2017 Q1

National Association of Division Order Analysts January/February/March 2017

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NADOA N a t i o n a l A s s o c i a t i o n o f D i v i s i o n O r d e r A n a l y s t s G R O W T H T H R O U G H E D U C T I O N

Volume MMXVII • No 1

www.NADOA.org

Contents Feature

NADOA 2017 Officers President Sandi Rupprecht 1st Vice President Cheryl Hampton, CDOA 2nd Vice Presiden t Jason Lucas Treasurer Michele Lawton Corresponding Secretary Luanne Johnson, CDOA Recording Secretary Stephanie Moore, CDOA The NADOA News Magazine is a quarterly publication of the National Association of Division

Articles

In This Legal Watch – Colorado. .............................................12 Legal Updates Ohio..........................................................................13 Pennsylvania.............................................................13 Texas Denbury vs Texas Rice............................................15 Injection Well Challenge.........................................18 Wyoming ..................................................................20 2017 Institute..............................................................21 President’s Corner. ........................................................1 Decimal Points..............................................................2 Cob Webs (NADOA social media). ................................2 Certification..................................................................3 Registered DOA ............................................................6 Interaction.....................................................................6 Webinar Update............................................................7 Counterpart Connection................................................8 New Members .............................................................11 Regional Seminars.......................................................30 2017 Board/Committee Chairs ...................................31 Calendar of Events. .....................................................32 Issue

Order Analysts PO Box 44009 Denver CO 80201

Subscription: By membership to NADOA, at $75.00 per year.

News Magazine Editor Rona L. Erickson, CDOA Kaiser-Francis Oil Company Ronae@KFOC.net 918.491.4319 Associate Editor Cheryl Hampton champton@limerockresources.com

On the Cover: Texas State Capitol Building Photo Courtesy of Texas State Capitol Building

All rights reserved. No part of this publication may be reproduced/copied without written permission. Editorial disclaimer: The contents of this newsletter are intended for member use only and any other use without permission from the NADOA Board of Directors is strictly prohibited.Articles published herein represent the view of the authors; publication neither implies approval of the opinions expressed nor accuracy of the facts stated and NADOA accepts no liability for misprints.

President’s

Corner

Sandi Rupprecht 2017 NADOA President

Greetings from Denver, Colorado. I am excited to start 2017 and to be able to serve as your NADOA president. So much is already happening in our industry that points to a brighter, more prosperous future. Companies are beginning to complete wells and increase drilling. Hiring is up and the commodity prices are going in the right direction…higher! My prayers are with those of you who found yourselves unemployed in 2016 that you will find better and more fulfilling industry positions in 2017. 2016 was a rough year for NADOA. The 2016 Board members had to deal with declining membership numbers, declining revenues and member layoffs along with rising expenses and lower attendance numbers for the 2016 Institute. I personally want to thank Brenda Pirozzolo for her leadership during 2016. Her Institute Co-Chairs, Lisa Buffaloe and Betty Davidson did a wonderful job leading the Institute Committee in hosting one of the best Institutes ever held. We had many new faces, a great program of speakers and fun activities. The 2017 NADOA Board met the last weekend in January to start on 2017 business. Thank you for taking the time to vote on updating your NADOA by-laws. The ballot measures passed overwhelmingly. The Board can now vote electronically, allow Board members who are unable to attend a meeting in person to be there via Go- To-Meeting and lastly, the Board may now change the association dues by a majority Board vote. Every Board member takes the responsibility of representing you, our members, very seriously. We have the future of the Association in mind for every decision we make and we stand for what is best for the Association. This includes keeping our dues at a reasonable rate by raising or lowering the dues based on the financial fitness we find ourselves in year by year. Preparation for the 2017 Institute on September 6-8, 2017 at the Lost Pines Resort in Bastrop, Texas has begun. Bastrop is just outside of Austin, Texas. We will once again host a Wednesday seminar free of cost for those of you who can extend your stay for a day of additional education. We will also be celebrating 30 years of our CDOA program. If you are a CDOA, you will want to be there for the special honors we are planning. Plans are being made for a couple of new activities; a skeet shooting competition and river rafting and of course, our yearly golf tournament is in the works. This year we are hosting a combined President’s reception and Welcome reception for Wednesday evening. You won’t want to miss the Wednesday or Thursday evening events. Institute Registration will open as soon as our list of speakers and topics are finalized. Check out the NADOA website regularly for details as we add them. We are offering an Early Bird Registration fee this year of $595 for members. The regular member registration price is $625. Both prices include the Wednesday education classes. Sign up early for the best deal. We will be updating our Facebook, Twitter, Instagram and LinkedIn accounts more often to keep you in the know. Be sure to join our pages and be the first to know what NADOA is doing. I hope you all find value in your NADOA membership. For a fee of only $75 per year, you have access to free webinars, a quarterly digital newsmagazine with timely articles and news regarding our jobs and industry, a member based tuition to attend our regional seminars and the annual Institute and an opportunity for peer networking. Our website lists open employment opportunities for members as they are given to us. Please remember to visit NADOA.org to begin your membership or to renew. If you are renewing, be sure to click on your profile and confirm that your contact information is up-to-date. I hope to meet many of you this year in Bastrop, Texas at the 44th NADOA Annual Institute: “Back to Our Roots…Deep in the Heart of Texas”.

