Texas Railroad Commission Sunset

The Texas Sunset Act was passed in 1977 to address the escalation of government budgets and the perception that government bureaucracy was not accountable. The Act applies to 130 agencies and other governmental entities. The Texas Sunset Advisory Commission, along with the State Auditor’s Office, the Legislative Budget Board, and the Governor’s Office of Budget and Planning, is charged with monitoring state agency performance. The Sunset Advisory Commission consists of five state representatives, five state senators and two public members.

The Texas Railroad Commission was created more than 125 years ago to regulate the rates and operations of railroads. The Railroad Commission later assumed responsibility for regulating oil and gas production and pipelines. The agency’s name is now a misnomer, as the commission no longer oversees railroad operations in the State.

The first three railroad commissioners were appointed by Gov. Hogg in 1891: John H. Reagan, Judge W.P. McLean and L.L. Foster. In 1984, the Texas Constitution was amended to provide for elective six-year overlapping terms for railroad commissioners who are elected statewide.

The Railroad Commission, in its third Sunset review since 2010, submitted a self-evaluation report in September 2015. In April 2016, the Sunset Commission staff released a full report on the sunset of the agency. A public hearing is set for Aug. 22, 2016, to take testimony on the staff report and the agency overall. Continue Reading

Independent Oil and Gas Producers Defeat Federal Hydraulic Fracturing Rule

oil fracking rig 519054087Wyoming U.S. District Court Declares Bureau of Land Management’s Hydraulic Fracturing Rule Unlawful

On June 21, 2016, United States District Judge Scott Skavdahl granted BakerHostetler’s petition for review of final agency action and declared the Bureau of Land Management’s (BLM’s) hydraulic fracturing rule unlawful. The court’s judgment sets aside BLM’s hydraulic fracturing rule, and America’s independent oil and gas producers can continue their proven business of responsible oil and gas development on federal and Indian lands without the cloud of one more unnecessary regulatory burden.

BLM issued the rule in March 2015, attempting to exert jurisdiction over hydraulic fracturing on federal and Indian lands.

Minutes after BLM issued the hydraulic fracturing rule, BakerHostetler’s team filed a legal challenge on behalf of the Independent Petroleum Association of America (IPAA) and the Western Energy Alliance (the Alliance) in the United States District Court for the District of Wyoming. IPAA and the Alliance began what became a much larger lawsuit, which eventually included challenges from four states – Wyoming, North Dakota, Colorado and Utah (the States) – and the Ute Indian Tribe (the Tribe). Continue Reading

The Continued Attempt to End Shale Development in Colorado – This Time Through the Voter Initiative

An attempt to put restrictions on shale development, so as to effectively end it, is nothing new in Colorado. Just this year, several Democrats attempted to push a bill through the Colorado House of Representatives that would have given local governments specific authority to regulate the siting of oil and gas facilities. The Colorado House voted down that bill. But that has not stopped other efforts to end new shale development activities in the state. There are currently three voter initiatives in the signature-gathering stage that could have substantial impacts on Colorado’s oil and gas development – Initiative #78, Initiative #63 and Initiative #75. Continue Reading

Oil and Gas: Managing Personnel Reductions and Asset Sales Under Increasing Government Audit and Enforcement Scrutiny

As oil enters the ninth month of sub-$50 per barrel prices – and natural gas languishes below $3 per MMBtu – the oil and gas industry confronts a challenging time of transition. Layoffs have already happened (or are imminently looming) for some exploration and production companies. Non-core assets have been sold or are on the chopping block. And some companies are staring down credit events and potential bankruptcy. Adding to the doom and gloom, the federal government has recently increased its audit and enforcement efforts to aggressively collect federal oil and gas royalties due and heavily penalize companies for both minor and major infractions.

The government’s increasing enforcement coinciding with companies’ reduction in overhead costs creates a messy collision. On the one hand, the government’s expansion of its audit review and scrutiny over more producing areas has resulted in more frequent compliance orders and penalty assessments. On the other hand, the commodity-price environment has forced (or may soon force) companies to cut staff to the bone – accounting and compliance departments included. The result is that many companies find themselves struggling to adequately and accurately respond to government audits and inquiries without essential personnel, particularly personnel knowledgeable about old assets and assets sold during the downturn.

Although there is no easy answer, there are ways to soften the transition into a low-price operating environment. Early due diligence and preparatory work between internal staff and outside counsel can help ensure that a reduction in force or a non-core asset sale goes smoothly without exposing the company to unnecessary audit and enforcement risk. Continue Reading

Midstream Gathering Agreements Targeted by Recent Oil & Gas Bankruptcies

Continuing low oil and natural gas commodity prices have led to bargain prices at the pump, but also high tension in many boardrooms. This strain on the industry has resulted in many exploration and production, or “E&P,” companies seeking relief from high debt and reduced revenue in bankruptcy. In recent cases, those E&P companies have sought to reject their midstream gathering agreements, which they deem onerous and unprofitable. E&P companies Sabine Oil and Gas Corp. and Magnum Hunter Resources Corp. have been getting quite a bit of attention for their attempts to do just that, presenting potential road maps for how other such companies may choose to proceed during their reorganizations.

