“Attorney Andrew Frisch asked a Manhattan federal judge on Wednesday to vacate an order forcing him to represent Steven Donziger, the American lawyer who spent more than two decades suing Chevron Corp over pollution in Ecuador and is now facing a trial next week for criminal contempt,” reports Sebastien Malo in Thomson Reuters Westlaw Today.

“Donziger’s ex-lawyer Frisch told the court in filings that he has had no recent contact with Donziger, their relationship is beyond repair and under such circumstances his representation could violate the defendant’s right to effective assistance of counsel.”

“On Aug. 28 senior U.S. District Judge Loretta Preska ordered Frisch of Schlam Stone & Dolan, Donziger’s former lead defense attorney, to take the reins after the court disqualified two of Donziger’s attorneys and if another two out-of-state lawyers continue to decline or are unable to appear partly at the Sept. 9 trial due to concerns over contracting COVID-19.”

Read the article.

“A total of $26.1 million of the $143 million Merrimack Valley gas explosion class-action settlement was earmarked for payment of legal fees and administrative costs,” report Jill Harmacinski in The Eagle-Tribune.

“And yet, some victims are being asked to pay an 11% fee to get their checks, which are compensation for everything from spoiled food and property damage, to lodging costs, mental anguish and other fallout from the Sept. 13, 2018 gas disaster.”

“The first round of checks was recently issued with an average settlement payment of $8,000. Eleven percent of that payment is $880.”

“As of Friday, a spokesperson for Attorney General Maura Healey said the office had heard from eight recipients about the fee being assessed by attorney David Raimondo of the Raimondo Law Firm. Healey’s office is looking into this.”

Read the article.

“Can targeted advertising establish general jurisdiction over a foreign corporation?  The Fifth Circuit had not addressed this issue until Frank v. P N K (Lake Charles) L.L.C.  But in so doing, the court may have announced a new jurisdictional test with significant ramifications for future cases.” addresses Philip Dore & Cristian Soler in LexBlog’s Energy.

“Frank was a wrongful-death lawsuit filed in Texas state court against L’Auberge Hotel & Casino and its marketing division, PNK.  Following removal to federal court, the district court granted PNK’s motion to transfer, finding PNK was not subject to general jurisdiction in Texas.  The plaintiffs appealed.”

“The Fifth Circuit began by charting the Supreme Court’s general-jurisdiction decisions in Goodyear, Daimler, and BNSY.  For a corporation, the question is whether its “affiliations with the State are so continuous and systematic as to render it essentially at home in the forum State.”  A corporation is generally considered “at home” only in its state(s) of incorporation and principal place of business.  For PNK, this was Louisiana.  So, the question on appeal was whether this was the “exceptional case” where personal jurisdiction could also be exercised in another state.”

Read the article.

“Exxon Mobil dodged a bullet last month when a judge rejected a novel climate-change lawsuit brought by New York’s attorney general. The case began with a promise from state officials that there would be a historic reckoning for the fossil fuel giant.” reports Erik Larson in the San Francisco Chronicle.

“It ended ignominiously as a failed accounting fraud claim.”

“Globally, humans are on the hook for trillions of dollars if they want to sufficiently reduce greenhouse gas emissions, acclimate to the damage already done and prepare for what is yet to come. As more governments and taxpayers find themselves staring down the barrel at rising climate costs, they are increasingly turning to the courts to hold Big Oil accountable.”

“Federal appeals courts on both sides of the country are considering whether such cases may proceed. Their rulings-one of which may come any day-will have a powerful effect on the future of climate change litigation.”

Read the San Francisco Chronicle’s article.

Gray Reed partner Charles Sartain takes a look back at some of 2019’s malefactors in the energy business in a post in the firm’s Energy & the Law blog.

“To our bad guys, 2019 was a year flush with hope and opportunity; it ended with recidivism, more misery from Venezuela, a charlatan, an Okie who pulled a multi-million dollar fast-one on Chesapeake and, as in years past, a peek into the darker side of the human condition,” he writes.

