Instead, Westine and his half-brother were living the high life in California. The U.S. Postal Inspectors, who initiated the investigation into this scam, seized four of his vehicles in the Los Angeles area. One was a Mercedes Benz and the other three were Bentleys.

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As the Texas Supreme Court noted recently, it is the responsibility of mineral owners to review their deeds carefully to ensure that the rights and reservations in the deed are what they intend and that there are no mistakes. Specifically, in Cosgrove v. Cade, the Court held that “Plainly obvious and material omissions in an unambiguous deed charge the parties to the deed with irrebuttable notice (of any errors) for statute of limitations purposes”. As a result, the “discovery rule” does not apply to a suit to reform the deed according to both Texas common law and the Texas recording statute.

In 2006, the Cades sold two acres of land to Barbara Cosgrove. The real estate contract provided for the reservation of all of the mineral rights to the Cades. However, the deed conveyed the land in fee simple, meaning all the land and rights incidental to ownership of the land, including mineral rights, were conveyed to the buyer. At closing of the transaction, the parties signed a document in which they agreed to correct or adjust any errors or omissions in any documents.

In 2010 the Cades realized that the deed conveyed their mineral rights to Ms. Cosgrove. The Cades filed a lawsuit to reform the deed and for breach of contract.

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Good news for royalty owners in the Delaware Basin in West Texas. The Delaware Basin is a geologic formation that is well known for holding large oil fields. Guadalupe Mountains National Park in Texas and Carlsbad Caverns National Park in New Mexico are located within the Delaware Basin. The Delaware Basin is actually part of the much larger Permian Basin of West Texas.

The Delaware Basin in West Texas

The Delaware Basin in West Texas

Anadarko Petroleum Corporation had previously announced that they would probably cut the number of working oil rigs in this area from 6 to 4 rigs. However, in July, Anadarko announced that because they have made their operations more efficient and lowered drilling costs, they’re going to keep all six drilling rigs working.

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It is not uncommon in Texas for a landowner, for example, someone who has inherited property, to find that the property is landlocked and without access to a public road. Sometimes access to the landlocked property is offered by a friendly neighbor. However, in the absence of an adjoining property owner who will allow or sell an easement from the landlocked property to a public road, the owner of the landlocked property is forced to go to court to obtain what is called an “easement of necessity”. The Texas Fifth Circuit Court of Appeals recently discussed the criteria for an easement of necessity in the case of The Staley Family Partnership, Ltd. v. David Stiles, et al.

Background

The Staley Family Partnership owns a 10 acre tract of land (“the Staley Tract”) bordered by Honey Creek or its tributaries on the west, south and east located in Collin County, Texas. The Staley Tract was initially part of larger tract (the “Helms Tract”) conveyed to Thompson Helms by the State of Texas in 1853. In 1855, a portion of the Helms Tract was transferred to Robert Skaggs and the remaining 404 acres of the Helms Tract was divided by the probate court in 1866. The probate court awarded Axia Helms a 152 acre tract, James Helms a 142 acre tract and Frances Helms a 110 acre tract (the “Frances Tract”).

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Last year, the Texas Supreme Court decided the case of Coyote Lake Ranch, LLC v. City of Lubbock  that dealt with whether the “accommodation doctrine”  should be applied to groundwater.

The accommodation doctrine is actually an oil and gas doctrine, which states that absent an agreement to the contrary, an oil-and-gas lessee has an implied right to use the surface of the land as reasonably necessary to produce and remove the minerals, but must exercise that right with due regard for the surface owner’s rights.

Coyote Lake Ranch, in Bailey County, Texas in the Texas Panhandle, is a fairly large ranch, used primarily for agriculture and raising cattle. Most of the ranch is covered with sand dunes covered by dune grasses, although some parts of the Ranch are irrigated cropland. The Ranch gets its water from the Ogallala Aquifer, which is the principal source of water for the high plains of Texas and several other states, including Lubbock.

