OIL AND GAS UPDATE: LEGAL DEVELOPMENTS IN 2019 AFFECTING THE OIL AND GAS EXPLORATION AND PRODUCTION INDUSTRY
| Jurisdiction | United States |
Editor 1
Edinger Leonard & Blakley PLLC
Oklahoma City, Oklahoma
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The state reports presented below include key legal developments in most of the more active states in the areas of oil and gas exploration, development, and production.
I. Alaska
A. Legislative Developments
The 2019 legislative session resulted in virtually no oil and gas legislation being passed. Despite the uncharacteristic lack of oil and gas legislation, the legislature addressed the prevalent issue of oil and gas leasing in the Arctic National Wildlife Refuge (ANWR) through the passage of Senate Joint Resolution (SJR) No. 7.
In passing SJR No. 7,2 the legislature resolved to request "that the United States Department of the Interior, Bureau of Land Management implement an oil and gas leasing program in the coastal plain of the Arctic National Wildlife Refuge"3 (ANWR). The Resolution provides that
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16 U.S.C. § 3143 (section 1003 of the Alaska National Interest Lands Conservation Act (ANILCA)) and 16 U.S.C. § 3142 (section 1002 of ANILCA) authorize both "oil and gas development and production . . . and nondrilling exploratory activity within the coastal plain."4 In passing SJR No. 7, the legislature noted that the "coastal plain . . . contains an estimated [7.687 billion] barrels of recoverable oil and [7 trillion] cubic feet of natural gas."5
B. Judicial Developments
In All American Oilfield LLC v. Cook Inlet Energy, LLC,6 the Alaska Supreme Court accepted certified questions from both the U.S. District Court and the U.S. Bankruptcy Court for the District of Alaska regarding the breadth of Alaska's mineral dump lien statute as it applies to natural gas development.
In response to the question of whether a ```dump lien' under [Alaska Statute (AS)] 34.35.125 et seq. [can] apply to gas stored in its natural reservoir,''7 the Alaska Supreme Court held that the statutory definition of ``dump or mass'' reflects that a mineral dump lien may extend only to gas extracted from its natural reservoir.8 Under the relevant statutory framework, there must be a ``dump'' to which the lien can attach for a claimant to obtain a dump lien.
In ruling on the second certified question, whether a mineral "dump" is created under AS 34.35.140 and AS 34.35.170(a)(1) each time natural gas is released from the natural reservoir and transported through a pipeline to the point of sale, the Alaska Supreme Court found that "[b]ecause gas in a pipeline has been extracted, hoisted, and raised and is in mass, it may constitute a dump if [it] [] is located adjacent to the mine or mining claim."9 However, whether gas is adjacent to a mine or mining claim must be decided on a case-by-case basis.10
The supreme court answered the final question, "whether dump lien claimants must prove that produced gas is the product of their labor,"11 in the affirmative; however, whether a particular claimant's labor meets these requirements is case-specific and must be left to the trier of fact.12
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In Kenai Landing, Inc. v. Cook Inlet Natural Gas Storage Alaska, LLC,13 the Alaska Supreme Court affirmed a superior court ruling regarding compensation for producible native gas remaining in a reservoir at the time of a taking, as well as its valuation of gas storage rights. The Alaska Supreme Court held that Kenai Landing, the owner a parcel of land overlying the Sterling C Reservoir where natural gas is stored, was not entitled to compensation for either native or new gas in the Sterling C Reservoir at the time of the taking. Analyzing the principles of just compensation, the court determined that Kenai Landing lost nothing by virtue of Cook Inlet Natural Gas Storage Alaska, LLC's (CINGSA) condemnation of an easement14 because CINGSA held both production rights and a royalty interest by virtue of a lease assignment.15
The Alaska Supreme Court further held that the lower court did not err in valuing Kenai Landing's pore space rights on the basis that the fullest extent rule, "which presumes that the appropriator will exercise [the rights acquired] and use and enjoy the property taken to the full extent,"16 undermines Alaska law on just compensation. It further found that the superior court properly valued pore space rights by including a "buffer area" in its valuation and by relying on one of CINGSA's experts with respect to the actual value of the storage space.17
In League of Conservation Voters v. Trump,18 the U.S. District Court for the District of Alaska found that section 12(a) of the Outer Continental Shelf Lands Act (OCSLA) does not endow the President with the authority to revoke withdrawals of unleased land from the Outer Continental Shelf (OCS). Plaintiffs sued the federal defendants19 for an alleged violation of the federal Constitution's Property Clause, as well as an alleged violation of the statutory authority endowed by section 12(a) of OCSLA, after President Trump issued Executive Order No. 13,795,20 intended to revoke three memoranda and one executive order issued by President Obama in 2015 and 2016 withdrawing certain areas of the OCS from leasing.