The post describes six cases of fraud, conspiracy, money laundering, and outright theft.

Read the article.

By Matt Smith
Opportune LLP

Lower natural gas prices are causing exploration and production companies to get creative with their hedging strategies to lock in near-term cash flows above the dismal levels the market is currently offering. When hedging with options, it’s not uncommon for oil and gas producers to sell options and roll the premium value of the sold option into another hedging instrument.

An example of this is a costless collar. With a costless collar, a company buys a put option to establish a floor price they’ll receive for the sale of their commodity. Rather than pay the premium for buying the put option, the company sells a call option with an equal premium to offset the purchased put premium. The sold call option establishes a ceiling price they’ll receive for the sale of their commodity. The result allows a company to participate in commodity prices above the floor price and below the ceiling price.

With calendar 2020 natural gas swap prices below $2.25/MMBtu, traditional swaps and costless collars aren’t appealing to many companies. This, combined with the fact that the NYMEX natural gas futures prices are in contango—where future prices are higher than the spot prices—has led some companies to sell options in future periods and roll the premium into near-term swaps. A strategy that’s gaining popularity is selling swaptions and rolling the premium into near-term swaps.

For example, let’s assume the current NYMEX swap prices are $2.25/MMBtu and $2.45/MMBtu for calendar years 2020 and 2021, respectively. Rather than hedge with swaps at these prices, a company may decide that it would rather sell an option giving the counterparty the right to enter into a swap for 2021 at $2.50/MMBtu (this is commonly referred to as a swaption as it’s the option to enter into a swap). When this option expires in December 2020 (or whichever expiry date is negotiated), if the swap price is above $2.50/MMBtu, the bank will execute their right to swap at $2.50/MMBtu, and if the prices are below $2.50/MMBtu, the bank will not.

A company is able to take the premium from selling the swaption and roll this value into a swap to get an above-market 2020 swap price. In this example, let’s assume the premium was $0.25/MMBtu, and the company would roll the $0.25/MMBtu premium into their 2020 swap to get an above-market swap price of $2.50/MMBtu, rather than $2.25/MMBtu. The downside is that the swaption doesn’t provide any price protection in 2021 if natural gas prices continue to go down and it limits upside potential if natural gas prices increase. However, it has become a viable alternative for many in this tough energy market.

Swaptions can create financial reporting complexities when it comes to determining the appropriate fair value to record in financial statements. Implied volatility inputs for NYMEX options are generally readily available. However, implied volatilities for swaptions are not. Determining appropriate volatility is calculation-intensive and requires consideration of various inputs.

The uniqueness of these trades often leads to a significant amount of attention from auditors, the need for valuation specialists and generally requires additional financial statement disclosures. Opportune’s professionals offer the unique understanding of hedging and financial reporting processes that allow us to add value to clients and meet their fair value reporting needs.

About the Author:
Matt Smith is a director in Opportune LLP’s financial instruments group. He assists companies with their accounting for complex financial instruments under both U.S. GAAP and IFRS. He has experience in derivative valuation and hedge accounting, stock-based compensation, debt and equity financing activities, embedded derivative assessments, Dodd-Frank compliance and SEC reporting. Smith has an undergraduate degree in accounting from Oral Roberts University. He is also a member of the American Institute of Certified Public Accountants.

Two Gray Reed lawyers give their take on a recent Texas appellate court’s ruling in Mesa v. Deep Energy, an opinion that will have profound impacts on mineral liens and contractual provisions purporting to waive mineral liens.

Writing on the firm’s website, Ethan Wood and Joe Virene describe the case in which Mesa sued Deep Operating for failing to pay fully for work Mesa performed on three wells. Deep Operating’s parent company claimed that Mesa contractually waived its right to assert liens against Deep Operating’s wells and waived its right to seek payment on the contract from any entity other than Deep Operating, which at that point was in bankruptcy.

