There is a new arrow in the quiver of Texas September 1, 2011. Oil and gas companies can still acquire easements across private property to build pipelines. If the pipeline is a private pipeline, the pipeline company must obtain the voluntary agreement of the property owner. If the pipeline is going to be a common carrier, and the pipeline company and property owner cannot agree on easement terms, the company can commence condemnation, or “
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New Cushing to Houston “Wrangler” Crude Oil Pipeline Planned
I was interested to read recently about a new crude oil pipeline to be built by Enterprise Products Partners LP and Enbridge Inc. All new projects like this have the potential to create jobs, maximize local productivity, and ensure that our state’s natural resources are utilized in safe, secure, and productive ways. This latest proposal is unique in that most of the largest new pipelines are designed to carry gas. This line would instead bring oil to the Gulf Coast from the Cushing, Oklahoma storage hub. According to the latest report on the project in the Oil & Gas Journal , under the current plan, a 800,000 barrel-a-day crude oil pipeline would be designed, built and operated to bring oil from Cushing to Enterprise’ Texas Gulf Coast refining complex. This would be the largest pipeline connecting the Oklahoma oil storage hub with Gulf Coast refiners.
If the proposal continues as planned, the 36-in. OD Wrangler Pipeline will begin at the Enbridge Cushing terminal and then extend 500 miles south along pipeline corridors ending in southeast Harris County at Enterprise’s ECHO oil storage terminal. All told, the new crude oil pipeline would provide access to refineries in Texas City, Baytown, and along the Houston Ship Channel. The pipeline is set to accommodate a variety of grades and oil sources. In addition to the main pipeline, the joint project plans also include the creation of an 85 mile line to the Beaumont/Port Arthur refining center. On top of that, additional storage necessary for the operations of the new pipeline will be built and housed at Enterprise’s ECHO site in Harris County, Texas.
The two companies announced a binding open commitment for available capacity on the new pipeline which ran from October 3rd and ended last Wednesday. Depending on the timing of required regulatory approvals and commitments from interested shippers, the companies hope to design, build, and begin operating the new line in less than two years. Under the current proposal, the line would enter service in mid-2013.
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Texas Comptroller Targets Systemic Flaws of Federal Regulations
As a Texas oil and gas attorney, I have followed with great interest the tumultuous relationship that seems to perpetually exist between Texas and its landowners on one hand, and the United States Environmental Protection Agency (EPA) on the other. Unfortunately, some misguided policymakers are under the mistaken notion that the EPA is working to protect the environment, and that the efforts of Texas and other states to fight those federal regulations are misguided. That oversimplification could not be further from the truth.
As Texas Comptroller Susan Combs explained in a recent editorial published in the Star Telegram, Texans are committed to the well-being of their air, land, and water. If legitimate steps need to be taken to protect the long-term well-being of our resources, Texans have and will continue to be the first to step up and take action. Unfortunately, many of the EPA’s latest regulations and requirements passed in the name of environmental protection actually protect next to nothing, and have no scientific basis whatsoever, yet come with very significant detrimental consequences for Texas residents.As Combs notes, “private landowners are the best stewards of their own property.” She goes on to say that the EPA continues to ignore the knowledge and reasonableness of our private property owners when making arbitrary decisions that have effects on their land and lives. Even more troubling, at times the Agency seems to specifically target Texas in ways that defy common sense and scientific reality. For example, Combs discussed the EPA’s new “cross-states” air pollution rule. The new regulation will disproportionately affects Texans. The measure targets nitrogen oxide and sulfur dioxide. Texas plants produce roughly eleven percent of the sulfur dioxide targeted by the regulation, yet, inexplicably, Texas is being ordered to absorb a quarter of the reductions-more than double its actual share.
Anyone who understands the energy industry in our state understands the significant impacts the regulation will have. The state’s largest power generator, Luminant, explained that the rule will eliminate 500 Texas jobs as two generating units are being idled and three ignite mine operations halted. In addition, the Electric Reliability Council of Texas reported that the rule may increase electricity rates for consumers, because the state’s generation capacity will be reduced in the peak load months of summer.
