American Oil and Gas Reporter - August 2019 - 20

IndustryDigest
of Appeals for the District of Columbia
Circuit, asserting ACE does not fulfill
the requirements of the Clean Air Act to
protect the health of Americans,
according to a statement released by the
two organizations.
Contending that the Environmental
Protection Agency "has legal authority
and obligation under the CAA to protect
and preserve public health and welfare,
including by regulating carbon dioxide
pollution from coal-fired power plants,"
ALA and APHA argue, "In repealing
the Clean Power Plan and adopting the
ACE rule, EPA abdicates its legal duties
and obligations."
They add, "In addition to increasing
the carbon dioxide pollution that fuels
climate change, independent research
predicts the ACE rule will result in
some fossil fuel plants running more
often and delaying their retirement,
which would mean increased emissions
of dangerous pollution as compared
with the Clean Power Plan, and even as
compared to no rule at all."
EPA published its final ACE rule and
repeal of the CPP in the July 8 Federal
Register. At the time it released its
prepublication notice on June 19, EPA
estimated ACE, when fully
implemented, would result in a 35%
reduction in U.S. power sector CO2
emissions below 2005 levels.
Unlike the CPP, which was adopted
by EPA in August 2015 under President
Obama but stayed by the U.S. Supreme
Court in February 2016 (AOGR, March
2016, pg. 107), ACE does not set specific
CO2-reduction goals, but authorizes
states to establish unit-specific standards
of performance that reflect the emission
limitation achievable through applying
best system of emission reduction
technologies (AOGR, July 2019, pg. 29).
❒

Texas Court Supports
Kinder Morgan Pipeline
AUSTIN, TX.-A Texas county court
has determined the state constitution
authorizes the process under which the
Texas Railroad Commission issued
permits allowing a pipeline company to
use eminent domain powers in building
a pipeline, and the state legislature acted
within its authority when it granted
private entities those powers.
Ruling in Andrew Sampson v. Texas
20 THE AMERICAN OIL & GAS REPORTER

Railroad Commission, the Travis
County District Court says Kinder
Morgan can proceed with its Permian
Highway Pipeline (PHP), a 430-mile
project the company says will transport
as much as 2.1 billion cubic feet of
natural gas a day from Waha, Tx., to the
U.S. Gulf Coast and Mexican markets.
The project is scheduled to be in service
in late 2020.
The plaintiffs were several
landowners in the path of the pipeline
project, as well as Hays County, Tx.,
and the city of Kyle, Tx. The plaintiffs
were seeking an injunction stopping
Kinder Morgan from exercising eminent
domain authority along the PHP route,
pending the RRC's establishing stateadministered standards and controls. In
addition to the pipeline company, the
lawsuit named the RRC and the
individual commissioners.
District Court Judge Lora Livingston
ruled in favor of the defendants on
every issue, finding the legislature
properly delegated eminent domain
authority as allowed under the Texas
Constitution, the RRC was not required
to impose standards over the project,
and that delegating that authority didn't
violate the constitution's separation of
powers provision.
The company says the $2 billion
PHP project will allow further
development of the Permian Basin by
providing an outlet for increased gas
production, and it will provide almost
$1 billion in additional revenue
annually to Texas and its counties, as
well as more than $2 billion a year in
new oil and gas royalties to individual
leaseholders.
"Kinder Morgan is very pleased with
the ruling made by the Travis County
District Court," the company says. "The
court's finding validates the process
established in Texas for developing
natural gas utility projects, as well as
the steps we have taken to comply with
that process. We will continue to engage
all stakeholders as we work to complete
PHP." ❒

North Dakota Operator
Underpaying Royalties,
State High Court Rules
BISMARCK, N.D.-An oil company
operating in North Dakota has been
underpaying royalties to the state, the

North Dakota Supreme Court says, and
it likely must repay several years' worth
of payments.
Newfield Exploration Company sued
the North Dakota Department of Trust
Lands following a 2016 audit that claimed
the company was underpaying royalties,
with the parties arguing over allowed
deductions for post-production costs.
The North Dakota Supreme Court
reversed the district court of McKenzie
County. According to court documents,
the lower court held Newfield had paid
royalties based on gross proceeds
reduced to account for deductions
necessary to make the gas marketable
for purchaser ONEOK Rockies
Midstream LLC, and that reducing the
gross payments by those deductions was
contrary to the lease's express terms.
The Supreme Court disagreed, with
its review of the Newfield lease
showing it unambiguously provided
that the state's royalty must include the
value of any consideration, in whatever
form, that directly or indirectly
compensates, credits or benefits the
company. Under the lease language,
Newfield benefits from ONEOK's
expenditures to make the gas
marketable, and those the royalties paid
by Newfield may not be reduced to
account for post-production costs.
The court's ruling was specific to the
Newfield leases, media reports point
out, but quotes North Dakota Land
Commissioner Jodi Smith as warning it
will have an impact beyond the disputed
contracts. She says her department has
leases with more than 50 oil and gas
companies that have similar language.
Smith adds that the Department of Trust
Lands will work with the state attorney
general's office to determine how far
back Newfield's lease goes and how
much it must pay retroactively.
"The North Dakota Petroleum
Council was not a party to the Newfield
case, but it is very disappointed and
surprised that the Supreme Court
reversed the lower court's decision in
favor of Newfield," says NDPC
President Ron Ness. "The court's
reversal adversely impacts all operators
in North Dakota, especially at a time
when we are faced with gas capture and
flaring challenges. Requiring an oil
company to pay royalties at the end
price of its product is like taxing a
farmer on the price of bread rather than
the price of wheat." ❒
American Oil and Gas Reporter - August 2019

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