“Relying on a 2012 case out of the Dallas Court of Appeals and a 2015 decision from the Texas Supreme Court, the Houston Court concluded that when a party to a contract agrees to seek payment or damages only from one source to the exclusion of all others, that party has effectively waived its rights to such payment or damages from other parties,” the authors write.

Read the article.

A Texas court concluded that “personal effects,” in a last will and testament did not include mineral royalties, report Charles Sartain and Rusty Tucker in Gray Reed’s Energy & the Law blog.

The case involves a woman’s will that listed her checking account and miscellaneous property. The will also directed her independent executor to receive “all my personal effects to clear my estate after my death.”

The will did not mention mineral royalties that the executor started transferring to his personal account. Her heirs contested the executor’s use of those royalties.

Read the article.

John B. McFarland, writing in the Graves Dougherty Hearon & Moody Oil and Gas Lawyer Blog, updates a legal fight over whether a producer can continue to flare gas from its wells.

The dispute, between Williams MLP Operating and Exco Operating Co., has moved to district court in Travis County in Austin.

McFarland describes the background of the case, which involves the purchase of wells, a gathering system and gathering contract, bankruptcy, and a potential net loss of $146 million if the permit to flare gas is not granted.

Read the article.

A Texas court of appeals ruled that “oil or gas” is not limited to “crude petroleum,” but includes refined petroleum products gasoline and diesel, according to Charles Sartain, writing in Gray Reed’s Energy & the Law.

The case involves a pipeline easement that allows a production company to transport oil or gas across the plaintiff’s property. The property owner contended that “oil and gas” referred to crude petroleum, but not refined products.

The court researched definitions of “oil” and “gas” and found that refined petroleum products “fell within the commonly accepted meaning of the terms oil or gas at the easement’s approximate date.”

Read the article.

The 2019 Texas legislature enacted a new Property Code Section 5.152 to protect mineral and royalty owners from a certain species of fraudulent transactions perpetrated on trusting and/or naïve and/or out of state mineral owners, reports Charles Sartain in Gray Reed’s Energy & the Law blog.

The change is meant to address a scam in which someone “fronting for a company with a name similar to a reputable operator, would approach the owner with an oil and gas ‘lease’ of minerals or royalty that were already subject to an existing lease. Except that the lease was actually the sale of the mineral or royalty interest at a bargain price.”

The article lists the changes addressed by the new section.

Read the article.

A post on Gray Reed’s Energy & the Law blog discusses the question: Under Louisiana law, does the operator’s bad faith preclude recovery for the non-operator’s breach of a joint operating agreement if the operator caused the non-operator to breach the JOA but did not itself breach?

Charles Sartain summarizes the background of Apache Deepwater, LLC v. W&T Offshore, Inc., a conflict between parties to a joint operating agreement for operations on offshore deepwater wells.

The case was complicated by conflicting provisions in the JOA.

Read the article.

The law firm of Thompson & Knight LLP advised Oilfield Water Logistics, LLC (OWL) in connection with the sale of its midstream water infrastructure and services business to InstarAGF Asset Management Inc. and its Canadian and international co-investors.

The Thompson & Knight team representing and advising OWL was led by Jesse E. Betts and J. Holt Foster, III, with assistance from Partners Debra J. Villarreal, William M. Katz, Jr., Anthony J. Campiti, Shad E. Sumrow, Todd D. Keator, Jason Patrick Loden, Elizabeth A. Schartz, Gregg C. Davis, Kurt Summers, and James C. Morriss III; and Associates Courtney J. Roane, James Bedotto, John B. Phair, Timothy J. Johnston, Jana Benson Wight, Aaron C. Powell, Craig Carpenter, Lindsay Kirton, and Leslie Reynolds.

Haynes and Boone reports that there has been an uptick in the number of North American oil and gas producer bankruptcies so far this year, with 33 filings as of the end of September. And 27 of those files have come since the beginning of May.

