Dallas Court of Appeals Reverses $535 Million Verdict

By:  Michael K. Reer


On July 18, 2017, the Dallas Court of Appeals overturned a $535 million jury verdict related to breach of joint enterprise and breach of fiduciary duty causes of action. The plaintiff and defendant are pipeline companies that jointly investigated the economic feasibility of an oil pipeline that would run from Cushing, Oklahoma to Houston, Texas. During open season, the defendant had discussions with a third-party pipeline company about forming a partnership for a pipeline from Canada to Houston should the open season fail. After the open season failed, the defendant and third-party formed a partnership to purchase and operate the Seaway Pipeline, which runs from Cushing to Houston. The Dallas Court of Appeals found that the formation of a partnership between the plaintiff and defendant was precluded by their written agreement, which contained conditions precedent before a partnership could form. The conditions precedent were never fulfilled, and therefore no partnership formed. The case is Enterprise Prod. Partners., L.P. v. Energy Transfer Partners, No. 05-14-01383-CV (Tex.App.—Dallas July 18, 2017, no pet. h.).
Tuesday, July 25, 2017

Denbury Seeks Supreme Court Relief

By:  Michael K. Reer


On July 12, 2017, Denbury Green Pipeline-Texas, LLC filed a petition for writ of mandamus with the Texas Supreme Court, seeking immediate possession of a contested pipeline easement in Jefferson County, Texas. The District Court denied Denbury’s request for a temporary restraining order, finding that no writ of possession to Denbury has been entered because the landowner is currently enjoined from accessing the eminent domain award. Denbury contends that it has fully satisfied the requirements in the Texas Property Code for full possession of the property and notes that immediate access is required for Denbury to comply with federal regulations. The case is In re Denbury Green Pipeline-Texas, LLC, No.____ (filed July 12, 2017).
Monday, July 24, 2017

HFB Publishes Texas Supreme Court Update

By: Michael K. Reer

On July 17, 2017, the American Oil and Gas Reporter published “Texas Supreme Court Decision Clarifies Surface Estate Rights,” a Harris, Finley & Bogle analysis of three recent Texas Supreme Court decisions, Lightning Oil, Forest Oil, and Red Deer Resources. In Lightning Oil, the Texas Supreme Court determined that, based on the facts presented, permission from the surface estate owner alone was sufficient to allow a nonlessee operator to drill through the subsurface to reach minerals on an adjoining tract. In Forest Oil, the Texas Supreme Court addressed whether the Texas Railroad Commission has exclusive or primary jurisdiction over claims for environmental contamination. In Red Deer Resources, the Texas Supreme Court considered the application of a shut-in royalty clause to a 2,000 acre lease held by a well that produced fewer than 10Mcf per day.
Tuesday, July 18, 2017

BLM Postpones Waste Prevention Rule

By: Michael K. Reer

On June 15, 2017, the U.S. Department of the Interior, Bureau of Land Management, published a notice of postponement of compliance dates in the Federal Register for the final rule “Waste Prevention, Production Subject to Royalties, and Resource Conservation.” Immediately after BLM published the Waste Prevention Rule in November of 2016, several industry associations filed petitions for judicial review, which are now consolidated in the U.S. District Court for the District of Wyoming. BLM states in the Federal Register notice that “[i]n light of the existence and potential consequences of the pending litigation, the BLM has concluded that justice requires it to postpone the compliance dates for certain sections of the Rule pursuant to the Administrative Procedure Act, pending judicial review.” According to BLM, new compliance dates will be announced at the conclusion of judicial review.

The Waste Prevention Rule is designed to reduce venting, flaring and leaks during production activities on federal and Indian lands by amending federal regulations that specify when produced gas lost through venting, flaring or leaks is subject to royalties. Operators must pay BLM royalties on natural gas flared in excess of the capture requirements stated in the final rulemaking. The final rulemaking also requires operators to inspect certain equipment twice a year, make timely repairs to any leaks found, and update certain equipment that BLM believes contributes to lost gas.
Friday, July 14, 2017

EPA Files Suit Against Colorado Operator

By: Michael K. Reer

On June 26, 2017, the U.S. Environmental Protection Agency filed suit against a Colorado operator in the U.S. District Court for the District of Colorado. Specifically, the suit alleges that the operator failed to ensure that vapor control systems on 86 batteries of storage tanks were sufficiently retaining volatile organic compounds. The suit represents one of the first post-Obama enforcement actions by EPA concerning the Oil and Gas National Enforcement Initiative. The lawsuit seeks injunctive relief and penalties each day each violation occurred. Even if only one violation occurred per day, EPA’s requested damages would exceed $150 million.
Thursday, July 13, 2017

