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Most Texas landlords realize that when they rent to a tenant with a criminal history, the landlord may be held liable for criminal acts committed by that tenant. Texas Property Code Section 92.025 provides that a tenant cannot sue a landlord solely for leasing to a tenant convicted of, arrested for or placed on deferred adjudication for an offense. However, this law goes on to say that it does not preclude a suit for negligence against the landlord if: 1) the landlord leases to a tenant who has been convicted of murder, capital murder, indecency with a child, aggravated sexual assault and certain other listed offenses; and 2) the landlord knew or should have known of the conviction.

That’s pretty clear. However, now the federal government steps in. Even though a criminal record is not a protected status (like race, gender, religion, etc.) under the U.S. Department of Housing and Urban Development’s (HUD) Fair Housing Act, that has not prevented the Office of General Counsel for HUD from issuing “Guidance” on the application of the Fair Housing Act to prospective tenants with criminal records. The Guidance (what a misnomer) indicates that a landlord who conducts a background check of a prospective tenant and refuses to lease to that tenant on the basis of the prospective tenant’s criminal record may leave that landlord open to complaints of discrimination by prospective tenants with criminal records. Remember, HUD can institute enforcement proceedings on these complaints as well.

HUD’s position is a catch-22 for Texas landlords. On the one hand, if the landlord refuses to rent based on a prospective tenant’s criminal record, the landlord is open to complaints and possible enforcement proceedings by HUD. On the other hand, if the landlord rents to a tenant with a criminal record, the landlord can be liable to other tenants for the actions of the tenant with the criminal history. HUD recommends that landlords evaluate prospective tenants, including any criminal records, on a case-by-case basis. Now, what was a simple leasing decision, becomes a legal issue that should probably be reviewed by the landlord’s attorney. This increases the landlord’s costs, which will probably result in higher rents. Higher rents will push some of the poorest renters out of the price range for certain apartments.

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Fracing, or hydrofracturing, is a natural gas extraction technique by which a liquid solution (primarily made up of water) is pumped into the ground at high pressures to fracture rock formations. Fracturing the rock releases gas that is trapped inside the rock formation. The geological areas where natural gas is found, and thus where a majority of fracing occurs, is in shale.

By the way, folks in the oil and gas industry call it “fracing”. The mainstream media somehow started adding a “k”, but the correct term is still “fracing” (i.e., there is no “k” in hydraulic fracturing)

Fracing is actually an old technique and has been used for many decades. Once fracing was combined with horizontal drilling, however, oil and gas companies found they could extract far more natural gas, more efficiently, than before.

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The Texas Supreme Court recently granted a petition for review in the case of Denbury Green Pipeline-Texas LLC v. Texas Rice Land Partners. The review will focus on how the courts are to apply a test created by the Texas Supreme Court concerning when an entity may identify itself as a common carrier. Common carrier status is critical because it allows a pipeline company to use eminent domain power (i.e., condemnation) to acquire pipeline easements.

When Is A Pipeline a Common Carrier Line?

Texas Rice Land Partners owned a rice farm and cattle ranch in Jefferson County on the Texas Gulf coast and refused to let Denbury Green Pipeline-Texas LLC (“Denbury”) survey the property for a carbon dioxide pipeline in 2008. Relying on Texas law at the time, Denbury began eminent  domain proceedings so they could conduct the survey. Denbury had indicated that it was a “common carrier” on the Texas Railroad Commission’s T-4 form for pipeline permits. The Texas Railroad Commission does not examine or evaluate this designation, but takes it at face value. In fact, the filing of a T-4 with the Railroad Commission is not really a permitting process at all, but simply a registration of the pipeline for information purposes. The trial court held that Denbury was a common carrier and enjoined Texas Rice Land Partners from interfering with Denbury’s surveying activities on the land. The Texas Ninth District Court of Appeals opinion affirmed the decision of the trial court based on the probability that the pipeline would serve third parties at some point after construction by transporting gas for customers who will either retain ownership of their gas, or sell it to unaffiliated parties. The Texas Supreme Court issued an opinion in 2012 announced the “Texas Rice test”: “for a person intending to build a CO2 pipeline to qualify as a common carrier under the Texas Natural Resources Code, a reasonable probability (which the Court indicated in a footnote means more likely than not) must exist that the pipeline will at some point after construction serve the public by transporting gas for one or more customers who will either retain ownership of their gas or sell it to third parties other than the pipeline company”. The Texas Supreme Court remanded the case to the trial court for application of the facts to the new “Texas Rice test”.

