January 23, 2015

Another Oil Company Expands in the Texas Permian Basin

Parsley Energy Inc., based in Midland, Texas, has been buying undeveloped and productive land in Reagan County.

Parsley Energy is an independent oil and natural gas company founded in 2008 with operations in the Permian Basin. The company develops unconventional oil and gas reserves. It has grown exponentially in the past few years, from a start up with two people to a company that operates several hundred wells and produces more than 12,000 barrels of oil equivalent per day. The company owns more than 97,371 surface acres in the Midland basin and 121,211 surface acres in the Permian. They have horizontal and vertical wells in the core of the Midland basin and expect to continue to grow and produce good rates of return on investments. This appears to be borne out by their latest $252 million purchase in Reagan County, which breaks down into $26,000 per net acre with $60,000 per flowing barrel of oil equivalent. They have added more than 16,000 net acres and 456 net horizontal drilling locations, including these newly announced locations in Reagan County, since their initial public offering in May 2014.

As Parsley Energy develops its assets in Reagan County, they will be requesting leases from mineral owners. This means mineral owners in Reagan County need to consult with an oil and gas lawyer before signing any leases. Signing leases without consulting a lawyer can lead to financial losses and stress. See my previous posts on this issue here and here. It's not worth the risk yo your land or your finances not to get input from an oil and gas attorney.

Many of Parsley's plans were in place before the recent drop in oil prices. It remains to be seen how lower prices will impact their plans.

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January 16, 2015

Fracing Case Goes to Texas Supreme Court

Steve Lipsky and his wife Shyla became famous as Texas landowners who claimed they could set their water on fire--and they alleged this was due to methane contamination from nearby hydraulic fracturing. The couple sued Range Resources who operated a well near their house in Weatherford, Texas. The Lipskys claimed they noticed problems with their water after Range drilled two natural gas wells near their house in 2009.

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The Environmental Protection Agency, without any scientific basis whatsoever, concluded that Range had caused or contributed to the water contamination. The Railroad Commission of Texas did actual did scientific testing and determined that the methane came from a shallower rock formation than the one drilled, and allowed production at the wells to continue. Many people do not realize that methane occurs naturally in many water deposits, but is not drawn into the water pump until the water level falls below a certain level. With lots of fanfare, the EPA sued Range Resources in federal court for the alleged contamination. That suit was later quietly dismissed in its entirety.

Range sued the Lipskys and another person, Alisa Rich, for civil conspiracy, aiding and abetting, defamation, and business disparagement over their claims about fracing contaminating their well. The case is In Re: Lipsky. The Lipskys and Ms. Rich filed motions to dismiss all the Range claims. The trial court in Parker County, Texas denied the motions.

The Texas Second Court of Appeals decided that the trial court “clearly abused” its discretion in denying the Lipsky’s motions to dismiss all claims and in ruling that they had no remedy to appeal. The appellate court ordered the trial court to enter an order dismissing Range Resource’s claims based on conspiracy and aiding and abetting. The appellate court left pending Range’s claims of defamation and business disparagement. You can read the appellate opinion here.

The Supreme Court of Texas heard oral argument on December 4, 2014. The issues that will be determined by the Supreme Court are: (1) whether the Texas Citizens’ Participation Act requires heightened proof – clear and specific evidence – of each essential element of a claim under that Act, and if so, (2) whether Range presented clear and specific evidence of defamation and business-disparagement claims.

Given the widespread use of fracing, and the increasing proximity of fraced gas wells to residential areas, this will be an important decision by the Texas Supreme Court. If the Lipskys had a legitimate evidentiary basis for their claims, they should not be the subject of a retaliatory lawsuit. On the other hand, if they did not have a legitimate basis for their claims, then they should be held accountable for any damage their unsupported claims may cause.

