North America Shale Blog

North America Shale Blog

Off the Tracks: A Data-Driven Analysis of Crude-by-Rail Liability Factors, Exposure, and Potential Solutions

Posted in Shale, Transportation

railCrude oil prices are now approaching what pundits believe is likely to be the bottom phase in the current market cycle. Due to the price downturn, the arbitrage window that drives a substantial portion of crude-by-rail (“CBR”) shipping volumes is closed. Yet once the price recovery begins, producers and refiners will again avail themselves of CBR’s speed and flexibility, and the market will see oil carload volumes recover accordingly. As such, we believe the current time presents an ideal opportunity to assess CBR risk and liability issues to help guide operators, shippers, and regulators as they prepare for an upswing in activity likely to begin in late 2016.

This article is the first in a three-part series and will address the primary factors that influence CBR liability: from factors that influence relatively ordinary fines to the factors that arise in the worst-case scenario. Part Two in the series will analyze the monetary magnitude of liability risks that accompany the liability factors outlined in Part One. And Part Three will offer insights into how BakerHostetler can help railroads, terminal operators, and crude oil shippers fine-tune their risk management strategies and reduce legal exposure as CBR activity begins to recover. Continue Reading

2015 ONRR Civil Penalties: Where, Why, and How Much

Posted in Land Use

European landscape. View of earth from an airplane window.

The Office of Natural Resources Revenue (“ONRR”), a unit within the United States Department of the Interior, is responsible for collecting and disbursing revenues from energy production on federal and Indian lands and offshore on the Outer Continental Shelf.[1]

The agency verifies reporting, conducts audits, and enforces laws, regulations, lease terms, and orders.[2] The agency also issues civil penalties for noncompliance.[3]

For example, if ONRR sends you a Notice of Noncompliance and you do not correct all of the violations identified within 20 days (or longer, if so specified), you become subject to civil penalties of up to $500 per day per violation.[4] What is more, ONRR believes each incorrect line on a Form ONRR-2014 or Oil and Gas Operations Report (“OGOR”) is a separate violation.[5] Continue Reading

EQT’s Lengthy Battle With the Pennsylvania Department of Environmental Protection Gets Its Day in State Supreme Court

Posted in EPA Issues, Fracking, Pennsylvania

Natural_Gas_Drilling_Rig_PeekingOn November 17, 2015, Pittsburgh-based energy company EQT Production Co. (“EQT”) presented its oral argument before the Pennsylvania Supreme Court, requesting it set aside a February 20, 2015, ruling of Commonwealth Court Judge Rochelle S. Friedman. Specifically, she had held EQT could not bypass the state’s administrative Environmental Hearing Board (“EHB”) stage in its efforts to contest the Pennsylvania Department of Environmental Protection’s (the “DEP’s”) determination regarding fines EQT owes for a fracking water leak. EQT v. DEP, 114 A.3d 438 (Commw. Ct. Pa. 2015).

The basis of this dispute stems from EQT’s discovery on May 30, 2012, that one of its impoundments, located in Tioga County, Pennsylvania, was leaking water generated from hydraulic fracturing. Id. EQT emptied the site of impaired sludge and began a formal cleanup process under the state’s “Land Recycling and Environmental Remediation Standards Act.” Id. EQT has continued to remediate the affected soil and groundwater. Id. Continue Reading

Crude-By-Rail Update: Siting a Crude Oil Transloading Terminal in California? Developers Should Seek Old Industrial Sites and Proactively Embrace the Environmental Impact Review Process

Posted in Oil and Gas, Transportation

railProposed crude-by-rail (CBR) projects in California increasingly face opposition lawsuits designed to stall and derail the terminals. The suits often focus on alleged noncompliance with the California Environmental Quality Act (CEQA)—a tactic that has produced success.[1] Undoubtedly, CEQA review presents its own delays and costs to industrial development. But if approached in the correct way, the CEQA process offers a significant opportunity to build a favorable foundation for CBR terminals and potentially forestall opposition lawsuits. Continue Reading

Lower Oil and Gas Prices Met With an Uptick in Unpaid Overtime, Worker Misclassification, and Other Wage Suits

Posted in Shale, Texas

122910-1.cdrOn Monday, the United States Energy Information Administration released a Drilling Productivity Report. The report projects that total oil output from seven major U.S. shale regions will fall by 118,000 barrels per day to about 4.95 million barrels per day in December. This is the largest monthly decline on record. The Bakken and Eagle Ford Shale regions are anticipated to show declines next month, marking the 10th straight month of declines in those formations. Total U.S. shale production is projected to fall for an eighth consecutive month in December.

The slowdown in production in the Eagle Ford Shale coincides with a surprising uptick in litigation, specifically, lawsuits over unpaid overtime and wages. In fact, through the first 10 months of this year, 72 such lawsuits were filed in the United States District Court for the Western District of Texas in San Antonio. This is a dramatic increase from the 28 lawsuits filed in 2014 and the 10 filed in 2013. The actions are brought under the Fair Labor Standards Act. Many blame the downturn in shale production for the increase in lawsuits. Continue Reading

Crude-by-Rail Update: PHMSA Rejects Administrative Challenges to CBR Rule

Posted in Transportation, Wisconsin

railDespite challenging oil prices and a decrease in the volume of crude oil traveling by rail,[1] recent events have renewed the spotlight on crude-by-rail (CBR) transportation. First, two trains derailed in Wisconsin last weekend – one carrying ethanol and the other hauling crude oil.[2] Second, the Pipeline and Hazardous Materials Safety Administration (PHMSA) reaffirmed its commitment to its CBR Rule.

