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I tell all my Texas clients (and anyone else who will listen) never to sell their mineral interests. There are a number of reasons why:

1. About 99.9% of the companies who claim to buy mineral interests are scams. What often happens is that they send you a solicitation letter which makes an incredibly high monetary offer for your mineral interests. They ask you to sign a deed, which is either enclosed with the letter or that they send you if you contact them, and request that you send the signed deed back to them. Next they file the deed in the deed records. After the deed is filed in the county deed records, they contact you and say that they discovered certain ambiguous “problems” with your title to your minerals, or the market for mineral interests has changed, or some other nonsense. They then tell you they will pay you, not what they offered in the letter, but a tiny fraction of what they offered. If you don’t take it, you are stuck with the deed filed in the deed records that shows you sold your mineral interest to them. In many cases, I’ve had to sue the company on a client’s behalf to force the company to cancel the deed. Even if the company cannot be found or has gone out of business, you will still probably have to file a lawsuit to get a court order cancelling the filed deed. Given the expense of litigation, this can be a huge burden.

One way to tell if a company is a legitimate concern or not is to tell them that you might be interested in selling your minerals but your requirements are: 1) they need to send you a written contract of sale with a specific price and an earnest money deposit which, if acceptable to you, you will sign and take with the earnest money to a title company; 2) the deed will be prepared by your attorney; 3) the transaction will be closed in a title company; and 4) they will be required to deposit the balance of the purchase price in good funds with the title company before they receive the deed. Most of these companies will tell you that is an unnecessary expense, or “they don’t do it that way”. This is a huge red flag. However, in my experience, even some of the scam artists will agree to this, but once you have paid your attorney to draft the deed and it’s time for them to put the purchase price in escrow, they will disappear or pull out.

2. Companies who are legitimate purchasers of mineral interests generally do not send out mass mailings to potential purchasers. The fact that you received the letter in the first place is a sign that the company is a scam.

3. If a company is trying to buy your mineral interests, it may be because they’ve heard something about your mineral interests that will make them increase in value. For example, maybe the oil company who is producing your minerals may be getting ready to deepen or rework its wells or is preparing to drill new wells but has not announced their plans publicly. Either of these events would result in greater production and more royalties for you. The scam artists are trying to get you to sell them your minerals on the cheap with their bait and switch tactics, and before you have heard anything from the oil company, so that they can reap the benefits of increased royalties later on.

4. You will never get what your minerals are really worth if you sell to one of these scam artists and sometimes even if you sell to a legitimate buyer. The reason is that it is extremely difficult to value a mineral interest. I research and prepare valuations of mineral interests for clients, and I must tell you that it is often part skill and science and part crystal ball. Specifically, the value of a mineral interest depends on the stream of income in the form of royalties from a given well or wells. That stream of income, in turn, depends on many factors: what the price of oil and gas is in the future, whether the reservoir is becoming depleted or not, whether the equipment at the well breaks down and cannot be economically repaired, etc. It is truly impossible for anyone to predict some of these factors. However, even though valuations are very challenging, they can still be helpful and so I urge clients not to sell until and unless they have had someone do a proper valuation of their mineral interests.

5. If and when you sell your mineral interests, there must be special language in the deed that is required by Texas law in order to cut off your liability for the well and the operator’s behavior after the date of the sale. I have never, in the entire time I’ve been practicing oil and gas law, seen a deed from one of these companies that has the required language in it. From their point of view, it’s a good thing for you to continue to be liable. Obviously, that is not a good thing from a seller’s point of view.

6. Even with the proper “magic language” required by Texas law to cut off your liability, there are still situations in which you could be held liable even though you have no remaining interest in these minerals. Specifically, where an oil and gas operator has gone out of business or has no assets and whose operation has created contamination at the well site, the federal Environmental Protection Agency (“EPA”) is allowed by their regulations in some situations to sue everyone in the chain of title of the property and/or mineral interests for the cost to clean up and remediate the site. The  EPA has taken the position in some cases that anyone who once profited from this property is liable for the cost to clean it up, even though they have no current interest in the property. Incredible, but true. The moral is: know who you’re selling to. In other words, before you expose yourself to potential liability for environmental problems, do some due diligence research on the company. Have they been sued or fined by the Texas Railroad Commission or the EPA in the past? Are they on shaky financial ground so that it would be unlikely for them to be able to pay for the cost of an environmental remediation? The clients for whom I have performed due diligence research think of a due diligence investigation as insurance against a potential future catastrophe. In most cases, my fee for the investigation can be included in the purchase price and so it will cost you nothing.