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January 9, 2015

USW Strikes at Oil Refineries: The Worst Possible Timing

The number of U.S. refineries and petrochemical production plants that have been subjected to United Steelworkers strikes has now reached eleven locations in California, Kentucky, Texas and Washington. It's hard to imagine a more outrageous case of bad timing. Let's see: oil and gas are at their lowest prices in years, the oil industry is hog tied by out-of-date export restrictions that prevent many sales to non-U.S. buyers, and the true unemployment rate (hint: it's not the number the U.S. Labor Department puts out) is depressingly high, about 12.6%. Yet, the United Steelworkers are striking. Go figure.

Part of my growing up years were spent in Detroit, Michigan, where it was not uncommon for violence to be used by the United Auto Workers to force folks to join the union. The father of a girl I went to high school with was murdered because his employees resisted unionizing his small trucking company: His car blew up in the driveway of their home when he got in and turned on the ignition to go to work. No doubt his employees got the message.

Unions have done some good things for workers, but most of those accomplishments are in the past. Today, unions are more often a barrier and an impediment to increasing workers' productivity, which ironically hurts the workers the most: when workers are more productive they command higher wages. In the case of education, it is often the teachers unions that keep poor and mediocre teachers in place and it's our children who suffer.

Apparently, union membership in many industries is diminishing. It may be that workers are starting to recognize that their union, like the USW with its ill-timed strikes, isn't doing them much good.

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January 2, 2015

Texas Veterans Land Board Increases Loan Limits for Texas Veterans

Good news for T exas veterans who want to buy land! In his first act as chairman of the Texas Veterans Land Board (TVLB) Texas Land Commissioner George P. Bush increased the land loan limit . The previous land loan limit was $100,000. Texas veterans are now eligible for low-interest land loans up to $125,000. This is the apparently the maximum loan by the TVLB allowed by Texas law.
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The TVLB loan requirements are:

1. For the purchase of one acre or more.

2. Up to $125,000 for a 30-year, fixed-rate loan.

3. Minimum 5% down payment.

4. A certified survey.

5. A $325 appraisal and contract service fee.

6. Applicants must be veterans who were honorably discharged, served at least 90 days on active duty and who live in Texas.

Keep in mind that the TVLB originates all its land loans, so don't let a mortgage broker tell you otherwise. You can get more information and begin the application process here.

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December 26, 2014

Drainage of Oil and Gas in Texas

A federal appellate court decision demonstrates some lessons for Texas mineral owners. That decision was issued by the Fifth Circuit Court of Appeals in the case of Breton Energy, L.L.C., et al. v. Mariner Energy Resources, Inc., et al. The Plaintiffs in this case own and operate an off-shore lease in the Gulf of Mexico that includes an area known as the K-1 sands. The Defendants own and operate an adjacent off-shore lease that covers an area known as the K-2 sands. The Plaintiffs claimed that the Defendants engaged in “unlawful drainage” from the Plaintiffs' lease in violation of federal and state law.

The Facts:

Breton Energy LLC
and Conn Energy Inc. sued International Paper Co. and its successors in interest, consisting of eleven oil companies including Apache Corporation, Chevron and I.P. Petroleum Co. The Plaintiffs claimed specifically that IP Petroleum perforated and drained an oil reservoir under the Plaintiffs' lease on the Outer Continental Shelf in the K-1 sands. The Plaintiffs also claimed that IP co-mingled resources from this reservoir with hydrocarbons from a nearby reservoir, making it impossible for the Plaintiffs to produce oil and gas from its own wells.The evidence showed that I P Petroleum, even though it had been ordered by the federal Minerals Mining Service not to complete wells in both the K-1 and K-2 sands, did in fact complete wells in both areas. There was also evidence that I P Petroleum's production exceeded their estimate by almost 30%, which would make sense if they were producing from someone else's reservoir as well as their own.