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NADOA

Decimal Points NADOA has “gone digital” and we hope you enjoy the new magazine format. Please let us know if you have suggestions to make the transition from the printed page to electronic mode easier to negotiate. If you have a suggestion for someone to act as a Regional Reporter to help NADOA keep abreast of current legislation and legal issues for any open or unlisted states, please submit the name or the name of the firm.

2017 NADOA Magazine deadlines

Second Quarter.....................April 28, 2017 Special Institute Edition...........June 2, 2017 Third Quarter....................August 11, 2017 Fourth Quarter.............. November 3, 2017

Regional Reporters ABADOA

Steptoe & Johnson PLLC

dan.swiger@steptoe-johnson.com

CAPDOA

Chelsea Wright

cwright@linnenergy.com

DADOA

Sharon Siemer

sharon.siemer@anadarko.com

DALWORTH

Lewis Box

lewis_box@xtoenergy.com

HADOA

Stephanie Moore

smoore@newfield.com

MAADOA

Angie Coady, CDOA

acoady@vessoil.com

PBADOA

Shawn Thompson

shawn.thompson@pxd.com

SADOA

Rebecca Helt, CDOA

rebecca.helt@wpxenergy.com

Arkansas

Jackie Clotfelter, CDOA

jclotfelter@hannaoilandgas.com

North Dakota New Mexico Louisiana

Kimberly A Backman

kbackman@crowleyfleck.com

Cob Webs

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NADOA

Certification

Congratulations to the following new CDOAs!!

Courtney Jane Mayes

Hannah Yee

CANDIDATES FOR CERTIFICATION Publication of the following “Certified Division Order Analyst” applicant(s) fulfills the requirement as stated in the Voluntary Certification Policy, III C.2 which states: “…applicant’s name will be published in the NADOA Newsletter or other official publication of NADOA.” This allows the NADOA membership an opportunity to present objections to the certification of the applicant. Any objection to the certification of the applicant must be in writing and signed by a NADOA member or non-member who qualifies his knowledge and objection of the applicant. All such letters will be considered confidential and must be received by the NADOA Certification Committee at the following address within thirty (30) days following the last day of the month in which the Newsletter or other official publication of NADOA was published:

NADOA Certification Committee P O Box 44009 Denver CO 80201

If the objection warrants denial of the certification or temporary withholding of certification, the applicant will be notified by Certified Mail.

CANDIDATES FOR RECERTIFICATION

Carolyn Dean – Fort Worth, TX

Nora Marquez – Houston, TX

Barbara Reiff – Houston, TX

CANDIDATES FOR CERTIFICATION

Stephanie Ngoc Nguyen – Houston, TX

2017 Certification Committee Chair Brenda Dickey, CDOA Application and Publications Stephanie Franklin, CDOA Recertification Credits Eli Murray, CDOA Policies Heidi Davis, CDOA Recertification Applications Darryn McGee, CDOA Review Manuals/Forms Lewis Box, CDOA Testing Sherry Werth, CDOA

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Certification There is nothing like implementation of a new certification system to keep things exciting! The Certification Committee thanks you for your patience during the downtime and while we continue to work out a few minor issues. Now that the system is up and we are in a new year, we should all “resolve” to log in frequently to claim credits and use the system to its full potential. That’s a New Year resolution even I can keep! Here are a few helpful hints for keeping your certification credit records up to date.

• All recertification credits must be entered in the system within 60 days of the event.

• Employment credits must be entered in the system within 90 days of your new certification year. Credits always pertain to the certification year just ended. An easy “hack” for this—look at the date on your certificate:

• January 1 - Enter employment credits January through March.

• July 1 - Enter employment credits July through September.

• Most all NADOA or location association events and webinars are already listed in the drop-down, but roll off after the time has expired to use them. Use the drop-down wherever possible. It will save you time and make it easier on the one approving credits. Please add Eli Murray (emurray@ rsppermian.com) to the distribution list for your local association events. • Remember that in-house training at your company will very likely qualify for either core or non-core credits. College classes, leadership classes and other external training may also qualify. Contact Eli to with any questions about these.

I hope you all have a wonderful year and that 2017 is a year of recovery for our industry. Thank you for the opportunity to serve as your Certification Committee Chair.

Brenda Dickey, CDOA

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Adding Employment Points to the new CDOA program

• You will then get a box with a zero and ok button. In the box put the number of months you worked in the past year. (ie. 12 months – 12), then click on OK.

http://members.nadoa.org/

• Login to your CDOA account

• Then you will enter your account. • You will see once you click on the previous year that your employment points have been added.

• Once in you will get the following screen – click on the gray circle.

Employment Months – just says how many months you worked in the selected year. Total Employment Credits – This is gives you the total employment credits you have received during the current recertification period.