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Texas Mineral Owners: Don’t Waste Your Potential Royalties
When a Texas mineral owner asks me to review or negotiate an oil and gas lease offer they have received, one of the first things I do is to determine who the proposed operator, or lessee, will be. Many people do not realize how important it is to know just who you are leasing to. If you do not investigate the proposed lessee before you sign, you may be throwing away the royalties you could have received had you leased to a competent oil and gas company.
First, I determine whether the potential lessee is a licensed oil and gas operator. I strongly urge my clients not to sign a lease with a middleman. Instead, I insist that the actual oil company who will be operating the lease be disclosed so we can do a background check on them. There can be many potential problems if you sign a lease with a middleman. These include, (but are certainly not limited to), the following problems:1) The company who contacted you may be a broker or a “lease hound”, that is, a person or company who tries to sign up leases cheaply and then sell them to a real oil company for a huge markup. I prefer to see my client be paid that markup, rather than the middleman.
2) They may be an agent for a “boiler-room” operation, who make their money by selling interests in a lease or “drilling program” as an investment. They make their money on the sale of these interests, and could care less about drilling a good well, or treating your minerals or the surface of the property competently. In some cases, they don’t care if a well is drilled or not, because they have already made their money.
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Texas Supreme Court Decision Impacts Texas Oil and Gas Pipeline Negotiations
I spend a significant amount of time as a Texas oil and gas attorney assisting landowners with negotiation of easements and rights-of-way for oil or gas pipelines. As my client and I work through the negotiation process, it is vital to understand the various options available to the pipeline company if we are unable to reach an agreement. While we always try to reach a fair agreement, knowing what the other party can do if a deal is not reached is a key part of crafting an appropriate strategy so that you, as a landowner, can get the most value out of the agreement. Earlier this year, the Texas Supreme Court handed down a landmark decision which may affect the options available to pipeline companies when they negotiate with landowners. The case, Texas Rice Land Partners, Ltd. and Mike Latta v. Denbury Green Pipeline-Texas, addressed issues regarding when a pipeline company is a common carrier and therefore, when the eminent domain power is available to pipeline companies.The Texas Natural Resources Code allows “common carrier” pipelines to wield the eminent domain power only if they are going to transport gas “to or for the public for hire.” Of course, this statute reflects the constitutional requirement that property cannot be taken from an owner if it will be used merely for private purposes. In Denbury, the Texas Supreme Court provided further clarification on what a pipeline must do to qualify as a common carrier so that they can utilize the eminent domain power. In the past, it was assumed by most involved parties, including Texas oil and gas attorneys, that the issuance of a common carrier permit by the Texas Railroad Commission was sufficient to satisfy the requirement. In other words, if a pipeline company received the permit, then they could utilize the eminent domain power if they could not negotiate a right of way with the landowner. The Denbury case changes that.
In this case, Denbury Green received a T-4 permit from the Texas Railroad Commission to construct and operate a CO2 pipeline at the Texas-Louisiana boarder and extending to the Hastings Field in Brazoria and Galveston counties. As part of the permit application, the company checked a box which indicated that the pipeline would be used as a common carrier, instead of as a private line. After receiving the permit, Denbury Green visited part of the proposed location where the pipeline would be put. However, the owners of the land in question, Texas Rice Land Partners, refused to give the company access. Denbury Green and the Texas Rice Land Partners had previously negotiated on the company’s use of the land, but they had not reached agreement. Denbury Green sued to have access to the site to survey in preparation for condemning the pipeline easement.
The case eventually made its way up to the Texas Supreme Court. Denbury Green argued that it should be deemed a common carrier with the power of eminent domain because the permit issued by the Railroad Commissions deemed it as such. However, the Supreme Court rejected that argument. They noted that “the T-4 permit alone did not conclusively establish Denbury Green’s status as a common carrier and confer the power of eminent domain.” Instead, the Court stated that whether or not a pipeline company is deemed a common-carrier is a judicial question. The Railroad Commission’s granting of a permit is an administrative tool based upon the self-reporting of the company involved. Such a process is not subject to the adversarial testing present in the judiciary to determine if the company will actually use the pipeline for public purposes.