If you receive an offer to purchase your mineral interests and despite what I have said, really do need or want to sell, give me a call and we can discuss the pros and cons in connection with the potential buyer, and also perhaps determine if a due diligence investigation is warranted.

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Kinder Morgan, based in Houston, Texas, is in the process of obtaining commitments from oil and gas companies who want to use its Utica Marcellus Texas Pipeline (“UMTP”) project. This pipeline will transport natural gas and mixed natural gas liquids produced from the Utica and Marcellus shale areas to delivery points along the Texas Gulf Coast. In February 2015, Kinder Morgan filed for abandonment of a Tennessee Gas Pipeline pipelineKinderMorgan ProjectMap with the Federal Energy Regulation Commission (“FERC”).

As part of this pipeline project,  964 miles of natural gas pipeline in the  Tennessee Gas Pipeline will be abandoned and converted and approximately 200 miles of new pipeline from Louisiana to Texas will be constructed. The new pipeline is expected to be completed by the 4th quarter of 2018. The new pipeline will have a maximum design capacity of 430,000 barrels per day.

It appears from the Kinder Morgan maps that this new pipeline will travel through Newton, Polk, Liberty and possibly Chambers Counties in Texas. Landowners in these counties should be aware that the may be getting an easement request from landmen for Kinder Morgan, and when they do, they should contact my office. To make sure you get the best easement terms and compensation, you really need an experienced Texas oil and gas pipeline attorney representing you.

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Texas royalty owners have sure taken a licking this year. Unfortunately, it’s probably going to get worse before it gets better.

Moody’s Investor’s Service recently lowered its estimates for future average 2015 prices of Brent crude to $55 per barrel, and of West Texas Intermediate (WTI) crude to $50 per barrel. The new 2016 estimates are $57 per barrel for Brent and $52 per barrel for WTI. Meanwhile, the futures markets for September 2015 delivery settled at $43.87/bbl on the New York Market this week.

There are many factors that affect the price of oil. Some of the factors that are in play right now probably include weak global economic growth resulting in weak demand, the increase in the size of oil inventories, the prospect of Iranian oil coming to market in the near future and the increased production by oil companies. In fact, it’s ironic that oil companies are producing more and more oil in large part because the price is so low. They produce and sell more oil at a lower price in order to realize the same income that they received when oil prices were higher.

There are downsides to these low oil prices. Many people who are retired or on fixed incomes depend in part on income from their oil and gas stock or from from mutual funds that hold shares in oil and gas companies. In addition, when the price of oil is lower, oil companies are less likely to explore new fields or try new technologies. They just don’t have the income cushion to be able to take the risk.
However, if there is one thing certain in the oil and gas industry, it’s that it is cyclical. I recall during the 1980’s when the price of oil in Texas neared $10 per barrel. The price eventually went up again, and it surely will in this case.


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A recent oil and gas pipeline rupture demonstrates how important it is to have an experienced pipeline attorney review the document to make sure your land is protected to the full extent of the law. In this case, a 24-inch crude oil pipeline owned by Plains All American Pipeline LP (PAA) ruptured on May 19, 2015 in Santa Barbara, California. The pipeline experienced an 82% wall thickness loss at the rupture site. An evaluation released on June 3, 2015 by the U.S. Pipeline and Hazardous Materials Safety Administration (PHMSA) indicated that there was a 6-inch opening running the length of the relevant section of pipeline. Both near the rupture and in other sections of the pipeline, corrosion had reduced the thickness of the pipe to 0.0625 inch. The PHMSA says they have not not yet been able to determine the cause of failure, although it certainly sounds as though the thinning of the pipeline was the culprit.

Conflicting Reports

The results released by PHMSA conflict with a report released by PAA which stated that there was only a 45% wall thickness loss in the area of the pipe rupture. PHMSA ordered PAA to perform another study on the pipeline and the rupture area, and to repair the damaged portion of the pipeline. PHMSA had previously ordered an indefinite shutdown of the pipeline.

Inspections were also conducted on three previously repaired sections of the pipeline near the rupture. The repairs were intended to fix corrosion damage discovered in a 2012 inspection of the pipeline by PAA. PAA used a cathodic protection technique to repair the pipe, which is a technique used to control corrosion of a metal surface. The technique involves using the pipeline as a cathode of an electrochemical cell and coupling the cathode with an anode pairing made from a sacrificial metal that is easily corroded. The intent is to have the corrosion occur at the sacrificial anode, rather than at the protected cathode, i.e., the pipeline. The PHMSA report stated that PAA’s cathodic protection at the failure site and the other three repair points met current industry standards.

