Blogs

The Oil & Gas Journal’s Annual Forecast & Review will be available as a live webcast on 1:30pm, CST Thursday, January 25. To watch the webcast of this valuable industry information:

1. Click on www.ogjonline.com

2. Scroll down to webcasts

3. Click on “Annual Forecast & Review ” to go to the registration page.

The webcast will continue to be available online for one year following the live presentation.  Liskow & Lewis is a sponsor of this webcast.

The Associated Press reported today that a federal jury found Kerr McGee liable for additional royalties on crude oil produced from federal properties and sold through Texon.  The case is noteworthy in that it was brought as a False Claims Act case by Bobby Maxwell, an auditor with the Mineral Management Service, who alleged that his superiors at the MMS refused to pursue his recommendation to demand additional royalties from Kerr McGee.  The underlying allegations were that Kerr McGee sold crude oil to Texon, and received marketing services and other non-cash considerations, on which royalty was not paid.  Kerr McGee had denied the allegations and claimed that no additional royalties were owed.

The MMS issued a press release maintaining its original position that Kerr McGee had properly paid its royalties on these transactions, and that federal auditors should not be able to bring False Claim Act cases because of the conflict of interest that arises in seeking personal recovery upon information that they are paid by the taxpayers to collect.  Kerr McGee has indicated that intends to appeal the verdict.

This is  one of several False Claim Act cases filed by former or current employees of the MMS, claiming that royalties were underpaid to the federal government on oil or gas production.

On January 8, 2007, a Louisiana trial judge held Act 312 of 2006 to be unconstitutional.  The Louisiana Attorney General’s office immediately filed notice that it will take a suspensive appeal directly to the Louisiana Supreme Court.  M.J. Farms, Ltd v. ExxonMobil Corporation 24,055 (La. 7th J.D.C. Jan. 8, 2007).  Act 312, which became effective June 8, 2006, requires involvement of the Louisiana Department of Natural Resources (DNR) in litigation alleging environmental contamination, including submission of any remediation plan to DNR for approval, and the deposit of remediation funds into the registry of the court for expenditure on actual remediation rather than payment of those funds to the plaintiffs.  For further information on Act 312, click here. 

The plaintiff in M.J. Farms argued that retroactive application of the Act to a suit pending at the time the statute was promulgated unconstitutionally divests the plaintiff of a property right, that is, the cause of action to recover money damages for environmental contamination.  The Louisiana Attorney General opposed that motion, asserting that the statute only concerns remediation of public harm, and does not deprive landowners of claims for redress of private harm.  The January 8, 2007 ruling by Judge Johnson of the Louisiana Seventh Judicial District Court held Act 312 to be unconstitutional and unenforceable.  The opinion is available here.

Noting that a cause of action that has actually been asserted in litigation is a vested property right under Louisiana law, the plaintiff argued that Act 312 “takes away monies due and owing Plaintiff for said damage” and instead causes those funds to be spent on remediation of the property.  The Attorney General took the position that to the extent the Act “impinges on a party’s right to obtain damages for public harms,” such an “impingement” is not unconstitutional because “these are rights that are within the ambit of the government to protect and not individual citizens.”  The State is not concerned with enforcement of private claims or contractual claims, such as contractual remediation provisions that exceed regulatory standards.  (The implication of this is that remediation approved by DNR for funding under the statute will be remediation to state regulatory standards.)  The State’s position is that landowners are free to pursue any claims involving private interests, “if such continue to exist when separated from the public harms.”  

The court has not issued reasons for judgment, but Judge Johnson’s one-page order is not limited to a finding that the statute cannot be applied retroactively to litigation pending when the statute was enacted.  Rather, she held the Act unconstitutional in its entirety.

Two developments this week will increase protections for South Louisiana’ s Port Fourchon and Louisiana Offshore Oil Port (LOOP).  Port Fourchon handles more than 75% of the oil and gas production from the Gulf of Mexico, while LOOP is the only port in the U.S. capable of offloading the deepest draft tankers.  First, the Department of Homeland Security (DHS) added Port Fourchon and LOOP to the list of ports eligible for federal security grants under the Port Security Grant Program, which provides funding to improve protection of critical infrastructure against terrorism.  Click here for an overview of the 2007 DHS Infrastructure Protection Program.  Second, the State of Louisiana accepted a bid to elevate Louisiana Highway 1, which is the only highway leading to Port Fourchon and LOOP, to 22 feet above ground.  The roadway is a critical lifeline that carries nearly 1000 trucks per day transporting goods and workers to Port Fourchon, and from there to exploration and production operations in the Gulf.  The elevation project will protect this corridor from flooding and erosion.  For more on this project, click here. 

In 1988, FERC, pursuant to the Natural Gas Act of 1938, issued Standards of Conduct to regulate natural gas pipelines’ interactions with their marketing affiliates.  The Standards required pipelines and ther marketing affiliates to function independently and imposed restrictions the the sharing of information between them.  In 2004, FERC extended the reach of the Standards so that they applied to the pipeline companies’ relationship not only with marketing affiliates but other entities in the industry. 

In National Fuel Gas Supply Corp. v. Federal Energy Regulatory Commission, 468 F.3d 831 (D.C. Cir. 2006),, the D.C. Circuit struck down the order extending the reach of the Standards of Conduct.  The court found that “FERC’s asserted factual premises d[id] not withstand scrutiny and that the Order [did] not reflect the reasoned decisionmaking required by the Administrative Procedure act.”