Roland Oil Company v. Railroad Commission of Texas ( 2015 )

ACCEPTED
03-12-00247-CV
4003695
THIRD COURT OF APPEALS
AUSTIN, TEXAS
2/3/2015 2:35:54 PM
JEFFREY D. KYLE
CLERK
No. 03-12-00247-CV
IN THE COURT OF APPEALS
FILED IN
FOR THE THIRD JUDICIAL DISTRICT OF TEXAS AT A3rd
USTIN
COURT OF APPEALS
AUSTIN, TEXAS
2/3/2015 2:35:54 PM
ROLAND OIL COMPANY JEFFREY D. KYLE
Clerk
Appellant,
v.
RAILROAD COMMISSION OF TEXAS,
Appellee.
Appeal from the 353rd Judicial District Court
Travis County, Texas
Cause No. D-1-GN-08-003472
APPELLEE RAILROAD COMMISSION OF TEXAS’S REPLY TO
APPELLANT ROLAND OIL COMPANY RESPONSE TO APPELLEE’S
MOTIONS FOR REHEARING AND FOR EN BANC RECONSIDERATION
KEN PAXTON PRISCILLA M. HUBENAK
Attorney General of Texas State Bar No. 10144690
CHARLES E. ROY ELIZABETH R.B. STERLING
First Assistant Attorney General State Bar No. 19171100
JAMES E. DAVIS LINDA B. SECORD
Deputy Attorney General for State Bar No. 17973400
Civil Litigation
STEVEN LORD
JON NIERMANN State Bar No. 24074618
Chief, Environmental
Protection Division OFFICE OF THE ATTORNEY
GENERAL
ANTHONY W. BENEDICT Environmental Protection Division
Assistant Attorney General P. O. Box 12548 (MC-066)
State Bar No. 02129100 Austin, Texas 78711-2548
anthony.benedict@texasattorneygeneral.gov Tel: (512) 463-2012
Fax: (512) 320-0911
February 3, 2015
TABLE OF CONTENTS
TABLE OF CONTENTS .......................................................................................... ii
INDEX OF AUTHORITIES.................................................................................... iii
A unit operator’s principal duty is to produce oil and gas and its failure to
comply with regulations does not relieve it of this duty. (Reply to Roland’s
Response Point A) ................................................................................................ 2
The Court’s opinion runs counter to oil and gas law about the efforts a
producer needs to make to maintain its right to produce minerals. (Reply
to Roland’s Response Point B) ............................................................................. 2
The Court’s opinion fails to apply the substantial-evidence test to the
whole administrative record. (Reply to Roland’s Response Point C) .................. 6
PRAYER .................................................................................................................... 9
CERTIFICATE OF COMPLIANCE ....................................................................... 11
CERTIFICATE OF SERVICE ................................................................................ 12
ii
INDEX OF AUTHORITIES
CASES PAGE
Bargsley v. Pryor Petrol. Corp.,
196 S.W.3d 823 (Tex. App. ‒ Eastland 2006, pet. denied) ............................. 3
Cox v. Stowers,
786 S.W.2d 102 (Tex. App. ‒ Amarillo 1990, no writ) .................................. 3
Clifton v. Koontz,
325 S.W.2d 684 (Tex. 1959) ........................................................................... 7
Hall v. McWilliams,
404 S.W.2d 606 (Tex. Civ. App. ‒ Austin 1966, writ ref’d n.r.e.) .........3, 4, 5
Hydrocarbon Mgmt., Inc. v. Tracker Expl., Inc.,
861 S.W.2d 427 (Tex. App. ‒ Amarillo 1993, no writ) .................................. 3
In re the Office of the Attorney General of Texas,
No. 14-0038, (January 30, 3015)
available at www.txcourts.gov/media/825972/140038.pdf. ........................... 8
Phillips Petrol. Co. v. Rudd,
226 S.W.2d 464 (Tex. Civ. App. ‒ Texarkana 1949, no writ) ........................ 3
Ramsey v. Grizzle,
313 S.W.3d 498 (Tex. App. ‒ Texarkana 2010, no pet.) ................................ 3
Ridge Oil Co. v. Guinn Invs., Inc.,
148 S.W.3d 143 (Tex. 2004) ........................................................................... 3
Schroeder v. Snoga,
No. 04-96-00489-CV,
1997 WL 428472 (Tex. App. ‒ San Antonio, July 31, 1997, no writ)........ 3, 4
Tex. Health Facilities Comm’n v. Charter Med.–Dallas, Inc.,
