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The Barnett remains a shale star in Texas


In the past few years, there has been a lot of talk – and rightly so – about how the Eagle Ford Shale in South Texas and the Permian Basin in West Texas are fueling the new American energy revolution.


But last week, we got a fresh reminder that the Barnett Shale in North Texas still has a place in that conversation.


A study from the Waco-based Perryman Group finds that the field contributes $11.8 billion annually to the North Texas economy. It is responsible for 107,650 jobs and generates tax revenues of $644.7 million for state government and $480.6 million for local governments.


And what about all those people who have been predicting the demise of the Barnett? Well, it looks like their reports of the play’s death have been greatly exaggerated.


Consider these facts: The Barnett’s annual economic impact is actually $700 million more than it was in 2011, according to Perryman. Moreover, it has produced 6 trillion cubic feet of natural gas from 2011 to 2014, and average production this year is more than 4.75 million cubic feet per day.


Those numbers hardly paint a picture of a formation in decline.


Now there are still people – most of whom, frankly, are no fans of drilling – who point at the falling rig counts in the Barnett to make the case that the play’s best days are behind it. Perryman shoots down those arguments, too.


He acknowledges that rig counts are down. But he also notes that recent activity has remained pretty steady over the years, and that more than 900 permits were issued in 2013. The reason? More efficient operations brought on by technological advances.


“Because of improvements in technology now, when they hit a well it tends to be a bigger well,” he says. “One well today may produce a lot more than one well did ten years ago.”


The report is optimistic about the Barnett’s future as well.


It says a number of factors could increase demand for drilling, including natural gas exports, infrastructure improvements, rising worldwide demand, and volatile political situations overseas. All of these, it concludes, could change pricing and global market conditions, resulting in increased exploration.


The Barnett is the oldest shale play in the country, that’s true. But as the Perryman report clearly shows, age hasn’t dimmed its luster one bit.

 

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Compromise aside, the Colorado fracking may be far from over


When Colorado Gov. John Hickenlooper and U.S. Rep. Jared Polis struck a deal to keep two anti-fracking initiatives off the November ballot, there was hope that maybe the issue was on a path toward rational resolution.


I’m starting to wonder, though, if that optimism may be short-lived.


It was recently reported that activists opposed to hydraulic fracturing are pushing hard to be represented on the 18-member task force Hickenlooper will name to study oil and gas development in the state. That panel was created as part of the last-minute compromise that avoided a costly, ugly battle over the ballot measures.


Now, I have no problem with opposition views being heard in the energy debate. As I’ve written before, I may not agree with everything the Environmental Defense Fund says and does, but the group at least takes a pragmatic, real-world approach to industry issues.


In Colorado, however, some of the people who have submitted applications to be members of the task force are not being completely up-front about who they are. I do have a problem with that.


As Energy-in-Depth noted, one of them is Anthony Ingraffea, who has been described as an “implacable fracking opponent.” He never states in his application that he appeared in Gasland Part II, saying that “fracking can never be done safely.” Nor does he disclose that he helped Yoko Ono create Artists Against Fracking, which later went on to set up Frack Free Colorado.


Then there’s Jim Ramey, head of Citizens for a Healthy Community. In his application, he wrote, “If given the opportunity to serve on this panel, I will work hard with diverse stakeholders to reach consensus on this difficult issue.” All of which sounds good until you see that Citizens for a Healthy Community calls fracking “dangerous and life-threatening” and wants to ban it altogether.


This tells me that the environmentalists in Colorado aren’t going to let go, the Hickenlooper-Polis deal notwithstanding.


In fact, on Aug. 18, two activists filed a petition with the state to put on the 2015 or 2016 ballot a measure that would create a constitutional amendment making clean air, water, and natural resources public commodities. But here’s the kicker: It says that energy companies would be liable for damages if an “action or policy has a suspected risk” of impairing those commodities and would force them to prove that energy development is safe even “in the absence of scientific consensus.”


(Of course, it’s probably also not a stretch to say that if the activists don’t get places on Hickenlooper’s task force – and, frankly, they shouldn’t, because they want to ban and not regulate the process – then they’ll just howl about “unfairness” and dial up the heat on their rhetoric.)


