Question

Q1)
White Knight Energy, your employer, owns a 35% working interest (burdened with a 3/16th royalty) in a 640 acre drilling and spacing unit for the Woodford shale in Oklahoma. In this area, it can typically take eight wells with long laterals to develop a 640 acre unit. White Knight would like a joint operating agreement (“JOA”), mainly so that it can pick and choose which subsequent wells to participate in without losing its right to participate in future wells, but Beelzebub Petroleum, the largest interest owner in the unit, only offers White Knight the option to participate in a well or to give up their working interest for no cash and a one quarter royalty. When White Knight rejects that offer, Beelzebub files an application to force pool the unit.
You suspect Beelzebub is up to no good and once it has the pooling order, it will rapidly drill up to eight long lateral wells to develop the unit (after easily obtaining increased density order for those additional wells). This will require White Knight to rapidly pay a large sum of money, which it does not have, in order to keep from losing its right to participate in each subsequent well. So, White Knight protests the pooling application on your recommendation because you recall the Oklahoma statutes require that every pooling order entered by the OCC “shall be upon such terms and conditions as are just and reasonable and will afford to the owner of such tract in the unit the opportunity to recover or receive without unnecessary expense the owner’s just and fair share of the oil and gas.” Beelzebub wants the OCC enter a standard pooling order that provides an owner has to participate in the initial unit well, and each subsequent well in order to maintain its right to participate in further subsequent wells. White Knight wants the OCC include in the order something similar to the penalty provision of a JOA, namely that if one does not participate in a subsequent well, there is a 200% to 300% risk penalty and after which the non-participating party can back-in to the well. As a further alternative, White Knight wants the OCC to provide that as long as one participates in the initial unit well, they could participate or not in each subsequent well without losing its right to an election for each further subsequent well.

What arguments can you make in favor of White Knight’s proposals?

Q2)
You are trying to put together a 90 acre unit to drill a horizontal well in Texas but there are still some small tracts scattered about that you have been unable to reach an agreement. You are trying to decide whether to file an application with the Railroad Commission under the MIPA, or seek to develop the tract with an allocation well. While the MIPA process, which can require substantial effort with an uncertain outcome, would nevertheless result in a “legal” well, the legal status of allocation wells remains in limbo as there is no definitive resolution yet from the courts. If allocation wells are eventually struck down, you may be exposing your company to substantial liability by pursuing that route.
Assuming that you can satisfy the prerequisites under the MIPA, what arguments can you make in support of each method, which would you recommend, and why.

Q3)
Your employer, Sloop John B Energy, leased some tracts from the BLM in California to drill horizontal wells to the Monterey Shale, which wells will have to be hydraulically fractured. The BLM had done an EA and issued a finding of no significant impact. Environmental groups challenged the issuance of the leases, alleging that an environmental impact statement should have been prepared. The Court ultimately found that BLM had to prepare an environmental impact statement. Was the Court right or wrong? Why? (this case will provide the necessary background - Center for Biological Diversity v. Bureau of Land Management, 937 F. Supp. 2d 1140 (N.D. Cal. 2013), and available through Google Scholar)

Q4)
Surface owners in Osage County, Oklahoma, have sued the Bureau of Indian Affairs, along with numerous oil and gas producers because they alleged that the federal government did not comply with NEPA before entering into 100’s and maybe 1,000’s of oil and gas leases since the late 1970s. An environmental assessment was done in the late-1970s but no environmental impact statement was ever done.
That litigation continues to proceed, and there are pending motions to dismiss to case by most or all of the defendants. However, as your company, Native Oil, is a defendant in the case, you are immediately thinking about what has to be done to fix the problem. Assuming the Court finds the failure to have an environmental impact statement completed in Osage County, Oklahoma, with respect to the leasing of Osage Nation mineral interests held in trust by BIA, was a violation of NEPA, from a legal and regulatory perspective, describe the steps that you, as well as the steps that the BIA, would likely have to take in order to bring the BIA into compliance with NEPA for the leasing activities in Osage County. You can assume the Court does not invalidate the leases, at least during the period BIA is conducting the environmental impact statement, but enjoins further development until the EIS is resolved.