The ability to reject an executory contract or unexpired lease is a powerful reorganizational tool given to a bankrupt company by the Bankruptcy Code. With limited exception, under 11 U.S.C. § 365, debtors can reject such executory contracts over the objection of their counterparty. One such limited exception – that contracts creating covenants, which run with the title to real property, cannot be rejected under § 365 – has taken center stage in recent attempts by E&P debtors to reject midstream gathering agreements.

For the unacquainted, a midstream gathering agreement is a contract that governs the midstream company’s service of delivering oil or natural gas from the wellhead to market. Whether it does so using a pipeline, truck or crude oil transported by rail, these contracts can be extremely costly, largely because they are so vital to the business model of a continuing E&P venture. Continue Reading

Upsetting the Outer Continental Shelf Ecosystem through Overbonding

At a time when the Bureau of Safety and Environmental Enforcement’s (“BSEE”) Well Control Rule has shifted focus away from its sister agency’s regulatory maneuvering, the Bureau of Ocean Energy Management (“BOEM”) is changing the way it approaches securitizing decommissioning obligations – a shift with the potential to change the face of the Outer Continental Shelf (“OCS”).

Industries, like ecosystems, thrive on symbiotic relationships. Even companies that compete for resources need each other to ensure the health of the industry as a whole. While BOEM’s anticipated new requirements for supplemental financial security may not affect majors directly, they do affect the smaller players, and the loss of those smaller players will ultimately affect the health of the OCS economic ecosystem.

BOEM’s proposed changes to its Notice to Lessees No. 2008-N07, which spells out BOEM’s supplemental bonding requirements, are discussed in an October 5, 2015, North America Shale Blog post. These changes – which we expect BOEM to issue before the summer – ignore the contracts put in place by private parties relying on BOEM’s current bonding practices (often between majors and independents), thus putting additional and unnecessary financial pressure on independents.  Continue Reading

Crude-by-Rail Update: Largest West Coast Terminal Proposal Suffocating Under Delay

The largest proposed crude-by-rail (CBR) transloading facility on the West Coast recently survived a major hurdle to its ultimate construction and operation—a lease extension. But with the proposed project enduring nearly three years of permitting delay while navigating Washington State’s Energy Facility Site Evaluation Council (EFSEC) process, the lease extension may come as too little too late.

The trials and tribulations of the proposed project highlight the difficulties large-scale energy-infrastructure projects confront, particularly on the West Coast. Simply put, American infrastructure projects need to be made a priority on political, legal, and regulatory agendas. Without such prioritization, much-needed projects will continue to wither away in permitting purgatory, and ultimately the American consumer will suffer. This proposed project is but one example.  Continue Reading

Colorado House Votes Down Bill Giving Local Authorities Power Over Fracking

Two Democrats joined the Republicans in the Colorado House of Representatives on April 4, 2016, to defeat a bill that sought to assert local government control over oil and gas drilling.

Drilling operations in Colorado have begun moving from rural communities into more populated areas, which has led to an outcry against oil and gas operations in suburban neighborhoods. Aware of the frustration, Governor John Hickenlooper formed a task force in 2015 to propose rules around local governance. The task force was intended to be a compromise that would address the concerns of the public while avoiding a ballot initiative that would give local governments the authority to ban hydraulic fracturing. But for some, the task force did not actually resolve any of the public’s concerns. Democratic Rep. Mike Foote of Lafayette, one of the bill’s sponsors, said, “The current system works very, very well for the industry. It doesn’t work so well, though, if you’re in these neighborhoods, particularly along the Front Range, and you want to have a meaningful say in what happens.” Though supporters of the bill claimed it was just a restatement of authority local governments already have, the bill reinitiated the debate on state-versus-local authority over the energy industry. Continue Reading

Moratorium on New Oil and Gas Operations Lifted in Adams County

On Tuesday, Adams County, Colorado, commissioners lifted a six-week moratorium on new oil and gas drilling operations in urban areas. The moratorium, previously approved by the county commissioners in early February following contentious public debate about a proposed 10-month moratorium, applied to new permits for wells or well pads within 1,500 feet of homes, schools or public buildings.

In addition to ending the six-week moratorium, the commissioners approved an increase in new permit application fees and enhanced regulations that include a site-specific review process. Modeling the new regulations on the procedures utilized in Arapahoe County, Adams County now requires an operator that has previously entered into a memorandum of understanding with the county to apply for a Use by Special Review permit for each new oil and gas facility location. The application, which can take up to 42 days to review, may be approved, conditionally approved, denied or referred to the county commissioners. Applications that are denied can be appealed to the county commissioners. Continue Reading

Options to Help Oklahoma Alleviate Its Emerging Oilfield Water Crisis

Hydraulic_Fracturing_iStock_000025097211MediumThe Oklahoma Corporation Commission has restricted injection well activity over a combined zone of nearly 10,000 square miles—approximately the size of Massachusetts (Exhibit 1). In Central Oklahoma, the OCC seeks to reduce water injection into the Arbuckle Formation by at least 300,000 bpd. Furthermore, the OCC now requires new injection well applications to go through a full-court process, and approval can be granted only by a majority vote of commissioners. Furthermore, any permit approved is limited to six months, and contains requirements for seismicity monitoring and regular testing, and, perhaps most important, existing wells in the Area of Interest can be shut-in with no prior court hearing. Continue Reading