The District Court dismissed the Plaintiffs' claims, and they appealed to the Fifth Circuit.


sunrise-series-1446056-1-m.jpg The Opinion

The Fifth Circuit partially vacated the District Court’s order, in part affirmed the order , and remanded part of the case back to the District Court in a decision written by Judge Stephen Higginson. The Fifth Circuit held that the Plaintiffs had pled sufficient facts to state a claim of waste against IP, but not against the other Defendants. The Court also determined that the Plaintiffs had made a plausible allegation that IP contributed to waste from the reservoir, which was enough to pass the pleadings test in the U.S. Supreme Court's decision of Bell Atlantic Corp. v. Twombly. The Court found that the neighboring reservoir had been overproduced and this supported the Plaintiffs' claim that minerals were commingled and that recoverable hydrocarbons had been lost. In upholding the District Court’s dismissal of claims for unlawful drainage against other Defendants, the Fifth Circuit relied on Louisiana law that prohibits landowners from filing claims against neighbors who drain liquids or gases from under their property.(Louisiana law allows production of oil and gas that migrates from other people's properties. Texas has pooling regulations to prohibit one person from benefiting from their neighbors minerals).

Breton Energy called the decision of the Fifth Circuit a “great ruling for us” and said that “(t)he focus from the beginning and the target was IP, because they actually performed the perforation. The other parties were sued on the grounds that they should have been aware of the perforation and done something about it.” Breton Energy and Conn are currently preparing for a new trial in the District Court.

One of the lessons of this case is that it is difficult to successfully prosecute an oil and gas drainage and waste claim. Both parties in this lawsuit retained a lot of expensive petroleum engineering and geology talent to try to prove their side of the case. While the Plaintiffs in this particular case survived a dismissal based on their pleadings, it is not at all clear that they will prevail on the merits. It will be very interesting to see how this case turns out.

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December 19, 2014

Oil Production in the Texas Permian Basin

This blog frequently shares news regarding developments in the oil and gas industry, particularly in Texas, and how growth in that industry effects Texas mineral owners. As the industry grows, increased opportunities arise for Texas land owners, such as the opportunity to negotiate oil and gas leases. (for more information on leasing, please see my previous blog on this topic that you can access here.

Texas has an oil output of more than 3 million barrels per day, which is one third of the total U.S. oil production. Texas could soon outpace the second biggest oil producing country in Organization of the Petroleum Exporting Countries (OPEC), which is Iraq (after top producer Saudi Arabia).

Production data from the Permian basin shows that in the last year it has become the largest crude oil producing region in the U.S. In 2013, Permian oil was 18% of total U.S. crude oil production according to the U.S. Energy Information Administration. Production in the Permian basin has increased to 1.35 million barrels per day up from 850,000 b/d in 2007 and is exceeding production from the federal leases in the Gulf of Mexico.

Production in the Permian basin is largely from six low-permeability formations: Wolfcamp, Spraberry, Bone Spring, Glorieta, Yeso, and Delaware. The Energy Information Administration says that “(p)roduction from these formations has helped drive the increase in Permian oil production—particularly since 2009—despite declining production from legacy wells. [A]lmost three quarters of the increase in Permian crude oil production came from the Spraberry, Wolfcamp, and Bone Spring formations.”

The Spraberry, Wolfcamp, and Bone Spring formations have increased their production from 140,000 b/d in 2007 to 600,000 b/d last year. In 2007 these three formations were 16% of the total production in the Permian basin, and last year the three comprised 44% of total Permian production. They have initial well production rates similar to those in the Bakken formation and the Eagle Ford formation. The Energy Information Administration said that “(a)lthough oil production has previously come from the more permeable portions of the Permian formations, the application of horizontal drilling and hydraulic fracturing has opened up large and less-permeable portions of these formations to commercial production.” In the other three formations, the Delaware, Yeso, and Glorieta, the production increased during the same years but less than in the other formations.

One thing holding the Permian basin and other shale areas back is a lack of infrastructure. Oil and pipeline companies are struggling to keep up with the fast evolving field. More pipelines will probably be needed, and so more Texas landowners will receive requests for pipeline easements. For example, Sunoco Logistics Partners has been looking for shippers who will commit to a new pipeline. They have a new project, the Permian Longview and Louisiana Extension pipeline. It will take the oil from west Texas to refiners in east Texas and Louisiana and then to the market. Sunoco expects the project will have an initial capacity of 100,000 barrels per day and be operational by the end of 2016.

