North America Shale Blog

North America Shale Blog

New Mexico Supreme Court Undermines Validity of Standard Royalty Agreements

Posted in New Mexico, Oil and Gas

On September 15, 2014, the New Mexico Supreme Court entered a decision in First Baptist Church of Roswell v. Yates Petroleum Corp., a case that could call into question the validity of royalty agreements and division orders throughout New Mexico and that will have broad implications for how New Mexico operators draft and negotiate such agreements in the future. In rejecting a contractual provision that allowed an operator to withhold interest payments on monies held in suspense, the state supreme court articulated a strong state policy in favor of royalty interest holders, elevating that policy over private parties’ freedom to contract in oil and gas transactions.

The New Mexico Oil and Gas Proceeds Act ( “OGPA”), N.M. Stat. Ann. §§ 70-10-1 to -6, requires that royalty payments on oil and gas production be paid to royalty interest owners within six months after the first sale of oil and gas from the well.[1] The Act also provides that, in instances where payments cannot be made within the six-month period because, among other reasons, there is a delay in determining who is legally entitled to receive the payments, the royalty payor shall place royalty proceeds in a suspense fund until the proper recipient of royalties is determined.[2] Once the proper payee is determined, the Act directs that “[t]he person entitled to payment from the suspended funds shall be entitled to interest on the suspended funds from the date payment is due.”[3]
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Industry Group Opposes Illinois Fracking Rules

Posted in Fracking, Illinois, Oil and Gas

Labor groups and members of the oil and gas industry have joined together in calling for the overhaul of recently proposed rules governing fracking in the state.  The pro-fracking coalition, known as Grow-IL, argues that the revised regulations, which the Illinois Department of Natural Resources (“IDNR”) released on August 29, significantly deviate from the hydraulic fracturing law the Illinois General Assembly passed last year.

Industry representatives contend the IDNR is seeking to impose more burdensome certification and drilling standards than permitted under the state law.  Mark Denzler, Vice President of the Illinois Manufactures’ Association, criticized the new rules:  “We were very hopeful that the rules would simply implement the law, not expand or contract a law that was very carefully negotiated over three years.”

Among the many concerns of fracking supporters are new permitting requirements, which some fear could dissuade oil and gas developers from applying to operate within the state.  For instance, the state law requires all companies to conduct water testing before obtaining a drilling permit.  But according to fracking proponents, the new rules empower landowners to block a permit’s issuance simply by refusing to allow a driller to conduct such testing on their property.

Grow-IL has requested that Illinois’s Joint Committee on Administrative Rules—the legislative body charged with reviewing administrative rules promulgated by state agencies—revise the IDNR’s regulations.  The group also submitted comments, highlighting more than sixty-five issues with the rules as drafted.  The committee has until November 15 to approve or reject the fracking standards.

Members of the coalition believe instituting rules that encourage new fracking operations could spur job growth in the state and generate much needed tax revenue.  According to Michael Carrigan, President of the Illinois AFL-CIO, “We’re not talking about just a few jobs at stake: We are projecting up to 47,000 new jobs, and those positions will fill a massive void of opportunity in Southern Illinois.”

Additional coverage is available here and here.

Federal Wolf Program Could Threaten Energy Development in the Permian Basin

Posted in Land Use

The United States Fish & Wildlife Service (“FWS”) has announced an intention to revise the scope of the agency’s Mexican Wolf Recovery Program, significantly expanding the geographic area within southern Arizona and New Mexico that Mexican wolves will be permitted to occupy. If finalized, FWS’ proposal would open large areas of mineral-rich territory in southeastern New Mexico to wolf occupation, potentially subjecting oil and gas operators (as well as other landholders and private stakeholders) to development restrictions under the Endangered Species Act.

The Mexican wolf, also known has the Mexican Gray Wolf, was first listed as an endangered species in 1978. Since 1998, FWS has reintroduced captive-bred Mexican wolves into the wild and managed the released population under a rule that designates the domestic wolf-population as “Nonessential, Experimental.” The 1998 rule designates two principle areas for wolf-management: (i) the Blue Range Wolf Recovery Area (“BRWRA”), an area that consists of all of the Apache and Gila National Forests, stretching across the border between Arizona and New Mexico; and (ii) the Mexican Wolf Experimental Population Area (“MWEPA”), an area encompassing most of Arizona and New Mexico south of Interstate 40, where suitable wolf habitat might potentially exist. Under the 1998 rule, Mexican wolves have been released into specific sub-areas of the BRWRA and then confined to BRWRA; wolves that disperse and establish territories wholly outside out of the BRWRA have been captured and translocated back into the recovery area or taken back into captivity. Continue Reading

Nova Scotia Bans Hydraulic Fracturing

Posted in Hydraulic Fracturing

On September 3, Nova Scotia’s government announced that it will indefinitely ban high volume hydraulic fracturing onshore. According to Energy Minister Andrew Younger, “Nova Scotians have overwhelmingly expressed concern about allowing high volume hydraulic fracturing to be a part of onshore shale development in this province at this time.” The government will introduce legislation this fall.