Preventative Measures

In response to the leak in the pipeline, the PHMSA placed restrictions on the operation of another one of PAA’s pipelines that contains similar insulation, welding, and corrosion protection as the ruptured pipeline. The operating restrictions require that the pipeline not exceed 80% of the highest rated operating pressure for a continuous 8 hour period. Instead of operating with the restrictions, PAA decided to shut down the second pipeline, which runs 128 miles from the Gavota Pump Station in Santa Barbara County to the Emidio Pump Station in Kern County.

The PHMSA also amended a previous corrective action order to require that PAA list and describe any anomalies discovered after performing an inline inspection of the pipeline. The inline inspection identifies regions that require further inspection or repair under the higher of either current regulatory standards or PAA’s own internal standards. The PHMSA is also requiring that PAA have a third party perform nondestructive testing at the site of each anomaly discovered during the inline inspection. Other mitigation and prevention measures PAA must undertake on both pipelines are daily inspection of pumping stations and weekly inspections of the pipeline right of way.

On June 3, 2015, U.S. Rep. Lois Capps (D-Calif.), whose district includes the region of Santa Barbara where the rupture took place, proposed an amendment that requires federal regulators to finalize the enhanced safety rules for oil pipelines as part of the Transportation and Housing and Urban Development Appropriations Bill. The new rules would require automatic shutoff valves on new pipelines and require the inclusion of leak detection technology on new and existing pipelines.

Pipeline ruptures can result in substantial damages to landowners. Before you sign a pipeline easement or right of way, have an experienced pipeline attorney review the document to make sure your land is protected to the full extent of the law.

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The ownership of oil and natural gas companies may not be what people commonly think it is or expect it to be. The fact is that over 80% of the ownership of oil and gas companies in America is held by private individuals, either in their individual names or through their IRA, mutual fund or pension fund.

Broad Ownership of Public Oil Companies

A report of an investigation by Robert J. Shapiro and Nam D. Pham notes thate oil and gas company officers and managers, the corporate management, own a mere 2.9%. Asset management companies, including mutual funds, own 24.7%. Pension funds control 28.9%. Individual investors, which come in as the third highest portion at 18.7%, control a significant portion of the wealth. Next in line are IRAs, which control 17.9%. Other institutional investors own 6.9% percent.

This data seems to indicate that middle-class households continue to predominate the ownership of publicly-held oil and gas companies. By owning oil and gas company stock, these middle-class investors benefit from the industry’s strong, profitable returns. Stock ownership is providing a sustainable income to these individual investors and retirees.

Ownership Distribution by Industry Segments

The oil industry can be broken up into three segments: integrated (providing a range of functions such as drilling, production, treating, etc.), non-integrated, and services. Of these three categories, integrated companies represent 44.1% of the industry’s market value, or approximately $1.94 trillion in earnings. Non-integrated companies represent 39.8%, and services-related companies represent the remaining 16.1%.

There are twelve publicly-traded, U.S. based, integrated oil and gas companies in the U.S. Once again, the data reveals that corporate insiders, such as executives and directors, have minute ownership shares. These insiders control 0.5% of the integrated companies, whereas private investors own 42.7% of the outstanding shares. Of the 129 domestic publicly-traded non-integrated oil and gas companies, corporate executives own a mere 5.5%, and their ownership has actually declined over recent years. Individual owners account for 18.1% of the ownership. As of May 2014, this segment represents a $772 billion market capitalization. Finally, there are 60 publicly-traded oil and gas service companies, and corporate executives control 3.0% of these companies. Individual investors control 26.9%. The combined market capitalization of these services-related companies is $313.5 billion.

The point is that the critics of the oil industry often characterize oil companies as leviathans and monolithic entities, when the fact is that ordinary individuals, either directly or indirectly, are the owners of a major portion of U.S. oil and gas companies. Oil and gas company income funds the retirement of many older Americans. Of course, this may be another case where the facts are purposely ignored because they don’t further someone’s politically charged narrative!

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There is no denying the importance of the Texas oil and gas industry to the Texas economy. A less obvious impact is the effect of oil and gas prices on Texas land values.

Texas A&M University’s Real Estate Center released an econometric model positing a powerful correlation and interdependence between rural land prices and Texas oil prices. For most landowners, their land is arguably their most valuable possession. Land is also a vital ingredient for the oil industry. In addition, the oil industry is highly competitive in terms of offers to lease mineral rights and make use of the surface. The price of one’s land can be calculated from the value of projected future revenue the landowner receives from an oil company.

