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In 2015, Enterprise Product Partners announced plans for a new pipeline that will run over 400 miles from Midland, Texas to Sealy, Texas. The yet-to-be-named pipeline will originate at Enterprise Product Partners’ trading and storage hub in Midland and will connect with the eighty mile Rancho II pipeline in Sealy. The Rancho II pipeline came on line in 2015 and will connect Sealy with the storage hub, the Enterprise Crude Houston Oil (“ECHO”) terminal, located in the southeast of Houston, Texas. The ECHO terminal was developed by Enterprise Product Partners in 2010 and functions as a central storage and distribution hub. The connection to ECHO will allow Enterprise Product Partners to access the Gulf of Mexico via Texas City. Enterprise is planning on continuing to take advantage of a recently passed exception to the 1970’s crude export ban by offering approved processed condensate at the Gulf. Currently Enterprise Product Partners is one of the most active condensate exporters in the region.figure1_148

The unnamed pipeline will have a capacity of 540 million barrels per day and is expected to come on line in the second quarter of 2017. The new pipeline will be capable of segregated transport and used to transport four different grades of crude: West Texas Sour, West Texas Intermediate, Light West Texas Intermediate, and condensate. The pipeline will be fed by both tanker trucks and pipelines that currently terminate at the Midland Hub. A map of the currently proposed pipeline which was presented in an Enterprise Product Partners presentation is shown to the right.

If you live in one of the counties through which this pipeline will be installed, you may be getting a call from a land man representing Enterprise. Keep in mind that there are many legal and safety issues involved in having a pipeline installed across your property. In addition, there is no such thing as a “standard pipeline easement form”despite what the land man may tell you. You and your property are best served by seeking the input of an experienced Texas oil and gas pipeline attorney to assist you in evaluating the easement offer and in getting just compensation for the easement.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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The United States Court of Appeals for the Fifth Circuit issued an unpublished opinion last year in Waggoner v. Denbury Onshore, LLC, et al. concerning the application of state antitrust law to  royalty payments. It should be noted that while the opinion is instructive on how the 5th Circuit Court of Appeals views the issues discussed, the opinion is explicitly not intended as precedent, except under the limited circumstances set forth in the Fifth Circuit Rule 47.5.4.

Background of the Case:

In 1984, James Waggoner acquired an oil, gas, and mineral lease for a section of a carbon dioxide (CO2) formation in Rankin County, Mississippi. Subsequently, Shell Western E&P Inc., a subsidiary of Royal Dutch Shell Inc., petitioned the Mississippi State Oil and Gas Board for authority to pool the interests in a large section of land, which included Waggoner’s interest. Waggoner entered an agreement with Shell to place 77 acres of his land into the pooled tract of land in exchange for a 6.25% overriding royalty interest in the well until payout with an option to convert the overriding royalty interest into a 40% working interest at a later date. Waggoner and Shell  also entered into an Operating Agreement that dictated that the price of CO2 (upon which royalties were to be calculated) would be the “volume weighted average price”. After the well paid out, Waggoner converted the overriding royalty interest into a working interest, which allowed Waggoner to take either a proportional share of the CO2, or a proportional share of the volume weighted average price of the CO2 that Shell received.

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The United States Geological Survey (“USGS”) has just announced the assessment of this country’s largest oil and gas shale deposit located in Texas. You can review a copy of the actual assessment here.  The area where the deposit is located is known as the Wolfcamp shale contains 20 billion barrels of oil and 16 trillion cubic feet of natural gas. That is Almost three times more petroleum than found in North Dakota’s Bakken shale in 2013. As can be seen in the map shown here, this deposit covers a wide swath of West Texas.161100_midland-basin-map_usgs_custom-697deb603c4ac20a54a7a62db946fe56b5c0a3af-s800-c85

In addition, Apache Corporation recently announced that it has found billions of barrels of oil in West Texast, in an area it has called Alpine High. Apache estimated that this area region holds about 3 billion barrels of oil and 75 trillion cubic feet of natural gas.  Alpine High is located in the Delaware Basin, which is a sub-basin in the southwest corner of the Permian Basin. The Permian itself is mostly located in west Texas, with a small area straddling southeastern New Mexico. as can be seen in the map below, Alpine High  is located to the West of the reserves announced by the USGS.

MW-EV477_apache_20160907143141_ZH

 

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On May 12, 2016, the United States Environmental Protection Agency (EPA) issued its final Methane Rule,  mandating new limits on methane gas emissions, volatile organic compounds (VOCs) emissions and other by-products such as benzene associated with oil and natural gas production wells and storage tanks. The new EPA rule is meant to apply to new as well as existing, reconstructed and modified oil and gas wells and even those wells producing fewer than 12 b/d of oil. Methane is a major component of natural gas. The stated goal of the new rule is to reduce methane and other toxic gas emissions by 40% to 45% of 2012 levels by the year 2025.

Unfortunately, but not unexpectedly, the EPA’s Methane Rule is a one-size fits all scheme that is meant to be adopted across the board by oil and gas producers in all states. When the EPA announced its final rule on this matter, many groups were openly and adamantly critical of the new rule. Many in the oil and natural gas industry voiced concern about the financial stress that the new rule would put on producers. For instance, the rule is especially burdensome for stripper and marginal well operators, and given the low price of oil and gas these days, there are many more marginal well operators these days.