Before making its decision, the government of Nova Scotia commissioned the Verschuren Centre for Sustainability in Energy and the Environment at Cape Breton University to conduct an independent study and 10-month comment period on the socio-economic impacts of hydraulic fracturing. Dr. David Wheeler, President of Cape Breton University, led the study. The nearly 400-page final report, released on August 28, 2014, recommended that “Nova Scotia should design and recognize the test of a community permission to proceed before exploration occurs for the purpose of using hydraulic fracturing in the development of unconventional gas and oil resources.”

The government also received input from Mi’kmaq communities, indigenous to Canada’s Maritime provinces, including Nova Scotia. The Mi’kmaq have aboriginal, treaty and statutory rights that the government has to consider. According to the report, “if the Mi’kmaq people possess Aboriginal title rights over portions of Nova Scotia where there is subsurface unconventional gas, unless an exceptional justification test is met, the Mi’kmaq have the right to decide whether that gas will be exploited.” The Mi’kmaq have expressed support for the ban.

Environmental groups are also pleased with the government’s announcement, but the decision to ban high volume hydraulic fracturing has drawn criticism from groups such as the Canadian Association of Petroleum Producers (“CAPP”). Dave Collyer, president and CEO of CAPP, was disappointed in the decision, stating, “the government’s decision appears to be largely based on considerations other than the technical knowledge and experience of industry regulators and experts in Canadian jurisdictions.” While noting the viability of Nova Scotia’s onshore natural gas is not yet proven, Collyer fears that the government’s decision may “preclude Nova Scotians from benefitting from the responsible development” of hydraulic fracturing.

Additional media coverage can be found at the links below:

Illinois Releases New Draft of Hydraulic Fracturing Rules

Posted in Hydraulic Fracturing, Illinois, Legislative

Last Friday, the Illinois Department of Natural Resources (IDNR) released its highly anticipated revised hydraulic fracturing rules. The IDNR had taken the past year to “re-tool” its oil and gas regulations, and took into consideration more than 31,000 comments. The revisions attempt to address many of the issues typically raised by environmentalists in opposition to oil and gas drilling. Some of the more notable revisions require:

  • mandatory site restoration;
  • public application hearings within 30 miles of the proposed site’s county; and
  • hydraulic fracturing fluids be removed from reserve pits within seven days of being introduced.

Several significant revisions come on the heels of an Ohio spill that revealed potential gaps in Ohio’s fracturing-fluid-disclosure laws. The Illinois revisions try to fill these gaps. In Ohio, the state protected proprietary fracturing fluids as trade secrets. This protection allegedly delayed emergency responders’ access to the exact list of chemicals contained in the spill. Although the Illinois rules will still give fracturing companies protection for any legitimate trade secrets contained in its fracturing fluids, the rules require that the company provide information that would help responders react to a spill.

The revisions to the disclosure section of the rules require, among other things, that a company supplement a redacted chemical with additional information such as:

  • a description of the chemical class and function of the redacted chemical;
  • the chemical family and chemical effects of any redacted additive;
  • a detailed justification of why the redacted chemical is a trade secret; and
  • the contact information where the trade secret holder may be reached 24 hours/7 days a week in case of medical emergency.

These revisions are under review by Joint Committee on Administrative Rules – a bipartisan legislative oversight committee – for 45 days, and possibly another 45-day extension. The panel will either sign off, change, or block the rules.  Judicial appeals of the rules could follow.

Additional media coverage can be found here.

TX House Subcommittee Hears Testimony from Railroad Commission Seismologist on Proposed Rules Related to Disposal Wells in High-Risk Seismic Areas

Posted in Disposal Wells, Texas

Following the Texas Railroad Commission’s recent proposal for additional rules related to disposal wells in “high-risk” seismic areas, on Monday, August 25, members of the Texas House Subcommittee on Seismic Activity heard testimony from Dr. Craig Pearson, the seismologist hired by the Railroad Commission to investigate the possible correlation between seismic events and oil and gas activity. Pearson’s hiring followed a number of small earthquakes that occurred in late 2013 near the town of Azle, Texas, which sits atop the Barnett Shale formation. Pearson testified that seismic activity has continued in the previously affected area, but the tremors have registered below 1.0 on the Richter Scale, and are unfelt by most people.