In the middle of all this, I have to wonder what’s going on with Polis.


The millionaire congressman caught a lot of criticism for withdrawing the two anti-fracking measures he said he’d bankroll. Then late last month, speaking to a newspaper editorial board, he said that if the state legislature did not act on whatever recommendations emerge from the task force, the fracking bans could be back on the ballot. “I think that’s likely,” he said.


Additionally, a member of an anti-fracking group from Weld County said Polis told them the compromise “does not mean there won’t be a ballot fight in 2016, a more favorable time.”


Hickenlooper’s office has said he wants to populate the task force with members “with the attitude to get to yes.” I wish him luck. Because it sounds as if the activists, perhaps emboldened in part by Polis’ seeming retreat from the compromise, will stop at nothing to keep that from happening – and to get bans back on the ballot.


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Ohio DMA Decision: The Court May Have Just Invalidated Your Lease


The Ohio Seventh District Court of Appeals issued a decision Aug. 28, 2014, that changes the way operators will have to analyze the 1989 Dormant Mineral Act (DMA). In a significant departure from lower courts in various counties (other than Monroe), the court in Eisenbarth v. Reusser held that the 1989 DMA’s 20-year look-back period is not rolling but is fixed. 


Why does this matter?  Let’s take an example:


Based on application of the 1989 act, E&P Inc. takes a lease from a surface owner of land subject to a reservation, believing that the reservation from 1974 lapsed because there were no savings events in the subsequent 20-year period that ended in 1994.  As such, E&P Inc. thinks that the minerals re-vested in the surface owner.


Did you hear that grinding sound? It’s the Seventh District launching a wrench into the wheel.


Applying the Eisenbarth decision to our example, the 1974 reservation didn’t automatically lapse under the 1989 DMA. Instead, to acquire the severed minerals, the surface owner had to follow the procedures set forth in the 2006 DMA; if they didn’t, the surface owner didn’t own anything to lease.


This decision significantly changes the leasing landscape.  Instead of taking a big win based on automatic vesting under the 1989 DMA, the surface owner is going to have to take additional steps to get those minerals back if they were severed after March 22, 1969. The 2006 DMA has to be analyzed now. 


How does this make sense? Single-use statutes.


You see, the court concludes that the 1989 DMA was a onetime use statute, meaning that it was only intended to re-vest severed minerals as of March 22, 1992. The court believes that if the legislature wanted to continue this automatic mineral vesting idea, it would have enacted further legislation to do so. 


We have single-serving utensils, single-use cameras, and disposable razors. The Seventh District just added to that list, giving Ohioans single serving statutes. 


Oh, and the court said that an oil and gas lease is a savings event under the 1989 DMA.  At least some things haven’t changed…

 

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This Labor Day, let's not forget who's putting Americans to work


I have written in the past about the undeniably positive impact the domestic energy production boom has had on the U.S. economy. But with this being Labor Day, I think it’s appropriate to focus on one specific aspect of that growth:


Job creation.


There is no doubt that the energy industry has kept the post-recession U.S. jobs picture from being even bleaker than it has been in recent years. The facts don’t lie:

  • Direct employment in the oil and gas industry rose 40 percent from 2007 to 2013, a period during which there was a 3 percent drop across the country.
  • In every state where oil and gas production increased, overall job growth surpassed that of the nation as a whole.
  • According to data from the U.S. Bureau of Labor Statistics (BLS), more than 10,000 oil and gas jobs were created nationwide in the industry between April and July of this year.


Texas and Pennsylvania are good examples of how the benefits of all this have brightened the economic picture of individual states.


The BLS data show that the Lone Star State has exceeded 300,000 oil and gas jobs for the fourth consecutive year. Since July 2013, Texas has added 20,000 jobs in the industry – the largest increase since April 2013.  And from July 2009 to June 2012, it created 49 percent of all the new jobs in America, the large majority of which were in some way related to the oil and gas industry – and, in particular, to the soaring output in the Eagle Ford Shale and Permian Basin.