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Stricter Qualifications for Residential Mortgages
When the federal government began giving billions of dollars to the banking industry through the Troubled Asset Relief Program (TARP), we discovered that many financial institutions had gotten themselves into their dire situations by making or investing in high-risk home loans. Subsequent to that discovery, there was a push to reform residential lending practices.One piece of legislation aimed at curbing such high-risk lending for homes is the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. In part, this law gives federal bank regulators the authority to set mortgage lending standards to attempt to prevent the lending mistakes of the past. Using this authority, the newly empowered regulators have created a new Qualified Residential Mortgage (QRM) standard and proposed guidelines to govern it. This standard is meant to increase the number of loans that are of high credit quality and have a low likelihood of default.
According to the Community Associations Institute, as proposed, these QRM loans require that a person be able to provide a 20 percent down payment (or more), pay full closing costs out-of-pocket, provide full income documentation, and be current on all existing debt payments. Additionally, applicants are subject to strict debt-to-income ratio limitations, must not have been more than 60 days delinquent on a debt obligation for two years, have had neither property repossessed nor been party to a bankruptcy proceeding, foreclosure, short-sale, or deed in lieu of foreclosure within the last three years, and have never been subject to a Federal or state judgment for collection of any unpaid debt. QRM loans are also only available as first-lien mortgages for a purchaser’s primary residence or second-liens for refinancing existing loans. Finally, adjustable rate mortgages are only to be adjusted only twice per year, and those adjustments cannot exceed six percent during the life of the loan.
The new guidelines impose much stricter standards than previous lending practices. For example, previously closing costs (which can be several thousands of dollars) could be financed. The 20 percent down payment requirement is perhaps the greatest change, as it doubles the 10 percent down payments that were routinely made by first time home buyers in previous years. What is so onerous about saving up the amount needed for closing costs and down payment, like we all used to? In addition, if buyers have more invested in their home purchase, they are less likely to just walk the loan, as so many have done.
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Texas Supreme Court Sheds Light on Duty of Owner of Oil and Gas Leasing Rights
It is incumbent upon a Texas oil and gas lawyer to keep abreast of all relevant decisions from appellate courts and the state’s highest court. Proper advocacy demands that attorneys understand changes in the law and be able to incorporate those changes in their legal representation. Lawyers must have an awareness of all the legal tools at their disposal so they can provide zealous advocacy and competent representation for a client, whether in a dispute, guiding a landowner through the negotiation process for a lease, preparing a mineral deed or a number of other tasks.
There remain many areas of Texas oil and gas law with questions that are unanswered, and our courts are frequently providing guidance on those issues. For example, the Texas Supreme Court recently handed down a decision in Lesley v. Texas Veterans Land Board that provided further clarification on the rights and responsibilities that executive rights holders owe to mineral owners.
A mineral estate is basically a bundle of various property rights. One of those rights is known as the “executive right”, which is the ability to enter into an oil and gas lease. This is distinct from other rights of mineral ownership, such as the right to collect royalties, bonus or delay rentals pursuant to an oil and gas lease. More often than not a single owner will possess all of these rights, meaning they can choose to lease and will receive payment for royalties due under that lease. However, these rights can be split between one or more persons or entities. When those rights are split, the holder of the executive right owes a duty of “utmost fair dealing” to other owners of a mineral interest.
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Several Panels to Study Effects of Fracing
Practicing oil and gas law in Texas competently also requires being aware of the “bigger picture” in which I work. One component of that bigger picture these days is the issue of energy independence.
Energy independence has become a major political issue in recent years, and has resulted in increased efforts to find ways to reduce the United States’ dependence on importing foreign oil to meet our nation’s energy needs. Renewable energy sources and nuclear solutions have been discussed as alternatives to importing oil, but our country’s natural gas reserves are also an important part of our national energy policy moving forward. Ancillary to this national discussion, the production of natural gas, and in particular, the practice of hydraulic fracturing, or fracing, has come under attack.Natural gas is often contained within dense shale formations underground, and fracing is a process used to extract those reserves of natural gas. The process itself involves the use of water combined with sand and chemicals and pumped into the shale formations to fracture them and allow the release of the gas held in the rock.
To my knowledge (and I research this issue), there has never been a documented case of the fracing process injuring a water well. Those who suggest otherwise (such as the producers of “Gasland”) are not being honest with the public or themselves. I wrote a previous article on this blog outlining the reasons for my statement.