EPA Proposes to Re-Evaluate "Waters of the United States" Definition

By: Michael K. Reer

On June 27, 2017, the U.S. Environmental Protection Agency and U.S. Army Corps of Engineers released a proposed rule for publication in the Federal Register

that would rescind the current definition of “waters of the United States” under the Clean Water Act and re-codify the pre-2015 definition utilized by the agencies. The agencies moreover announced that the proposed rule is the first step in a “comprehensive, two-step process intended to review and revise the definition of ‘waters of the United States’ consistent with” President Trump’s February 28, 2017 Executive Order “Restoring the Rule of Law, Federalism, and Economic Growth by Reviewing the ‘Waters of the United States’ Rule.” Once the pre-2015 definition is re-codified, the agencies state that they will pursue a notice and comment rulemaking to conduct a substantive re-evaluation of the definition.


During the second-step re-evaluation, the agencies state that they will develop a new definition that takes “into consideration the principles that Justice Scalia outlined in the Rapanos plurality opinion.” In Rapanos, Justice Scalia authored a plurality opinion that concluded that “waters of the United States” – and therefore the jurisdiction of federal agencies under the Clean Water Act – include only those relatively permanent, standing, or continuously flowing bodies of water. Conversely, Justice Scalia’s plurality opinion stated that water bodies that flow intermittently or ephemerally are not “Waters of the United States.” Moreover, Justice Scalia’s opinion stated that wetlands are not jurisdictional based on a mere hydrologic connection to “waters of the United States.”  Instead, for a wetland to be considered jurisdictional, there must be an inherent ambiguity concerning where the jurisdictional water ends and the wetland begins.
Wednesday, July 12, 2017

EPA's Stay of Methane Rule Vacated

By: Michael K. Reer

On July 3, 2017, the U.S. Court of Appeals for the District of Columbia Circuit vacated the U.S. Environmental Protection Agency’s stay of the final rulemaking “Emission Standards for New, Reconstructed, and Modified Sources.” The rulemaking amended the new source performance standards under the Clean Air Act for the oil and natural gas source category, most significantly for greenhouse gases and volatile organic compounds. Although the final rule took effect on August 2, 2016, EPA Administrator Scott Pruitt granted a petition seeking reconsideration of the rule on April 18, 2017 and issued a 90-day stay of the rule. By way of background, the Clean Air Act requires EPA to grant a petition for reconsideration, even after the effective date of the rule, if a petitioner makes an objection to the rule that was impracticable to raise within the comment period and that is of central relevance to the outcome of the rule. If EPA is required to grant the petition for reconsideration, the Clean Air Act allows a 90-day stay of the rule.

In granting several petitions for reconsideration, EPA stated that some aspects of the final rule were not logical outgrowths of the proposed rule. EPA reasoned that because the final rule was not a logical outgrowth of the proposed rule, petitioners did not have a fair opportunity to comment on the regulations that would become final. The Court of Appeals for the District of Columbia Circuit rejected EPA’s logical outgrowth argument, noting that in the preamble to the proposed rule, EPA requested comment on several regulatory concepts that were included in the final rule as regulations. In short, the Court of Appeals reasoned that even though parts of the final regulations were expressed as regulatory concepts in the proposed rulemaking – and not in terms of draft regulations – the final rule did not fail the logical outgrowth test.  

Tuesday, July 11, 2017

OHIO MARKETABLE TITLE ACT REMAINS A WORK IN PROGRESS


The Ohio Supreme Court’s 2016 watershed decision in Corban vs. Chesapeake Exploration, LLC closed the door to certain surface owners claiming vested title under Ohio’s Dormant Mineral Act. That decision simultaneously appeared to create a new opportunity for certain owners to establish mineral title under Ohio’s Marketable Title Act (“MTA”), which has been in effect since 1961.

On June 29, 2017, in one of the first decisions interpreting the MTA since the Corban decision, Ohio’s Seventh District Court of Appeals reversed the trial court’s decision and held that a chain of title reference to a previous mineral reservation is not required to include a recording reference in order to defeat a claim under the MTA. The court held that the determination of whether a reference is sufficiently “specific” to defeat a claim under the MTA will be made by looking to whether the reference included (1) the type of mineral right created, (2) the nature of the encumbrance, (3) the original owner of the interest, and (4) whether it referenced the instrument creating the interest. By holding that the last of these requirements can be satisfied without a volume and page recording reference, the court expressly disagreed with a 1983 decision of Ohio’s Fifth District Court of Appeals.

This decision removes what could have been a bright-line rule in the gray areas of the MTA. Ultimately, the Ohio Supreme Court will likely have to confront the ambiguities of the MTA before practitioners and owners can be fully confident in its application.
Monday, July 10, 2017

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