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There has been a new development in Texas law regarding notary seals and this development affects any document in Texas that has to be notarized. This includes deeds, wills, trusts, oil and gas leases and many other kinds of documents. In fact, any document that must be filed in the deed records is required to be notarized.

Earlier this year, Texas House Bill 1683 went into effect and required the Texas Secretary of State to assign a notary identification number for all notaries and required notaries’ seals to include that number. Unfortunately, the statute was unclear on whether the law only applied to notaries who were commissioned or recommissioned after January 1, 2016 or to all notaries. The Secretary of State took the position that the law only applied to notaries who were commissioned or recommissioned on or after January 1, 2016, and that existing notaries did not have to get new seals under the new rules but would have to obtain a new seal that is compliance with the new rules once their current commission expires. This meant that under the law some notaries would have seals that include their notary identification number while others would not until their commission expired and they request renewal of their commission.

There is case law in Texas that suggests that a notary seal that is not in compliance with the notary seal rules is not a valid seal, and that an invalid seal when contested or challenged is considered to be no seal at all. This could raise serious legal issues concerning wills, trusts, oil and gas leases and any real estate document where the notary used a seal without their identification number on it.

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Up until recently, to the frustration of the IRS, the cost basis for mineral interests and other assets for estate tax purposes did not have to be the same as the basis used for income tax purposes. In other words, the executor of an estate could use a lower value for the estate’s mineral interests in order to minimize the estate tax on those assets. Later, if a beneficiary of the estate sold those assets, the beneficiary could use a higher basis in order to minimize capital gain taxes. The value used by the executor created a presumption of the basis for income tax purposes, but the beneficiary selling that asset had the option to use a higher basis, so long as they could good provide the IRS with “clear and convincing evidence” that the value was actually higher.

Recently, the U.S. Congress enacted the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, which was signed into law July 31, 2015 and was effective immediately. One portion of this new law limits the beneficiary’s basis to the value used for estate tax purposes. In addition, executors of estates are now required to file information statements with the IRS regarding the basis used and also must provide beneficiaries information about the basis of assets they receive. This new reporting requirement applies to all estate tax returns filed after July 31, 2015 that were required to be filed but it does not apply to optional estate tax returns.

When the assets of the estate include mineral interests or royalty interests, it is important to obtain an accurate opinion of their value. If you are the executor of an estate and need valuation of the estate’s Texas mineral interests, please give our office a call. We will be glad to talk to you about preparing a valuation for you.

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The Texas Supreme Court recently addressed how a bequest in a will of a double fractional oil and gas interest should be interpreted in Hysaw v. Bretton et al  in an opinion entered on January 29, 2016. A double fraction occurs when an instrument expresses a royalty interest as the product of two fractions, such as “1/4 of the usual 1/8 royalty”. The problem with using a double fraction in a deed or a will is that it is not often clear whether the instrument has created a fixed or “fractional royalty”, or a floating “fraction of” royalty in situations where the lease provides for a royalty different than 1/8. Back in the day, royalties were almost always 1/8. However, these days royalties are usually not 1/8: they can range from 10% to 30% or more. So the question becomes whether the testator or grantor meant for the beneficiary or grantee to get 1/4 times 1/8, i.e., 1/32, no matter what the actual royalty is or whether the term “the usual 1/8” was meant as a stand-in figure to represent whatever the actual royalty is. For even a moderately producing oil or gas well, this difference can represent a lot of money over the life of the well. The dispute in this case was between the children’s heirs, some claiming the will intended a fractional interest of 1/32 royalty and others claiming that the will intended a floating fraction of 1/3 of whatever the royalty was.

