John W. Morrison Wade C. Mann

Transcription

1 John W. Morrison Wade C. Mann

2 horizontal wells in U.S. As much as ten billion barrels of domestic incremental recovery predicted 2011 EIA Report 24 billion barrels of oil and 750 TCF of gas 2012 Industry estimates 24 billion barrels will be recovered from the Bakken alone Baker Hughes North America Rig Count July 6, horizontal out of 1877 total rigs - 57%

3 Typical JOA Contract area Designation of operator Allocation of expenses and production Conduct of initial operation and subsequent operations Collection of payments due operator Limitations on abandonment of wells and conveyances of interests

4 Alternative to JOA? Compulsory pooling statutes opportunity to recover or receive, without unnecessary expense, his just and equitable share Participate Surrender working interest for bonus Carried subject to penalty Carried at no penalty free ride

5 AOGC Form Typical pooling order options are to participate subject to administratively prescribed form of operating agreement or be carried subject to 400% penalty Exhibit B deemed lease Exhibit E gas balancing agreement Exhibit H gas marketing agreement

6 Pooling statutes provide for payment of the costs of development and operation If disputed, agency shall determine the proper costs

7 Regulatory orders are judicial or quasijudicial Res judicata finality attaches Modification generally requires change of conditions Express reservation of continuing jurisdiction to resolve cost disputes Implied authority to modify pooling orders to accommodate subsequent events Benion v. ANR Production Company Utah, 1991

8 Agencies are not courts No jurisdiction to settle private disputes Contract interpretation Title disputes Resolving disputes over pooling orders can involve private issues Constantin v. Martin 10 th Circuit, Oklahoma, 1954 Whether ORR is entitled to share of gas in kind Morgan v. Oklahoma Corporation Commission Oklahoma, 2011 No jurisdiction to determined whether surface use was reasonable

9 Come Big or Stay Home, LLC v. EOG Resources, Inc. North Dakota, 2012 Operator conditioned well information on JOA or separate non-disclosure agreement Agency had declined to exercise jurisdiction Separate action brought in state district court Not an appeal from agency orders

10 North Dakota Supreme Court affirmed summary judgment No implied agreement No joint venture or cotenancy No non-contractual right to receive information and therefore no conversion Did not expressly address agency s jurisdiction

11 in the event of any dispute as to the costs of drilling and operating the well, the commission shall determine the proper costs Kirkman v. Oklahoma Corporation Commission Oklahoma, 1983 Two part analysis Was expenditure required? Was the cost reasonable?

12 New Dominion LLC v. Mason Oklahoma, 2009 Limited to actual expenditure of operator Operator can t charge fee equal to that charged to third parties for salt water disposal

13 AFE issues AFE s under JOA are at best a good faith estimate Signing AFE commits party to proportionate share of actual costs M&T Incorporated v. Fuel Resources Development Company U.S. District Court, Colorado, 1981 Cost estimates included in a pooling order are a projection of reasonable expenses and do not constitute a Commission-fixed limit of liability Crest Resources & Exploration Corporation v. Corporation Commission Oklahoma, 1980

14 JOA Operator has right but not the obligation to purchase or market non-operators oil and gas Non-operators have the right to take in kind Gas Balancing Agreement Exhibit E In kind Cash

15 No JOA Pooling statutes generally don t require operator to market Notable exceptions Arkansas AOGC Gas Balancing Agreement and Gas Marketing Agreement Oklahoma Natural Gas Market Sharing Act Owners not subject to gas balancing agreement have right to share in sale of production by operator or other owner McCall v. Chesapeake Energy - Oklahoma, 2007 Not applicable if JOA exists Approved pass through of 3% marketing charge paid to affiliate

16 Production imbalances Hunt Oil Co. v. Batchelor Louisiana, 1994 Commission order requiring balancing in kind affirmed Weiser-Brown Oil Co. v. Samson Resources 8 th Circuit, applying Arkansas law, 1992 No contractual right to in-kind, limited to accounting as a co-tenant Beren v. Harper Oil Company - Oklahoma, 1975 Cash balancing approved under the particular facts of this case

17 Production imbalance Harrell v. Samson Resources Oklahoma, 1978 Cash balancing Doheny v. Wexpro 10 th Circuit, Wyoming, 1992 In-kind balancing

18 JOA Operator removed for cause 1977 and 1982 fails or refuses to carry out duties 1989 gross negligence or willful misconduct and material breach or inability to meet standards or perform its obligations Successor chosen by two or more parties with majority

19 No JOA Hold Oil v. Corporation Commission - Oklahoma, 1987 Agency has continuing jurisdiction to remove operator Crest Resources v. Corporation Commission - Oklahoma, 1980 Operator can t delegate status without sanction by agency North Dakota regulations Rebuttable presumption that party who, together with its supporters, owns a majority of interest is entitled to permit and operatorship

20 JOA Parties have obligation to act in good faith No independent cause of action No JOA Joint venture Fiduciary duties and joint and several liability

21 Oklahoma Hebble v. Shell Western E & P, Inc Operator of a spacing unit or field wide unit has fiduciary duty to other owners 2012 House Bill No reasonably prudent operator but no fiduciary duty, quasi-fiduciary duty, or other similar special relationship

22 Subsurface Trespass and Hydraulic Fracturing Subsurface Trespass and Drilling from Off- Unit Locations

23 Coastal Oil & Gas Corp. v. Garza Energy Trust, 268 S.W.2d 1, 6 (Tex. 2008) No actual injury proven Damages from drainage by hydraulic fracturing are precluded by the rule of capture.

24 Majority rationale Owner claiming drainage from fractures afforded recourse and had other remedies available Allowing claim would infringe on Railroad Commission s duty of regulating production Unwise for courts to alter the rule of capture on which industry and its regulation have relied for decades Reluctance to regulate by common law a process in place for over 60 years which neither the Legislature or Commission had seen fit to regulate

25 Continental Resources, Inc. v. Farrar Oil Company, 559 N.W.2d 841 (N.D.1997) Addressed rule of capture and the modification of traditional property law principles by State s oil and gas conservation act Property rights not absolute Subject to the police power of the State to impose restrictions on private rights that are necessary for the general welfare of all Property law of trespass may be superseded

26 Egeland v. Continental Resources, Inc., 616 N.W.2d 861 (N.D. 2000) Court reluctant to insert itself into a regulated area in a manner that could hinder development Court explained that penalizing the use of force pooling would inhibit use of a statutory procedure designed to implement the strong public policy of fostering the efficient development and use of the state s oil and gas resources. Consistent with analysis in Egeland and Farrar, North Dakota likely to follow approach of majority in Garza

27

28 Who must grant easement, lease or other right to use? Surface Owner? Mineral Estate Owner? Ownership of mineral estate does not equate with ownership of subsurface stratum Own the opportunity to recover and produce the oil and gas Don t actually own the land beneath the surface

29 Pore Space Statutes Reflect limited nature of mineral estate owner s control over subsurface stratum Consider impact use of adjoining surface may have on ability of mineral owner in tract to develop Mineral estate dominant Accommodation doctrine