Allison MacKinnon represents clients in all aspects of oil and gas exploration and development, including acquisitions and divestitures, negotiating and drafting commercial agreements related to the day to day operations of energy companies, and mineral title examination. She has substantial experience assisting clients with due diligence projects ...and has advised clients on a wide variety of business transactions. Ms. MacKinnon also has experience with the acquisition and development of commercial real estate. More

What Contract? Unsigned Email Satisfies Signature Requirement under Texas Statute of Frauds

The Statute of Frauds is an age-old law requiring certain agreements be in writing and signed by the parties to be a binding contract. If you are thinking calligraphy, feathered pens and beautiful cursive signatures, think again. A Texas Court of Appeals recently ruled that merely having your name in the “From” field of an email constitutes a signature for purposes of satisfying the Texas Statute of Frauds. Khoury v. Tomlinson, 518 S.W.3d. 568 (Tex. App. 2017).

In the events that lead to the Khoury case, John Khoury had invested $400,000 in PetroGulf, Ltd., a company that purportedly had contracts to transport oil from Iraq to Syria and other Middle Eastern countries, in return for repayment of his investment with substantial interest. After no payments were made to Mr. Khoury, he met with Mr. Tomlinson, the President and CEO of PetroGulf, Ltd., who agreed to repay him the $400,000 over 4 or 5 years at a new interest rate. One week after the meeting, an email exchange ensued between Mr. Khoury and Mr. Tomlinson.  Read it here.

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Wyoming Wolves De-Listed Under the Endangered Species Act

On March 3, 2017, the D.C. Circuit reinstated the rule promulgated by the United States Fish and Wildlife Service (“FWS”) in 2012 to remove the Northern Rocky Mountain gray wolf in Wyoming from the endangered species list under the Endangered Species Act (“ESA”). Defenders of Wildlife v. Zinke, --F.3d.--, 2017 WL 836089 (D.C. Cir. Mar. 3, 2017).  The FWS has been trying to turn over the management of the wolves in Wyoming to the state since 2008, but has faced several reversals at the hands of the courts.  This decision reverses a 2014 ruling of the U.S. District Court, District of Columbia that vacated the FWS 2012 rule delisting the gray wolf.

Although the D.C. District Court agreed with the FWS finding that the species had recovered and did not overturn FWS’ determination that the gray wolf is not endangered or threatened within a significant portion of its range, it found fault with the state plan to guarantee the required baseline wolf population.  The District Court denied the delisting of the gray wolf because FWS did not require Wyoming to meet a specific numeric buffer above the baseline population but instead relied upon representations in a “non-binding” Addendum to its wolf management plan.  On appeal the D.C. Circuit disagreed, and held that nothing in the ESA demands that level of certainty.  The Court stated that:

[FWS’] decision to delist in the absence of legal certainty is compatible with the ESA’s requirement for monitoring of the species after delisting ‘for at least five years' and its emergency provisions authorizing the [FWS] to take immediate action to ensure the delisted species does not become threatened or endangered again.

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Don’t Risk Litigation Over the Arbitration Clause in Your Oil and Gas Lease

The arbitration clause in an oil and gas lease is likely not the most hotly negotiated term or even one that the parties think twice about. However, recent litigation in Pennsylvania should serve as a reminder to lessors and lessees to be aware that a poorly drafted arbitration clause may lead to unwanted litigation.

Recently, the United States Supreme Court denied a petition to review Chesapeake Appalachia, LLC v. Scout Petroleum, LLC, 809 F.3d 746 (3d. Cir. 2016) cert. denied (Oct. 3, 2016), a case addressing whether an arbitration clause used in numerous oil and gas leases covering lands in the Marcellus Shale region of Pennsylvania permitted class arbitration and whether the issue of class arbitrability is one for the courts or for the arbitrators to decide. The leases contained identical gas royalty clauses (except for some differing royalty percentages). The clauses provided that Chesapeake shall pay the lessor-royalty owners a certain percentage of the proceeds Chesapeake received from the sale of gas less four specific charges: transportation, treatment, processing and volume deduction to the point of measurement. All of the leases also included the following identical arbitration provision, which was silent as to both the availability of classwide arbitration and whether the question of classwide arbitrability should be submitted to the arbitrators or the court:

ARBITRATION. In the event of a disagreement between Lessor and Lessee concerning this Lease, performance thereunder, or damages caused by Lessee’s operations, the resolution of all such disputes shall be determined by arbitration in accordance with the rules of American Arbitration Association. All fees and costs associated with the arbitration shall be borne equally by Lessor and Lessee.