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Want to become a Registered DO Analyst?

The certification committee is exploring the idea of adding a certification level to our certification program of “Registered”. This program for Division Order personnel would be similar to the RPL/CPL program for professional landmen. The committee encourages any and all input from our membership so we can gauge interest in the program. The idea behind adding a level of certification would be to encourage participation of DO Techs and Associate DO Analysts in the certification program and expand their knowledge of Division Orders. If you have any comments, questions, ideas, or concerns please email Lewis Box ( lewis_box@xtoenergy.com )

INTERACTION By Julie Willis, Interaction Chair

Last year NADOA volunteers attended the NAPE Summit, NARO-OK, NARO-TX, NALTA and NARO National events. These volunteers represented our Association as liaisons between our industry, the negotiators and the royalty owners that we so often work with. They were a huge help not only promoting our Association but also educating the community in attendance. NADOA is kicking off another great year in this exciting industry by attending the NAPE Summit in Houston, Texas, February 15-17. Many thanks to Cheryl Hampton for setting up the NADOA booth and to Cosette Barnett, Jennifer Kegans, Heather Lister and April Luedecke for staffing the booth during NAPE. The booth was a busy place with many inquiries about the Mergers and Acquisitions book and lots of interest in the online availability of this information. There were several contacts made and attorneys who expressed interest in returning to speak or presenting a topic at Institute. 2017 is already looking much different than 2016 and we cannot wait to see what this year will bring. To celebrate another exhilarating season ahead stayed tuned to see NADOA’s upcoming new booth look later this year.

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NADOA WEBINARS

Looking for additional ways to earn your CDOA credits? NADOA Webinars can now present up to 500 members at once! Participate with a coworker or individually and turn in those CDOA points. Please contact Yoli Bazan at ybazan@hilcorp.com if you have any topics or speakers you are interested in hearing.

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Counterpart

Connection

Jeff Kliewer, Local Association Coordinator Jeff Kliewer l i i

APPALACHIAN BASIN ASSOCIATION OF DIVISION ORDER ANALYSTS (ABADOA) Association Based in the Pittsburgh, Pennsylvania Area Serving NY, OH, PA, WV (Inactive)

CAPDOA started off the year at a new location, Chesapeake Energy. At our February luncheon, Dr. Steven Agee, Dean and Professor of Economics, Oklahoma City University presented: “Energy and Economic Outlook for 2017: And the Impact of the Transition from Obama to Trump.” Stay tuned for an update on his presentation. CAPDOA 2017 Board President: Sherry Werth, Linn Energy, LLC VP: Melissa Pierre-Martin, Chesapeake Energy Corp. Secretary/Treasurer: Chasta Butler, Sandridge Energy, Inc. Director: Dea Mengers, Independent Director: Roxanne Heath, Continental Resources Director: Amber Croisant, Diamondback Energy Board Advisor: Donna King, Monarch Land Solutions In addition, CAPDOA’s NADOA Representative is Christie Taylor, Chesapeake Energy Corp.

………………………………… ARKLATEX ASSOCIATION OF DIVISION ORDER ANALYSTS (ALTDOA) Association based in the Shreveport, LA Area (Inactive) ………………………………… CAPITAL ASSOCIATION OF PROFESSIONAL DIVISION ORDER ANALYSTS (CAPDOA) Association based in the Oklahoma City, OK Area

President’s Bio Once upon a time, a young division order analyst sat at her desk with paper and files continually piling up. She was hired by Amoco Production Company and received two weeks of training (half days) with her predecessor. After the two weeks had passed, everything still seemed so difficult.

Was she ever going to get the ‘hang’ of division order work? At that time there were no manuals or guidelines to assist,

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or contact Eli Murray at emurray@rsppermian.com or by phone at (214) 252-2720. ………………………………… DENVER ASSOCIATION OF DIVISION ORDER

so she decided to read Amoco’s Division Order, the pre- NADOA Model Form. After a few attempts, while trying very hard to stay awake, all she could think was, “What have I gotten myself into”? Fast forward 20+ years, Sherry Werth is now a Sr. Staff Division Order Analyst at Linn Energy and this year’s President of CAPDOA. Sherry has had the pleasure of working with many wonderful folks at Amoco, IBM Consulting, bp and now Linn Energy. Having worked 6 years in revenue, Sherry’s seen another side of the business which she knows has made her a better D.O. Analyst. Sherry became a CDOA in 2008 and is currently the ‘keeper’ of the tests for the NADOA Certification Committee. For more information regarding CAPDOA, please visit our website at www.capdoa.org. ………………………………… DALWORTH ASSOCIATION OF DIVISION ORDER ANALYSTS (DALWORTH) Association serving the Dallas/Fort Worth, TX Area Dalworth recently had our Christmas Party at the Fort Worth Petroleum Club and we raised funds to contribute to the Assist the Officers Foundation.The donations went to support the recovery of injured police officer, Justin Ellis, with the DART Police Department. Officer Ellis was struck and injured on his motorcycle while responding to a call on duty on October 10, 2016.We were honored to have Sergeant Keith Austin with the DART Police Department speak and accept the donations on behalf of Officer Ellis. Sergeant Austin shared that Officer Ellis would be getting released from the hospital to go home in time for Christmas to continue his recovery! Dalworth contributed $500 as well as in kind donations from members present.We raised $796 in cash and checks and $75 in gift cards for a total raised of $871. Our next meeting will be held on the 23rd of February withWill King as our speaker.The following meeting will be the 20th of March with speaker to be determined.

