Although the New Year is still young, there are already many legal developments to report in the oil and gas sector. In no particular order, this is a cross-section of what has emerged at the intersection of the law and the energy industry thus far in 2018.
Wastewater Disposal Wells: Double-Dipping by Uncle Sam? In Parker County, Texas, the tax appraisal district continues to levy taxes separately on (i) underground wastewater disposal wells and (ii) the surface of the tracts on which the wells are situated. The disposal well companies have complained that this constitutes impermissible—and perhaps even unconstitutional—double-taxation. In the Second Court of Appeals, however, the well companies did not fare very well: the appellate panel there held that the appraisal district was within its rights to tax the wells, in addition to the surface. This had the effect of overturning the well companies’ successful motions for summary judgment at the trial level, where they had argued that the inherent value of the subsurface, for saltwater and chemical storage purposes, is already incorporated into the tax assessment of the fair market value of the overriding surface estate. The Texas Supreme Court is scheduled to hear oral arguments in this dispute at the end of February. The case is Bosque Disposal Systems LLC v. Parker County Appraisal District, No. 17-0146, in the Supreme Court of Texas.
Maritime Law: When Does It Apply to Offshore Service Contracts? The United States Court of Appeals for the Fifth Circuit in January handed down a decision that substantially streamlines the analysis of this surprisingly common question—one which has at times confused district judges and yielded inconsistent results in the trial courts. The new test articulated by the Fifth Circuit has two basic elements. First, the trial court must ask whether the subject agreement covers services aimed at the production of oil or gas in navigable waters. Second, the court must then ask whether the agreement states—or the parties reasonably anticipate—that a vessel will play an integral part in the delivery of the services. Only if the court answers both questions in the affirmative will maritime law apply to the service contract. The case is In the Matter of the Complaint of Larry Doiron, Inc., No. 16-30217, in the United States Court of Appeals for the Fifth Circuit.
Non-Operator Can Challenge Operator’s Assessment of Gathering Fees in Texas Court. According to a non-operator in a BHP Billiton-operated well, BHP was assessing excessive gathering fees in violation of the applicable joint operating agreements. Since BHP was a part-owner of the gathering company in question, its interests were alleged to be at odds with those of the non-operators, who themselves had no stake in the gathering company. After the non-operators filed suit, BHP argued that the district court in Houston lacked jurisdiction because the Texas Railroad Commission is statutorily vested with exclusive jurisdiction over the reasonableness of rates charged by gas utilities. The Fourteenth Court of Appeals was unimpressed with BHP’s argument on mandamus review. In the opinion of the appellate court, the non-operators were not arguing that the gathering fees charged by the BHP affiliate were unreasonable. Rather, the crux of the petition was that—while there may be a number of gathering companies with rates that are different, but still all reasonable under governing utility regulations—an operator may nevertheless violate its duties to non-operators by retaining one of the more expensive gatherers in which it has an ownership interest. The case is In re BHP Billiton Petroleum Properties (N.A.), LP, No. 14-17-00436-CV, in the Fourteenth Court of Appeals in Houston.
Mineral Owner Can’t Sue Operator for Failure to Spud Well. Under a purchase-and-sale agreement covering mineral rights owned by Pine Resources, Statoil was contractually obligated to spud at least two gas wells by a specified deadline. The parties’ agreement did not, however, include a companion provision expressly obligating Statoil to actually produce any gas from the wells. In the absence of such a provision, according to the trial judge, Pine Resources has no damages case, and, thus, its claim for breach of contract fails as a matter of law. In other words, although Statoil indisputably breached the spudding clause of the purchase-and-sale agreement, the lack of any explicit obligation to produce gas left the mineral owner with no remedy for the breach. The case is Statoil USA Onshore Properties Inc. v. Pine Resources LLC, No. 2:14-CV-21169, in the United States District Court for the Southern District of West Virginia.