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EPA Proposal to Extend Its Regulatory Authority May Adversely Affect Texas Ranchers
As a Texas oil and gas lawyer, I work frequently with Texas ranch owners to negotiate oil and gas leases or pipeline easements that effect their ranches. A recent development threatens to add yet another layer of regulation for the operation of these ranches. Specifically, the United States Environmental Protection Agency (EPA) has recently proposed new guidance rules regarding what bodies of water are protected by the federal Clean Water Act (CWA). Bodies of water protected by the CWA are regulated by the EPA, and the draft guidance that the agency has submitted seeks to expand the types of waterways that are within the gamut of the CWA. These rules purport to increase the EPA’s jurisdiction under the auspice of both the statutory language of the Act and federal case law, such as the Rapanos v. United States decision handed down by the United States Supreme Court several years ago.
Generally, the Clean Water Act covers navigable waterways that are “relatively permanent, standing or continuously flowing bodies of water” under Rapanos. The new guidance rules, however, are based upon Justice Kennedy’s concurrence opinion in Rapanos, in which he stated that the CWA covers waters that “significantly affect the chemical, physical, and biological integrity” of navigable waterways. According to the EPA website, using this broader standard allows the EPA to evaluate “groups of waters holistically” instead of using the waterway-by-waterway piecemeal evaluations that are currently performed by the agency. The new rules mean that a surface connection to a navigable waterway is not necessarily needed for that waterway to be protected under the CWA. Additionally, the guidance states that waters which flow between two or more states are protected under the Act as well.
The draft guidance will be open for public comment for 60 days once it is published in the Federal Register, and cattle ranchers, in particular, have voiced opinions that are strongly opposed to the EPA’s proposal. According to the Texas and Southwestern Cattle Raisers Association (TSCRA), the guidance, if approved as is, may give the Environmental Protection Agency regulatory authority over stock tanks, drainage ditches, and other intermittently flowing bodies of water that are currently not within its jurisdiction. As a result of the agency’s additional authority, ranchers would have to submit to an additional permitting process — and incur the cost of hiring both engineers to evaluate the bodies of water and lawyers to explain the regulations and help the ranchers successfully navigate that process — and allow federal inspections of their private property. This increased regulation would prove a significant financial hardship to those who raise cattle.
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Additional Offshore Workplace Safety Regulations Proposed by DOI & BOEMRE
An experienced oil and gas lawyer understands how politics influences the rules and regulations placed upon those working in the energy industry. Unfortunately, that political influence means that decisions about how the industry is regulated are often not guided by common sense, logic, and fair-minded decision-making. Instead, oil and gas regulations are frequently spurred by knee-jerk, reactionary administrators who are more concerned with appeasing loud public voices than making choices that are necessary and reasonable in light of all the information.
One is hard pressed to turn on a television news channel or flip open a newspaper without hearing or reading some story vilifying oil and gas companies and calling for new measures to control their activities. A cruel caricature is often painted of those who work in the energy industry which ignores the fact that these individuals are regular citizens working each day in a business that remains vital to national productivity. The unflattering and inaccurate public portrayal of the industry often causes appointed bureaucrats to impose new regulation after new regulation on these businesses. To make matter worse, those making these regulatory decisions are rarely knowledgeable about the day-to-day activities of those working in this field, and they usually ignore the effect that their arbitrary rules have on the business.For example, the US Department of Interior (DOI) and Bureau of Ocean Energy Management, Regulation, and Enforcement (BOEMRE) announced a spate of new workplace regulations recently for all offshore oil and gas producers. As reported last week in the Oil and Gas Journal, these new regulations will require certain actions be performed on these rigs in an apparent effort to improve workplace safety. These include guidelines for reporting unsafe work conditions, stop-work action procedures, safety audit requirements, and a variety of other mandates. While everyone can agree that safety should always be prioritized, heaping new requirements on the industry is rarely the best way to achieve that goal.
If history is any indication, these new rules from federal regulators will likely do little to address the actual safety goals and instead only stifle each company’s ability to respond on its own to the unique safety challenges that it faces on the ground. As those working in the field of oil and gas law know, when push comes to shove it almost always makes more sense for those actually working in these environments to decide the ideal safety protocols instead of regulations being handed down on high from those walking the halls in Washington D.C.