ANALYSTS (DADOA) Association based in the Denver, CO Area

DADOA 2017 Board President:

Cori Peth Stan Vargas

Vice President:

Secretary: Treasurer: Director:

Evelyn Kastner Alexa Heslin

Katie Tate

President’s Bio Cori is a Senior Division Order Analyst at Koch Exploration and truly enjoys her career in the oil and gas industry. Cori currently works properties from North Dakota to Texas and most states in-between. Her background working Wyoming, California, DJ Basin and Permian prepared her well for these exciting new challenges. Cori was President in 2016, Vice President in 2015 and 2014. Since joining DADOA in 2007, she has served as Board Advisor (2013), President (2012), and Vice President (2011), and has helped with the Program Committee (2013), Education Committee (2009 – 2011), and Hospitality Committee (2007-2008). On a personal note, she won a hotly contested HOA board position last year and is Aunt to her newly arrived (adorable) nephew. Cori and her husband Andy live in Aurora where they spend their Sunday afternoons cheering on their beloved Packers. For more information regarding DADOA, please visit our website at www.dadoa.org. ………………………………… HOUSTON ASSOCIATION OF DIVISION ORDER

ANALYSTS (HADOA) Association based in the Houston, TX Area

For information regarding DALWORTH, please visit our website at www.dalworth.org

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………………………………… MID-AMERICA ASSOCIATION OF DIVISION ORDER ANALYSTS (MAADOA) Association based in the Wichita, KS Area The MAADOA Board was installed at our January meeting. The officers are as follows: President: Patricia Reynolds, Coffeyville Resources, LLC Vice President: Natasha Fosse, TransPacific Oil Corp. Secretary: Diana Richecky, Duke Drilling Co., Inc. Treasurer: Rosann Schippers, Petroleum Property Services, Inc. Board Directors: Stacey Smith, TransPacific Oil Corp. Marge Schulte, John O. Farmer, Inc. Brenda Davis, Daystar Petroleum Inc. We are working on the annual Educational Seminar, so more information will be forthcoming. Be sure to check out our website at maadoa.org. It has useful links to various operations in Kansas. Diana Richecky, MAADOA Secretary diana@dukedrilling.com 316-267-1331 ………………………………… PERMIAN BASIN ASSOCIATION OF DIVISION ORDER ANALYSTS (PBADOA) Association based in the Midland, TX Area

Treasurer: Donna Brady, The Edmar Company Secretary: Courtney Poitevint, Legacy Reserves Operating Director-Membership: Shaina Ferrell, Concho Resources, Inc. Director-Publication: Shawn Thompson, Pioneer Natural Resources Board Advisor: Catie Hill, Pioneer Natural Resources NADOA Liaison: Jennifer Lujano, Concho Resources, Inc. Special thanks to the 2016 Board Members for working so hard last year. We look forward to continued growth and productivity with our new 2017 Board Members. President’s Bio: and gas industry at Legacy Reserves Operating LP in the Owner Relations/Division Order Department. Her love for the industry encouraged her to pursue becoming a Certified Division Order Analyst. She served as the 2016 Vice President for PBADOA and is excited to be in the role of President for 2017. For more information regarding PBADOA, please visit our website at www.pbadoa.org. ………………………………… SOONER ASSOCIATION OF DIVISION ORDER ANALYSTS (SADOA) Association based in the Tulsa, OK Area Jennifer Oden graduated from Lubbock Christian University in 2009. She returned to her hometown of Midland, Texas and started working at a Staffing Agency. In 2013, Jennifer began her career in the oil

SADOA is happy to introduce our 2017 Board, including President Lisa Daniels. Lisa is the

Starting the year off with a bang we had Jimmy Wright, CPL speak at our January luncheon on the “Role of Land Administration in Acquisitions and Divestitures.” We also announced our 2017 board. Congratulations to:

Supervisor of Title Administration at Superior Pipeline Company located in Tulsa and is thrilled to be serving SADOA in this capacity this year. Other Board members are:

1st Vice President, Joyce Vaughn; 2nd Vice President, Dena Blevins;Treasurer, Erica Hartnauer; Secretary, Janet Cavanah; Directors, Jamie Meyer and Linda Buckman; Board Advisors: PamWells and

President: Jennifer Oden, Legacy Reserves Operating Vice President: Kaprice Pearson, Concho Resources, Inc.

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Darryn McGee; and NADOA Board Representative, Rona Erickson.We extend a special thanks to our 2016 Board for their service to SADOA during the past year.

