Thompson & Knight LLP advised the Conflicts Committee of American Midstream Partners, LP in its merger with an affiliate of ArcLight Energy Partners Fund V, L.P.

The partnership has announced the closing of the transactions contemplated by that certain Agreement and Plan of Merger, dated March 17, 2019, by and among the partnership, American Midstream GP, LLC, and affiliates of ArcLight, pursuant to which an affiliate of ArcLight has taken the Partnership private by acquiring all of the outstanding common units of the partnership not already held by affiliates of ArcLight, at a price of $5.25 per common unit.

The firm’s cross-practice deal team was led by the corporate team of Alan P. Baden, Jeremiah M. Mayfield, and Stephen W. Grant Jr., with assistance from J. Dean Hinderliter, Dasha K. Hodge, Timothy J. Johnston, Catharine A. Hansard, Tonya Maksimenko, and Nicolas Adrian McTyre.

The Houston Chronicle reports that a Houston oil executive was sentenced to state prison for defrauding investors who thought they were paying for the drilling and testing of wells — but instead paid the executive’s mortgage.

Daniel Walsh, a Galveston oilman, was sentenced to 18 years in state prison on Friday in Wichita County, according to the Chronicle‘s Erin Douglas.

The former CEO of Houston-based Western Capital Inc. had pleaded  guilty to money laundering Wednesday after raising money for the drilling and testing of oil wells in Galveston between 2007 and 2009, but spent the money on his personal expenses instead.

Read the article.

The Supreme Court of Texas delivered a reminder that when drafting contracts, you should say what you mean and mean what you say, and reliance on oral representations directly contrary to the terms of a written agreement between sophisticated parties is not justifiable, reports Carrington Coleman Sloman & Blumenthal’s Sua Sponte blog.

Derrick Ward explains that the case considered a farmout contract between Barrow-Shaver Resources Company and Carrizo Oil & Gas for Barrow-Shaver to build a well on a lease held by Carrizo in exchange for an interest in the mineral rights. When Barrow-Shaver raised  concerns about the consent-to-assign provision and sought to add language that would prohibit Carrizo from withholding consent unreasonably, Carrizo’s representative allegedly offered assurances that Carrizo would work cooperatively if the assignment became an issue.

When it became an issue, litigation resulted. The court ultimately concluded the consent-to-assign provision “unambiguously allowed Carrizo to refuse its consent for any reason,” Carrizo’s refusal to consent to the assignment could not constitute a breach of contract as a matter of law.

Read the article.

The Energy Law Blog of Liskow & Lewis discusses a recent U.S. Supreme Court ruling that could have far-reaching implications concerning wage-and-hour laws for workers on oil and gas platforms located in open water on the Outer Continental Shelf.

Authors Jackie E. Hickman and Thomas J.McGoey II explain the background of the case:

“The plaintiffs in Parker Drilling Management Services, Ltd. v. Newton, were offshore rig workers who filed a class action asserting that their employer violated California’s minimum wage and overtime laws by failing to pay them for stand-by time while they were on the drilling platform. Both parties agreed that the platforms were governed by the Outer Continental Shelf Lands Act (“OCSLA”), but they disagreed regarding whether the California’s wage-and-hour laws were incorporated into OCSLA and therefore applicable to workers on the platform.”

The Supreme Court found that federal law is exclusive and state law only applies where there “is a gap in federal law’s coverage.”

Read the article.

A week after the West Virginia Supreme Court unanimously upheld the property rights of landowners battling one natural gas giant, the same court tossed out a challenge filed by another group of landowners against a different natural gas company, reports Ken Ward Jr. of the Charleston Gazette-Mail.

The article, published on the website of the ABA Journal, is the product of a partnership with the Gazette-Mail, a member of the ProPublica Local Reporting Network.

The court on Monday upheld a lower court ruling that threw out a collection of lawsuits alleging dust, traffic and noise from gas operations were creating a nuisance for nearby landowners.