665 S.W.2d 446 (Tex. 1984) ........................................................................... 6
iii
Texas Administrative Code
16 Tex. Admin. Code § 3.14 ...................................................................................... 6
Other
Christopher L. Halgren, Oil & Gas Lease Perpetuation: Operating,
Reworking, Maintaining, and Production, 39 State Bar of Tex. Oil, Gas &
Energy Res. L. Sec. 60 (Fall 2014) ............................................................................ 3
iv
No. 03-12-00247-CV
IN THE COURT OF APPEALS
FOR THE THIRD JUDICIAL DISTRICT OF TEXAS AT AUSTIN
ROLAND OIL COMPANY
Appellant,
v.
RAILROAD COMMISSION OF TEXAS,
Appellee.
Appeal from the 353rd Judicial District Court
Travis County, Texas
Cause No. D-1-GN-08-003472
APPELLEE RAILROAD COMMISSION OF TEXAS’S REPLY TO
APPELLANT ROLAND OIL COMPANY RESPONSE TO APPELLEE’S
MOTIONS FOR REHEARING AND FOR EN BANC RECONSIDERATION
TO THE HONORABLE COURT OF APPEALS:
The Railroad Commission of Texas (“Commission”) replies to Appellant
Roland Oil Company’s (“Roland”) Response to the Commission’s Motions for
Rehearing and for En Banc Reconsideration.
Page 1 of 12
A unit operator’s principal duty is to produce oil and gas and its failure to
comply with regulations does not relieve it of this duty.
(Reply to Roland’s Response Point A)
Roland incorrectly asserts that “the heart of producing oil and gas is
compliance with the Commission’s regulations.”1 But the purpose of oil and gas
production is to actually produce oil and gas, not belatedly test inactive wells to
continue plugging extensions. Compliance with the law is an obligation of an oil
and gas producer, not its purpose for being.
While it is true that Roland could no longer produce its active wells after the
Commission severed its unit, that does not transform Roland’s tardy efforts to test
inactive and nonproductive wells into an activity to restore the unit to production.
As the Commission noted, those wells were inactive before severance and would
remain inactive after Roland performed the test. Roland’s response fails to address
the Commission’s argument that in order to maintain the unit after production
ceases, Texas law requires operations that actually try to restore production in
producing wells.
The Court’s opinion runs counter to oil and gas law about the efforts a
producer needs to make to maintain its right to produce minerals.
(Reply to Roland’s Response Point B)
Contrary to Roland’s response, the Court’s opinion departs from oil and gas
law precedent. An article published after the Commission’s motion for rehearing by
1
Roland’s response at p. 2.
Page 2 of 12
the Oil, Gas & Energy Resources Law Section of the State Bar of Texas in its Fall
2014 Section Report discusses Texas oil and gas law regarding the meaning of
“operations” in oil and gas leases including the right to continue a lease after a
cessation of production.2 The article highlights that the Commission’s position in
this case is consistent with Texas oil and gas law, citing many of the same cases as
the Commission in its briefing in this case.3
Another case discussed by the article, the San Antonio Court of Appeals case
of Schroeder v. Snoga,4 found that activities similar to those this Court relied on to
show efforts to restore production actually were insufficient to keep the lease in force
as a result of a cessation of production. In Schroeder, the operator had been severed
just as Roland was severed in this case. But the Schroeder court held that activities
in the nature of maintenance and to remove a regulatory barrier were not sufficient
to hold the lease in force. The Schroeder court considered the operator’s actions in
“cleaning the tanks and motor, repairing the electrical system, and repairing a leak
2
Christopher L. Halgren, Oil & Gas Lease Perpetuation: Operating, Reworking,
Maintaining, and Production, 39 State Bar of Tex. Oil, Gas & Energy Res. L. Sec. 60 (Fall 2014).