Without clear language on classwide arbitration the clause resulted in opposing interpretations. Scout sought to commence class arbitration on behalf of itself and a putative class of thousands of similarly situated lessor-landowners, claiming that Chesapeake breached the leases by deducting charges for compression, gathering, and other charges not authorized by the leases, resulting in the underpayment of royalties to itself and the other class members. Chesapeake disagreed that class arbitrability was available under the leases and initiated the litigation in the Middle District of Pennsylvania, arguing that the issue was one for the courts. The District Court agreed with Chesapeake and held that the issue of arbitrability was one for the courts, and not the arbitrators, to decide. Scout appealed the District Court decision.

On appeal, the Third Circuit reiterated that there is a presumption that courts (not arbitrators) must decide questions of arbitrability, including whether a contract contemplates class arbitrability. The court stated that the burden of overcoming the presumption that the issue of arbitrability is for judicial determination is “onerous [and] requires express contractual language unambiguously delegating the question of arbitrability to the arbitrator.” Ultimately, although the court was highly critical of Chesapeake, stating that “[a]s a sophisticated business, it could have, and, at least in retrospect, should have, drafted a clearer arbitration agreement,” it held in favor of Chesapeake that the leases “do not clearly and unmistakably assign to an arbitrator the question whether the agreement permits classwide arbitration.” Scout appealed to the United States Supreme Court, which denied the petition to hear the case.

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1425 Hits

More Local Government Control Over Oil and Gas Operations? Colorado House Says No.

Over the past several years there has been an ongoing debate on whether local governments have the authority to limit or even ban oil and gas operations. In 2012, residents of the City of Longmont voted to approve a ban on hydraulic fracturing within city limits. Similarly, in 2013, Fort Collins voters approved a five year moratorium on fracking within city limits. The Colorado Oil and Gas Association challenged both bans, and the cases reached the Colorado Supreme Court. A recap on the case history and oral arguments can be found in a prior blog, “State or Local for Colorado?” A decision is expected from Colorado’s high court in 2016.

The most recent battle between state and local control of oil and gas operations was fought in the Legislative branch. On March 11, 2016, Representatives Mike Foote, Su Ryden, Jessie Ulibarri and Matt Jones of the Colorado House of Representatives (“House”) introduced House Bill 16-1355 (“HB 1355”) in an attempt to provide local governments with control over the location of oil and gas facilities. HB 1355 declares that “governing bodies of local governments are in the best position to determine the appropriate locations for oil and gas facilities and will properly balance . . . the effects on public health, wildlife, and the environment.” The Colorado Oil and Gas Conservation Commission (“COGCC”) currently has authority over the siting of oil and gas facilities in all jurisdictions in Colorado. HB 1355 states that “statewide siting rules provide an ineffective protection for the public . . . [and] local governments are in the best position to determine the appropriate locations for oil and gas facilities.” Although the bill recognized the existing authority of the COGCC, it emphasized that “the oil and gas industry is not exempt from local governments’ authority to control the siting of oil and gas facilities through existing zoning and land use authority just as they do for every other industry.”

In an attempt to gain more supporters of HB 1355, several last minute amendments were made to the original bill. The original bill proposed an addition to Colorado statutes that would require an operator to “ensure that the location of oil and gas facilities complies with city, town, county, or city and regulations.” The proposed addition to the statute authoritatively stated that “nothing in this section impairs or negates the authority of local governments to regulate the location of oil and gas facilities.”

It became clear that the House would not pass a bill providing local governments with such overarching authority to regulate the location of oil and gas facilities, especially with the Longmont and Fort Collins cases pending before the Supreme Court. Accordingly, the morning of the vote, HB 1355 was amended to remove the language giving local governments broad authority to regulate the location of oil and gas facilities. Consequently, the amended HB 1355 merely restated the current law that oil and gas facilities may be regulated by local governments under current zoning regulations.

Colorado Governor John Hickenlooper urged the House not to pass HB 1355, stating his preference that the Legislature wait until the Colorado Supreme Court issues decisions on the pending cases. Ultimately, on April 4, 2016, the watered down version of HB 1355 failed to make it out of the Democratic-controlled House.

Even though HB 1355 was a failed attempt by the Colorado Legislature to provide local governments with the power to regulate oil and gas operations, its introduction is yet another example of the sentiment of many Coloradans that local municipalities should be able to limit or restrict oil and gas operations.
A copy of HB 1355 can be found here.

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