LEGAL DEVELOPMENTS IN 2015 AFFECTING THE OIL AND GAS EXPLORATION AND PRODUCTION INDUSTRY
| Jurisdiction | United States |
Editor 1
McAfee & Taft
Oklahoma City, Oklahoma
Copyright © 2016 by Rocky Mountain Mineral Law Foundation; Mark D. Christiansen
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As a preliminary qualification, the ongoing growth of legal activity and challenges in the oil and gas industry has led to a significant increase in the number of new legal developments. In view of space limitations, the state updates included in this report are not exhaustive.
I. Alaska
A. Legislative Developments
In the 2016 operating budget, Alaska Governor Bill Walker used his line-item veto power to reduce a $700 million appropriation for refundable exploration expenditures (tax credits) to $500 million. In exercising his veto power, Governor Walker emphasized that the $200 million he vetoed from the FY2016 operating budget does not deny but rather delays those state expenditures.
The Alaska State Legislature approved SB 3001, allowing the buyout of the pipeline company TransCanada so the state-owned Alaska Gasline Development Corp. (AGDC) can acquire a 25 percent share of the Alaska
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LNG project alongside BP, ConocoPhillips and ExxonMobil. SB 3001 appropriates $68.4 million to repay TransCanada for its expenses to date in preliminary engineering on its share of the project. The bill also authorizes AGDC to spend $75.6 million to pay what would have been TransCanada's share in completing preliminary engineering now underway.
B. Judicial Developments
In McIntyre v. BP Expl. & Prod., Inc., the court granted summary judgment against an individual who sued BP Exploration and Production, Inc. for, inter alia, breach of contract and misappropriation of trade secrets in connection with BP's solicitation of suggestions from the public for ways to stop the uncontrolled leaking of oil from the Macondo Oil Well. Plaintiff claimed that BP used his suggested method to cap the well, and filed U.S. Patent Application for the method, without offering plaintiff any compensation, credit, or acknowledgment. The court found that plaintiff and BP never formed a contract and that plaintiff never made any efforts to maintain the secrecy of his idea. Further, the court found that plaintiff's suggested solution lacked the characteristics and specificity to be a "protected idea."2
In State, Dep't of Revenue v. BP Pipelines (Alaska) Inc., pipeline owners and municipalities sought review of the State Assessment Review Board's (SARB) 2007, 2008, and 2009 property tax value for the Trans-Alaska Pipeline System (TAPS) of $4.589 billion, $6.154 billion, and $9.046 billion, respectively. The municipalities asserted that the value of TAPS for each of the years in question should be about $14 billion, while the owners asserted that the value should be little more than $1 billion. The reason for the difference in these values was that the owners continued to argue for the income approach to valuation, which would limit TAPS's value based on its tariff income, while the municipalities advocated for a cost approach using the replacement-cost-new-less-depreciation method. On review, the superior court agreed with the municipalities' calculation methodology but arrived at a higher valuation of $8.941 billion in 2007, $9.644 billion in 2008, and $9.249 billion in 2009. The pipeline owners and municipalities thereafter appealed to the Alaska Supreme Court, which held that the superior court did not err in arriving at the final valuation and upheld the court's ruling in all respects.3
In State v. Jewell, the State of Alaska brought an action seeking an order directing the Secretary of the Interior to review the State's submitted plan for the exploration of oil and gas resources within the coastal plain of the Arctic National Wildlife Refuge (ANWR). The state submitted the
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exploration plan pursuant to § 1002 of the Alaska National Interest Lands Conservation Act (ANILCA) (16 U.S.C. § 3142(b)(1)). The court, in granting summary judgment in favor of the Secretary, held that the Secretary's interpretation that her statutory authority and obligation to review and approve exploration plans under § 1002 of ANILCA had ceased after 1987 was based on a permissible and reasonable construction of the statute.4
In Alaska Wilderness League v. Jewell, environmental organizations brought an action challenging an incidental take regulation (ITR) promulgated by the United States Fish and Wildlife Service (FWS). The ITR allowed the industry to apply for letters of authorization to permit the incidental take of Pacific walruses in connection with oil and gas exploration activities in the Chukchi Sea. The court, in upholding the ITR, held that FWS's negligible impact findings were not arbitrary and capricious and that it met its obligation under the National Environmental Policy Act (NEPA) and the Administrative Procedure Act (APA) to describe the mitigation necessary to meet its finding of no significant impact.5
