Blogs

Since Wednesday, August 29, natural gas spot prices increased in most markets (exceptions were Florida and Rocky Mountain region).  Crude oil was up over $2 per barrel.

Predictions of an underuse of an LNG regasification capacity continue.  One report is that if the 22 LNG terminals that have been approved for construction are built, their combined regasification capacity could reach 349 Bcm/y.  (If US LNG consumption grows 6% annually, consumption will total 46 Bcm/y by 2020.)

The EIA also reports that:

–  Florida Gas Transmission Company (FGT) issued an Overage Alert Day for September 5 with a 25 percent tolerance level as a result of high temperatures in its service territory.  FGT announced that it would not interrupt previously scheduled market area interruptible transportation service below the elapsed-prorated-scheduled quantity.  Furthermore, on September 5, FGT announced maintenance work beginning on September 6, which is expected to last until September 8.  The unscheduled maintenance is on the larger of the two units located in Mississippi at Tennessee Carnes Interconnect, upstream of FGT Compressor Station.  Because of the maintenance, FGT announced that during the outage the company will schedule up to about 950,000 MMBtu/day, whereas, normally, the company would schedule up to 1,150,000 MMBtu/day.

–   Colorado Interstate Gas Company announced on August 30 that it is undertaking maintenance at the Beaver Compressor station located south of Springfield, Colorado. One unit at the station will be out of service from September 6 to 30.  Capacity will be reduced to 250 MMcf/d from 262 MMcf/d. 

–   El Paso Natural Gas Company announced on September 1 that there was potential for high linepack conditions on its system.  The Washington Ranch storage facility located in Eddy County, New Mexico, is currently on maximum capacity for injection.  Furthermore, the company announced a strained operating condition warning, which was cancelled on September 3.

–   Transco Gas Pipeline Corporation released a notice on September 4 regarding firm backhaul transportation service for winter 2007-2008.  During September 4 to 11, Transco will be considering requests for firm backhaul transportation service for up to 200,000 decatherms per day (Dth/d) with a primary path from the Northeast, Station 210 in Zone 6 to Northeastern Louisiana, station 65 in zone 3.  The service period will be from October 1, 2007, through April 30, 2008.

From the EIA

By Andrew Wooley:

Supreme Court of Texas decides Superior Snubbing: In a case of substantial importance to the energy industry, the Supreme Court of Texas held that an oilfield service contractor sued by an injured employee of another contractor is entitled to enforce the indemnity provision in a Master Service Agreement between the operator and the contractor whose employee was injured.

The Texas Workers Compensation Act was extensively revised and codified in 1989. The predecessor provision to § 417.004 of the Texas Labor Code stated that a subscribing employer (i.e., an employer possessing workers’ compensation coverage) could not be liable to indemnify a third party against a personal injury claim by one of its employees “in the absence of a written agreement expressly assuming such liability, executed by the subscriber prior to such injury or death.” As amended in 1989, § 417.004 now provides that a subscribing employer is not liable to indemnify a third party against a personal injury claim by one of its employees “unless the employer executed, before the injury or death occurred, a written agreement with the third party to assume the liability.”

In Energy Service Co. v. Superior Snubbing Services, Inc., the Supreme Court of Texas considered whether, “under section 417.004 of the Texas Labor Code, . . . a subscribing employer’s written agreement to indemnify a person and that person’s contractors [may] be enforced by one of those contractors even though the agreement was not executed by that contractor?”  The majority held that the answer was yes, notwithstanding the current wording in the statute that an employer with workers’ compensation coverage is not liable to indemnify a third party “unless the employer executed . . . a written agreement with the third party to assume the liability.” (emphasis added).

Energy Service Company (“Energy”) and Superior Snubbing Services, Inc. (“Superior”) were both service contractors on a well site operated by Mitchell Energy Corporation (“Mitchell”). One of Superior’s employees was injured on the job. Because Superior was a workers compensation subscriber, Superior’s employee could not sue Superior for his injuries. He did sue Energy, however, which demanded indemnity from Superior for the claim against it by Superior’s employee. Energy and Superior had each executed a (separate) Master Service Agreement (“MSA”) with Mitchell, containing an identical indemnification provision, but no agreement had been executed between Energy and Superior for either to indemnify the other.  Superior acknowledged that the MSA between Superior and Mitchell would have been sufficient to entitle Energy to indemnity from Superior under the pre-1989 version of § 417.004, but asserted that the post-1989 version of § 417.004 barred Energy’s indemnity claim because Superior had not executed a written agreement with Energy to assume liability for claims against Energy by employees of Superior.