Michael Stefanatos; Laredo Petroleum: Blythe Meeker; Rim Rock Resources: Felicia Allgood;WPX Energy: Paulette Schultz. For more information regarding SADOA, please visit our website at www.oksadoa.org. …………………………………

NADOA Welcomes the following NEW MEMBERS!!

Meet some of the 2017 Board (left to right) Lisa, Joyce, Dena, Erica, Janet, Jamie, Linda and Pam.

The membership of SADOA enjoyed a special time together during our December Holiday Meeting at the awesome Five Oaks Lodge, nestled in the woods. Many members received surprise cash door prizes to make their season merry and bright.Wonderful donated gift baskets were raffled off to benefit Tulsa Area Life Senior Services. Almost $500 was provided to this organization to help seniors age actively in their community and maintain quality independent living arrangements. Great food and fellowship was enjoyed by all!

Anadarko Petroleum Corporation Iris Alcantara Chesapeake Energy Corporation Tri Nguyen

Halcon Resources

Sarah Henson

Laredo Petroleum

Blythe Meeker

PetroLegacy Energy

Rachelle Sutherland

QEP Resources

Melinda Wood

Royalty Research & Recovery, LLC Jason Fairchild

Plans are underway to provide our members with interesting educational meetings in 2017 to enhance our knowledge base as we gear up with expectations for an upturn in our industry activity this year. Each year we are thrilled to welcome brand new members to the ranks of our membership. SADOA says “Welcome Aboard” to the following new members: ARI Tulsa: Gary Pike, Carmen Keathley, Sue Parker, and

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Colorado Attorney General Files Suit to Repeal Local Fracking Ban Legal Watch

On January 27, 2016, the Attorney General’s Office put Boulder County on notice that if it did not come into compliance with State law by February 10th, the State would take legal action against the County. “Because five years is more than reasonable time to complete such a project, and because Boulder County continues to operate in clear violation of Colorado law, the Attorney General today is filing suit in Boulder County District Court to compel compliance.” Boulder County’s “open defiance of state law has made legal action the final recourse available,” Attorney General Coffman said in a statement announcing her filing in Boulder County District Court on February 14. First enacted in 2012 by Boulder County’s commissioners, the ban on oil and gas development has been extended or re-imposed eight times. According to Coffman’s statement, “Two of those extensions were passed after the Colorado Supreme Court ruled in May 2016 that local bans on oil or gas development are preempted if they conflict with the Colorado Oil and Gas Conservation Act, which regulates all aspects of oil and gas development and operations within the State. After the Supreme Court’s ruling in the City of Longmont and City of Fort Collins cases, other local governments acted to lift similar bans – except for Boulder County.” The Colorado Supreme Court ruled in two separate decisions that a local fracking moratorium in Fort Collins and a fracking ban in Longmont were invalid because they were in conflict with the Colorado Oil and Gas Conservation Act. In a written statement, the Colorado Oil & Gas Association applauded the action, “It’s not about drilling, or fracking, or pipelines, it’s about the law”.

“…the law is clear: Long-term moratoriums — and this one is over five years now — are illegal. Boulder County shouldn’t be surprised that the attorney general cares about the rule of law in Colorado.” Boulder County called the lawsuit “a sweetheart deal for the oil and gas industry, but a massive waste of Coloradans’ tax dollars” and Boulder County Commissioners plan to “proceed as scheduled to review the updated regulations that staff has been working on since last May at a public hearing on Tuesday, March 14, 2017. The commissioners have scheduled a follow-up public meeting on Thursday, March 23, 2017 to deliberate their findings from the public hearing and to make a decision on the adoption of new oil and gas regulations for unincorporated Boulder County.” The county has 21 days to respond to the Attorney General’s filing, which requested an end to the moratorium and a permanent injunction.

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Legal

Update

Denial of Surface Access Deemed Force Majeure by Ohio Court These materials reflect only the personal views of the author and are not individualized legal advice. It is understood that each case is fact- specific, and that the appropriate solution in any case will vary. Therefore, these materials may or may not be relevant to any particular situation. Thus, the author and their respective law firm cannot be bound either philosophically or as representatives of their various present and future clients to the comments expressed in these materials. The presentation of these materials does not establish any form of attorney- client relationship with the author or their respective law firm. While every attempt was made to insure that these materials are accurate, errors or omissions may be contained therein, for which any liability is disclaimed.

The Seventh District Court of Appeals, based in Youngstown, held that denial of surface access to the lessee of the underlying mineral estate constituted force majeure under the lease’s broadly worded clause. Force majeure, literally “superior force,” generally means an event or effect that can be neither anticipated nor controlled. When in this circumstance, denial of access resulted in non-production during the primary term, the court deemed the surface owner’s denial of access to be a force majeure which tolled the lease’s primary term. In Haverhill Glen, LLC vs. Eric Petroleum Corp., decided December 2, 2016, the Seventh District Court upheld the Harrison County, Ohio, trial court’s grant of summary judgment to mineral lessee Eric Petroleum in lessor Haverhill Glen’s suit for a declaration that the lease expired due to non-production. The lease covered 3,583 acres. Eric determined that the best potential development site was in the 363 surface acres owned by New Rocky Valley Farms. New Rocky repeatedly denied access to Eric; its representatives even threatened Eric’s representatives. Eric had previously attempted to gain surface access for potential development

on a 2,400 acre tract within the lease known as Faith Ranch and Farms, also to no avail.