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December 12, 2014

Oil & Gas Activity in the Wolfcamp Shale in Texas

The Permian Basin is on its way to becoming the most productive oil play in the United States. In the next few years, the Wolfcamp Shale in this basin could by itself overtake the Bakken Shale in North Dakota and Montana in the amount of money spent for exploration and production in tight oil plays.

Currently, the exploration of the Wolfcamp Shale is occurring in the following Texas counties: Glasscock, Sterling, Reagan, Irion and Crockett. As the area is explored further, adjacent counties may be involved.

Wood Mackenzie, a research and consulting organization, did an analysis on Wolfcamp recently and came to the conclusion this could happen as early as 2017. At present, Wolfcamp comes in third in expenditures after the Bakken and Eagle Ford Shales. This year's expenditure in the Wolfcamp is more than $12 billion, mainly due to an increase in drilling rigs in the first and second quarter of 2014, which is 80% of what was spent this year in the Bakken Shale. Wood Mackenzie increased its projections for Wolfcamp capital expenditures in 2015 by more than $4.3 billion to $13.9 billion. Crude and condensate production is about 200,000 barrels per day now but is expected to reach 700, 000 barrels per day by 2020.

The Wood Mackenzie analysis pointed out that the Wolfcamp is still in the early stages of development with only 10% of the projected capital outlay spent so far. Expectations are that the Midland Wolfcamp will outpace the Delaware Wolfcamp due to higher oil cuts, lower well costs and better infrastructure. Wood Mackenzie expects the Midland to drive oil production for the next twenty years in this area. This year, new entrants into the Permian basin have hoped to cash in on the stacked pay potential in Wolfcamp.

Benjamin Shattuck, an upstream analyst for Wood Mackenzie, said that “(t)here is reason to be cautiously optimistic. While we have seen performance improve across all benches of the Wolfcamp, we are still waiting for an operator to effectively develop multiple benches over a sizeable acreage position.”

Mr. Shattuck said “(i)t’s not based on location. It boiled down to attention to the Permian: How long have these operators been operating in the Permian and, if they hadn’t been operating in the Permian for long, how focused are they?” He also noted that “(a)s operators have been out there for the past couple of years, they’ve been exploring up and down the stratigraphic column. The results in these benches continue to improve.”

Companies are responding to the new opportunities. Energen Corporation has tested five new Wolfcamp exploratory wells in the Permian Basin and drilled 19 new wells through June 30, 2014 as part of its Wolfcamp development program in southern Glasscock County.

If you own mineral interests in one of the Wolfcamp Shale counties, you may be contacted by a landman representing an oil company who want to lease your minerals. Be smart and have an oil and gas attorney review the lease before you sign it so you can get a good lease for your minerals.

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December 5, 2014

Cline Shale Boom in Texas

When the news discusses Texas’ big oil and gas shale plays, they usually mean the Eagle Ford and the Barnett shale. The University of Texas at San Antonio produced a study recently, the “Economic Impact of Oil and Gas Activities in the West Texas Energy Consortium Study Region”, that highlights the opportunities in the Cline shale.

clineshalegraphic.jpg The study estimates that by 2022 the Cline shale will bring more than 30,000 jobs to west Texas and have a $20 billion dollar economic impact. The Cline shale covers less surface area than the Eagle Ford or Barnett, but its hydrocarbons are denser. There is a potential for 3.6 million barrels of oil per square mile to be recovered, for a total of about 30 billion barrels. These numbers indicate that the Cline shale may be larger than both the Eagle Ford and the Bakken field in North Dakota. In fact, the Cline shale may be bigger than both those two plays combined.

