Federal Judge Strikes Down County Ordinance Banning Hydraulic Fracturing

On January 19, 2015, in a 199-page summary judgment opinion in SWEPI, LP v. Mora County, New Mexico (CIV 14-0035 JB/SCY), New Mexico U.S. District Court Judge James Browning declared that a 2013 Mora County ordinance banning corporate oil and gas drilling and hydraulic fracturing unconstitutional and in violation of the corporate-plaintiff developer's property rights and the Supremacy Clause under the U.S. Constitution. The law, titled the Mora County Community Water Rights and Local Self-Government Ordinance, banned such activity within a substantially rural county approximately 100 miles northeast of Santa Fe. The Plaintiff is a subsidiary of Royal Dutch Shell PLC.

Although subject to review by the Tenth Circuit U.S. Court of Appeals, this federal court's decision is a setback for local control activists. Judge Browning found that the Ordinance expressly attempted to circumvent corporate rights protected by federal law. In fact, the Ordinance declared that companies "shall not have the rights of 'persons' afforded by the United States and New Mexico Constitutions," including First Amendment rights and due process. Judge Browning noted that the "Defendants' argument that corporations should not be granted constitutional rights, or that corporate rights should be subservient to people's rights, are arguments that are best made before the Supreme Court -- the only court that can overrule Supreme Court precedent -- rather than a district court." Although the federal court did not find Plaintiff's "takings" claim to be ripe because Plaintiff had not sought just compensation through a state inverse condemnation action, Judge Browning further found the Ordinance violative of, and impliedly preempted by state law since it would create waste and prohibit activity that New Mexico law allows.
Although state courts in New York and Pennsylvania have ruled in favor of some level of local government control over oil and gas development, decisions rejecting similar oil and gas activity bans were issued in 2014 by Boulder District Court Judge D.D. Mallard, which are now at issue in the Colorado Court of Appeals.

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TOP TEN TIPS FOR EMPLOYMENT LAW

Hire Employees “At Will” - “At will” employment provides your business with maximum flexibility in employment relationships by allowing for termination at any time, with or without notice, and for any reason.

Use Employment Agreements - An employment agreement is a useful tool in documenting the “at will” nature of the relationship and obtaining the employee’s agreement to obligations of confidentiality, intellectual property and non-competition/non-solicitation.

Don’t Discriminate - It is illegal to discriminate on the basis of race, religion, color, sex (including pregnancy and gender identity), sexual orientation, parental status, national origin, age, disability, family medical history or genetic information, political affiliation, military service, or any other non-merit based factor. Enforce a “no tolerance” anti-discrimination and anti-harassment policy.

Create a Policy Handbook - Educate employees on the company policies and procedures through an employee handbook. Give each employee their own copy and require each to return a signed acknowledgment.

Review Exempt Classifications - Misclassification of exempt employees is a common mistake and a hot button for the Department of Labor. Review the exemption requirements and make sure they actually match the job duties your exempt employees are performing, regardless of their job title and salaried status.

Pay Overtime – Pay non-exempt employees for all hours worked, including on-call time, travel time, trainings and meetings. Calculate overtime correctly and keep thorough and accurate records of all non-exempt employees' wages and hours.

Provide a Safe Workplace - Make sure to maintain a safe and healthy work environment. Immediately take action to correct any physical hazards or potential safety issues and, when appropriate, conducting safety training.

Document Employee Issues - Keep written documentation of employee performance issues, discipline, complaints and investigations, accommodation and leave requests, which can be critical in defending against any legal claims that may later arise.

Prepare for an Employee Termination Before Acting - Check the employment agreement and policy handbook for any requirements that must be followed, such as payment of accrued vacation and severance obligations. Make sure the personnel file contains all appropriate documentation. Have a final paycheck ready to present at the termination meeting and check the laws or with an attorney before making any deductions. Plan for both a supervisor and an HR representative to attend and handle the termination. You should plan ahead for what to say rather than “winging it.”

Offer Severance in Exchange for a Release of Claims - The best way to end an employment relationship is cleanly, without having to worry about legal claims the employee may assert. Accomplish this by offering a “severance package” that includes a release of all claims against the company and its agents. Make sure the amount is enough to entice the employee and in addition to any severance promised in an employment agreement.