Karen E. Kahle MEMBER Karen Kahle’s practice is devoted to litigation, with a focus on products liability, energy, class actions, and mass torts. Phone: (304) 231-0441 Email: karen.kahle@steptoe-johnson.com

J. Kevin West MEMBER

For over 25 years, Kevin West’s practice has been focused on the energy industry, both as an outside and in-house attorney. Mr. West is the Managing Member of the

Columbus, Ohio office. Phone: (614) 458-9889 Email: kevin.west@steptoe-johnson.com

Pennsylvania Supreme Court rules on Act 13

The Pennsylvania Supreme Court on September 28, 2016, struck down as unconstitutional several remaining provisions of the controversial Act 13 of Feb. 14, 2012, P.L. 87 (“Act 13”), thus ending the General Assembly’s 2012 attempt to provide uniform laws and regulations governing oil and gas development in the Commonwealth.  In 2013, the Supreme Court struck down the spacing and zoning portions of Act 13.  See Robinson Township v. Commonwealth of

Pennsylvania, 83 A.3d 901 (Pa. 2013).  Now, the Court brings those challenges to Act 13 to a close by finding several remaining provisions relating to enforcement, confidentiality, private water wells, and storage to be unconstitutional or not severable from those provisions previously struck down in 2013.  What largely remains of the statutory changes in Act 13 is the imposition of fees on unconventional gas wells, referred to as “impact fees,” a portion of which is distributed to local governments.

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1.  The Public Utility Commission and the Commonwealth Court No Longer Have Jurisdiction Over Challenges to Oil and Gas Regulations Enacted By Local Governments. In 2013, the Court struck down as unconstitutional Sections 3303 and 3304 of Act 13.  Section 3303 prohibited local governments “from enacting or enforcing environmental legislation regulating oil and gas operations.”  Robinson Township v. Commonwealth of Pennsylvania, _ A.3d __, J-34A-B-2016, at 8 (Pa. 2016).  Section 3304 required that “all municipal ordinances regulating oil and gas operations be uniform, and mandated that certain drilling and ancillary activities attendant to the production of natural gas be allowed in every zoning district in a local political subdivision — existing zoning laws notwithstanding.”  Id. at 9.  The Court now holds that Sections 3305 through 3309 cannot survive apart from Sections 3303 and 3304.  Sections 3305 and 3306 permitted the Public Utility Commission (“PUC”) and the Commonwealth Court to decide whether a local ordinance violates the Municipal Planning Code (“MPC”) and provided procedures for the expedited review of local ordinances by the PUC and the Commonwealth Court at the request of oil and gas operators and others.  Sections 3307 and 3308 penalized municipalities if local ordinances did not meet the requirements of the MPC.  Section 3309 stated that Act 13 applied retroactively and gave municipalities a certain amount of time to take necessary actions to bring existing ordinances into compliance.      The Court noted that the policy behind Sections 3303 and 3304 was “to speed and simplify the local ordinance review process.”  Id. at 48.  With these sections already held to be unconstitutional, the Court found that “the legislature would not have passed . . . [Sections 3305 through 3309] into law merely to have the PUC and the Commonwealth Court engage in the same type of measured and deliberative review process for local ordinances which the MPC already provides.”  Id. 2.  Health Professionals are Not Subject to the Act’s Confidentiality Provisions. The purpose of Sections 3222.1(b)(10) and (11) of Act 13 was “the maintenance of trade secret protections for the chemicals used in the fracking process by placing limits on disclosures of their identity by those in possession of such information” and specifically imposing certain

confidentiality obligations on health care professionals that may be called upon to treat and diagnose those persons exposed to said chemicals.  Id. at 52.   In addressing the constitutionality of Sections 3222.1(b) (10) and (11), the Court noted that “the pivotal consideration is whether these sections confer on the oil and gas industry, as a class, special treatment not afforded to any other class of industry, and whether this special treatment ‘rest[s] upon some ground of difference, which justifies the classification and has a fair and substantial relationship to the object of the legislation.’”  Id. at 64 (citation omitted).  In holding these provisions of Act 13 unconstitutional as special laws, the Court found no justifiable reason to allow the oil and gas industry special protections for its chemical trade secrets when there are numerous other Pennsylvania industries with similar types of concerns that are not granted such special treatment.  Specifically, the Court noted that “no other industry in the Commonwealth has been statutorily shielded in this manner by the imposition of stringent limitations and conditions on the access to, and use by, health professionals of information pertaining to chemicals, substances, or materials used in its operations claimed to be trade secrets or confidential proprietary information.”  Id.  3.  Owners of Private Water Wells are Entitled to Notice. Section 3218.1 “requires the DEP [Department of Environmental Protection], in the event of a spill of chemicals, waste, or other substances associated with the fracking process, to notify only public drinking water facilities that could be affected, but imposes no requirement for that agency to notify owners of private wells which supply drinking water.”  Id. at 65.  The Court considered whether this provision, much like the confidentiality provisions in Section 3222.1(b)(10) and (11), constituted a special law.   The Court first notes that Section 3218(a) requires any operator to repair or replace both private and public water supplies if they become polluted as a result of operations.  Additionally, one clear purpose of Act 13 is “to secure the health, safety, and property rights for all Pennsylvania residents during the oil and gas extraction process, without exception.”  Id. at 75 (emphasis in original).  As such, the Court found Section 3218.1 unconstitutional as a special law since it “does not further the legislative goal of ensuring [private well owners] may exercise their right