The firm’s Oil Patch Bankruptcy Monitor reports:

“Since our August 12 report, an additional 7 producers have filed bankruptcy with an aggregate amount of total debt in excess of $2.0 billion. This increase in year-over-year filings indicates that the reverberations of the 2015 oil price crash continue to be heard in the industry.”

Read the article.

The Indiana Department of Environmental Protection is seeking the dismissal of a township’s challenge to a permit to a shale gas wastewater injection well to operate in the community, reports the Pittsburgh Post-Gazette.

“The long-running legal battle, which is being watched statewide for its potentially precedent-setting outcome, pits [Grant Township], which wants to protect water wells from contamination, against the DEP, which approved a permit for the injection well in 2014 and again in 2017,” explains the Post-Gazette‘s Don Hopey.

The town passed a community bill of rights ordinance in 2014 in an attempt to block Pennsylvania General Energy Co. from converting one of its former shale gas production wells to a 7,500-foot deep injection well for disposal of fracking waste.

Read the Post-Gazette article.

Charles Sartain, writing in Gray Reed’s Energy & the Law blog, tells the story of Town of Flower Mound v. Eagle Ridge Operating LLC, in which an operator’s injunction against enforcement of a local ordinance was dissolved.

EagleRidge operates gas wells in the Flower Mound. A town ordinance prohibits work on gas wells (other than drilling) at times other than between 7 a.m. and 7 a.m. Monday through Friday and certain times on Saturday.

A court of appeals dissolved an injunction against the town, holding the trial court had no subject matter jurisdiction over the dispute because the ordinance is penal in nature, Sartain explains. (A violation is considered “unlawful” and is punishable by fine.)

Read the article.

By Shane Randolph and Jeff Nicholson
Opportune LLP

With over $370 trillion of global financial contracts referencing LIBOR (London Inter-bank Offered Rate), many oil and gas companies are curious about how the phase-out of LIBOR by 2021 could impact their organization. Many companies are beginning to ask how this transition will impact their organization and what steps can be taken now. The following is a discussion of:

• why LIBOR is being phased out;
• the transition plan for the phase-out;
• items companies should consider; and
• the steps that can be taken now.

Why is LIBOR Being Phased Out?
LIBOR has been the default local and international benchmark interest rate for a diverse range of financial products for decades. The rate is based on various banks’ proprietary observations rather than robust market transactions. This has left the rate vulnerable to manipulation and major rate-fixing scandals came to light starting in 2007. As a result, the U.K.’s Financial Conduct Authority (FCA) decided that it will no longer compel banks to submit LIBOR estimates by the end of 2021.

What is the Transition Plan?
As a response to the issue in the U.S., the U.S. Federal Reserve Board (the “Fed”) convened the Alternative Reference Rates Committee (ARRC) in 2014 to establish a viable alternative to the U.S. dollar LIBOR. The ARRC determined in 2017 that the overnight indexed swap (OIS) rate based on the Secured Overnight Financing Rate (SOFR), a broad treasury repurchase agreement financing rate used when banks borrow or loan treasuries overnight, would be its preferred alternative reference rate. Accordingly, the Fed began publishing the SOFR daily rate on April 3, 2018 to prepare for its use as a benchmark rate.

The current transition timeline proposed by AARC has SOFR being the primary replacement for LIBOR in the U.S. by the end of 2021. The table below shows the ARRC’s anticipated completion dates and milestones to be achieved by those dates.

There are concerns about utilizing SOFR as a benchmark rate, and it will take time for enough liquidity to develop in the SOFR market to alleviate concerns regarding its viability as a benchmark. One issue is that SOFR is a spot rate from the median of overnight transactions, and it is likely to vary materially from day-to-day. Another issue is that SOFR has only a one-day tenor, whereas LIBOR has many different tenors.

What Should Companies Consider?
Companies should inventory all agreements that reference LIBOR. Also, when executing new agreements, management should carefully consider language addressing alternative or fallback rates if LIBOR is unable to be determined. If contracts are not amended to include alternative rates or fallback provisions in the absence of LIBOR before the relevant LIBOR index is discontinued, it could cause settlement issues or render contracts invalid.

