WHITAKER CHALK SWINDLE& SCHWARTZ PLLC

Originated in 1978 33 Attorneys, including 3 of counsel Commercial Litigation Fiduciary Litigation Intellectual Property (patents, trademarks,

copyrights) Arbitration / Mediation Real Estate, Oil & Gas Corporate, Securities, Mergers & Acquisitions Employment Law Estate Planning, Wills, Probate, Trusts, Asset

ProtectionMISSION STATEMENT: To aggressively

pursue and obtain the best results for our clients consistent with their stated goals.

• Partner–Whitaker Chalk Swindle & Schwartz PLLC, Fort Worth, TX

• University of Texas School of Law, J.D., 1972• Civil Practice / Transactional Attorney

• Real Estate & Land Development Law• Oil & Gas Law• Business & Corporate Law

• Past Chair of Tarrant County Bar Association Real Estate Section

(3 terms) & member of TCBA Energy Section• Moderator of Barnett Shale Seminars in 2004 & 2005,

and speaker at Barnett Shale Symposiums in 2006, 2007 & 2009, and Expo in 2008

• Tarrant County Bar Assn; Sec-Treasurer 2013-2014, VP 2014-2015,

President-Elect 2015-2016 to become President on July 1, 2016• Member of American Assn of Professional Landmen

(AAPL) & Fort Worth Assn of Professional Landmen

(FWAPL)• Attorney for AAPL on corporate & ethics matters

1990-2004• Instructor for TCU Petroleum Land Practices Program• Commissioner, City of Fort Worth Zoning Commission

2012 - 2014

WEST

Robert G.Robert G.

TOPICS TO BE DISCUSSED:

I. Introductory Comments

II. Leases & Surface Use Agreements

III. DrillingIV. Pipelines & CondemnationV. Claims for NuisanceVI. Royalties & Payment Di$pute$VII. Other Recent Developments

VIII. Final Comments

I.Introductory Comments

II. Leases & Surface Use Agreements• Still mostly “filling in holes”

• Low signing bonus; Little flexibility on terms

• “No Perf” zones

• Applications for Rule 37 Permit

• MIPA cases; Finley case

II. Leases & Surface Use Agreements (cont’d)

OIL & GAS LAW BASICS:• Mineral Estate is “dominant”• Mineral Owner has right to use the

surface without compensation• But surface use must be “reasonable”

and “without negligence”• Accommodation Doctrine

• Getty Oil v. Jones (Tex. 1971)

• Merriman v. XTO Energy (Tex. 2013)

• Get agreements in writing• Mineral rights can be sold

III. DrillingBarnett Shale – 24 counties (June 2014)

• 17,361 gas wells producing

• 1,018 oil wells producing

• 7,693 permits (all formations)

III. Drilling

• City of Fort Worth (Aug 2015)

• 1,968 producing wells +92

• 26 permitted -49

• 7 applications pending +4

• 120 abandoned permits +28

IV. Pipelines & Condemnat

ion

Tips for Negotiating Pipeline Easement

Agreements

This is not a complete list.

1. Compensation• Value of easement itself

+ Damages to remaining property

• Use appraisers

• Seek extra $$$ for maintenance or relocation

• Highly negotiable; what the market will bear

TIP: Allocate compensation between easement itself (taxable) and damages to remainder (reduces tax basis and is not immediately taxable)

1. Compensation (Continued)

2. Specify width of the pipeline easement(s)

Permanent or Temporary

3. Specify depth of pipe

4. Include specific legal description, not a

“blanket easement”

5. Specify any surface facilities and location on a site plan

• Compressors?

• Meters?• Signs?• Roads?• Fences?• Gates?

6. Specify substances to be transported & excluded7. Limit to a single pipeline with specified diameter

8. Specify rights & restrictions on landowner’s use of easement area

Roads; Parking; Utilities; Horses

A.Pipeline company is a “common carrier” or “utility” with power of eminent domain

B.Pipeline company is usually a separate entity from the o&g leasing company

C.Permission not required for initial survey (if non-invasive)

Condemnation

D. Pipeline company determines route, but may be flexible in negotiations to avoid condemnation

E. City has no authority to determine route, except for consent to city street crossings

F. Special Commissioners’ hearing is only about valuation and $$$

Condemnation (continued)

G. Pipeline companies prefer not to condemn, but will if needed

H. Attorneys fees are usually NOT recoverable by landowner

Condemnation (continued)