In Kunaknana v. U.S. Army Corps of Engineers, the court denied a second challenge to the U.S. Army Corps of Engineers' (USACE) decision to issue a permit to ConocoPhillips Alaska, Inc. to fill certain wetlands in order to develop a drill site known as CD-5, which is located in the National Petroleum Reserve--Alaska (NPR-A). The court held, inter alia, that (a) USACE's decision not to supplement the final environmental impact statement (FEIS) in lieu of changes to the proposed project and (b) its decision not to prepare a supplemental environmental impact statement due to recent climate change information were not arbitrary and capricious.6
In Alaska Wilderness League v. Jewell, the court upheld the Bureau of Safety and Environmental Enforcement's (BSEE) approval of Shell Gulf of Mexico Inc. and Shell Offshore Inc.'s (collectively Shell) oil spill response plans (OSRPs) for development of offshore oil and gas resources in the Beaufort and Chukchi Seas. In granting summary judgment in favor of BSEE, the court held that BSEE's interpretation of the Outer Continental Shelf Lands Act and its own regulations, that BSEE lacked discretion to deny approval once it determined that the OSRPs satisfied the statutory requirements, was not arbitrary and capricious. The court further held that Endangered Species Act consultation and National Environmental Policy Act review were not required.7
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In Shell Offshore, Inc. v. Greenpeace, Inc., after granting a temporary restraining order against Greenpeace, Inc. for interference with Shell Gulf of Mexico Inc. and Shell Offshore Inc.'s (collectively Shell) preparation to conduct oil exploration offshore of Alaska on the Outer Continental Shelf, the court denied Greenpeace's motion to dismiss Shell's complaint for trespass to chattels, interference with navigation, private nuisance, and civil conspiracy. Shell's complaint alleges that Greenpeace has been blockading vessels in transit, blocking access to vessels attempting to dock at port, boarding vessels, placing swimmers in the water in front of vessels, hanging climbers on the sides of vessels, hanging survival pods on vessels, attempting to foul propulsion systems and chaining individuals to anchors, vessels or other facilities.8
In Alaska Eskimo Whaling Comm'n v. U.S. E.P.A, the court remanded to the Environmental Protection Agency (EPA) to reconsider its determination that discharge of non-contact cooling water by oil and gas exploration facilities will not cause unreasonable degradation of the marine environment. Specifically, the court required the EPA to identify evidence in the record sufficient to support its decision concerning the possible effect, or non-effect, of the discharge of non-contact cooling water on the bowhead whale migration and subsistence hunting season in the Beaufort Sea.9
C. Administrative Developments
The Alaska Oil and Gas Conservation Commission (AOGCC) approved an increased natural gas "offtake" rate of 3.6 billion cubic feet of gas per day from the Prudhoe Bay field on the North Slope to supply the planned Alaska LNG Project. The AOGCC's order amended a previous order from several years ago that allowed 2.7 billion cubic feet of gas to be produced.
The AOGCC also approved pool rules for the Point Thomson field that ExxonMobil is developing on the North Slope. The rules, which would allow the initial cycling of gas through the Point Thomson reservoir for condensate production, also allow for the eventual annual average offtake of up to 1.1 billion cubic feet per day of natural gas to supply the planned Alaska LNG project.
II. Arkansas
A. Legislative Developments
In its 2015 regular session, the Arkansas General Assembly enacted minor amendments to the statute that governs the integration procedure.
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The most important of those substituted the words "opportunity for hearing" for "hearing" in the statute, enabling the Commission to issue orders without an actual public hearing under some circumstances when no hearing is requested by any interested party.10
B. Judicial Developments
Arkansas is a "force pooling" jurisdiction. That pooling process is called "integration" in the Arkansas statutes. The authority of the Arkansas Oil and Gas Commission to integrate the interests of non-consenting owners into Commission-formed units originated in Arkansas' 1939 oil and gas conservation act.11 The conservation act thus modified the common law rule of capture, creating an owner's previously non-existent correlative right to its fair share of the oil and gas beneath its lands, in exchange for being required to elect among alternative ways to participate in unit development.12 In Gawenis v. Arkansas Oil and Gas Commission,13 the owner of a small mineral tract that was integrated into a larger unit challenged the constitutionality of the integration process, contending that...
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