The study was done by the Center for Community and Business Research, part of the Institute for Economic Development at UTSA. The study notes that in 2012 $14.5 billion was added to the west Texas economy by oil and gas development and 21,450 full time jobs were created from the oil and gas industry in west Texas. These employees received $1 billion was paid in salaries and benefits in 2012 alone. The study estimated that about 854 vertical wells and 57 horizontal wells were completed in 2012 in this region. The goal of the study was to create a 2012 baseline of industry activity in the region and create forecasts through 2022. “This baseline study is intended to help communities in West Texas plan and prepare for the prospect for increased oil and gas production in the area down the line. For many counties, activity is clearly in the early stages,” said Thomas Tunstall, the research director for this study.

The oil and gas industry is taking notice of this data. For example, Taylor Consulting, Inc . is acquiring land near the Cline shale based on expectations that this may be the biggest oil and gas boom in U.S. history. And Taylor is not alone--substantial increases in new business and residents is expected. Taylor is building temporary housing, infrastructure and entertainment amenities.

Mineral owners in the Texas counties within the Cline shale have been and will be getting lease offers. Please don't sign anything without getting a review by an oil and gas attorney.

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November 25, 2014

Texas Railroad Commission Approves Revised Oil & Gas Pipeline Rule

The Texas Railroad Commission approved a substantial amendment to its oil and gas pipeline permit rule on December 2, 2014, and the amendment has major significance for Texas landowners and Texas mineral owners. The rule is Texas Railroad Commission Rule 3.70, and the amended rule goes into effect on March 1, 2015.

The Railroad Commission received a substantial amount of written comment from individuals, oil companies and trade organizations. Comment and testimony was also received at the public hearing on the proposed amendment held in Austin, Texas on September 22, 2014. The amended Rule 3.70 and the discussion of public comments by the Commission's General Counsel can be accessed here.

The amended Rule 3.70 provides that each operator of a pipeline or gathering system (other than production lines or flow lines that are general confined to the leased premises) must obtain a permit from the Commission and renew the permit annually. The permit application must now include the following:

1. the contact information for the person who can respond any questions concerning the pipelines construction, operation or maintenance;

2. the requested classification and the purpose of the pipeline as a common carrier, a gas utility or a private pipeline;

3. a sworn statement from the permit applicant that provides the pipeline operator’s factual basis in support of its requested classification and purpose, including, if applicable, attestation to the applicant’s knowledge of the eminent domain provisions in the Texas property code and the Texas Landowners Bill of Rights published by the Texas Attorney General;

4. documentation to provide support for the classification and purpose being sought for the pipeline and any other information requested by the Commission.

The memorandum to the Railroad Commission from its General Counsel on November 25, 2014, (which you can read here), summarizes many of the written and verbal comments about the proposed amended rule. Many commentators wanted the Commission to take a more active role in the route of a pipeline and in the determination of whether a pipeline was a common carrier pipeline or not. In Texas, whether a pipeline is a common carrier pipeline is hugely important. A common carrier pipeline has the right of condemnation (or “eminent domain”) if they cannot reach a pipeline easement agreement with the landowner. Other types of oil and gas pipelines do not have this power.

The comments in the memorandum by the Railroad Commission General Counsel make clear that the Commission does not believe it has authority to adjudicate whether a pipeline is a common carrier or not. The memorandum also notes that the Railroad Commission has no authority over the routing of a pipeline nor do they have authority to become involved in private property rights, including pipeline easement negotiations.

On the other hand, the amended rule provides that the Railroad Commission will make a determination of the “sufficiency” of the information provided with the permit application. What will constitute “sufficient” documentation of common carrier status remains to be seen. In addition, the Commission's press release about the amendment states that: "Texas Railroad Commissioners have unanimously adopted pipeline permit rule amendments designed to clarify how a pipeline operator may be classified by the Commission as a common carrier." That statement makes it sound as if the Commission is making a "common carrier" determination!

Readers may recall that in 2012, the Texas Supreme Court, in the case of Texas Rice Partners Ltd. vs. Denbury Green Pipeline, 363 S.W.3d 192, held in part that the fact that a pipeline permit applicant checked a block on the permit application that indicated that it was a common carrier pipeline did not in fact make the pipeline a common carrier line. That case is still good law. The amendment to Rule 3.70, while not providing for a forum or process for determination of whether a pipeline is a legitimate common carrier or not, will still be helpful to landowners who are negotiating a pipeline easement. The information that the Railroad Commission requires a pipeline operator to supply with its permit application should be the first thing that a landowner or their oil and gas pipeline attorney looks up when negotiating a pipeline easement.

