Texas Attorney Blog

New technology has breathed new life into older Texas oil fields in the Panhandle and in nearby Oklahoma. Apache Corp, one of the nation’s largest energy explorers, recently purchased Cordillera Energy Partners III LLC for $2.85 billion. Apache is paying $600 million in common stock and the rest in cash. The deal brings Apache control of 254,000 acres of the Granite Wash Field, an area of older oil wells in the Texas panhandle and across the Texas-Oklahoma border. It consists of a series of thick, multilayer, liquids-rich sandstone and conglomerates, and the area possesses superior reserve properties compared to other shale.

The remaining oil and natural gas in Granite Wash is between 11,000 and 13,000 feet deep, and there is natural gas at a depth of up to 17,000 feet. At these depths the oil and natural gas was technologically impossible to access in the past. Recent extraction advances broke through that technological hurdle, but the area was still economically nonviable because of the high costs involved. Apparently no longer. This area has estimated reserves of 71.5 million barrels of oil equivalent and a current net production of 18,000 BOE per day.

Apache is not new to the region. In fact, the company was formed in the Panhandle 57 years ago, and Apache has been drilling there for 35 years. Industry growth over the past few years, combined with Apache’s experience in the area, made this recent purchase a logical step for the oil giant. Apache has drilled 79 horizontal wells since 2009, providing the needed experience at accessing previously inaccessible oil and gas deposits using new drilling techniques. These new horizontal drilling options now account for about half of Apache’s Central Region production—about 40,000 net barrels of oil per day at the end of 2011. Hydraulic fracturing ("fracing") will also assist in accessing natural gas wells (see my post on fracing here. Apache’s Chief Executive, G. Steven Farris, stated that they expect to more than triple the activity of the combined Apache and Cordillera acreage in the coming year.

All of this is very good news for Texas Panhandle residents, as increased drilling activity will boost the local economy and create more jobs. It is also good news for the country as a whole. These new innovations and investments in energy have resulted in a resurgence of the oil and gas industry, so much so that natural gas prices fell to a ten year low last week. Apache is not the only company going after older wells with new technology—both Exxon and Chevron are going back to wells in areas that were thought to be tapped out. Apache itself has operations around the world, from Australia to Egypt, and has been trying to expand its production in the US. Now that Apache is acquiring Cordillera, the two companies are looking for further opportunities in oil fields in South Texas, North Dakota, and Pennsylvania. Cordillera Chief Executive George Solich, who began his career at Apache in the 1980s, said they will continue to acquire acreage in the Granite Wash area on behalf of Apache through the closing of the deal.

Texas mineral owners beware: if you own minerals in the Granite Wash area, or in counties adjoining this area, you may receive all kinds of offers to purchase your minerals. Don't ever consider selling your minerals without talking to a Texas oil and gas attorney first. In most cases, they will probably tell you not to sell, because you will probably never get paid what they are really worth!

See Our Related Blog Posts:

The Myth of the "Oil Peak"

Self-Serving Political Posturing Prevents Real Energy Independence

One of the largest offshore oil spills in history occurred when the massive Deepwater Horizon semi-submersible oil drilling platform suffered a drilling-related explosion, was engulfed in flames, and sank. The economic and environmental effects of this event are still not fully understood, so studies are ongoing to determine the impact that it has had on the Gulf region. One such study, entitled "The Gulf Oil Spill and Its Impact on Coastal Property Value Using The Before-and-After Procedure" was completed several months ago by the University of South Alabama on the effect that the spill has had on Alabama coastal property values.

In order to determine the amount of decline in value on affected coastal properties, the study made use of the before and after procedure (BAAP) that is based upon market prices preceding the Deepwater Horizon incident and data indicating the impacted value of those same properties after the accident occurred. The study seeks to determine if a stigma has attached to these properties, which amounts to the perceived blemishes on those properties that have arisen as a result of the spill. The study focused on evaluating properties located directly on the waterfront, multiple types of residential properties, and both developed and undeveloped land. It relied upon sales transaction records in the area for the year prior to the spill as a comparison basis to help determine the possible drop in value attributable to the spill.

