LEGAL DEVELOPMENTS IN 2017 AFFECTING THE OIL AND GAS EXPLORATION AND PRODUCTION INDUSTRY
| Jurisdiction | United States |
Editor 1
McAfee & Taft
Oklahoma City, Oklahoma
Copyright © 2018 by Rocky Mountain Mineral Law Foundation; Mark D. Christiansen
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As a preliminary comment, the ongoing growth of legal challenges and activity in the oil and gas industry has led to a significant increase in the number of new legal developments occurring each year. In view of space limitations, the state updates included in this report are not exhaustive.
I. ALASKA
A. Legislative Developments
The Alaska State Legislature enacted H.B. 111, which builds on the passage of H.B. 247 in 2016. Among other things, this new legislation phases out cashable exploration tax credits to oil and gas companies operating in Alaska. It also retroactively ends cash payments from the State of Alaska to oil companies starting July 1, 2017, changes the interest rate on production taxes, allows oil companies to carry forward losses for either 10 or 7 years, and limits the time companies can hold deductions at full value. The legislation took effect on January 1, 2018.
B. Judicial Developments
In In re Aurora Gas, LLC, a buyer sought approval from the Alaska Oil and Gas Conservation Committee (AOGCC) to purchase several of a bankruptcy debtor's oil and gas well leases. The AOGCC conditioned approval of the transfer on the buyer assuming the debtor's obligations to
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plug and abandon certain gas wells that were not being purchased. The United States Bankruptcy Court for the District of Alaska held that, by conditioning the approval of the lease sale upon the buyer's assumption of the debtor's obligations to plug and abandon wells, the AOGCC violated both the bankruptcy code's automatic stay and its prohibition against discriminatory treatment of bankruptcy debtors. The court struck down the AOGCC decision.2
C. Administrative Developments
In April of 2017, the President signed an Executive Order aimed at expanding offshore drilling in the Arctic and Atlantic Oceans and assessing whether energy exploration can take place in marine sanctuaries in the Pacific and Atlantic Oceans.3 These lands were made eligible for oil and gas leasing only four months after the prior administration issued both a Presidential Memorandum withdrawing 125 million acres of the Arctic Ocean (and its estimated 27 billion barrels of oil) from disposition by leasing for an indefinite period4 and an Executive Order creating the Northern Bering Sea Climate Resilience Area and withdrawing 112,300 square miles in Norton Sound, Alaska and near St. Lawrence Island, Alaska from future oil and gas leasing.5
In May of 2017, the Secretary of the Interior signed a secretarial order requiring, among other things, a review of the Obama Administration's plan for managing the National Petroleum Reserve - Alaska (NPR-A). The order is intended to revitalize energy production in the NPR-A and to update resource assessments for portions of Alaska's North Slope, including part of the Arctic National Wildlife Refuge (ANWR).
In December of 2017, the President signed into law the national Tax Cuts and Jobs Act of 2017. The bill opens a portion of ANWR to oil drilling and other energy development that had been closed to exploration for over 40 years, and requires the federal government to hold two lease sales within seven years.
II. ARKANSAS
A. Legislative Developments
Act No. 514 of 20176 changed a portion of Arkansas' procedure for collection of delinquent ad valorem taxes on mineral interests. Under prior
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law, each county collector was required to publish a list of delinquencies in a legal newspaper as a prerequisite of the forfeiture process. Act No. 514 removed that requirement with respect to tax-delinquent severed mineral interests, substituting the posting of notice of delinquencies as to those interests on a website to be created and maintained by the Association of Arkansas Counties. The collector is now merely required to publish a legal notice referring mineral taxpayers to that website. It appears likely that this procedural change will be challenged as providing insufficient due process prior to forfeiture of a property right.7
B. Judicial Developments
In JS Interests, Inc. v. Hafner8 the court twice interpreted the parties' 1982 A.A.P.L. Form 610 Operating Agreement to require a unit's operator to pay overriding royalties burdening a non-operating owner who was non-consent in the wells in question. Such interests appear to be "subsequently created interests" under the agreement's Article III.D and would thus be required to be borne by the party whom the interests burdened, regardless of its non-consent status. However, the court held that since the assignments creating the overriding royalties had been recorded prior to execution of the operating agreement, they were thus disclosed in writing to all parties, causing them to then burden the consenting parties who had acquired the non-consenting interest. The court first so held in an order denying the operator's motion to dismiss and again denying its summary judgment motion. The second of those opinions was subsequently withdrawn by the court pursuant to a settlement agreement that terminated the litigation.9 The court's conclusion is highly questionable and, if correct, effectively guts the agreement's Article III.D, since virtually all assignments of overriding royalty interests are recorded, long before execution of the operating agreement.