The district court found that, while the plain language of section 12(a) does not expressly grant to "the President the authority to revoke [] prior
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withdrawal[s],"21 the statute created ambiguity. As a result, the court examined the context of section 12(a) to discern Congress's intent, including the structure, legislative history and prior statutes, purpose of, and subsequent legislative history of OCSLA.
Based on the context surrounding section 12(a), the district court granted plaintiffs' motion for summary judgment, declaring the revocation in Executive Order No. 13,795 invalid and unlawful, and vacating section 5 of the order. The defendants have since filed notices of appeal with respect to the district court's ruling to the U.S. Court of Appeals for the Ninth Circuit.22
II. Arkansas
A. Legislative Developments
H.B. 115623 globally reorganized Arkansas' formerly scattered collection of 42 administrative agencies into 15 cabinet-level departments whose directors report directly to the governor. The Arkansas Oil and Gas Commission is now included within the Department of Energy and Environment, along with the Arkansas Department of Environmental Quality, the Arkansas Pollution Control and Ecology Commission, and six smaller, formerly independent, agencies.
B. Judicial Developments
In Stephens Production Co. v. Mainer,24 the Arkansas Supreme Court affirmed a trial court's order certifying a class of royalty owners suing Stephens, alleging improper deduction of post-production expenses from their royalties. The class, as certified, will have around 36 members. In its interlocutory appeal, Stephens argued that the proposed class failed to satisfy the numerosity requirement of Arkansas' class action rule,25 which requires a finding that joinder of all individual class members is impractical.
A sharply divided supreme court affirmed the trial court's class certification order. The majority opinion, approved by four members of the seven-member court, relied upon Arkansas appellate courts' strong deference to trial courts on issues of class certification. In so doing, the majority distinguished the supreme court's earlier ruling in City of North Little Rock v. Vogelgesang,26 where it had disallowed a 17-member class.
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The majority observed that, unlike Mainer, the Vogelgesang trial court order had denied class certification. According to the majority, neither trial court order constituted abuse of discretion, which the Arkansas Supreme Court has established as its standard for reviewing such orders.
Justice Wood, writing for the dissenting three-justice minority, appeared critical of the supreme court's "hands-off" oversight of trial courts' management of putative class action lawsuits, writing that "the majority further relaxes our already liberal requirements for class certification."27 She observed that the Mainer class, thus certified, was apparently the smallest ever certified in Arkansas, though its record contained no proof that joinder of all class members was impractical. Specifically, Justice Wood stated: "Although our standard of review is deferential to the circuit court's discretion, we should not feel bound to affirm an unprecedented decision simply because the circuit court said so, without any indication that joinder is impracticable."28
Mainer showcases the polar difference in the class action certification procedure between Arkansas' state and federal courts. Federal courts are required to conduct a "rigorous analysis" to confirm that each class action requirement has been met.29 Arkansas state trial courts have "wide discretion" regarding class certification. No such "rigorous analysis" is required.30
Turner v. XTO Energy Inc.31 involved a mineral owner's claim that XTO Energy Inc. (XTO) had secretly commingled gas from a stratigraphic formation where he was a participant, and produced from a shallower zone where his interest is non-consent, so as to deprive him from revenue from its sale. The claimant, Turner, was an unleased mineral owner whose interest was subjected to separate Arkansas Oil and Gas Commission integration orders covering the shallow and deep zones and had elected to participate only in the deeper zone. Shortly before a scheduled bench trial, XTO moved for summary judgment, attaching affidavits from both a geologist and a reservoir engineer to support its defense that the deeper zone had "watered out" in 1982 and thus was incapable of contributing to production. Citing Turner's failure to rebut that proof, the district court granted the motion.
The court's primary ruling was fact-based and...
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