The proposed rule amendments would include a new requirement that an applicant for a disposal well determine the radius of the 10-year, five pounds per square inch (psi) pressure front boundary from the proposed disposal well location and use that radius to retrieve information from the U.S. Geological Survey regarding the locations of any historical seismic events within that radius. “When you start injecting into an underground reservoir, you begin to build the pressure anomaly within that reservoir, and there’s a front that moves away from the well with time and volume,” said Pearson. Continue Reading

Texas Supreme Court to Hear Defamation Case Involving Fracking Claims

Posted in Fracking, Texas, Water

On August 21, 2014, the Texas Supreme Court agreed to hear oral arguments in an ongoing dispute between a homeowner and Texas-based oil driller Range Resources Corp. The case is not a typical homeowner vs. oil driller lawsuit, though—in this case, Range is counterclaiming for defamation, and the Texas Supreme Court has agreed to hear the case.  The case turns on what Range views as an issue of first impression: how much evidence a plaintiff needs to show to avoid dismissal of a suit under the Texas Citizens Participation Act , which is intended to prevent strategic lawsuits against public participation, or SLAPP suits.

The lawsuit was filed by Steven Lipsky and his wife in 2011, when they alleged that Range’s fracking activities contaminated their drinking water supply. But the saga began in 2009, when Lipsky started to have issues with the water supply pump to his family’s Parker County, Texas, home. He had his water well driller come out to repair the pump, and Lipsky alleges that the pump wasn’t the issue – the real issue was “explosive levels of methane gas” in the well. He notified state inspectors from the Texas Railroad Commission, who investigated and found evidence of a leak in one of Range’s gas wells near the Lipskys’ home that was causing the contamination of the Lipskys’ water supply. They cited Range for a violation. Range fixed the leak, but Lipsky insisted that the repair did not help with the high gas content in his water well. Continue Reading

Colorado State Court Strikes Down a Second City-Wide Fracking Ban

Posted in Colorado, Fracking

A Colorado state judge recently struck down a city’s voter-approved moratorium on hydraulic fracturing, or “fracking.” This marks the second time a Colorado judge has quashed a city’s fracking ban within a matter of two weeks.

As we previously reported, three Colorado cities approved bans on fracking in late 2013. In Fort Collins and Boulder, the voters passed a five-year moratorium on in-town drilling, while in Lafayette the voters amended the city charter to ban the practice completely. At the time, the governor of Colorado, along with the Colorado Oil & Gas Association (COGA), threatened a lawsuit claiming the bans violated state law.

In his nine-page opinion, Larimer County District Court Judge Gregory Lammons granted the COGA’s motion for summary judgment and agreed that the city may not ban drilling entirely—a practice that Colorado regulates extensively within the state. Specifically, he held that Fort Collins’ ban on fracking is “preempted by the Colorado Oil and Gas Conservation Act for two reasons: the five-year ban substantially impedes a significant state interest and the ban prohibits what state law allows.”

This decision comes just two weeks after a Boulder County District Judge, D.D. Mallard, ruled that Longmont, Colorado’s ban on fracking clearly conflicted with the state’s regulations. Although Judge Mallard noted that the city may regulate aspects of oil and gas production related to the health and safety of its citizens, he ultimately held that Longmont’s regulation caused an untenable “operational conflict,” and that the state rules take precedence.

Below is additional media coverage of the rulings:

The North American Shale Blog will continue to track and report on the development of these cases.

Pennsylvania Public Utilities Commission Appeals Act 13 Ruling to State Supreme Court

Posted in Oil and Gas, Pennsylvania

The Pennsylvania Public Utilities Commission (PPUC) is asking the state Supreme Court to review a July ruling by the Pennsylvania Commonwealth Court that strips PPUC of its authority to review and approve local drilling ordinances.

Specifically, PPUC is appealing the Commonwealth Court’s rejection of PPUC’s right to withhold “impact fees” imposed under Pennsylvania’s oil and gas law, known as “Act 13,” from municipalities that enacted rules restricting drilling.  Over the past three years, the state has collected more than $600 million in impact fees from well owners.  The results of recent litigation related to Act 13, however, have undermined PPUC’s centralized regulatory authority and have instead vested municipalities with authority to modify and enforce local zoning laws within their respective jurisdictions. Continue Reading

Oil and Gas Developer Challenges an Extreme Waste Disposal Ordinance Enacted by a Pennsylvania Township

Posted in Pennsylvania

Oil and gas developer Pennsylvania General Energy Company, LLC (“PGE”) recently filed suit against Grant Township in Indiana County, Pennsylvania, alleging that a waste disposal ordinance enacted by the Township violates the United States Constitution and Pennsylvania statutes.  The nationwide oil and gas boom has given rise to disputes similar to this all over the country.  See our coverage of other cases addressing the authority of federal, state, and local governments to regulate oil and gas development here, here, here, here, here, here, here, and here.

Grant Township adopted an ordinance on June 3, 2014 titled “Community Bill of Rights Ordinance.”  Under the Community Bill of Rights Ordinance (the “Ordinance”), it is “unlawful within Grant Township for any corporation or government to engage in the depositing of waste from oil and gas extraction.”  The Ordinance provides that any “corporation or government that violates any provision of [the] Ordinance shall be…sentenced to pay the maximum fine allowable under State law for that violation.”  Continue Reading