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to have the integrity of their water supply secured in the event it is threatened by pollution from a spill.”  Id. at 77.  The Court’s mandate as to Section 3218.1 is stayed for 180 days in order to allow the General Assembly the opportunity to revise the provision to include DEP notification to private well owners.  If no action is taken by the General Assembly, then the entire provision will be stricken and the DEP will not be required to provide contamination notices to the owners of private or public water supplies.  4.  Storage Provisions Constitute a Private Taking by Private Corporations. Provided certain conditions are met, Section 3241 authorizes a private corporation to appropriate subterranean real property interests in order to store natural and manufactured gas.  The Court found that this section violates the Constitutions of both the United States and Pennsylvania for two primary reasons.  First, the application of this provision is not limited to public utilities and applies to all corporations that are “empowered to transport, sell, or store natural gas or manufactured gas in this Commonwealth.”  Id. at 85-86 (“Critically, then, Section 3241(a), by its terms, does not restrict the type of corporation eligible to take the subterranean lands of another property owner to only

corporations that meet these specific legislatively imposed conditions for them to qualify for classification as public utilities.”). Second, the Court found that the public is not the primary and paramount beneficiary from any takings under this provision.  Id. at 86 (“[Section 3241] advances the proposition that allowing such takings would somehow advance the development of infrastructure in the Commonwealth. Such a projected benefit is speculative, and, in any event, would be merely an incidental one and not the primary purpose for allowing these types of takings.”). 

Contributors

Adam S. Ennis (724) 749-3180 adam.ennis@steptoe-johnson.com Southpointe, PA

Bridget D. Furbee (304) 933-8117 bridget.furbee@steptoe-johnson.com Bridgeport, WV

TEXAS

Denbury v. Texas Rice: Clarifying the Test for Common Carrier Status, Power of Eminent Domain By: Austin Brister

3. rejecting the appellate court’s “substantial public interest” test, and

On Friday, January 6, 2017, the Texas Supreme Court issued its long-awaited opinion in Denbury Green Pipeline–Texas, LLC v. Texas Rice Land Partners, Ltd. (“Texas Rice II”), [1] holding that: 1. Denbury’s evidence of a post-construction transportation agreement with an unaffiliated customer was relevant to the “reasonable probability test,”

4. holding that Denbury had “conclusively” established its qualification as a common carrier with the power of eminent domain.

The opinion provides clarity as to the test previously set forth in Texas Rice Land Partners, Ltd. v. Denbury Green Pipeline–Texas, LLC (“Texas Rice I”), [2] and the types of evidence relevant to that determination.

2. rejecting a rule that the requisite intent must exist at the time the pipeline was contemplated,

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Background: Denbury seeks to construct “Green Line” over TRLP land This saga began back in 2007, when Denbury sought to survey and construct a CO2 pipeline over land owned by Texas Rice Land Partners (“TRLP”). Denbury’s subsidiary, Denbury Green, was formed to build, own, and operate a CO2 pipeline, referred to as the “Green Line,” as a common carrier.  The Green Line was to cross over rice farming land owned by TRLP in Jefferson County, Texas.  TRLP denied Denbury access to survey for the pipeline. In response, Denbury filed a T-4 permit with the Texas Railroad Commission to obtain common carrier status and exercise eminent domain authority under Tex. Nat. Res. Code § 111.019(a) (“Common carriers have the right and power of eminent domain.”).  Denbury then filed suit against TRLP for an injunction. Meanwhile, as TRLP was challenging Denbury’s eminent domain authority, Denbury surveyed and constructed the Green Line pursuant to Tex. Prop. Code § 21.021(a), which allows a condemnor to take possession even while the property owner challenges the condemnor’s eminent domain authority. Prior to Texas Rice I, a Texas pipeline owner could argue that it was a common carrier with the power of eminent domain simply because it had declared itself a common carrier on an RRC form.  That changed in Texas Rice I, when the Texas Supreme Court held that the Texas Constitution requires objective evidence that the pipeline will probably serve the public, rather than the builder’s exclusive use. Texas Rice I set forth a more stringent test for determining whether a pipeline company qualifies as a common carrier: for a person intending to build a CO2 pipeline to qualify as a common carrier under Section 111.002(6) [of the Natural Resources Code], a reasonable probability must exist that the pipeline will at some point after construction serve the public by transporting gas for one or more customers who will either retain ownership of their gas or sell it to parties other than the carrier. [3] Denbury/Texas Rice I: Texas Supreme Court established the “Reasonable Probability Test”

“more likely than not.”