FOR ADDITIONAL INFORMATION ON EMPLOYMENT LAW PLEASE CONTACT:

DANIELLE WILETSKY: dwiletsky@wsmtlaw.com

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Top Ten Tips For Fee Oil and Gas Leases

Pooling Clause - Review the pooling clause to ensure that it is broad enough to allow pooling for the planned spacing unit, communitization and/or unitization. Some pooling clauses may include restrictive language that limits the size of certain units.

Pugh Clause and Continuous Drilling Operations - Determine whether any Pugh clause applies at the end of the primary term or after continuous drilling operations end. (Hopefully the latter!). The definition of continuous drilling operations can vary significantly; therefore, it is important to pay attention to the language in each lease to ensure that requirements are met to continue the lease.

Shut-In Clause - Review the shut-in clause to determine whether it is indefinite or restricted to a certain time period. Pay special attention to whether the shut-in clause restricts the type of well that is subject to the clause (i.e. gas only).

Initial Well Requirements - The lease may include a requirement for the operator to drill an initial well on or before a date that is still within the primary term. Failure to meet this obligation may terminate the lease.

Royalty Clause - Check the lease to see if costs such as gathering, compression and transportation are deductible when calculating royalty. These deductions can make a big difference, so the royalty rate is not the only important part of the royalty clause.

Warranty Clause - Often warranty clauses are stricken to protect the mineral owner from liability if a title defect is discovered. If the clause is restricted or stricken and the mineral owner were to acquire additional interests after the lease (e.g. after-acquired title) the lease may not cover those interests.

Notice Requirements - Review the lease to determine when notice is required; for example, notice may be necessary prior to development, prior to filing an application with a state agency, prior to assigning the lease to a third party, or in other instances.

Additional Benefits - Oil and gas leases can include language that allows for seismic activity, specific surface use or restrictions, limited access during certain seasons, or grants of easements.  If the lessee anticipates any unique situations, they should adequately address those issues in the oil and gas lease to avoid additional costs and future negotiations.

Judicial Ascertainment Clause - A judicial ascertainment clause is often favorable to a lessee and allows a lessee the opportunity to comply with any judicially determined breach of an implied covenant before a lease is forfeited or canceled based on those grounds.

Name of Lessor - Insure that the name of the lessor is complete and correct as record title is held, and add explanatory information if the lessor is not the record owner. For example: (i) XYZ corporation, a Colorado corporation; (ii) XYZ, LLC a Colorado limited liability company; (iii) Joanne Doe, a married woman dealing in her sole and separate property; (iv) John Doe, individually as an heir of Margaret Doe, deceased; (v) Joanne Doe aka Joanne S. Doe aka Joanne Susan Doe; (vi) First National Bank of Denver, Trustee of the John Doe Revocable Trust dated June 27, 2002; (vii) First National Bank of Denver, Personal Representative of the Estate of Margaret Doe, deceased.

FOR ADDITIONAL INFORMATION ON FEE LEASING PLEASE CONTACT:

Tom McKee:  tmckee@wsmtlaw.com

Sheryl Howe:  showe@wsmtlaw.com

Steve Sullivan:  ssullivan@wsmtlaw.com

Scott Turner:  sturner@wsmtlaw.com

Chelsey Russell:  crussell@wsmtlaw.com

Jeffrey Flege:  jflege@wsmtlaw.com

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BLM Proposes Renewable Energy Leasing and Rights-of-Way Regulations

On December 16, 2014, the BLM closed a comment process on wind and solar competitive leasing regulations. What is equally of interest is that BLM is also using this rulemaking to turn their 2011 renewable energy policies into binding regulation. Wind and solar projects are permitted under Federal Land Policy Management Act (“FLPMA”) right-of-way (“ROW”) regulations (43 CFR 2800), but until now there were no specific wind and solar permitting regulations. The rulemaking wraps up key components of the Obama administration’s approach to renewable energy development on public lands.