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Earlier this week, the Securities and Exchange Commission (SEC) sued Chris Faulkner, his company, Breitling Energy Corporation and several other parties for defrauding investors. The complaint filed by the SEC can be reviewed here. The SEC Complaint alleges that the Defendants intentionally and repeatedly misled purchasers of working interests regarding Faulkner’s  experience in the oil and gas industry, the nature of the investment, and the estimated cost to drill and complete the intended wells.

A working interest, unlike a royalty interest, is a type of mineral interest that bears a proportionate share of all exploration, drilling and completion expenses. Thus, an accurate estimate of the potential costs is critical information for an investor considering the purchase of a working interest. If costs are inflated over actual costs and the operator pockets the difference, obviously that’s a problem.

Whether Faulkner and the other Defendants are adjudged guilty of these allegation remains to be seen, of course. However, these kinds of claims emphasize the need to have an experienced oil and gas attorney examine and evaluate any potential oil and gas investment before you invest. An experienced oil and gas attorney will review your goals for the investment, discuss the suitability of the investment with you, review and analyze all offering circulars, contracts and other documents, and possibly most important, conduct due diligence background research on the company with whom you are investing.

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In a case that many Texas landowners have been following closely through the courts, the Texas Supreme Court recently published a decision concerning whether a county can be held liable for an impermissible taking of property when the county allows for land development that the county knows will cause substantial flooding to nearby properties and fails to take steps to mitigate or control that flooding.

The Texas Supreme Court Opinion

Harris County Flood District and Harris County v. Kerr et al.   involved nearly four hundred homes in the upper White Oak Bayou watershed in Harris County, Texas that were flooded when severe storms passed through the area. The homeowners sued the county and the Harris County Flood Control District based on an inverse condemnation claim. The homeowners asserted that the county and the district did not take steps to control flooding as new developments were created in the White Oak Bayou. A flood control plan was actually developed in the 1980’s, but was never fully implemented by the county, and this plan acknowledged that the unmitigated development of the land in the Bayou would produce serious flooding problems in the area. As a result of a boom in development in the White Oak Bayou, and because of the the county’s failure to adequately control flooding, many homes were flooded. The Plaintiff homeowners claimed that the flooding was a unconstitutional taking of their property that is prohibited by Article I, Section 17 of the Texas Constitution. The evidence showed that the county never intended to cause flood damage to the homeowner’s properties, but that the county knoew that flooding could result.

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The Texas Supreme Court recently decided an important eminent domain case in In Re Lazy W District No. 1, Relator. Specifically, the Court decided that the trial court must consider whether the court has jurisdiction over a proceeding as quickly as possible in a case, and need not wait on the outcome of a special commissioners proceeding before hearing the jurisdictional issues.

The Mechanics of Eminent Domain

When a government entity such as a city, municipality or water district is interested in exercising its power of eminent domain over a parcel of land, the Texas eminent domain statutes require they follow several steps:

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You wouldn’t think that building a stock pond on your own property would be something that requires the approval of the United States Environmental Protection Agency (EPA) would you? One unsuspecting family in Wyoming found out just how far the EPA was willing to go in an effort to “protect the environment.” According to a recent article by FoxNews, the Johnson family, in Fort Bridger, Wyoming, built a small stock pond on their farm in order to support their small herd of livestock. The Johnson’s obtained state and local permits for the pond. After the pond was built, the EPA sent the family threatening letters and slapped them with a fine of more than sixteen million dollars, (i.e., $37,500 per day from the time the pond was built), for not having obtained permission from the EPA to build the pond on the their property. The EPA even demanded the stock pond be deconstructed.

Allegations of a Violation of the Clean Water Act

The EPA claimed it had authority to issue the fine because the Johnson’s pond is fed by a natural stream, and under the federal Clean Water Act, the EPA believed that the Johnson family should have obtained federal approval to build the pond and should have gotten a permit from the U.S. Army Corps of Engineers. According to the EPA, the Johnson pond was build by creating a dam on a creek and the act of building a dam on a natural waterway requires an Army Corps permit. The EPA also claimed that material from the Johnson’s pond was washing into other waterways. No other environmental problems with the pond were identified by the EPA.

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