V. Private Nuisance

• Crowder v. Chesapeake

Jury verdict for $20,000

(Friday, May 23, 2014)

Claims for Private Nuisance (continued)

• Leases signed in 2007 to Paloma Barnett

• Operations started August 2010

• 4 suits filed Nov. 2011 by same attorneys for separate owners

• Consolidated for pre-trial purposes only, but separate trials for damages

• First case to trial on April 10; owner lost

• Well had permit from city & waivers from some property owners

• Well was 328.8 feet from Crowder house

VI. Claims for Private Nuisance (continued)

• Claims for “private nuisance” -- noise, odors, truck traffic were abnormal and out of place in this area and “substantially interfered” with homeowners’ ability to use and enjoyment of their property.

• Claims for physical harm; emotional harm; trespass by substances; damages

VI. Claims for Private Nuisance (continued)

• Q1: Did CHK intentionally create a private nuisance?

• A: Yes

• Q2: Was CHK’s conduct abnormal and out of place in the surroundings such as to constitute a private nuisance?

• A: Yes

VI. Claims for Private Nuisance (continued)

• Q3: Was the nuisance caused by CHK permanent or temporary?

• A: Temporary

• Q4: What sum of money, if paid now in cash, would fairly and reasonably compensate Crowders for the damages, if any, that were proximately caused by the nusiance conditions created by CHK?

• A: $20,000

VI. Royaltie$• Shut-in payments

• Division Orders & Multiple Division Orders

• Suits over royalty

VI. Royaltie$ (continued)

• Hundreds of suits for improper royalty payments-- Deductions for costs?

-- Sales to affiliates / self-dealing?

• Not Class Actions, but“Mass” Actions

granted “multidistrict litigation” status

VI. Royaltie$ (continued)

• Individual cases:

Breach of contract

Plaintiff owners in same pooling unit

Identical lease language about calculation of royalty

Experts can render opinions on financial damages per acre

VI. Royaltie$ (continued)

• Gas Company’s Defenses:

Statute of Limitations

(4 years for breach of written contract)

Estoppel

Laches (“unclean hands”)

• Trials will start in early 2016

VI. Royaltie$ (continued)

• Chesapeake v. Hyder:Hyders leased 948 acres south of Crowley

to Four Sevens, which later transferred to CHK

Lease contained 3 royalty provisions: (“Royalty” means no production

expenses, but bear post-production expenses, unless agree otherwise)

- 25% of market value at the well of all oil & liquids - 25% of the price actually received by Lessee for gas produced and sold or used, “free and clear of all

production and post-production costs” - a perpetual, cost-free (except

production taxes) overriding royalty of 5% of gross production obtained from directional wells drilled on the lease but bottomed on nearby land

VI. Royaltie$ (continued)

• Chesapeake v. Hyder (continued) :

Trial – “bench trial” (nonjury), with decision for Hyders

Court of Appeals (San Antonio 2014), with decision for Hyders

VI. Royaltie$ (continued)

• Chesapeake v. Hyder (continued) :

Texas Supreme Court (6/12/2015)

Focus was on calculation of overriding royalty and interpretation of specific language in the lease contract in dispute

Opinion 5-4 for Hyders

“We conclude that ‘cost-free’ in the overriding royalty provision includes postproduction costs.”

Motion for Rehearing filed Aug 5

Amicus Curie briefs from industry

VI. Royaltie$ (continued)

• Chesapeake v. Hyder (continued) :

Texas Supreme Court (6/12/2015)

Motion for Rehearing filed Aug 5

Amicus Curie briefs from industry

VII. Other Recent Developments

• City ordinances banning fracking (City of Denton)

• New state law (HB 40) in 2015 banning city anti-fracking ordinances

• City regulation of surface issues

• Seismic activity / injection wells

VII. Other Recent Developments (cont’d)

• Declining prices lead to financial stress, layoffs, bankruptcies, claims

• Credit reviews, sale of assets, mergers & acquisitions

• Wage and hour claims / W2 employee or independent contractor

• Patents to lower costs & risks

• Keystone XL Pipeline ???

VIII. Final Comments

Robert G. “Bob” WestWHITAKER CHALK SWINDLE &

SCHWARTZ PLLC301 Commerce St, Suite 3500

Fort Worth, TX 76102817-878-0511

rwest@whitakerchalk.com

www.whitakerchalk.comwww.thebarnettshalelawfirm.co

m