The research showed that the possible effect on the studied areas was significant, and vacant residential properties on the waterfront suffered the greatest decrease in values after the spill, as they dropped over 42 percent in value from April 20, 2010, to August 15, 2010. Single-family waterfront residences saw a half-percent drop during the same period, and condominiums saw a 3.5 percent drop. However, much of the decrease in value was likely due to a downturn in prevailing economic conditions. A control group of properties located in Florida (not affected by the spill) was also tracked, and similarly situated properties also saw condo and vacant waterfront land prices drop by over 20 percent during the same time period, though single family residences saw a jump in value of over 30 percent. As such, the numbers indicate that only the drop in undeveloped property prices may have been caused by the oil spill.

While the study rendered a somewhat surprising result for many – that there was not a stigma attached to waterfront properties in the Gulf region of Alabama that caused a decline in property values – it also noted that there are some limitations to the analysis. The BAAP method is best served by having real-time property sales price information for continued evaluation to render more accurate results. Additionally, the BAAP does not factor in a decline in potential buyers in the market, and instead only focuses on sales prices properties during the study’s time period. In order to formulate a more full analysis of the Gulf Oil Spill’s effect on real estate values in the region, an adjustment process for the decline in buying activity is needed.

With the passage of time, we have seen that the long term effects of the Deepwater Horizon incident have been much smaller than expected. If a study were done today, I suspect it would reveal no lingering effect on any property values along the Gulf.

A recent decision by a Texas Court of Appeals may be helpful to Texas property owners who are negotiating an oil and gas pipeline right of way or easement on their property. In its opinion rendered in LaSalle Pipeline LP v. Donnell Lands LP, the Texas Fourth Court of Appeals in San Antonio upheld a jury award to a Texas landowner of $604,950.00 for dimunition in value to approximately half of the landowner's 8034 acre ranch in McMullen County, Texas.

LaSalle, the pipeline company, enjoyed the right of eminent domain, or condemnation, of the right of way for its pipeline, because the pipeline it was laying was intended to be a common carrier. However, LaSalle offered the landowner nothing for for the decrease in value to the Donnell's land due to the 16" gas pipeline stretching across almost five miles of their property.

At trial, the Donnell's expert witness, (an M.A.I. appraiser who specialized in farm and ranch land appraisals), testified that he believed the first tract involved would suffer a 10% decrease in value due to the pipeline, and that the second, smaller, tract, would experience a 25% decrease in value. He arrived at his figures by comparing sales of similiar land, with and without pipelines, both in McMullen County and nearby Webb County. The Donnell's expert testified that the landowner was due $902,255.00 in damages, consisting of dimunition in value damages, payments for the right of way itself and the temporary workspace damages. The landowner also testified about why he believed the pipeline would decrease the value of his property. These reasons included: 1) the pipeline would be there forever, and would always be a "black mark" on his land; 2) the pipeline cut right through the middle of his property; 3) the pipeline owner and operator would have permanent access to come and go whenever they wanted; and 4) the pipeline easement could be freely assigned to any other company.

This last reason is especially important. No one can guarantee that the right of way will not be assigned in the future to a company who is less than diligent in doing maintenance, or who is less than careful with the adjoining land, than the current pipeline company.

LaSalle appealed the jury award to the Fourth Court of Appeals in San Antonio. The Court of Appeals made a small adjustment to the temporary workspace damages, but otherwise upheld the jury's verdict and the damage award. LaSalle will no doubt appeal to the Texas Supreme Court.

I'd say that the pipeline company brought this result on themselves, by refusing to offer the landowner any dimunition in value damages (also called "remainder damages") and by taking the position both in the trial court and in the Court of Appeals that the pipeline did not create any damage to the rest of the landowner's property. That is a pretty arrogant, and ultimately, self-defeating attitude.