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November 14, 2014

Important Gas Royalty Case for Texas Mineral Owners

Recently the Fifth U.S. Court of Appeals issued an interesting decision in the case of Warren et al. v. Chesapeake. This very important case for Texas mineral owners is based on a lawsuit against Chesapeake Exploration for what the Plaintiffs claimed was the wrongful deduction of post-production costs from the Plaintiffs' gas royalty payments.

The Facts

The Warren case involves three oil and gas leases in Texas. Charles and Robert Warren entered into leases with FSOC Gas Co. Ltd. Those leases were then assigned to Chesapeake, who used an affiliate, Chesapeake Operating, to drill and operate the wells. Chesapeake deducted post-production costs from the royalty payments to the Warrens as well as from royalties to Abdul and Joan Javeed who joined the case as plaintiffs later. Chesapeake claimed that the leases authorized the deductions. The Plaintiffs asserted that Chesapeake breached the leases because the deductions did not comply with the lease provisions on calculating royalties. The complaint also included class action allegations on behalf of other royalty owners with similar leases with Chesapeake Exploration.

The U.S. District Court Proceedings

The Plaintiff based their claim in part on the previous decisions of the Texas Supreme Court in Heritage Resources, Inc. v. NationsBank and Judice v. Mewbourne Oil Co.. The District Court dismissed the claims of all four Plaintiffs with prejudice. That court held that since the leases contained “at the well” royalty provisions, Chesapeake was authorized to make post-production deductions in determining the income on which royalties would be based despite the provisions in the Warren leases that the royalty would be free of certain post-production costs.

The Fifth Circuit Decision

The Plaintiffs appealed their case to the Fifth Circuit Court of Appeals. The Warrens claimed that their leases contained two sets of obligations owed by Chesapeake. The first involved the costs of exploration, production and marketing of gas, including the costs of compression, dehydration, treatment, and transportation. The second are shared obligations such as costs incurred subsequent to production. The Warrens claimed the deducted expenses fell under the first set of obligations and so were the obligation of Chesapeake alone. The Fifth Court of Appeals did not agree with this argument and upheld the District Court’s dismissal with prejudice on this issue. The Fifth Circuit held that the language of the lease expressly provides that the lessor will bear a proportionate part of the expenses of delivering marketable gas to a sales point other than the mouth of the well.

The next issue the Court addressed concerned the leases of both the Warrens and the Javeeds. The Javeeds lease contained differently worded royalty provisions than the Warren leases, but the appellate briefs to the Court focused on the Warrens’ leases, not addressing the differing provisions. The District Court had treated the Javeeds leases as “functionally equivalent” to the Warrens. For the first time in the reply brief before the Fifth Circuit the Plaintiffs addressed the differences, but these arguments were waived because they were asserted too late. The Fifth Circuit determined that the Javeeds claim should be dismissed without prejudice anyway because it was apparent from the face of the complaint and its attachments that they could not conceivably state a cause of action.

This case illustrates that language in oil and gas leases concerning the calculation of royalty can be technical and complicated. It is essential for a mineral owner to fully understand the terms of an oil and gas lease and what may or may not be deducted from royalties before it is signed. Take the time to consult an attorney before signing. It will save money and stress later.

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November 7, 2014

More New Oil and Gas Pipelines for Texas Counties

New oil and gas pipelines are being constructed in Texas at an almost frantic pace. Just this week, Lone Star NGL LLC announced that it has received the go-ahead from its board to lay a new natural gas liquids pipeline from the Permian basin in West Texas to Mont Belvieu, Texas near the Gulf of Mexico. Lone Star is a joint venture formed by Energy Transfer Partners LP and Regency Energy Partners LP. Both companies have headquarters in Dallas, Texas.