A majority of the justices decided that by adopting new wording for § 417.004 in 1989, the Texas Legislature did not intend to make any substantive change in existing law, and that an agreement in a MSA between an operator and a contractor for the contractor to indemnify the operator’s contractors as well as the operator intends for all of the operator’s other contractors to be third-party beneficiaries of the indemnity provision. Hence, a contractor’s claim for indemnity from another contractor whose employee has sued the contractor demanding indemnity is not barred by § 417.004 if the contractor from whom indemnity is sought executed a MSA with the operator containing an agreement to indemnify the operator and its contractors.

Four justices dissented from the court’s holding, arguing that the plain language of § 417.004, as amended in 1989, bars indemnification of one contractor for claims by another contractor’s employees in the absence of a written agreement directly between the contractor seeking indemnity and the contractor from whom indemnity is sought. The dissent also asserted that the court’s holding will undermine the goal of immunizing subscribing employers from common law damage claims and will frustrate the objective of the 1989 amendments to the workers compensation statutes, which, according to the dissent, was to reduce costs to subscribing employers.

The majority decision cited favorably the arguments presented by the Texas Oil and Gas Association (TXOGA) in its amicus brief. Liskow & Lewis represented TXOGA in its amicus filing.

The majority and dissenting opinions in Energy Service Co. v. Superior Snubbing Services, Inc., on the web site for the Supreme Court of Texas at http://www.supreme.courts.state.tx.us/historical/082407.asp.

By Joe Giarrusso: 

In Louisiana, a lawsuit is generally deemed abandoned when the parties fail to take any step in its prosecution for three years.  This rule is operative without any formal order.  La. Code Civ. P. art 561.  However, Act 361 of 2007 extended the period for abandonment to five years where (1) the action was initiated prior to August 26, 2005, and was not previously declared abandoned under the general three year period, and (2) the party proves that the failure to take a step in the prosecution or defense of the suit was caused by or was a direct result of Hurricanes Katrina or Rita.  The revision became effective July 9, 2007.   Click here to read the Act.

Since Wednesday, August 15, all prices reported in the weekly chart (for both natural gas and crude oil) have decreased as Hurricane Dean failed to have a significant impact on domestic production in the Gulf of Mexico, and temperatures moderated demand.  Natural gas volumes in storage continue to increase.

The EIA also reports that:

• Northwest Pipeline Company announced that effective gas day August 22, and until further notice, injection requests for interruptible storage capacity at the Jackson Prairie storage facility in Washington State will not be accepted. Furthermore, all interruptible storage holders that have a balance in the storage facility must bring their storage balance to zero by September 7, 2007. Park and loan service remains available on a limited basis at the Jackson Prairie facility.

• Questar Pipeline Company announced that it will be performing piping modifications between September 18 and 19, 2007, as part of the Southern System Expansion II project. To facilitate the work, Mainline 40 will be taken out of service from the Fidlar Station in Utah to the Green River block valve, located 24 miles west of Fidlar. In all, the pipeline plans on shutting in 18 points and reducing nominations to zero during the modifications. In addition, the Mainline 40 capacity will be reduced to about 330,000 decatherms per day for the 2 days. Nominations are expected to return to normal for gas day September 20.

• Dominion Gas Transmission Company took the Smithburg station in Virginia out of service between August 22 and 23 for work related to a planned expansion of the station. During the outage, producer compression in bubble 4403 was shut in.

• Southern Natural Gas Company announced that it has experienced an unscheduled outage at the DeArmanville compressor station located on the north system in eastern Alabama. As a result of this outage, Southern may be required to limit interruptible capacity in Group 4 – Chattanooga Group, Group 13 – East Tennessee Group, and Group 59 – Tallapoosa Group and/or limit deliveries to 6 percent hourly entitlement rights. The limitation of interruptible capacity is supposed to remain in place until further notice

As reported by the Energy Information Agency

By Anna Knull:

In Cedyco Corp. v. Petroquest Energy LLC, No. 05-20493, the Fifth Circuit considered claims for breach of contract and specific performance brought under Texas law and arising from the sale of the working interest in two Louisiana oil wells at auction. The wells were sold under the condition that PetroQuest would not sell or assign the mineral rights without first obtaining the written consent of Exxon, from whom PetroQuest had subleased the interest. Exxon granted consent conditioned on PetroQuest remaining obligated for the original sublease and indemnifying Exxon for any liability arising from Ceydco’s operation of the lease. PetroQuest refused to complete the sale to Ceydco under these terms, and Ceydco sued PetroQuest for breach of the contract for sale and specific performance. In reversing summary judgment in favor of Ceydco, the Fifth Circuit held that though a contract for the sale of the wells had been formed, the contract contained a condition precedent that Exxon consent to the assignment. Because PetroQuest was not obligated to accept Exxon’s terms, Exxon’s conditional consent was not consent under the contract; consequently, PetroQuest’s obligation to perform under the contract never came due.