LEGAL DEVELOPMENTS IN 2013 AFFECTING THE OIL AND GAS EXPLORATION AND PRODUCTION INDUSTRY
| Jurisdiction | United States |
Editor 1
McAfee & Taft
Oklahoma City, Oklahoma
[Page 87]
As a preliminary qualification, the ongoing growth in the oil and gas industry has led to a significant increase in both the number of active oil and gas states and the number of new developments in the traditionally-active states. In view of space limitations, only certain of the more-significant developments are covered in this report.
I. Alabama
A. Legislative Developments
Effective January 1, 2014, Alabama repealed and replaced its door-closing statute that prevented out-of-state corporations from obtaining judicial relief through the filing of a complaint or a counterclaim for injuries or transactions in intrastate commerce that occurred prior to the corporations' qualifying to do business in Alabama.2 Effective January 1,
[Page 88]
2014, the new statute allows an unqualified out-of-state corporation to qualify to do business after the fact and still maintain a complaint or a counterclaim.3 The new statute avoids the harsh results to out-of-state oil industry companies such as what happened in the case of Sanwa Business Credit Corp. v. G. B. "Boots" Smith.4 In that case, a Delaware drilling rig finance corporation, Sanwa Business Credit, hired a Delaware drilling rig assembly company, G.B. "Boots" Smith Corporation, to transport one drilling rig from Escambia County, Alabama, and another drilling rig from Cass County, Texas, to Bibb County, Alabama and to assemble the rigs at the new location. Smith was not qualified to do business in Alabama when it entered into the transportation and assembly contract with Sanwa Business Credit. The court found that Smith was engaged in an intrastate construction contract and that the transportation activities were merely an adjunct to the agreement to construct the rig in Alabama. The court refused to allow Smith to recover against Sanwa under its contract due to Smith's failure to qualify to do business in Alabama.
B. Judicial Developments
In the case of Wausau Dev. Corp. v. Natural Gas & Oil, Inc.,5 the court rebuffed an attempt to deny judicial relief to an out-of-state oil and gas company on the basis of Alabama's door-closing statute, Section 10A-1-15.02(a) of the Code of Alabama (1975). Wausau was a Mississippi company that held oil and gas leases in Alabama but had not qualified to do business in Alabama. Natural held oil and gas leases on some of the same lands covered by the Wausau leases. Natural sued Wausau in state court in a title contest. Wausau filed counterclaims for breach of contract, slander of title, and unjust enrichment. Natural filed a motion for judgment on the pleadings as to the counterclaims, alleging that the Alabama door-closing statute barred the counterclaims. The court rejected the door-closing assertions on technical grounds and never considered the merits as to whether Wausau was engaged in interstate commerce and therefore exempt from the door-closing statute. The court recognized that Alabama had repealed and replaced the door-closing statute effective January 1, 2014. The court's complicated technical analysis seems to reflect a change of judicial temperament on the former door-closing statute ahead of the January 1, 2014, effective date of the new statute, Section 10A-1-7.21(a).
II. Alaska
A. Judicial Developments
In two decisions issued in 2013, the court rejected challenges by
[Page 89]
environmental groups to air pollution permits granted by the EPA to Shell for oil exploration activities in the Arctic Ocean off of Alaska's North Slope. In Resisting Environmental Destruction on Indigenous Lands, REDOIL v. U.S. EPA,6 the court upheld similar permits granted for the activities of the drillship Noble Discover and its fleet of support vessels in the Beaufort and Chukchi Seas. A few months later, in Alaska Wilderness League v. U.S. EPA,7 the court upheld permits granted for the activities of the drill vessel Kulluk in the Beaufort Sea. In both cases, the court afforded Chevron8 deference to the EPA Environmental Appeals Board's decisions affirming the permits.
In Shell Offshore, Inc. v. Greenpeace, Inc.,9 the Ninth Circuit upheld the district court's grant of a preliminary injunction barring Greenpeace USA from interfering with Shell's Arctic exploration activities. The court held, among other things, that the district court properly concluded that Shell met its burden of demonstrating a likelihood that Greenpeace USA would act unlawfully in the absence of an injunction, given the history of similar conduct by various Greenpeace entities in different parts of the world. The court also held that the injunction was in the public interest, since "Congress has recognized a public interest in the 'expeditious and orderly development'"10 of the Outer Continental Shelf.