Land prices are determined by two factors: expected net revenue and the discount rate applied to future cash flows. The higher the price of oil, the greater the revenue from bonus and royalty income will be for oil and gas producing land. The increase in oil prices also effects oil company workers, shareholders, and executives in the form of increased salaries, bonuses and share prices. With more to spend, the workers and shareholders can pay more for land and so this helps bid up land prices as well.

The Real Estate Center’s model includes data from 1966 to 2013 tracking the price of oil and the price of rural land. The researchers found a seemingly direct relationship in four time periods. First, from 1973 to 1980, as the price per barrel of crude oil increased, so did the cost of rural land. The second period occurred between 1985 and 2000. Oil prices were stagnant, and so were the land prices. The period of 2000 to 2008 brought an upward movement in oil prices. During this third period, crude oil prices reached a high of more than $120 per barrel. Similarly, the rural land market experienced an increase in prices. The fourth period is after 2008. Oil prices dropped dramatically, but bounced back rather quickly. Once again, land prices followed suit.

The Center found the speed in which the land prices followed the trend of oil prices were contingent upon where in Texas the land was located. In Regions 1 and 5, the effect of oil prices on land prices happen more quickly. (Region 1 contains Midland and Ector Counties as well as other counties that are heavily involved in oil production.

The Real Estate Center’s econometric model is updated quarterly. The model may prove to be a useful tool for real estate investors who are trying to get into the market before the next boom in land prices.

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There is a new technology developed by Texas Tech University called “zipper frac.” It is a hydraulic fracturing process, which serves to fracture the subterranean rock formations by using pressurized liquid. Texas Tech University modified the original technique. As the zipper frac process commences, it creates the fractures, or splintering, in a staggered order. Tests have proved the new zipper frac ameliorates the fracturing process; the contact area is able to expand and the fluid production is augmented. The technique calls for two simultaneous parallel horizontal wellbores that are in close proximity of each other.  The Texas Tech researchers report that the modified fracing process will not only cost the same, but more importantly, guarantee a greater return and thus make wells more efficient.

The Zipper Fracing Advantage

The modified zipper fracing process combines the benefits of alternating fracturing and zipper frac. By doing so, modified zipper frac is able to create greater intricacy in the reservoir. The modified process is much simpler and does not require the use of specialized tools. This particular process eliminates some of the risks associated with stress reversal, which typically occurs near the wellbore. There is also the promise of superior long-term fluid production. The objective with the zipper frac technique is to alter the stress field and thereby create a more substantial fracture network, which is important for shale reservoir development.

Disadvantage to the Zipper Frac

The conventional fracturing method is unable to create intricate networks that move away from the wellbore. Unfortunately, the very techniques that were designed by the researchers to modify and enhance the traditional fracturing process, by making it simpler and more effective, does have a disadvantage. Specifically, these techniques are operationally more difficult to perform, even though it is more promising than another process, which designs fractures in an alternating sequence (the “Texas Two Step”).

Texas Tech researchers concede the new process does not account for the mechanical properties of the subterranean formation. After the first stage, drillers must then perform an optimization procedure, which determines the spacing between the hydraulic fractures. After the initial fracture, an assessment is made to determine the placement of ensuing fractures.

See Our Related Blog Posts:

Changing the Conversation about Well Fracing in Texas

Texas Mineral Owners Get More Access to Fracing Info

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The Texas legislature sent a new bill, HB 1436,  to Texas Governor Greg Abbott on May 28, 2015. The new bill aims to provide those dog owners who have been notified by animal control that their dog has been determined to be dangerous the opportunity and ability to appeal the animal control authority’s determination of the “dangerous dog” characterization. Once signed and made law by the Governor, the bill would go into effect on September 1, 2015.

What Is A Dangerous Dog?

Dangerous dog law is a characterization governed by both state and local law, so for each city or county dangerous dog laws might be slightly different. For example, one city might require dog owners to register online if they have certain breeds of dog that are generally considered dangerous, while other cities do not have this requirement. Under Texas Health and Safety Code Section 822.041, a dangerous dog is defined as one that:

● Makes an unprovoked attack on a person that causes such that the attack results in an injury, and the attack must occur somewhere other than in the dog’s enclosure (i.e., somewhere other than the place where the dog is primarily kept to keep the dog safely away from people (such as a pen or a fenced-in area); or
● Commits unprovoked acts in a place other than the dog’s enclosure that would cause a person to reasonably believe that the dog will attack and cause bodily harm or injury to that person (e.g., a dog viciously lunges at a passerby for no apparent reason during a walk along a residential street).