In 2009, Secretary Salazar signed Secretarial Order No. 3285, “Renewable Energy Development by the Department of the Interior.” A year later, in early 2010, the Order was amended and identified renewable energy as a “top priority” of the Department. Early on, BLM was concerned about speculation and desired more control over where wind and solar projects were located. To address these issues, in 2011, BLM issued a series of new and amended Instruction Memoranda (“IM”) that provided guidance to the BLM on how to permit wind and solar projects. In the IM’s, the BLM added requirements for due diligence, Plans of Development, pre-application meetings and addressed the term of the grant, bonding, rental formulas and its “screening authority.”

In this proposed rule, BLM intends to make these policies binding rules on the regulated public. See § 2804.25, screening criteria; § 2805.11(b), ROW grant term of 30 years; § 2805.12(c), “terms and conditions” for renewable grants; § 2805.20 detailed bonding requirements; and §§ 2805.50 and .60 solar and wind rent formulas which include a “megawatt capacity fee” in addition to an area land rent.
The “smart from the start” siting policy was announced by Secretary Salazar in 2010. The new direction began with solar energy zones (“SEZs”), designated areas for development, in the Solar Programmatic Environmental Impact Statement completed in 2012. In 2011, BLM published an Announcement of Proposed Rulemaking, the first step in this proposed rule, to develop a competitive leasing program for wind and solar. To inform that process, BLM conducted a competitive auction in the Dry Lake SEZ in Nevada in 2014.

The proposed rule builds on this siting approach by creating a leasing process for wind and solar in designated leasing areas (“DLAs”) and provides incentives (reduction in rental fees, predictable bonds) for leases in DLAs. If competitive interest is shown in an area outside a DLA, BLM can create a competitive leasing process. Otherwise, applicants would continue to use the FLPMA ROW grant process. BLM expects to finalize the rule by October 2015.

The text of the rule may be found at: http://blmsolar.anl.gov/documents/docs/FR_Competitive_Leasing_Sep_30_2014.pdf.

See Related Post: BLM Buries Change to MLA Rights of Way in Wind and Solar Leasing Change

For more information of permitting renewable energy on federal lands, contact Rebecca W. Watson at rwatson@wsmtlaw.com.

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BLM Buries Change to MLA Rights of Way in Wind and Solar Leasing Change

At the end of September 2014, BLM released the proposed rule to create a competitive leasing process for solar and wind energy development on public lands. While most of the proposed rule relates to the renewable energy right-of-way (“ROW”) procedures under the Federal Land Management Policy Act (“FLPMA”) regulations (43 CFR 2800) announced in 2012, buried in the voluminous proposal are changes to oil and gas pipeline rights of way under the Mineral Leasing Act (“MLA”). 43 CFR 2880.

Under the changes to Part 2880, BLM is proposing pre-application requirements and an increase in fees for all oil and gas pipelines 10 inches or more in diameter. (The rule adds similar new requirements for transmission lines of 100kV or greater). According to BLM, changes to Part 2880 are necessary to ensure consistency between MLA ROWs (governed by Part 2880) and the changes proposed for wind and solar ROWs (governed by Part 2800). BLM states that these changes are necessary because authorizations for any pipeline 10 inches or more in diameter are “generally large-scale operations that require additional steps to help protect the public land.”

The changes to Part 2880 include additional bonding requirements (such as identification of acceptable forms of bond), although BLM still retains discretion as to whether a bond will be required. The proposed rule also contains an increase in ROW application processing costs, which are determined based on a proposed table of costs accounting for project components. Under the proposed rule, BLM would be permitted to collect reimbursement from pipeline operators for the actual costs incurred in processing ROW applications, including pre-application expenditures.

The proposed rule also contains detailed pre-application procedures for project proponents, largely aimed at developing coordination between Federal, State, tribal and local governments that may be affected by the project. Specifically, for all pipelines over 10 inches in diameter, the proposed rule calls for a minimum of two pre-application meetings with interested governmental entities.

BLM proposes to require the submittal of a plan of development (“POD”) prior to, or contemporaneously with, accepting the ROW application. The POD should, at a minimum, contain a statement of purpose and need, a description of the proposed location and associated facilities, identification of the federal and state agencies affected and a summary of operation and maintenance and stabilization and reclamation plans. The comment process closed on December 16, 2014 and the rule is expected before the end of 2015.