“In the property rights case last week, the justices set a clear legal standard that natural gas companies can’t trespass on a person’s land, without permission, to tap into gas reserves from neighboring tracts,” writes Ward. “In Monday’s case, the justices didn’t articulate a new legal precedent.”

Read the ABA Journal article.

The Texas Supreme Court has denied motion for rehearing of its opinion in a case that addresses deductibility of oil and gas post-production costs in the context of an overriding royalty, writes John McFarland for the Oil and Gas Lawyer Blog.

Burlington Resources Oil & Gas Company v. Texas Crude Energy may, however, have implications for post-production-cost deductions in oil and gas royalty clauses, according to the post on the website of Graves, Dougherty, Hearon & Moody.

The dispute involved alleged breaches of a development agreement between the parties, including the deduction of post-production costs from Texas Crude’s overriding royalties.

The trial court ruled that post-production costs in the case were not deductible. But the Texas Supreme Court “reversed and remanded, holding that the language of the overriding royalty assignments permits deduction of (some?) post-production costs,” explains McFarland.

Read the article.

Stephen Cooney of Gray Reed, in a post on the firm’s website, provides some analysis of the state of groundwater law in Texas and discusses some of the effects of a Texas Supreme Court case that should now be a concern to land purchasers in every transaction.

In Coyote Lake Ranch, LLC v. City of Lubbock, the court found  that a severed groundwater right would be worthless if the groundwater owner could not enter upon the land in order to extract the groundwater

Under the law now, a petroleum development company can set up a pad, build roads, lay pipeline and start drilling for water, even though the holder of the mineral rights waived the right to come on the property to drill for oil and gas.

Read the article.

A Thompson & Knight trial team earned a unanimous verdict for BP America Production Company in a retrial of a 12-year-old lease termination dispute brought by Laddex, Ltd., an Amarillo-based oil company. Absent further appeals, this verdict could be the final chapter in over a decade of contentious lease termination litigation, according to a release from the law firm.

The release tells the history of the litigation:

In 2013, BP took two lease termination disputes to trial within one month of each other: Laddex v. BP America and Red Deer Resources v. BP America. In each case, the plaintiffs sought termination of large BP leases in the Texas Panhandle. Both cases involved the hot Texas litigation topic of “production in paying quantities,” a doctrine that allows a typical oil and gas lease to continue after its primary term only if the well or wells on that lease produce enough oil and gas to turn a profit.

Laddex was originally tried in June 2013. In that trial, the jury found that the lease failed to turn a profit from August 2005 to October 2006 and further found that a reasonable operator would not continue to operate the Mahler D-2 well for the purpose of making a profit. The effect of these answers was the termination of BP’s lease.

Red Deer went to trial one month later. In that case, the jury found that the well had produced in paying quantities at all relevant times, but that it was not capable of producing in paying quantities at the time it was shut-in on June 12, 2012.

Both cases eventually found their way to the Texas Supreme Court. In Red Deer, the court determined in its 2017 opinion that the only material question asked of the jury was whether the lease produced in paying quantities—and BP prevailed on that question. The result was a reversal and judgment rendered in favor of BP. In Laddex, also in 2017, the Texas Supreme Court ruled that the jury charge in the 2013 trial erroneously instructed the jury to limit its analysis only to a specific 15-month period and held that the length of the time period to be considered for determining profitability was for the jury to decide. The court therefore remanded the case for a new trial.

The focus of Laddex is whether the Mahler D-2 well produced enough oil and gas to maintain BP’s almost 50-year-old lease. In order for the 1971 lease to remain valid, it needed to produce oil and gas in profitable quantities. Laddex’s suit claimed that the Mahler D-2 failed to turn a profit for over a year starting in the summer of 2005, and therefore the lease terminated on its own terms. It was undisputed that the well experienced a significant slowdown for about 15 months, but BP maintained that the lease was still profitable during that time. The well recovered to more normal levels of production in November 2006 and continues to produce near those levels to this day.

BP hired Thompson & Knight for the retrial, which began on April 15, 2019, and concluded mid-day on April 23. The jury ruled unanimously for BP.