The article is attached as Exhibit A. The page numbers are added by the Commission for
convenient reference. The article will be cited by reference to “Halgren at p. ___.”
3
Hydrocarbon Mgmt., Inc. v. Tracker Expl. Inc., 861 S.W.2d 427 (Tex. App. – Amarillo
1993, no writ); Ridge Oil Co., Inc. v. Guinn Invs., Inc., 148 S.W.3d 143 (Tex. 2004); Bargsley v.
Pryor Petrol. Corp., 196 S.W.3d 823 (Tex. App. – Eastland 2006, pet. denied); Cox v. Stowers,
786 S.W.2d 102 (Tex. App. – Amarillo 1990, no writ); Hall v. McWilliams, 404 S.W.2d 606 (Tex.
Civ. App. – Austin 1966, writ ref’d n.r.e.); Ramsey v. Grizzle, 313 S.W.3d 498 (Tex. App. –
Texarkana 2010, no pet.); Phillips Petrol. Co. v. Rudd, 226 S.W.2d 464 (Tex. Civ. App. –
Texarkana 1949, no writ).
4
No. 04-96-00489-CV, 1997 WL 428472 (Tex. App. – San Antonio July 31, 1997, no writ)
(not designated for publication); see Halgren at p. 67.
Page 3 of 12
in the flow line.”5 After noting that “[r]e-working operations have been defined as
any and all acts, work, or operations in which an ordinarily competent operator,
under the same or similar circumstances, would engage in a good faith effort to cause
a well to produce oil and gas in paying quantities . . . ,”6 the Court rejected the
operator’s argument that it had engaged in reworking operations. “Schroeder’s acts
were principally aimed at bringing the well into compliance with the RRC rules to
avoid further penalty. The actions were not an attempt to restore productivity to an
unproductive well.”7
Not only does Roland fail to address the array of oil and gas law cited by the
Commission in its briefing in this case, Roland also unsuccessfully tries to
distinguish Hall v. McWilliams8 from the facts of the current case. Roland suggests
that its activities were more substantial than the minimal work discussed in Hall.
But that argument does not respond to the Commission’s position. The work
performed by Roland consisted of activities that either (1) constituted routine
maintenance and repairs or (2) involved work to test inactive wells to obtain
plugging extensions in order to obviate the Commission’s severance order;9 these
activities were not operations to cause a well to produce oil and gas or to restore
5
1997 WL 428472, at *3.
6
Id. (citation omitted).
7
Id. (citation omitted).
8
404 S.W.2d 606 (Tex. Civ. App. – Austin 1966, writ ref’d n.r.e.).
9
See Commission’s brief at p. 23 – 32.
Page 4 of 12
productivity to any well on the unit. That Roland may have performed more
maintenance activities or more work to test inactive wells than in Hall begs the issue.
The issue in this case is whether the type of work performed by Roland constitutes
Unit Operations as defined in the Unit Agreement. It did not.
