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2016 Oil and Gas Law Update

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2016 Oil and Gas Law Update 2016 OIL AND GAS LAW UPDATE Alex Ritchie Associate Professor, Leon Karelitz Chair in Oil and Gas Law University of New Mexico School of Law1 Contents I. Introduction .............................................................................................................................2 II. Texas Oil and Gas Regulations ...............................................................................................2 1. Commission Rule Amendments for Horizontal Development .......................................2 2. Surface Equipment Removal Requirements and Inactive Wells ....................................5 3. Deliverability Tests .........................................................................................................6 III. Texas Cases .............................................................................................................................6 1. In re Sabine Oil and Gas Corp. .......................................................................................6 2. Coyote Lake Ranch, LLC v. City of Lubbock ..............................................................10 3. Hysaw v. Dawkins ........................................................................................................12 4. Apache Deepwater, LLC v. McDaniel Partners, Ltd. ...................................................13 5. Texas Railroad Commission v. Gulf Energy Exploration Corp. ..................................14 6. Crosstex North Texas Pipeline L.P. v. Gardiner (Tex.) ................................................16 7. North Shore Energy, L.L.C. v. Harkins ........................................................................18 8. Anadarko Petroleum Corp. v. TRO-X, L.P. ..................................................................19 9. Aery v. Hoskins, Inc. ....................................................................................................20 10. Adams v. Murphy Exploration & Production Co. ........................................................21 11. Jackson v. Wildflower Production Co. .........................................................................22 12. Shell Western E&P, Inc. v. Pel-State Bulk Plant, LLC ................................................24 IV. Louisiana Cases .....................................................................................................................25 1. Hayes Fund for First United Methodist Church v. Kerr-McGee Rocky Mountain, LLC .............................................................................25 2. Regions Bank v. Questar Exploration & Production Corp. ..........................................27 3. St. Tammany Parish Government v. Welsh ..................................................................28 4. AIX Energy, LLC v. Bennett Properties, LP ................................................................29 5. XXI Oil & Gas, LLC v. Hilcorp Energy Co. ................................................................30 6. Amendments to Louisiana Risk Fee Statute .................................................................31 V. Eastern Cases .........................................................................................................................32 1. Dominion Resources Black Warror Trust v. Walter Energy, Inc. (Alabama) ..............32 2. Corban v. Chesapeake Exploration, L.L.C. (Ohio) .......................................................33 3. State ex rel. Claugus Family Farm, L.P. v. Seventh District Court of Appeals (Ohio) 36 4. Lutz v. Chesapeake Appalachia, L.L.C. (Ohio) ............................................................38 5. Simmers v. City of North Royalton (Ohio) ...................................................................39 6. Shedden v. Anadarko E. & P. Co., L.P. (Pennsylvania) ...............................................40 7. Robinson Township v. Commonwealth (Pennsylvania) ...............................................41 8. Birdie Associates, L.P. v. CNX Gas Co. (Pennsylvania) ..............................................43 1 BSBA (Accounting), Georgetown University, 1993; JD, University of Virginia School of Law, 1999. The author sincerely thanks Professor of Law Librarianship Ernesto Longa for his research assistance in preparing this paper. VI. Western Cases .......................................................................................................................44 1. City of Kenai v. Cook Inlet Natural Gas Storage Alaska, LLC (Alaska) .....................44 2. City of Longmont v. Colorado Oil & Gas Association (Colorado) ..............................45 3. Armstrong v. Bromley Quarry & Asphalt, Inc. (Kansas) ............................................46 4. Earthworks’ Oil & Gas Accountability Project v. New Mexico Oil Conservation Commission (New Mexico) ........................................48 5. T.H. McElvain Oil & Gas Limited Partnership v. Benson-Montin-Greer Drilling Corp. (New Mexico) ..................................................49 6. Fleck v. Missouri River Royalty Corporation (North Dakota) ....................................49 7. Vogel v. Marathon Oil Company (North Dakota) .......................................................50 8. American Natural Resources, LLC v. Eagle Rock Energy Partners, L.P. (Oklahoma) ............................................................52 I. INTRODUCTION After providing a brief discussion of recent Texas oil and gas regulatory changes, this paper summarizes and analyzes selected oil and gas cases from across the Nation that were decided during 2016. This summary is not exhaustive, but is necessarily limited to some of the more important oil and gas cases selected for discussion by the author. II. TEXAS OIL AND GAS REGULATIONS 1. Commission Rule Amendments for Horizontal Development On January 12, 2016, the Texas Railroad Commission adopted amendments, effective February 1, 2016, to Rules 5, 31, 38, 40, 45, 51, 52, and 86 to better allow for horizontal development.2 Unconventional Fracture Treated Fields Amended Rule 86 provides for the designation of “unconventional fracture treated” fields (“UFT fields”), defined as a field in which horizontal drilling and hydraulic fracturing must be used in order to recover resources from the field.3 A field may be designated administratively as a UFT field if (1) the in situ permeability of a distinct producible interval within the field is 0.1 millidarcies or less before fracture treatment, and (2) for producing wells that were permitted before February 1, 2012 and were completed, either there are at least five such wells of which at least 65% were drilled horizontally and completed using hydraulic fracture treatment, or there are at least 25 such wells drilled horizontally and completed using hydraulic fracture treatment.4 2 41 TEX. REG. 785 (Jan. 29, 2016). For a more in depth discussion of the horizontal development rule changes, see Tim George, Railroad Commission Update, 42 ERNEST E. SMITH OIL, GAS AND MIN. L. INST. (2016). 3 16 TEX. ADMIN. CODE § 3.86(a)(13). 4 Id. § 3.86(i)(1)(A), (i)(2)(A). 2 UFT fields may alternatively be designated through an evidentiary hearing if an applicant demonstrates that the reservoir characteristics are such that horizontal drilling and hydraulic fracturing treatment must be used to recover resources from all or part of the field and UFT designation will promote orderly development of the field.5 Regardless of such a designation, special field rules for a UFT field prevail over conflicting provisions of the Rule.6 A benefit of UFT field designation is that “[a]creage assigned to horizontal wells shall not count against acreage assigned to vertical wells, and acreage assigned to vertical wells shall not count against acreage assigned to horizontal wells.”7 In other words, the same acreage may be assigned simultaneously to both vertical and horizontal wells. Horizontal wells and vertical wells must separately satisfy density exceptions applicable to each. Another benefit is that a horizontal well in a UFT field will usually be entitled to a larger allowable than a horizontal well in a field that has not been designated a UFT field. The maximum daily allowable for a horizontal drainhole in a UFT field is 100 barrels of oil for each acre assigned to an oil well, or 600 Mcf of gas for each acre assigned to a gas well. For a horizontal well in a field that has not been designated a UFT field, the allowable is based on the applicable allowable for a vertical well in the field under applicable field rules.8 Density exceptions are also made easier in UFT fields. For a density exception, notice is required to operators, lessees of tracts with no designated operator, or unleased mineral owners within 600 feet from any take point on a horizontal well within the UFT field correlative interval. If no objection is filed within 21 days or the applicant files objection waivers, then the application for an exception may be approved administratively without filing supporting data. If an objection is filed, the applicant may show at a hearing that the exception is necessary to effectively drain an area of the UFT field.9 These requirements are significantly relaxed from the notice and evidentiary standards for exceptions under Rule 38.10 Horizontal Drainhole Displacement Previously, Rule 86 defined the “horizontal drainhole displacement” as the displacement between the penetration point and the terminus. The amended Rule now defines the term “horizontal drainhole displacement” as the displacement between the first
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