Two federal court decisions relating to the polar bear's status as a threatened species could significantly impact oil and gas development in northern Alaska. In Alaska Oil & Gas Ass'n v. Salazar,11 the court vacated the U.S. Fish and Wildlife Service's final rule designating critical habitat for the polar bear under the Endangered Species Act (ESA). While the court upheld most aspects of FWS's action, it concluded that FWS had failed to show that certain areas included in the designation are "essential to the conservation of the species," as required by the ESA. The court also held that the final rule was "procedurally errant" in that FWS failed to adequately respond to comments submitted by the State of Alaska in opposition to the rule. In light of these errors, the court remanded the final rule to FWS for further consideration. Less than two months later, however, in In re Polar Bear Endangered Species Act Listing and Section 4(d) Rule Litigation--MDL NO. 1993,12 the court upheld the underlying listing of the polar bear as a threatened species under the ESA.
[Page 90]
In Native Village of Chickaloon v. Nat'l Marine Fisheries Serv.,13 the court invalidated an incidental harassment authorization (IHA) issued by the National Marine Fisheries Service (NMFS) to Apache Alaska Corporation to conduct seismic exploration in the Cook Inlet, parts of which have been designated as critical habitat for the Cook Inlet beluga whale and certain other marine mammals. As in the polar bear decision just discussed, the court upheld most aspects of NMFS's action. However, the court invalidated the IHA based on its finding that NMFS made mathematical errors in computing the number and percentage of Cook Inlet belugas that would be subject to incidental harassment during Apache's seismic activities.
In Alaskan Crude Corp. v. Alaska Oil and Gas Conservation Comm'n,14 the court rejected Alaskan Crude's argument that the Commission (AOGCC) should have designated a proposed exploration well as a natural gas exploration facility and recommended that it be exempted from the state's oil discharge response requirements. Alaskan Crude had argued that such a designation would be appropriate because any flow of oil from the well would be such that it could not reach the surface without mechanical assistance, but the court held that the determinative issue is whether the operator would be using the well to explore for oil as well as for gas. Because Alaskan Crude had acknowledged that it planned to explore for oil, the AOGCC did not err by refusing to classify the well as a gas-only facility.
In Sullivan v. Resisting Environmental Destruction on Indigenous Lands (REDOIL),15 the court held that Article VIII of the Alaska Constitution does not require the State to make a best interest of the state finding at each phase of an oil and gas project after the initial lease sale phase, since the subsequent phases do not constitute a disposal of state land or resources. However, it does require the State to consider the cumulative impacts of the project at each subsequent phase. The court did not attempt to detail how the State should go about analyzing the cumulative impacts of a project, holding only that the analysis should take into account all aspects of a project and its existing development context.
In Tesoro Corp. v. State, Dep't of Revenue,16 the court addressed several challenges by Tesoro to income taxes assessed against it by the Alaska Department of Revenue (DOR). The court held, among other things, that Tesoro lacked standing to challenge an alleged inconsistency between two formulas used in taxing companies engaged in the production and/or transportation of oil or gas (see Alaska Statute 43.20.144) because
[Page 91]
DOR determined Tesoro's tax liability under the more favorable of the two formulas. As such, Tesoro suffered no injury as a result of DOR's failure to apply the less favorable formula.
In Tesoro Alaska Co. v. Union Oil Co. of California,17 the court addressed a contract dispute between a company that produced oil on Alaska's North Slope and the company that purchased that oil. A pipeline company had issued the buyer an intrastate tariff refund ordered by the Regulatory Commission of Alaska, and the producer claimed that it was entitled to the refund. The court held the buyer properly retained the refund because the contract's pricing term provided a netback price referencing interstate tariffs, and the parties did not expect that the price would be adjusted based on a change in the intrastate tariffs.
B. Leislative Developments
SB 21 amended Alaska's oil and gas production tax system to increase the base rate from 25% to 35%, but also removed the progressivity component of the prior severance tax scheme known as ACES. A producer may be able to reduce its gross value at the point of production for certain North Slope production by up to 30 percent...
To continue reading
Request your trial