Ethel Hysaw executed a will in 1947, dividing her three tracts among her three children. The fee simple distribution was as follows:

● Inez received 600 acres from a 1065 acre tract,

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Occasionally, a Texas landowner will own a piece of property that lacks access, or sufficient access, to a public road. Usually, the first thing the landowner should do is to negotiate with an adjoining landowner to see if the adjoining landowner will agree to an easement of some kind. However, on some occasions, the landowner finds themselves at the mercy of difficult or recalcitrant adjoining landowners or is simply unable to reach an agreement with adjoining landowners and is unable to obtain any kind of access easement. In that situation, one of the only options is to file suit and request that a court declare an “easement by necessity”.

In the case of the Staley Family Partnership Ltd. v. Stiles, the Texas Supreme Court reiterated an important requirement for this kind of easement.

This case involved three tracts of land that were originally part of a single land grant in Collin County, Texas from the State of Texas to Thompson Helms in 1853. In 1866, the land was separated into three portions by a Texas probate court:

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A rather depressing milestone was announced this week. The number of oil well drilling rigs in the United States has reached its lowest count since records began to be kept in the 1940s.

Drilling rig counts have been by Baker Hughes, Inc. for many decades and are announced weekly. The count for the week ending March 11, 2016 was 480 drilling rigs. One commentator stated that there was not a consistent series of rig counts before 1948, but thought that to find a lower count, we would have to go back to the 1860s. The declining rig count is just one more effect of the fall in oil prices from $100 per barrel and more during the summer of 2014 to current levels of nearly $30 per barrel.

Drilling_the_Bakken_formation_in_the_Williston_Basin
The numbers hide the human cost behind the numbers. Each drilling rig has its own crew of very specialized workers. In many cases, the crews have worked together for many years. Watching an experienced crew operate a drilling rig is like watching a very special kind of ballet. I’ve seen some drilling crews in which very little verbal communication is exchanged. Instead, each member of the crew seems to know just when to do their part without instruction from the crew chief.

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Over the years I have negotiated many leases for mineral owners in the Texas Permian basin and the Eagle Ford Shale. Historically, production in these two areas has set records. These two shale plays, together with the Bakken, the Haynesville, the Marcellus, the Niobrara and the Utica represent 95% of all United States well and gas production increases from 2011 through 2013. The adjacent map shows the location of these areas.

dpmapv4l-wtitleHowever, the United States Energy Information Administration (the “EIA”), in its most recent Drilling Productivity Report, projects a substantial decline in production for the Permian basin and the Eagle Ford Shale. Specifically, the EIA predicts a 58,000 barrel per day decline in April 2016 for the Eagle Ford and a 4000 barrel per day decline in the Permian basin wells.Apr 2015 EIA DPR Permian
Aor 2015 EIA DPR Eagle FordThis decrease in production, together with the substantial decline in oil and gas prices over the last year, hits mineral and royalty owners hard. Many mineral and royalty owners are retired and their royalty income supplements Social Security payments. In many cases, they won’t have any source of substitute income.

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Brent crude oil closed below $30 on Friday, January 15, 2016. This is the first time Brent crude has traded below $30 in over twelve years. Oil prices have plunged recently despite reports of Mideast instability, that terrorist groups have attacked storage facilities in two major Libyan ports and the threat of spreading hostilities in Iraq, Iran, Bahrain and other countries in the Persian Gulf.

The price decrease is primarily the result of supply and demand. Typically oil prices go up when the global economy is strong and world demand for oil and gas is rising. In response, response suppliers increase production and deplete stored reserves to take advantage of the increased price. When the global economy is stagnant or struggling, energy demand decreases and producers typically decrease production in line with the falling demand and also increase reserves or stockpiles. Not so this go round. In order to maintain cash flow, many oil companies are currently producing all they can.

Falling Demand