Q5)
Your company, Shaker Oil, produces oil and prodigious amounts of water that must be disposed, and Shaker utilizes high capacity disposal wells to dispose of this water. Since Shaker began this disposal several years ago, there has been a growing controversy in the area over the cause of “earthquake swarms” that have appeared in the last few years in this same area, and with increasing frequency. Some place the blame of “fracking,” others place it on the disposal of large amounts of produced water in disposal wells. The OCC regulates disposal wells under authority delegated from the EPA under the Safe Drinking Water Act. The OCC’s rules on injection are found at OAC 165:10-5-1 and following. For existing disposal wells, the rules provide the order authorizing injection can be, among other things, vacated if certain conditions are met. OAC 165:10-5-9(c) provides:

(c)       An order may be modified, vacated, amended, or terminated after notice and hearing if:

(1)       There is a substantial change of conditions in the enhanced recovery injection well or the disposal well operation, or there are substantial changes in the information originally furnished.
(2)       Information as to the permitted operation indicates that the cumulative effects on the environment are unacceptable.

Interested landowners in the area of Shaker’s operations have filed an application at the OCC to shut down its disposal wells based on OAC 165:10-5-9(c). Assuming appropriate expert evidence can be presented both in support and in opposition to theory that disposal in certain wells has caused seismic events and those seismic events resulted in damage to real and personal property (essentially, it is a disputed question of fact that the OCC will resolve), what arguments could you make that the OCC should not (or cannot) reduce or bar further disposal in the subject disposal wells under OAC 165:10-5-9(c), even if the OCC found that the disposal of water in those wells caused (at least partially) the seismic events

Q6)
You have recently been hired to administer the royalty payment division of Bad Gas Energy. Your thousands of oil and gas leases in Oklahoma date from the 1920s, all the way to 2013. However, you discover that regardless of any language contained in any of the leases, Bad Gas always deducts its full cost of production expenses, such as gathering, compression, dehydration, treatment, and processing from the royalties of its lessors, whether those services are performed by itself or third parties, and regardless of where the gas is considered a marketable product. Sensing that Bad Gas is potentially exposing itself to significant liability if it were to be hit with a class action royalty lawsuit, you set about to determine if that is true. What is your recommendation, and what is it based on?

Q7)
You enjoyed your life out on the windy plains of west Texas, at least until your neighbors leased their land to a wind energy company that has constructed a wind farm with 300 turbines that stretch almost in every direction as far as the eye can see. Before you knew it, the turbines had sprang up all around your land. From your house, you have to listen to the characteristic thump, thump, thump, of the spinning turbines, multiplied many times over. At certain times of the day, as the sun (and we get a lot of sun in west Texas), shines through the rotating blades, there is an endless flicker of sun and shade that penetrates your house unless you seal off your house from all natural light.
You also noticed strange behavior in your chickens when the light is flickering through the turbine blades. The chickens start running around like they are crazy, and several drop dead every day during this “flicker” time. You could put up with having to look at the forest of turbines, you could possibly endure the noise and flicker (although you don’t want to), but you are not putting up with the dead chickens. Can you make a claim for nuisance and shut down the wind farm? Why or why not?

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Q1- Answer: White Knight Energy’s liability hinges on whether an affirmative election by a working interest owner not to participate with his/her working interest in the drilling of a well. Under a JOA, the working interest owner will have 100% of his/her interest returned/re-instated/come back in after 400% Payout on the well (4 times). The facts here are somewhat between two cases, which the Oklahoma Administrative Code of Title 82-1b provides guidance.

When White Knight rejects that offer, Beelzebub files an application to force pool the unit. In this instance a share of the working interest in a drilling and spacing unit whose owner does not consent to bear his proportionate share of the costs of the drilling and operation of a well, and which interest is picked up by others under the JOA who elected to participate with their proportionate share of the “non-consent acreage.” A party to a joint venture, a joint operating agreement, or a pooling or unitization agreement who does not agree in advance to participate in drilling, reworking, deepening, or plugging back of a well. Under such circumstances, the interest of the non-consent party becomes subject to a non-consent penalty. Since I suspect Beelzebub is up to no good and once it has the pooling order, it will rapidly drill up to eight long lateral wells to develop the unit (after easily obtaining increased density order for those additional wells). This will require White Knight to rapidly pay a large sum of money, which it does not have, in order to keep from losing its right to participate in each subsequent well. Because, White Knight protests the pooling application on the recommendation because I recall the Oklahoma statutes require that every pooling order entered by the OCC “shall be upon such terms and conditions as are just and reasonable and will afford to the owner of such tract in the unit the opportunity to recover or receive without unnecessary expense the owner’s just and fair share of the oil and gas under OKLA. ADMIN. CODE § 165:10-3-1 (2003).” ...

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