When a dog acts in an dangerous way, those who feel threatened or are harmed by the dog’s actions may file a report with a local animal control authority. The animal control authority will conduct an investigation and make a determination as to whether the dog is dangerous.

What Role Does The New Bill Play In Dangerous Dog Law?

The new bill requires that the animal control authority provide written notification of its determination of the dog’s dangerous characterization to the dog’s owner. Once the owner has been notified in writing, the owner may take steps to appeal the determination of the animal control authority to a justice, county, or municipal authority, and may even be entitled to a jury trial on the matter.

Filing An Appeal Regarding Dangerous Dogs Under the New Bill

Under the new bill, a dog’s owner may file an appeal with the court within 15 days of the animal control authority’s determination that the dog is a dangerous animal. The appeal must include a copy of the written notification the dog’s owner received from the animal control authority concerning the determination that the dog is a dangerous one, and must serve a copy of the appeal on the animal control authority via the US Postal Service.

If the dog’s owner is not satisfied with the result of the appeal, he or she may further appeal the decision to a court of higher authority. The dog’s owner will have 10 days to file the appeal to a higher authority after the appeal decision has been made.

This bill addresses a real problem in Texas jurisprudence: the lack of a dog owner’s right to appeal a dangerous dog determination. This is especially critical where a vindictive neighbor has filed a frivolous complaint.

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There are some relatively new operators in the Texas oil and gas industry. One of these is Parsley Energy, Inc. which was founded in 2008. Run by a relatively young management team, Parsley Energy appears to be establishing a good reputation in an industry which is typically dominated by more seasoned players.

Parsley Energy is an independent natural gas and oil company operating primarily in the Permian Basin and the Midland Basin. Parsley has experienced significant growth since its inception and now operates hundreds of wells and produces over twelve thousand barrels of oil each day.

The Permian Basin

All of Parsley’s leases are in the Permian Basin which is arguably one of the richest oil and gas resource in North America. The Permian Basin is located in the western area of Texas and extends into the southeastern part of New Mexico. This basin is comprised of several other basins, namely the Midland Basin, which is the largest, Delaware Basin, which is the second largest, and Marfa Basin.
The_West_Texas_Permian_Basin.jpg Since the Permian Basin is a rich area, it is not surprising oil and gas companies are actively buying undeveloped property in the area, and Parsley Energy is one such company. For a total of approximately $252 million, Parsley Energy agreed to buy multiple acres of undeveloped and productive land in Reagan County, Texas from numerous sellers. This acquisition involves approximately 5,472 acres. The acreage includes over nine horizontal wells, each at a different development stage, and 100 net horizontal drilling locations. Parsley anticipates drilling the first new horizontal well in 2015.

What Does this Mean for Mineral Owners?

Parsley Energy’s activity in the Permian Basin suggests that mineral owners in this area may receive an oil and gas lease offer. Other property owners, who own only the surface, can expect requests for surface use agreements or requests for pipeline easements. These are inherently complex documents. Do yourself a favor and avoid unpleasant future surprises due to a badly worded lease, surface agreement or easement. Seek out and consult with an experienced oil and gas lawyer to help make sure your interests are being properly represented.

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On May 18, 2015, the Texas Governor Greg Abbott signed HB 40 into law. The law is effective September 1, 2015. This new law effectively prohibits local city and county governments and subdivisions from regulating surface oil and gas activity in their jurisdictions. The law provides that all such regulation is now preempted by the state of Texas. The new law does have an exception, but it is so narrow as to be effectively useless.

This is not a good day for Texas property owners.  I foresee the law of unintended consequences coming into play here. Specifically, as oil and gas activities encroach on residential areas, the market value of those properties will decline, and may decline substantially. That means appraisal districts will have to reappraise these properties at a lower level. That in turn results in lower tax revenues. Texas counties are already pinched financially. Will Texas counties simply increase the tax rate to make up for the lost revenues? Texas property owners already bear huge tax burdens from county and school taxes. Many counties spent like drunken sailors when taxes were buoyed by taxation of oil and gas production during times of high oil and gas prices. Now they have huge overhead and new programs that they cannot pay for. What happens next will depend on how much oil and gas activity occurs in residential areas where it was previously prohibited and what impact that has on local taxes. To be announced.