In Texas Rice I, the Texas Supreme Court held that Denbury’s evidence of intent to negotiate with unaffiliated parties, without more, established only a “possibility,” and not a “reasonable probability,” that the pipeline would serve the public at some point after construction. Moreover, the court held that the testimony suggested that Denbury Green would transport gas only for its own operations, rather than for any unaffiliated parties. The case was remanded to the trial court for further proceedings. On remand to the Jefferson County District Court, Denbury presented the following post-construction contracts as evidence: 1. A transportation agreement with the unaffiliated entity, Airgas Carbonic, Inc. that was entered into in January, 2013, after the pipeline was already constructed. Under this agreement, Denbury transported CO2 owned by Airgas Carbonic to an Airgas Carbonic manufacturing plant, which was ultimately sold to Airgas customers in the Houston area. finalized sometime after the pipeline was already constructed. Air Products captures and sequesters CO2. Under this agreement, Air Products ships captured CO2 into the Green Line at the Louisiana border, and title and ownership of the CO2 transfers to Denbury Green. Denbury Green then uses the CO2 in tertiary recovery operations, and ultimately sequesters the CO2 underground. On the basis of this evidence, the trial court granted Denbury’s motion for summary judgment, holding that Denbury Green was a common carrier with the right of eminent domain. 2. A transportation agreement with the unaffiliated entity, Air Products and Chemicals, Inc., which was Denbury/Texas Rice II

Beaumont Court of Appeals Sides with Landowners

The Beaumont Court of Appeals disregarded Denbury’s post-construction contracts, and reversed the trial court, essentially holding that a pipeline company must prove that it had the requisite intent at the time

Under this test, a “reasonable probability” is one that is

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Holding: Rejected the “substantial public interest test”

the pipeline was contemplated. Some have called this a “subjective test.” The Beaumont Court of Appeals also held that a reasonably probable future use of the pipeline must serve a “substantial public interest.” The Texas Supreme Court reversed the Beaumont Court of Appeals and reinstated the trial court’s judgment in favor of Denbury Green. The Court’s opinion clarified several facets of the rule previously set forth in Texas Rice I. Texas Supreme Court Clarifies Test, Sides with Denbury Holding: Post-construction contracts are relevant The Texas Supreme Court noted that the “reasonable probability test” is an objective test, meaning that the pipeline is not required to prove the requisite intent existed before construction. The court further explained that evidence of post- construction contracts with unaffiliated entities, showing that non-pipeline-owned gas is being transported for the benefit of the unaffiliated entity, can be relevant under the reasonable probability test. For example, the Court explained that such contracts can be relevant to a showing that: 1. There was a reasonable probability that, at some point after construction, the pipeline would serve the public; and The Court further explained that, without any other relevant evidence, post-construction contracts with unaffiliated entities would normally establish only a pre- construction possibility of future public use. However, when combined with other evidence, they could allow a reasonable observer to determine that there was a reasonable probability that the pipeline would benefit the public.  For example, the Court noted the following potentially relevant additional evidence: 1. the regulatory atmosphere; 2. There are specific, identified, potential customers that own CO2 near the pipeline’s route.

The Texas Supreme Court also rejected the “substantial public interest” test set forth by the Beaumont Court of Appeals.  Instead, the Texas Supreme Court held that for the pipeline to serve the public, it did not need to be direct, tangible, or substantial, and did not focus on “existential arguments related to the power and importance of the individual.”  Instead, “evidence establishing a reasonable probability that the pipeline will, at some point after construction, serve even one customer unaffiliated with the pipeline owner is substantial enough to satisfy the public use under the Texas Rice I test.” (emphasis supplied) The Texas Supreme Court applied this test to Denbury’s evidence and noted, among other things, the following: 1. Under the AirGas contract, AirGas retained title to the CO2, and ultimately sold the CO2 to its customers in the area, which showed that “no longer could a reasonable fact-finder determine that a genuine issue exists” as to whether the pipeline would, “at some point after construction,” transport CO2 owned by a customer who retained ownership of the gas. 3. The post-construction contracts showed that, not only was the pipeline “more likely than not” that it would “someday” be used for public use, but the pipeline is already used for public use 4. These contracts support Denbury’s contention that the route was designed in part to facilitate transfer of gas owned by third parties. The Texas Supreme Court noted that, when the evidence was considered together, Denbury Green “conclusively established that there was a reasonable probability that, at some point after construction, the Green Line would serve the public.” The Texas Supreme Court further noted that the Air Products contract, standing alone, would not satisfy the “reasonable probability” test, because the CO2 transferred Holding: Denbury’s evidence was “conclusive” 2. The AirGas and Air Products contracts were evidence of the proximity of the pipeline to customers;

2. proximity of the pipeline to potential customers;

3. actual post-construction use by unaffiliated entities.

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