In Pennsylvania, BLS has noted that despite declines in the overall economy, the state’s oil and gas industry has seen significant job growth. From 2007 to 2012, total annual average employment dropped by 74,133, or 1.3 percent. But in the oil and gas industry, employment rose by 15,114 – or an incredible 259.3 percent.


Of course, the shale boom has also been widely credited with fostering a renaissance in the U.S. manufacturing sector, which adds up to even more jobs. What’s more, that activity is not expected to end anytime soon: It has been estimated that more than 100 new plants in petroleum-dependent industries are scheduled to come online by 2017, potentially creating an estimated 1 million additional jobs.


I recognize that Labor Day is a holiday in which we celebrate American workers. And while I think they are absolutely worthy of such celebration, I think it’s only right that we do the same for the industry that’s creating more jobs, for more people, than any other sector in the country.

 

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Buell and Croskey: The Ohio Dormant Mineral Act Litigation Avalanche Continues


What happens when those worthless mineral rights that grandma and grandpa carved off all of those years ago suddenly and dramatically increase in value? People fight over them. In Ohio, this ownership fight often centers on application of the Ohio Dormant Mineral Act (ODMA), which, under certain circumstances, can vest severed mineral interests in the surface owner.


On Aug. 20, 2014, the Ohio Supreme Court heard oral arguments for two cases regarding interpretation of the ODMA: Dodd v. Croskey and Chesapeake v. Buell. Specifically, these cases seek a decision from the state high court about what constitutes a “savings event” (an event that prevents a severed mineral interest from vesting in the surface owner) under the ODMA.   


In Dodd, the primary question before the court is whether the appellee-mineral holder did enough to retain the severed mineral interest after receiving notice that the appellant-surface owner intended to declare the mineral interest abandoned. The ODMA provides that after a notice to abandon is served or published, the holder must record “one of the following” to preserve:  1) a claim to preserve; 2) an affidavit that identifies a savings event.


In Dodd, after the abandonment notice was published, the holder only recorded the former. The lower courts, in essence, held that complying with either preservation technique is enough to preserve a severed mineral interest. The surface owner, however, contended that a claim to preserve only avails if it is recorded prior to the abandonment notice, and – once notice has been served or published – in order to preserve, the holder must record an affidavit that identifies a savings event. In support of this interpretation, the surface owner argued that the use-it-or-lose-it policy behind the ODMA would be rendered moot if a holder could simply record a claim to preserve.


At Dodd’s oral argument, the court’s questions focused on the consequences of the surface owner’s more restrictive interpretation of the ODMA, versus the mineral holder’s broader interpretation. Unfortunately, the court did not reveal its tendency to find one way or the other.


In Buell, the court was asked to determine whether the execution (and recording) of an oil and gas lease by a mineral holder and/or the expiration of a mineral holder’s oil and gas lease constitutes a “title transaction” (and, therefore, a savings event) under the ODMA.


The surface owner took a technical position, arguing that neither of these events constitute a title transaction because the ODMA does not specifically say they do. Moreover, because the state legislature included “the actual production or withdrawal of minerals by the holders” as a savings event, it did not intend for either the granting or expiration of a lease to constitute a savings event.


The mineral holder, unsurprisingly, argued that an oil and gas lease very much “affects” title, and, therefore, must constitute a title transaction. Furthermore, with regard to the second question, the holder argued that because the expiration of a lease is a reversion back to the mineral holder, it affects title similar to the granting of a lease, only in reverse, and therefore is also a title transaction.


At oral argument, the court’s questions seemed to be critical of the position that a recorded oil and gas lease is not a title transaction, with the justices asking why it would not be if it acts as an encumbrance on title for every other purpose. On the other hand, the court appeared more ambivalent with regard to the second question, expressing dismay at the proposition that the expiration of a lease, without a separate recording (e.g., a release of lease), could constitute a title transaction. 


The oral arguments underscore the confusion caused by the ODMA, and, more broadly, showcase the problems an inartfully drafted statute can cause – often more than it intends to solve. Hopefully, the court takes this opportunity to establish a clear framework for interpreting and applying the ODMA, providing Ohio landowners and the oil and gas industry with what has been lacking thus far:


Certainty. 

 

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