The Thompson & Knight retrial team in Laddex v. BP was led by Rob Vartabedian, with support from Alix Allison, Rich Phillips, Conrad Hester, and Connor Bourland. Thompson & Knight’s Rob Vartabedian and Conrad Hester assisted with all aspects of Red Deer, from trial to the Texas Supreme Court. M. Coy Connelly, BP America managing counsel, supervised the successful litigation efforts in both the Laddex and Red Deer suits.

Several reported cases in recent years have involved title to minerals underlying roadways, points out Austin Brister for the McGinnis Lochridge Oil and Gas Law Digest.

“In urban oil and gas plays such as the Barnett Shale, horizontal drilling has ‘paved the way’ for oil and gas operators to drill through and produce minerals underlying highways, streets, and roadways,” he explains. “Even in rural areas across Texas, numerous horizontal wells have been drilled underneath roads and highways.”

The article discusses the case of Green v. Chesapeake in the Fort Worth Court of Appeals as it relates to the the strip-and-gore doctrine.

Read the article.

A recent Texas ruling illustrates the problems that can arise when parties to a joint operating agreement elect to have a non-owner serve as the operator, points out Austin Brister in the McGinnis Lochridge Oil and Gas Law Digest.

The court was called on to determine whether an elected unit operator is permitted to delegate operatorship duties to a contract operator, and whether that contract operator can be liable to nonoperators for breach of any duties imposed on the operator under that unit operating agreement.

PBJV was designated as unit operator, but then PBJV entered into a contract with Apache to perform a number of duties.

The court concluded that Apache was merely delegated duties, based on its observations that PBJV never actually named or designated Apache as the “Unit Operator,” but instead entered into a “Contract Services Agreement” and power of attorney with Apache under which PBJV contractually delegated certain operator duties to Apache.

Read the article.

When  you prepare, review and/or sign settlement agreements you sometimes pay less attention than you should to the details of those “standard” releases, writes Charles Sartain in Gray Reed’s Energy & the Law blog.

He explains that Acme Energy Services, d/b/a Big Dog Drilling v. Staley et al. provide the lesson: Beware the boilerplate; before signing, consider what you actually are trying to accomplish.

“Lake Hills contracted to provide materials and services on oil and gas leases owned by Heritage. Big Dog and other subcontractors provided work and materials and invoiced Lake Hills,” Sartain explains. “Heritage stopped paying Lake Hills and Lake Hills stopped paying the subs, who then recorded statutory mineral property liens against Heritage, its leases, and the well. Each subcontractor sued Heritage to foreclose and for personal liability.”

He lists the five rules the court considered in the case and discusses the ruling.

Read the article.

The Supreme Court of Pennsylvania has agreed to hear a case to consider whether the rule of capture applies to hydraulic fracking, reports The Hydraulic Fracking Blog of Norton Rose Fulbright.

The case involves landowners’ trespass and conversion claims against an energy company based on hydraulic fracking activities. The plaintiffs  compared the energy company’s fracking activity to slant drilling, claiming that the proppants of hydraulic fracturing “serve the same purpose as a drill bit invading the land.”

Read the article.

A Texas Supreme Court ruling in Texas Outfitters Limited v. Nicholson explains why there is no bright-line rule delineating the duty of the executive right holder in resolving disputes among the mineral interest family, according to Gray Reed & McGraw.

The article in the firm’s Energy & the Law blog explains that the case presented an opportunity for the court to apply the guidelines outlined in an earlier ruling to a different scenario: whether the executive breached the duty by refusing to lease.

The ruling in “Outfitters reinforces the message that surface protection is not the only goal an executive is allowed to pursue – especially if a co-owner has leased.”

Read the article.

A new article by two Gray Reed & McGraw lawyers in Houston covers the benefits and risks of hydraulic fracturing, including reduction of foreign imports, jobs, reduced prices for consumers, water quality and usage, air quality, earthquakes, and social impacts, writes John McFarland in the Oil and Gas Lawyer Blog of Graves, Dougherty, Hearon & Moody.