Fifteen States Object to the EPA’s New Rule And File A Lawsuit

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In 1994 Roland Oil Co. acquired the North Charlotte Field Unit Lease in Atascosa County, Texas. The Lease contained 31 wells, with the oldest wells drilled sometime in the 1950s. The Lease contained both active and inactive wells. Rule 14 of the Texas Railroad Commission requires that “dry or inactive wells” be plugged within one year of the termination of drilling operations. Delinquent inactive wells are required to be plugged “immediately unless the well is restored to active operation.” Rule 14 also requires structural testing of inactive wells that are more than twenty five years old prior to plugging and abandonment operations. If an operator fails to meet these requirements, the Railroad Commission can prohibit an operator from producing from any wells under the lease.

In 2005, Roland requested an extension of time to complete the required testing on some of the inactive wells on the Lease. The Railroad Commission determined that Roland had been delinquent on the required testing since 1994, denied the request, and also issued an order barring Roland from producing from any well on the Lease. Roland halted production from May 2005 to August 2006 to conduct repairs and to complete the testing required by the Railroad Commission. The Railroad Commission lifted the order barring production in August 2006.

Meanwhile, in June 2006, a mineral owner under the Lease notified the Railroad Commission that the lease had terminated for lack of production. In response, Roland claimed the Lease had not terminated for two reasons: First, the Lease contained a provision stating that the term of the Lease is “for the time that oil and gas are produced in paying quantities and as long thereafter as Unit Operations are conducted without a cessation of more than ninety consecutive days.” Roland argued that repairs and testing activities during the period of non-production met the definition of Unit Operations under the Lease. Secondly, Roland argued that the Railroad Commission order preventing production constituted “force majeure” which kept the Unit Lease alive despite lack of production.

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In September 2016, Oklahoma experienced a 5.6-magnitude earthquake near the town of Pawnee. The quake was the first in a series that started on the morning of Saturday September 3, 2016. While no one was severely hurt or killed during the earthquake, somey buildings suffered moderate to severe damage. The quake was the second largest in Oklahoma history and was felt as far away as Chicago and Austin, Texas. After the 5.6 magnitude earthquake struck in the morning, several smaller earthquakes occurred weighing in at magnitudes of 3.6, 3.4 and 2.9, according to an article in The New York Times.

One prominent theory for the cause of these quakes in  states such as Oklahoma and Texas is that these earthquakes are the result of high pressure injection of wastewater from fracing into wastewater disposal wells. The theory is that wastewater is injected into the ground under such high pressure that the wastewater is able to percolate between the rocks in the ground and can act as a lubricant allowing stressed fault lines to slip. The sudden release of pressure from slipping fault lines then causes earthquakes, or so the theory goes.

The Oklahoma Corporation Commission, which is the Oklahoma agency that regulates oil and gas production activities within that state, ordered more than three dozen wastewater disposal wells within five hundred square miles around where the earthquake occurred to be shut down, even though the United States Geological Survey (USGS) could not attribute the earthquakes to wastewater injection well activity in the area.

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In an earlier blog post, we discussed the Texas fracing case that was headed to the Texas Supreme Court for further review. On April 24, 2015, the Texas Supreme Court issued its opinion in In Re Steven Lipsky, and determined that the Texas Citizens Participation Act does not require that courts apply a heightened standard of proof to claims requiring clear and specific evidence.

Background

The Lipskys claimed they could set their drinking water on fire due to the nearby fracing activities of Range Resources. The Lipskys filed suit against Range for contamination of their water well and Range filed a counter-suit against the Lipskys and another party, Alisa Rich, alleging defamation, business disparagement, and civil conspiracy. The Lipskys and Rich filed a special motion under the Texas Citizens Participation Act to dismiss Range’s counter-suit.

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There has been an ongoing debate about whether hydraulic fracturing activities for producing oil and gas have an impact on drinking water supplies near and around the fracing site. Recently, the United States Environmental Protection Agency’s (EPA) Science Advisory Board (SAB) raised a number of questions concerning the EPA’s June 2015 draft report on the potential impacts of hydraulic fracing on drinking water supplies.

The SAB prepared a 180-page peer-review report that you can read here addressing the EPA’s 2015 draft report. The SAB found a number of aspects of the EPA’s draft report to be critically deficient. Below is an overview of some of the the SAB’s report’s findings. In particular, the SAB noted that:

  • The EPA’s conclusions drawn about the widespread and systemic impacts that fracing has on the quality of drinking water resources were not quantitatively supported and lacked evidence.
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Recently, Ryan Sitton, who is both an engineer and one of the Texas Railroad Commission‘s Commissioners, spoke out about the false news reports concerning the Texas oil and gas industry in a commentary in the Wilson County News. Below, I reprint a pertinent portion of his comments:

Headlines proclaiming that oil and gas drilling are directly linked to earthquakes in North Texas are dominating energy news this week. You may have even read a few:

  • EPA: North Texas Earthquakes Likely Linked to Oil and Gas Drilling
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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.