CHAPTER 8 OTHER CASES AND REGULATIONS AFFECTING THE GAS INDUSTRY
| Jurisdiction | United States |
(2001)
OTHER CASES AND REGULATIONS AFFECTING THE GAS INDUSTRY
Davis, Graham & Stubbs LLP
Denver, Colorado
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OTHER ITEMS OF INTEREST TO PRODUCERS
FERC Order No. 616
Issued July 14, 2000, 65 Fed. Reg. 45859 (July 26, 2000).
Purpose — to reinstate provisions for well category determinations for certain categories of high-cost gas under the Natural Gas Policy Act of 1978 (the "NGPA"), section 107. An NGPA determination will enable such gas to be eligible for a tax credit under Section 29 of the Internal Revenue Code. The final rule extends the provisions to all wells, and tight formation areas, that could qualify for the Section 29 tax credit.
Section 29 — allows taxpayers to claim a tax credit for certain qualified fuels which (1) are produced from wells drilled after December 31, 1979, and before January 1, 1993, and (2) are sold before January 1, 2003. The qualified fuels include high cost gas as defined in NGPA section 107(c)(2) — (4) (gas produced from geopressured brine, coal seams and Devonian shale), as well as some gas the Federal Energy Regulatory Commission defined as tight formation gas pursuant to NGPA section 107(c)(5).
Problem — Section 29(c)(2)(A) provides that the determination whether gas falls into a category qualifying for the tax credit "shall be made in accordance with section 503 of the (NGPA)." However, pursuant to the Natural Gas Wellhead Decontrol Act of 1989, the last remaining NGPA ceiling prices were eliminated and NGPA section 503 was subsequently repealed. The assumption of FERC was that the tax credit would not be available with respect to any drilling activity after December 31, 1992. However, on August 16, 1993, the IRS issued Revenue Ruling 93-54 which held that, while the initial drilling of a well had to have been performed before January 1, 1993, tax credits are available for non-conventional fuels produced through a post-January 1, 1993, recompletion in the well, as long as the recompletion does not involve additional drilling to deepen or extend the well. In 1999, the United States Court of Appeals for the Tenth Circuit held in True Oil Co. v. Commissioner of Internal Revenue, 170 f.3d 1294 (10th Cir. 1999), that there had to be a formal determination under the procedures provided by NGPA section 503 that gas is high cost gas. Since section 503 had been repealed, it was impossible to obtain such a formal determination.
Order No. 616 — the Commission reinstated the NGPA section 503 well category determination procedure for most pre-January 1, 1993 drilling activity, as well as post-January 1, 1993 recompletions, where necessary to allow a producer to qualify for the Section 29 tax credit. The Order also permits the designation of new tight formations (a prerequisite before a specific well can obtain a tight formation determination). FERC will not accept applications for
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determinations from producers if the applicable jurisdictional agency has not agreed to make determinations. (The section 503 process starts with a jurisdictional agency determination that is then submitted to FERC.) Jurisdictional agencies include state oil and gas or similar commissions and the Bureau of Land Management. Order No. 616 will remain effective until the later of June 30, 2003, or six months after the tax credit is no longer available for production from any well should Congress further extend the tax credit.
BLM Onshore Oil and Gas Leasing and Operations
Proposed rule published at 63 Fed. Reg. 66840 (Dec. 3, 1998).
Purpose — to revise the Federal oil and gas leasing and operations regulations. The rule would use performance standards in certain instances in lieu of the current prescriptive requirements. The proposed regulations cite industry standards and incorporate them by reference rather than repeat those standards in the rule itself. Also, BLM's onshore orders and national notices to lessees would be incorporated into the regulations to eliminate overlap with existing regulations. The rule would increase certain minimum bond amounts and would revise and replace BLM's current unitization regulations with a more flexible unit agreement process. The proposed rule also proposed to eliminate redundancies, clarify procedures and regulatory requirements, and streamline processes.
False Claims Act (Qui Tam) Litigation
United States of America ex rel. Jack J. Grynberg
Seventy-seven cases in ten federal district courts
Involves federal and Indian leases only
Filed in 1997 under seal, unsealed in 1999
By Jack Grynberg, as Relator
Against approximately 330 defendants
Consolidated in the United States District Court for the District of Wyoming for pretrial (Judge Downes)
The Relator characterizes his complaints as involving "Mismeasurement Techniques" although royalty valuation allegations are included in some or all of the Complaints.
General allegations of wrongdoing:
Defendants measure and analyze natural gas differently at the point of intake and at the point of later delivery.
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Defendants are in control of the MMBTU measurement and analysis process at the point of purchase or input into a gas gathering line and/or gas pipeline (where royalty measurements are taken), and Defendants have also (directly or through subsidiaries or affiliates) regularly controlled the procedures for analyzing the heating content and measuring the volume of natural gas at any later point — often at a distant location from the point of intake — where Defendants (or their affiliates) have resold or otherwise conveyed that gas.
There are significant economic motivations for Defendants to understate the MMBTU value of natural gas measured and analyzed at the point of purchase or input.
Alleged mismeasurement techniques affecting heating content (not all allegations in all complaints):
Taking samples of gas for heating value analysis at strategic locations situated too close to flow disturbing devices such as the orifice meter used to measure gas volume.
Inserting a thermometer probe...
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