Although the Wisconsin derailments resulted in no injuries, the crude oil derailment caused home evacuations and spilled roughly 1,000 gallons, and the ethanol derailment spilled an estimated 20,000 gallons directly into the Mississippi River. The incidents will likely refocus public and special interest group ire on CBR at a sensitive time when the fate of the CBR Rule rests with the judicial system. Continue Reading

DO YOU DARE TO FLARE? A North Dakota Field Office Provides a View Into the Federal Regulatory Future

Posted in Oil and Gas

Operating oil and gas well

While high-profile regulatory efforts focused on hydraulic fracturing, waters of the United States, sage grouse, and greenhouse gas emissions have grabbed media headlines over the last several months, a potent stew of seemingly mundane technical initiatives has been simmering under the noses of domestic energy companies. Taken individually, narrow regulatory proposals related to oil and gas accounting, permitting and planning requirements, procedural rules for administrative appeals, royalty reporting, weights and measures, bonding requirements, and infrastructure development have been of interest to only a small group of regulatory and legal technocrats. But understood collectively, these less glamorous initiatives have the potential to fundamentally change the scale and nature of oil and gas development in the United States. Continue Reading

Pennsylvania Township Moves to Revive an Ordinance Banning Disposal of Wastewater from Hydraulic Fracturing Activities, After Federal Court Ruling Invalidated It

Posted in Hydraulic Fracturing, Pennsylvania

Shale gas

On October 26, 2015, Grant Township, Pennsylvania, filed a Motion for Reconsideration of  Western District of Pennsylvania District Court Magistrate Judge Susan Baxter’s October 14, 2015, ruling invalidating several elements of the township’s ordinance (the “Ordinance”).

On June 3, 2014, Grant Township adopted the Ordinance, which attempted to establish a “Community Bill of Rights for the people of Grant Township.” Doc. 113 (Memorandum Opinion) at 1. This Ordinance set forth “the framers’ beliefs that corporations should not have more rights than the people of its community and that the people have the right to regulate all activities pursuant to a right of local self government.” Id. at 2-3.

It also specifically proscribed numerous activities, including banning the disposal of wastewater from hydraulic fracturing activities, as well as prohibiting the right to challenge the Ordinance in court. Id. at 3. Continue Reading

Texas Supreme Court to Decide Whether Groundwater Estate Should Be Granted Accommodation Status Similar to Mineral Estate

Posted in Groundwater, Texas

TexasOn October 14, 2015, the Texas Supreme Court heard argument in a case styled Coyote Lake Ranch, LLC v. The City of Lubbock, which dealt with the question of whether the accommodation doctrine should apply when a groundwater estate has been severed from the surface estate. Coyote Lake Ranch, LLC owns a ranch in West Texas, near the New Mexico border. In 1953, the prior owner of the ranch conveyed some of the groundwater rights underneath the ranch to the City of Lubbock. The City of Lubbock recently released plans to develop approximately 80 additional municipal wells across the ranch. Coyote Lake argued that the city’s development of additional wells would cause surface erosion and affect the ranch’s ecosystem. Coyote Lake and Lubbock did not dispute that the groundwater purchase contract allowed Lubbock to use the ranch’s surface to develop wells to extract the groundwater, but disagreed regarding whether the city is bound by the same rule that governs mineral owners—the duty to reasonably accommodate existing surface uses whenever possible. Continue Reading

Pennsylvania Court Holds Oil and Gas Reservations Do Not Terminate Upon Expiration of Lease

Posted in Pennsylvania

Operating oil and gas well

On Friday, October 9, 2015, a three-judge panel of the Pennsylvania Superior Court held that a reservation of oil, gas and mineral rights in a deed does not terminate merely because the lease under which those rights were previously leased has expired. Rather, specific language is required in order to release oil, gas and mineral rights reserved by the grantor in a deed.

In Wright v. Misty Mountain Farm LLC, 2015 PA Super 218, Patricia Wright appealed an order granting summary judgment in favor of Misty Mountain Farm LLC, and the Superior Court affirmed the trial court’s decision. Patricia Wright had sought declaratory judgment that Misty Mountain Farm LLC has no ownership rights in the oil, gas or minerals beneath the surface of certain real property now owned by Ms. Wright, but the trial court ruled in favor of Misty Mountain Farm LLC.

In 1950, the property in question was conveyed by deed from Fred and Jeanetta Buck to Robert and Marjorie Wright. However, the Bucks reserved and excepted “all rights in oil, gas and minerals on the property” from this conveyance. The oil and gas rights had previously been leased by the Bucks under a lease that appears to have expired in or around 1971. Also in 1971, Robert and Marjorie Wright leased the property and the oil and gas rights, and in 1988 conveyed by deed both the land and oil and gas rights to David and Patricia Wright. David and Patricia Wright leased the land and subsurface rights in 2001 and again in 2005. The present dispute arose in 2010, when Shirley Matthews, administratrix of the estate of Jeanetta Buck conveyed the subsurface rights to Misty Mountain Farm LLC.

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