The Fourth Court of Appeals was not creating new law in this decision. They relied on established Texas law. I never want to be in the position of predicting how the Texas Supreme Court will decide something, but if I was a betting woman, I'd bet that the Texas Supreme Court will uphold this decision.

The pipeline industry is already complaining that this decision injects "uncertainty" into the process of obtaining pipeline easements. What a strange, and frankly, groundless, argument. First, real estate appraisers have been calculating, and Texas courts and juries have been deciding, these kind of damages for many decades. Secondly, landowners have a right to dimunition in value damages because they have a right to be fairly compensated for all damages caused by pipelines and utility lines.

I'm not going to apologize if this next statement sounds naive to you. There is a moral issue here. Sometimes it seems like the pipeline companies are observing that "other" Golden Rule (the one that says "He who's got the gold, makes the rules") rather than the real Golden Rule: "Do unto others as you would have them do unto you". There is also a practical side to this: pipeline companies might find property owners a whole lot easier to negotiate with if the companies are truly fair to the owners. I suspect that a whole lot more right of way can be acquired a lot more quickly and at a lot less cost that way.

It is important for all of us to keep informed about proposed legislation related to energy issues. Even if you aren't an oil and gas attorney or involved directly in the energy industry in some way, all of us are affected by energy independence (or lack thereof) and prices. Local, state, and federal legislation often has profound effects on how much energy costs us and whether or not America’s own energy potential is maximized.

Consider the New Alternative Transportation to Give Americans Solutions Act, otherwise known as the NAT GAS Act. Originally, this bill seemed like a good idea. It was introduced in the House by Oklahoma Republican John Sullivan and shepherded through the Senate by Democrats Harry Reid of Nevada and Robert Menendez of New Jersey and Republicans Richard Burr of North Carolina and Saxby Chambliss of Georgia.

The NAT GAS Act would allow consumers or investors who either purchased natural gas vehicles or who built natural gas stations to claim between $5 billion and $9 billion in federal tax credits over the next five years. It had bipartisan support. Many Republicans were happy to sign on initially because of their tendency to support legislation helping the natural gas industry and to give this important sector of our economy a reprieve from some of the currently oppressive taxes. A bevy of prominent business leaders signed on as well, such as T. Boone Pickens .

This support is understandable because America needs more natural gas—an efficient, abundant, and clean energy source. However, it apparently remains a challenge to enact common sense legislation involving natural gas use. Certain segments of the liberal left have been waging a war against natural gas for years. Also, some state legislatures are shortsightedly fighting energy tax savings by actually raising taxes to preserve their own government spending. This ultimately hamstrings industry growth and job creation. Expectedly, President Obama continues his knee-jerk reaction in opposition to any type of sensible fossil fuel policy. The politically-motivated outcry over hydraulic fracturing, and efforts to curtail a demonstrable safe 60 year old practice, (click here for related blog) interferes with rational discussion on the subject.

Despite the real need for sensible energy legislation freeing the natural gas industry for growth, the NAT GAS Act may actually be more of a mirage of responsible legislation than anything else. Recently, 19 Republican co-sponsors have dropped out after considering the real consequences of this legislation. More analysis has shown that the Act does not truly facilitate natural gas production or assuage supply-side concerns, which probably explains why so many Democrats signed on. What the Act really does is skew the market by favoring some consumers over others, which may result in artificially inflating the cost of natural gas. It is may also be unnecessary, as UPS and other companies have fleets of vehicles powered by natural gas without the NAT GAS Act.

At the end of the day, the energy creation environment is complicated enough without further unnecessary laws and regulations being injected into the process. Certain legislation in the area may be helpful, but it is important that it remain revenue neutral, so as not to be used merely to increase federal coffers. The most logical solution is usually to allow the free market to work efficiently and without artificial alterations instead of promoting more unnecessary legislation which distorts natural energy demand.

See Our Related Blog Posts:

Oil & Gas Companies Spend More on Greenhouse Gas Mitigation Than Government and Private Industries

IHS CERA Study Finds That EPA Grossly Overestimates the Amount of Methane Emissions from Shale Gas Wells