The Court’s opinion at page 12 lists six bullet points of evidence from
Roland’s testimony at the contested case hearing. The work consisted of
maintenance; flow-line and electrical repairs; Commission monthly reports and
gauging; monitoring the lease including the possibility that a cow breaks a valve;
inspecting roads, flow lines and fixing pumps; and keeping grass from growing
around pump jacks because cattle can be injured. Roland also testified about efforts
to repair inactive wells for testing to remove the Commission’s severance order. Not
a single one of these activities was taken to restore productivity to a well capable of
producing oil and gas. These activities, no matter how frequent or voluminous, are
simply inadequate to demonstrate that Roland never let ninety consecutive days pass
when it was not working to produce minerals during the fifteen-month severance
period in which no unit production occurred. Roland refers the Court to no evidence
in the administrative record that it was conducting work to restore mineral
production during that fifteen-month period.
Page 5 of 12
The Court’s opinion fails to apply the substantial-evidence test
to the whole administrative record.
(Reply to Response Point C)
Roland’s argument that the Commission lacked substantial evidence for its
findings of fact is not responsive to the Commission’s arguments in its motion for
hearing and for en banc review: Roland simply restates the Court’s opinion. The
Court failed to consider the whole administrative record when it decided the
substantial-evidence issue, but the substantial-evidence standard demands
consideration of the record as a whole.10 The record in this case includes the
Proposal for Decision prepared by the Commission’s hearing examiner. The
Commission adopted the findings of fact and conclusions of law recommended in
the proposal.11
The proposal puts the findings of fact in context. The proposal states that
“Roland has not met its burden,”12 to show that it continues to have a possessory
right to the minerals in the unit.13 The proposal explains that Roland based its
10
Tex. Health Facilities Comm’n v. Charter Med.–Dallas, Inc., 665 S.W.2d 446 (Tex.
1984). (The APA “authorizes a reviewing court to test an agency’s findings, inferences,
conclusions, and decisions to determine whether they are reasonably supported by substantial
evidence in view of the reliable and probative evidence in the record as a whole.”).
11
Commission’s order at p. 1; AR, Part II, Jacket 1, at p. 39.
12
PFD at p. 10; AR, Part II, Jacket 1, at p. 104.
13
The proposal explains that the Commission does not adjudicate whether a lease or unit
agreement is still in effect: “The Commission’s authority in this area is limited to a determination
of whether or not Roland has presented ‘[a] factually supported claim based on a recognized legal
theory to a continuing possessory right in the mineral estate, such as evidence of a currently valid
oil and gas lease or a recorded deed conveying a fee interest in the mineral estate.’” Id. citing
16 Tex. Admin. Code § 3.14.
Page 6 of 12
argument that it had a good faith claim to operate the unit on two parts of Paragraph
18.1 of the Unit Agreement.14 First, Roland argued that it had a possessory right
because it kept producing minerals. But, because no wells were operating anywhere
on the unit for fifteen consecutive months, that argument could not succeed.15
Second, Roland argued that work to complete required testing on inactive wells kept
the Unit Agreement in existence. This second argument is the proper context for
considering whether substantial evidence supports the Commission’s Finding of
Fact 15:
The relevant lease operations that Roland engaged in during the
severance period between May, 2005 and August, 2006, were confined
to those acts necessary to pass Commission required H-15 and H-5
testing. The wells were inactive before the testing and inactive after the
testing. They did not contribute to the development of the unitized
formation for the production of oil and/or gas.16
In that context, “relevant lease operations” refers to operations to pass the tests. The
finding also notes that the wells were inactive both before and after the testing. That
is important because, to be Unit Operations, operations must be “for the production
of Unitized Substances.” Because the wells being tested were inactive, and testing
was only a required step in Roland’s seeking an extension of time in which to plug
14
PFD at p. 9; AR, Part II, Jacket 1, at p. 103.
15
Id., discussing Clifton v. Koontz, 325 S.W.2d 684 (Tex. 1959).
16
PFD at p. 11, FF 15; AR, Part II, Jacket 1, at p. 105.
Page 7 of 12
the wells, testing those wells could not be an operation “for the production” of oil
and gas.