From an accounting and financial reporting standpoint, the impact could be substantial. The primary areas affected include hedge accounting and accounting for debt modifications. In addition, discount rates for impairment testing, lease accounting, asset retirement obligations and fair value estimates will need to be assessed. Fortunately, both the U.S. and international accounting regulatory bodies, FASB and IASB, appear to be aligned and will provide significant relief for the transition, particularly in the areas of hedge accounting and debt modifications. As of now, the actions by the FASB and IASB are tentative proposals, but additional guidance should be provided by the end of 2019.

What Steps Can Be Taken Now?
At this stage in the process, companies should increase organizational awareness, carefully monitor the execution of new agreements referencing LIBOR and create an inventory of existing agreements and valuation models.

Increasing organizational awareness will be key for the transition away from LIBOR. While some may be aware of the impending LIBOR replacement, there may be a lack of appreciation of how broadly the event will impact the organization beyond hedging and debt activities. Increasing awareness throughout the organization will also assist in monitoring the execution of new agreements referencing LIBOR.

In summary, the replacement of LIBOR will have a significant impact globally. Oil and gas companies are encouraged to consider the impact to their organization and take steps to assess existing agreements and carefully monitor the execution of new agreements.

As a Managing Director at Opportune, Shane Randolph assists companies and financial institutions throughout North America, South America, Europe and Asia-Pacific in their understanding of what is possible as they deal with the challenges of implementing risk management programs and highly technical accounting pronouncements. He oversees the risk management, derivatives, stock-based compensation and complex securities service offerings of Opportune. He assists clients with the entire risk management life cycle, including strategy, execution, compliance, valuation and hedge accounting. He has undergraduate and graduate degrees in accounting from Oklahoma State University. He also is a member of the American Institute of Certified Public Accountants and maintains a Series 3 Securities License.

Jeff Nicholson is a Senior Consultant in the complex securities, hedging and stock-based compensation practice of Opportune LLP. He holds a Bachelor’s degree in Business Administration and Management from the University of Colorado, Boulder and a Graduate degree in Finance from the University of Colorado, Denver.

Charles Sartain of Gray Reed & McGraw summarizes in a blog post the takeaways from a recent presentation two of the firm’s lawyers made recently on the use, control and ownership of water in oil and gas operations.

“Groundwater is privately owned by the owner of the surface estate,” he explains. “As with oil and gas, it is subject to the rule of capture. Landowners’ requests that the rule be modified in favor of the ‘rule of reasonable use’ have been rejected by the Texas Supreme Court.”

The post discusses the questions around ownership of produced water in the oil patch.

Read the article.

Texas businessman Mas Duncan lost the nearly $6 million that he invested in a docket of claims against BP after the Deepwater Horizon spill. The money, as Reuters’ Alison Frankel explains, evaporated into an allegedly fraudulent scheme to manufacture tens of thousands of plaintiffs.

“Then when Duncan and his litigation finance company, Duncan Litigation Investments, tried to recoup the lost millions by suing the plaintiffs’ firms that allegedly benefited from his investment, he ran into timeliness problems,” according to the Reuters report.

Now DLI has filed a complaint blaming Duncan’s own former lawyers at Baker Donelson Bearman Caldwell & Berkowitz for failing to procure a tolling agreement that would have extended the statute of limitations on Duncan’s claims against the plaintiffs’ firm.

Read the Reuters article.

The expiration of an oil and gas lease’s primary term does not necessarily release all non-producing lands, writes J. Mark Robinette.

“This can be so even when the lease contains a Pugh Clause. Typically, most leases contain savings provisions that extend the lease beyond the primary term when the lessee ‘continuously prosecutes’ drilling operations,” he explains.

In a post on his website, he provides a sample of this saving provision from the Producer’s 88 lease form.

Read the article.