The net result of these proposed changes will likely be an escalation in up-front project costs, consisting of both increased application and rental fees and an increase in soft costs associated with pre-project planning and coordination. It remains to be seen whether the increase in initial costs will reduce overall project costs through more efficient up-front planning and coordination.

The Federal Register notice with the text of the proposed rule can be found at: http://blmsolar.anl.gov/documents/docs/FR_Competitive_Leasing_Sep_30_2014.pdf

See Related Post: BLM Proposes Renewable Energy Leasing and Rights-of-Way Regulations

For more information about public lands and rights of way, please contact Nora Pincus at npincus@wsmtlaw.com

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Top Ten Tips for Acquiring a Water Supply

Plan Ahead – In Colorado, a complex set of laws and regulations govern when and where water can be taken and used. The process of determining whether water is available for your needs and obtaining a legal water supply can be a lengthy process.

Need Water Quickly? – The best option in this case may be to lease treated effluent water from a municipality that has a supply that is “fully consumable” and can be legally used at any location and for any purpose. This water may be expensive, however.

Ensure The Source is Legally Available – Just because someone has a water right and they are willing to sell water, does not mean that the water can legally be used for industrial purposes. Water rights are limited by point of diversion, place of use, and purpose of use. A water court process may be needed to change it so that it is available for different purposes.

Determine if there is “Nontributary” Water Available – Parts of Colorado have aquifers that have been legally designated as “nontributary.” Unlike other water rights, overlying landowners own the right to this water. These water rights often have less restrictions than tributary groundwater or surface water, and can be a good option for industrial uses. The surface owner may have nontributary water rights that can be leased for energy development purposes.

Produced Water – In Colorado, there are specific regulations to determine whether produced water requires a water well permit and whether the water can be beneficially used. Depending on the circumstances, this water may be available for subsequent use.

Pitfalls with “Tributary” Wells – If a water well pumps water from an aquifer that is connected to a surface stream, which is the presumption in Colorado, then the well cannot be used unless it is part of a court-approved augmentation plan or an administratively approved substitute water supply plan. In either case, a replacement water source is required to replace depletions caused by the groundwater pumping.

Get to Know the Local Water Commissioner – The Water Commissioner is the “water cop” for a particular geographic region, who makes sure that water users comply with legal requirements. This person knows and understands the river systems and water users in an area better than anyone else. The water commissioner can be an invaluable resource for ideas of available water supplies in a given area. Once you obtain a water supply, you will need to follow this person’s requirements as well!

Year Round Supplies Often Require Storage – If you need a supply that is available all year, then a storage reservoir such as a reclaimed gravel pit, may be an important component to consider.

Designated Groundwater Basins – Much of eastern Colorado is located within designated groundwater basins, under the jurisdiction of individual groundwater management districts.

Call the Experts – In order to successfully navigate the laws and technical requirements for the diversion and use of water, it is important to obtain legal counsel and an experienced water resources engineer from the outset to avoid pursuing options with legal or technical fatal flaws.

FOR ADDITIONAL INFORMATION ON WATER LAW PLEASE CONTACT:

CAROLYN BURR cburr@wsmtlaw.com

JAMES NOBLE jnoble@wsmtlaw.com

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So what is a Master Leasing Plan anyway?

So, what is a Master Leasing Plan anyway?
As part of a suite of federal oil and gas leasing reforms introduced by Secretary Salazar in 2010, the BLM introduced the concept of master leasing plans (“MLPs”). The MLP is a federal land use planning tool that allows the BLM to amend a governing resource management plan (“RMP”) to include new terms and conditions imposed by the MLP. It’s our view that the “political/policy” purpose behind MLPs, as evidenced by their enthusiastic embrace by environmental groups, is to allow the BLM to undo and then re-write Bush-era land use plans that were more supportive of oil and gas than those groups desired.