The Court’s opinion takes Finding of Fact 15 out of the context of the whole
administrative record in order to find it not supported by substantial evidence rather
than recognizing that the Commission was only addressing Roland’s argument that
the lease operations necessary to pass the test were enough to maintain Roland’s
possessory right to minerals on the unit. But as the Texas Supreme Court recently
explained, “[w]hen construing statutes, as anything else, one cannot divorce text
from context.”17
Finally, neither in merits briefing nor in its response to the Commission’s
motions has Roland provided any evidence that it was working to produce minerals
during the fifteen-month period of the Commission’s severance order. As explained
above, an operator must be working to produce minerals, not just working to comply
with agency rules in order to maintain its possessory rights in the minerals under the
Unit Agreement or any similar lease agreement. The bullet points cited in the
Court’s opinion refer only to maintenance, not to activities to produce minerals.
17
In re the Office of the Attorney General of Texas, No. 14-0038, slip op. at p. 4 (January
30, 3015) available at www.txcourts.gov/media/825972/140038.pdf.
Page 8 of 12
Prayer
For the reasons stated in the Commission’s motions for rehearing and en banc
reconsideration and as further explained in this reply, the Commission asks the Court
to grant its motion for rehearing and affirm the district court’s judgment, and further,
that a majority of the Court orders reconsideration of the Court’s opinion and
judgment and the case is resubmitted to the Court for en banc review and disposition.
Respectfully submitted,
KEN PAXTON
Attorney General of Texas
CHARLES E. ROY
First Assistant Attorney General
JAMES E. DAVIS
Deputy Attorney General for Civil Litigation
JON NIERMANN
Chief, Environmental Protection Division
/s/ Anthony W. Benedict
ANTHONY W. BENEDICT
Assistant Attorney General
State Bar No. 02129100
anthony.benedict@texasattorneygeneral.gov
ELIZABETH R.B. STERLING
Assistant Attorney General
State Bar No. 19171100
elizabeth.sterling@texasattorneygeneral.gov
Page 9 of 12
PRISCILLA M. HUBENAK
Assistant Attorney General
State Bar No. 10144690
priscilla.hubenak@texasattorneygeneral.gov
LINDA B. SECORD
Assistant Attorney General
State Bar No. 17973400
linda.secord@texasattorneygeneral.gov
STEVEN H. LORD, JR.
Assistant Attorney General
State Bar No. 24074618
steven.lord@texasattorneygeneral.gov
Environmental Protection Division
Office of the Attorney General
P.O. Box 12548, MC 066
Austin, Texas 78711-2548
Tel.: (512) 475-4015
Fax: (512) 320-0911
ATTORNEYS FOR APPELLEE,
RAILROAD COMMISSION OF TEXAS
Page 10 of 12
Certificate of Compliance
Pursuant to Texas Rule of Appellate Procedure 9.4(i)(3), I certify that this
computer-generated document, excluding the contents listed in Texas Rule of
Appellate Procedure 9.4(i)(1), contains approximately 2258 words. I relied on the
word count of the computer program used to prepare the document.
/s/ Anthony W. Benedict
ANTHONY W. BENEDICT
Page 11 of 12
Certificate of Service
On February 3, 2015, a true and correct copy of the foregoing Railroad
Commission of Texas’s Reply to Appellant Roland Oil Company Response to
Appellee’s Motions for Rehearing and for En Banc Reconsideration was served
on the following counsel electronically through an electronic filing service provider
and by email:
Christopher Brunetti
The Bargas Law Firm
P. O. Box 302439
Austin, Texas 78703
Chris@Bargas-Law.com
Dario Bargas
The Bargas Law Firm
1000 Heritage Center Circle
Round Rock, Texas 78664
Dario@Bargas-Law.com
Christopher Brunetti
P. O. Box 2927
Harker Heights, Texas 76548
cbrunettilawfirm@gmail.com
/s/ Anthony W. Benedict
ANTHONY W. BENEDICT
Page 12 of 12
EXHIBIT A