Oil & Gas

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By Hattie Guidry

On October 1, 2018, the U.S. Supreme Court declined to review a Texas Supreme Court’s ruling finding Noble Energy Inc. (“Noble”) liable for cleanup costs paid by ConocoPhillips Co. (“ConocoPhillips”) to settle a separate Louisiana oilfield legacy case. The Texas Supreme Court ruled that Noble inherited the indemnity obligation to ConocoPhillips from its predecessor, which bought oil and gas assets from Alma Energy Corp. (“Alma”) at an auction sale through a Chapter 11 bankruptcy reorganization. Noble Energy, Inc. v. ConocoPhillips Co., 532 S.W.3d 771 (Tex. 2017).  View the document here.

The underlying oilfield legacy case was filed in 2010 in the 38th Judicial District Court, Cameron Parish, Louisiana, by the State of Louisiana and the Cameron Parish School Board against ConocoPhillips and other oil and gas companies for environmental damage and contamination of the Johnson Bayou Oil and Gas Field.

Based on the indemnity language, ConocoPhillips made demands for defense and indemnity, but they were denied. ConocoPhillips filed suit in Harris County, TX district court in 2011 for breach of the defense and indemnity provisions, as well as the provisions concerning environmental cleanup.

While this matter had unique issues related to bankruptcy law, it is consistent with a growing trend of oil company defendants in Louisiana legacy cases making indemnity demands based upon provisions in purchase and sales agreements.

By statute, royalties on oil and gas production are due on or before 120 days after the end of the month of first sale of production from the well. This gives operators about four months after a well begins producing to obtain title curative, set up a pay deck for the well, issue division orders to the various owners, and start paying royalties. Thereafter, royalties are payable 60 days (for oil) and 90 days (for gas) after the end of the calendar month in which subsequent production is sold. Please note that these time periods may be modified by the lease form.

Notwithstanding the foregoing time periods, operators do not have to make timely royalty payments if a royalty owner refuses to sign a division order or if the royalty owner’s interest is subject to a title defect.

Section 91.402(c)(1) of the Natural Resources Code states that as a condition to payment, an operator is entitled to receive a signed division order (that contains only the statutory provisions) from the royalty owner. By implication, an operator must actually send a division order to the royalty owner and have it rejected in order to rely on the statute. And, also implied by the statute, operators should (but don’t always) send out division orders before the date the first royalty payment is due. Note, however, that it is becoming more common to see leases that expressly negate the statute by stating that a lessee does not have the right to condition payment upon receipt of a signed division order – in other words, the royalty owner does not have to sign a division order to receive royalties.

Section 91.402(b) of the Natural Resources Code also authorizes an operator to withhold royalty payments when there is either (i) a title dispute, (ii) a reasonable doubt that the payee has clear title to his interest, or (iii) an unsatisfied title opinion requirement that pertains to the payee’s title, identity, or whereabouts. Additionally, effective September 1, 2017, Section 91.402(b)(2) allows an operator to withhold royalties from a payee when the payee’s interest is subject to a child support lien or order of withholding under the Family Code.

If a royalty owner believes its royalties are being unlawfully withheld (in “suspense”) by the operator, it must contact the operator and request an explanation/demand payment as a prerequisite to filing suit. The operator then has 30 days to respond with a reasonable cause for maintaining the royalties in suspense or pay over the undisputed royalties. If the operator fails to do so (or the royalty owner believes the operator’s explanation is not legally justified), the royalty owner can then file suit against the operator. If the royalty owner obtains a favorable judgment, it is entitled to statutory interest on the withheld royalties in addition to a mandatory award of attorney’s fees.

Kean Miller is growing again, opening offices in The Woodlands, Texas, and Lafayette, Louisiana, by combining with the energy-focused law firm Dupuis & Polozola.

This expansion builds on Kean Miller’s Houston office opening in 2017 and strengthens the firm’s portfolio of legal and business services to energy, oil & gas, and petrochemical industry clients.

The 10 lawyers with Dupuis & Polozola are experienced in all phases of upstream oil and gas exploration and production, handling transactional, regulatory, and litigation matters, as well as business and corporate, and real estate matters.  The firm’s clients include global exploration companies and small independents operating in Texas, Louisiana, Colorado, Kansas, North Dakota and New Mexico.

“Lafayette is the hub of the south Louisiana energy corridor, and The Woodlands continues to experience unprecedented growth in corporate headquarters,” said Blane Clark, managing partner of Kean Miller. “Our two new offices strengthen our ability to offer strategic legal resources to our clients from east of New Orleans to the energy corridor of West Houston, and from the Gulf of Mexico to West Texas and beyond.”

The firm now has more than 160 attorneys after the union with Dupuis & Polozola. Joining Kean Miller as equity partners are James H. “Jimmy” Dupuis Jr. in The Woodlands and Kyle P. Polozola in Lafayette. The Woodlands office is located at 8301 New Trails Drive, Suite 100. The Lafayette location is at 2020 W. Pinhook Road, Suite 303.

“Combining our law firms makes great sense.  We share a commitment to knowing our clients’ business inside and out, and to personalized client service,” said Mr. Dupuis. “Our clients will benefit from Kean Miller’s progressive approach and full-service offerings, and Kean Miller’s clients now have access to a team of upstream oil and gas attorneys experienced in Texas, Louisiana, and other producing states.”

Mr. Polozola said he looks forward to playing a part in the cooperative efforts of talented lawyers across Kean Miller’s operations. “Our Lafayette office magnifies the existing firm presence across Louisiana and in Texas.  With Kean Miller’s regional presence and deep bench of talented lawyers, we are an even more dynamic force in the Bayou State.”

Mr. Dupuis and Mr. Polozola, both experienced oil and gas and business attorneys, founded their firm in 2010. Mr. Dupuis earned his law degree from the Louisiana State University Paul M. Hebert School of Law; Mr. Polozola’s law degree is from Loyola University New Orleans College of Law.