“A Brief Look at the Law of Hydraulic Fracturing in Texas and Beyond” gives a balanced view of the ongoing debate over whether increased use of natural gas for generation of electricity reduces greenhouse gas emissions, whether there is a connection between hydraulic fracturing and earthquakes, and adverse impacts on roads and other infrastructure, according to McFarland.

Read the article.

The term “net royalty acre” is used by mineral and royalty buyers to price a mineral or royalty interest that is subject to an oil and gas lease. It is related to, but different from, a “net mineral acre,” explains John McFarland of Graves, Dougherty, Hearon & Moody in the firm’s Oil and Gas Lawyer Blog.

“Mineral buyers often make offers in terms of dollars per net royalty acre. If the recipient of the offer does not know for sure what she owns, it can be difficult to evaluate the offer,” he writes.

In the article, McFarland explains the difference between the two terms and provides formulas that can be used to calculate each one.

Read the article.

Haynes and Boone’s Spring 2019 Energy Roundup highlights an evolving United States oil and gas industry responding to recent commodity price volatility, the firm said on its website.

It also examines new international investment opportunities arising from legal changes in the United Kingdom and Brazil.

And the Spring 2019 Borrowing Base Redeterminations Survey predicts a conservative, but not knee-jerk, response by banks to the late 2018 drop in oil prices.

“Investor activism is on the rise in the public E&P space – our capital markets group tracks the various players and the demands they are marking. In the midst of this changing market, our guest contributor from Opportune LLP gives an outlook on upstream trends in 2019 and we also look at the related impact in the midstream space,” the firm said in the introduction to the report.

Read the report.

The Supreme Court of Texas is considering whether to grant a petition for review to establish whether an indemnity provision covers only third-party claims, not first-party claims, unless the provision unequiv­oc­al­ly states otherwise, writes D.C. Toedt III in the On Contracts blog.

He describes the case of Claybar v. Samson Exploration LLC, in which a property owner sued Samson for alleged damage to the property during oil and gas drilling. Claybar settled with Samson’s contractor but still claimed Samson was con­tract­ually required to indemnify Claybar for the attorney’s fees and costs that Claybar had incurred in pursuing his negligence claim.

Read the article.

Opportune takes a look at a few key indicators shaping the upstream oil and gas sector so far in 2019.

The first indicator is the continued climb of U.S. shale output, which is estimated to set records this year and next.

On the subject of supply and demand, the United States is expected to continue leading growth in oil supply worldwide, as global consumption of petroleum and liquid fuels show relative growth.

Liquid natural gas production reached a record high at the end of 2018, and export capacity will grow significantly.

The bad news for producers, however, is that increased production will limit price increases.

Read the article.

The 4th U.S. Circuit Court of Appeals has upheld the “take first, pay later” approach to building the Mountain Valley Pipeline, in which the company condemned private property in the project’s path before paying opposing landowners for their losses, reports The Roanoke Times.

Reporter Laurence Hammack writes that the ruling was a blow to pipeline foes, who have long decried the use of eminent domain to take parts of family farms and rural homeplaces to make way for a 303-mile natural gas pipeline through West Virginia and Virginia.

Landowners did not contest the laws that allowed the pipeline company to obtain forced easements through nearly 300 parcels in Southwest Virginia, but they objected to a lower-court ruling granting immediate possession of the disputed land before deciding how much each property owner should be compensated, Hammack explains.

Read the article.

Writing in Gray Reed’s Energy & the Law blog, Charles Sartain points out that parties to a transaction need to be mindful that if a business deal is a partnership, there will be rights and duties not present in arms-length commercial transactions.

He discusses a recent appellate court opinion and considers the main question: Was a partnership formed by a letter agreement, a participation agreement and the actions of the parties?

Stephens et al v. Three Finger Black Shale Partnership et al. is a complicated petroleum development deal that included all those elements. The jury trial ended with a multimillion dollar judgment for actual and exemplary damages in favor of two separate groups of plaintiffs and intervenors against several groups of defendants.

The appellate court determined that there was no evidence of a partnership, which meant that no fiduciary duty was owed by the defendants.

Read the article.