The new pipeline will extend for 533 miles and will be both 24 inches and 30 inches in diameter. The exact route has not been announced but possible routes will probably be from the Permian basin area shown on the map in green and the Gulf of Mexico. As you can see from the map, this new line has the potential to impact many Texas counties and also to effect many Texas landowners.permianbasincounties.jpg

Pipeline easements are complex documents. A landowner may have to live with the easement the sign for the rest of their life time and for the duration of their descendants’ lifetimes as well. There are many things a landowner can require in a pipeline easement or right-of-way that the pipeline company is simply not going to offer you. You have to know how to ask for them and how to negotiate for them.

If your property is important to you, then when the land man for the pipeline company contacts you, tell them that you will be happy to discuss an easement or right-of-way with them, and that you will have your attorney contact them. Unless you are experienced in Texas pipeline easement and right-of-way law, you can do yourself and your property a lot of harm by signing something without getting the assistance of an experienced attorney first.

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November 7, 2014

Community Engagement Guidelines for Oil and Gas Companies

After three years of meetings and study, the American Petroleum Institute issued a new set of guidelines for community interaction by oil and gas operators involved with unconventional oil and gas exploration. The document is called “Community Engagement Guidelines” and outlines recommendations for oil and gas development consistent with the concerns and priorities of the community where the development is taking place.

API’s Standards Director David Miller said that “(i)t’s a first-of-its-kind industry standard for community engagement. These guidelines will provide a road map for oil and gas operators seeking to build lasting, successful relationships with local residents in areas of the country where energy development opportunities are open for the first time, thanks to advances in horizontal drilling and hydraulic fracturing.”

The industry is trying to be a “good neighbor” and use responsible practices, learn from past experiences, mitigate potential impacts and work towards long term sustainability, according to Mr. Miller. He said “(e)ach community is different, and the standards are not designed to be exhaustive, but rather to serve as a reference for developing a plan-of-action that matches the needs and concerns of a broad range of stakeholders—from rural farmers to indigenous tribes.”

The API Community Engagement Guidelines are similar to existing guidelines for the pipeline and railroad industries. API stressed that these Guidelines were not developed as a reaction to communities trying to restrict fracing or oil and gas development. Karen Moreau, the New York State Petroleum Council’s Executive Director, said: “We’re not here to mirror environmental groups’ activities. Our member companies spend their time developing technologies and improving production to make their operations better. We don’t take our cues from environmental groups that apparently aren’t held to the same standards we are. Many of the bans in New York are in towns where there are no prospects for development. We’ve been engaging with communities where it looks more likely.”

The Guidelines are divided into five phases. During the entry phase, where companies determine energy extraction potential, the companies are “encouraged to introduce key personnel to local leaders, share information on safety commitments and operational goals, and set professional standards for local employees and contractors.” During the exploration phase, there should be dialogue and education through community meetings and discussions. In the development phase, “companies are urged to work with local emergency responders to prepare against any potential risks” and to develop relationships with mineral owners. In the operations phase, long-term standards for maintenance and traffic should be implemented, and a public feedback mechanism is also recommended. The fifth and final phase is the exit phase, during which “...it is recommended that (the oil companies) engage with the community regarding plans for reclamation and restoration, and prepare stakeholders for the transition.”

Mr. Miller noted that “As with all our standards on hydraulic fracturing, API’s Global Industry Services division will work hand-in-hand with industry participants to educate operators on the successful deployment of engagement strategies.”

The proof, as they say, is in the pudding. While there have always been oil and gas companies in Texas who have treated mineral and surface owners with respect, there also have always been those whose arrogant attitude and disrespect is legendary. I suspect that these Guidelines may not have a substantial impact on the behavior of either group. However, for oil companies who are just getting into the development of unconventional resources, these Guideline should be useful. In addition, for persons in communities in which development of unconventional (or conventional) oil and gas resources is taking place, the Guidelines offer an articulate expression of what is reasonable to expect from the oil or gas company in their area.

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