Under the MLP framework, certain areas of public lands located in “sensitive landscapes,” or areas containing a “high level of potential resource concerns” are designated as MLP areas. The MLP area is then analyzed on a landscape level, where competing resource values are evaluated and, ideally, harmonized. This will typically involve the development of a comprehensive plan for long term oil and gas development in the area, rather than the straightforward designation of “open,” “closed,” or “open with stipulations” as is generally found in RMPs.
The MLP may include phased leasing (offering only a certain number of lease parcels for sale in a given year), phased development (permitting the issuance of a limited number of APDs in a given year), requirements regarding emission capture and closed-loop drilling and permanently closing certain areas to oil and gas development and leasing.
Because amendments to RMPs must comply with the National Environmental Policy Act (“NEPA”), the MLP analysis and review will generally take the form of an Environmental Impact Statement (“EIS”) or an Environmental Analysis (“EA”), which will then be used to modify the relevant RMP.

According to BLM, the purpose of an MLP is to allow for “more in depth review” of areas that are or may be opened to oil and gas leasing than would typically be found in the governing RMP. MLPs have been widely heralded by environmental groups as adding a necessary layer of environmental analysis focused solely on issues related to oil and gas development. In contrast, industry has taken a cautious, wait and see approach. However, it is worth noting that because the development of MLPs has been a very slow-moving process, the BLM has deferred from leasing numerous parcels located in MLP areas, even when those parcels are currently designated by the governing RMP as “open” to oil and gas leasing. It is a process worth watching.
For more information about MLPs, federal land use planning and oil and gas leasing, please contact Nora Pincus.

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Top Ten Tips for Leasing on Federal Land

RMP – Review the BLM or U.S. Forest Service Resource Management Plan (“RMP”) covering the geographic area of interest on the agency website. Is it open for leasing? If so, go to the RMP Appendix to review the lease stipulations that apply to the lease parcel.

RMP Oil and Gas Amendment – Check the agency website to see if the RMP is current or undergoing an amendment process to address oil and gas development. An oil and gas RMP update can delay or stop leasing in some situations.

Controversy – Consider whether the area is the focus of heightened environmental concern that could result in lease protests and delays. Is it adjacent to a National Park, Roadless Area, in a Sage-grouse RMP core area, or an area proposed for wilderness?

EOI – A submission of an Expression of Interest (“EOI”) to lease is no longer confidential. Current BLM policy (IM-2014-004) directs BLM to publish the EOI on the BLM website. For confidentiality, submit anonymously or through a lease broker.

2010 Leasing Reform – Understand BLM IM-2010-117 which transformed BLM leasing with the addition of lease NEPA and other new processes. See below. Find this policy at the BLM.gov website under Information Center, Laws Regulations & policies.

Frequency of Lease Sales – The 2010 policy largely limits lease sales to 4 quarterly sales that rotate through a state annually. That means if your parcel is deferred it won’t come up for consideration for another year.

Public participation – The 2010 policy adds significant public participation to the lease process; lessees need to get involved in this process. BLM will

work with state, local and tribal governments, notify split-estate fee surface owners and “groups and individuals with an interest” in O&G leasing to participate in the lease NEPA process.

Lease Parcel NEPA – The BLM will prepare an Environmental Assessment (“EA”) for the lease sale and provide a 30-day comment period. Participate in the comment process to support BLM’s decision to lease your nominated parcels and respond to the opponent’s comments. If you need confidentiality, use a lawyer or industry association.

Lease decision – Post-EA, BLM will identify the lease parcels for sale. BLM may defer or withdraw parcels from the sale up to the day of the sale. BLM will treat your winning bid as a binding offer that can only be withdrawn under limited circumstances. BLM does not “accept” your offer until it actually issues the lease.

Protests – A protest to the sale of a lease parcel must be filed 15 days before the sale. BLM may sell a parcel “under protest,” but will not issue a lease until the protest is resolved. BLM tries to resolve a protest within 60 days from the lease sale. A decision to reject a protest will include simultaneous lease issuance. If post-protest stipulations are added to the lease, you may reject and obtain a refund. If BLM upholds the protest, withdraws the lease parcel and rejects your bid you will receive a refund. If BLM’s decision to reject the protest is appealed to the IBLA, you are not entitled to a refund but may intervene into the appeal to protect your issued lease.

FOR ADDITIONAL INFORMATION ON FEDERAL LEASING PLEASE CONTACT:

REBECCA WATSON rwatson@wsmtlaw.com

STEVE BAIN sbain@wsmtlaw.com

NORA PINCUS npincus@wsmtlaw.com

JENNIFER CADENA jcadena@wsmtlaw.com

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