Lipsey v. SEECO, Inc.10 was a putative federal class action seeking to certify a class of royalty owners who allegedly suffered damages due to belated post-period price adjustments correcting BTU mismeasurements at the wellhead. Plaintiffs offered a wide array of theories why they should be permitted to pursue such claims. However, in a detailed opinion, the district court granted summary judgment to the defendants on all such claims and denied plaintiffs leave to amend holding that no amended complaint could survive a similar summary judgment motion.
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In Ouachita Watch League v. U.S. Forest Service11 the federal appeals court dismissed an appeal prosecuted by the plaintiff society and several individuals challenging the Forest Service's resource management plan that permitted oil and gas drilling within portions of the Ozark National Forest. The district court had entered summary judgment for the Forest Service. However, rather than dealing with the district court's ruling, the appeals court dismissed the appeal, holding that the society lacked standing to challenge the Forest Service's management plan.
In Hill v. Southwestern Energy Co.12 the federal appeals court reversed a district court's ruling granting summary judgment to Southwestern. Plaintiffs had sued, alleging underground trespass, claiming that Southwestern's hydraulic fracturing of wells caused waste material to encroach beneath their unleased tracts. The opinion of the Court of Appeals, while skeptical, held that there was possible evidence upon which a jury could find that trespass occurred, thus precluding summary judgment.
Talley v. Peedin13 involved a complex dispute between the children of the former wife of a mineral owner and his current widow. While married to the appellants' mother, Veta Poff Moon, Dr. Nathan Poff, Sr. acquired, in his name alone, the surface and fractional mineral interest within approximately 300 acres in the heart of the Fayetteville Shale area. Dr. Poff later conveyed that land by warranty deed that Veta joined, purporting to reserve to the Grantors one-half of all oil, gas and mineral rights that they own. Appellants contended that the above reservation language vested Veta with a fee interest in the reserved minerals. In affirming the trial court's ruling favoring Dr. Poff's widow, Carolyn Peedin, the appeals court avoided holding whether the purported reservation in favor of Veta was a void stranger reservation, and whether Arkansas recognizes the spousal exception to the rule that a reservation in favor of a stranger is void.14 The court instead held that the above language only reserved minerals "owned" by the grantors and that Veta owned only an inchoate dower interest at the time of the reservation.
Duvall v. Carr-Pool15 came about through a complex set of facts. Here is the sequence of deeds at issue: (1) Hawkins and wife deeded to Cargile, reserving all oil, gas and other minerals. (2) Cargile deeded the surface back to Hawkins. That deed stated that all oil, gas and other minerals were reserved by Cargile, but Cargile never owned any minerals in the first
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place, since they were reserved by Hawkins and wife in deed 1. (3) Hawkins deeded to Duvall, predecessor to the Plaintiff, Carr-Pool. That deed stated that it was understood that all oil, gas, and minerals in or under or that may be produced from said land have been previously reserved or conveyed. (4) After numerous conveyances within the Hawkins family, any interest that was effectively reserved by Hawkins passed to Carr-Pool. The court of appeals held that Carr-Pool owned a disputed mineral interest because the above quoted language was an effective mineral reservation. The court found that there are no magic words needed for a mineral reservation to become effective. Its result was reached by simply construing the "four corners" of the instrument. However, this writer suggests that perhaps a better reason for the same result could have been that the language was ambiguous, thus permitting inquiry into the parties' subjective intent. Facts recited by the appeals court indicated both sides had previously behaved consistently with the court's interpretation.
III. CALIFORNIA
A. Legislative Developments
The California Legislature made a number of amendments in 2017 to the California Public Resources Code regarding the...
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