The following is an update on Nebraska\u27s legislative activity and case law relating to oil and gas and mineral law from August 1, 2011, to July 31, 2012

Nicas, James R.

Ranieri, Dominique

English

bepress Legal Repository

Nebraska Oil and Gas Update

Texas A&M University School of Law

Texas Wesleyan Law Review Volume 19 Issue 2 Article 21 3-1-2013 Nebraska Oil and Gas Update James R. Nicas Dominique Ranieri Follow this and additional works at: https://scholarship.law.tamu.edu/txwes-lr Recommended Citation James R. Nicas & Dominique Ranieri, Nebraska Oil and Gas Update, 19 Tex. Wesleyan L. Rev. 435 (2013). Available at: https://doi.org/10.37419/TWLR.V19.I2.19 This Article is brought to you for free and open access by Texas A&M Law Scholarship. It has been accepted for inclusion in Texas Wesleyan Law Review by an authorized editor of Texas A&M Law Scholarship. For more information, please contact aretteen@law.tamu.edu. NEBRASKA OIL AND GAS UPDATEBy: James R. Nicas & Dominique RanieriTABLE OF CONTENTSI. INTRODUCTION.......................................... 435II. LEGISLATIVE ACTIVITY ................................. 435A. Major Oil Pipeline Siting Act ....................... 435B. Hydraulic Fracturing................................ 438III. CASE LAW .............................................. 438A. Peterson v. Sanders................................. 438B. Bedore v. Ranch Oil Co. ........................... 439I. INTRODUCTIONThe following is an update on Nebraska's legislative activity andcase law relating to oil and gas and mineral law from August 1, 2011,to July 31, 2012.II. LEGISLATIVE ACTIVITYA. Major Oil Pipeline Siting ActLegislative Bill 1,' better known as the act that adopts the MajorOil Pipeline Siting Act, was introduced to the legislature November 1,2011, during the 102nd Legislature, First Special Session.2 In additionto adopting the Major Oil Pipeline Siting Act, the act reissues revisedstatutes of Nebraska, changes provisions relating to eminent domain1. Legis. B. 1, 102d Leg., 1st Spec. Sess. (Neb. 2011) (amending NEB. REV. STAT.§§ 57-1101, 75-109.01, 75-110.01, 75-112, 75-118, 75-128, 75-129, 75-502).2. See Legis. B. 1044, 102d Leg., 2d Reg. Sess. (Neb. 2012). Legislative Bill 1renders Legislative Bill 1044 (indefinitely postponed) moot, by specifically excludingany attempt to regulate safety, as preempted by Federal Law.435DOI: https://doi.org/10.37419/TWLR.V19.I2.19 1Nicas and Ranieri: Nebraska Oil and Gas UpdatePublished by Texas A&M Law Scholarship, 2022TEXAS WESLEYAN LAW REVIEWfor pipelines, changes and provides powers and duties for the PublicService Commission, harmonizes certain provisions, provides sever-ability, repeals original sections, and declares an emergency.' The actwas passed with an emergency clause,4 and the governor signed theact on November 22, 2011.5In the act, the legislature declared the following:Nebraska has the authority as a sovereign state to protect its landand natural resources for economic and aesthetic purposes for thebenefit of its residents and future generations by regulation throughapproval or disapproval of major oil pipeline siting and the locationof routes, so long as it does not regulate in the area of safety as tothe design, installation, inspection, emergency plans and proce-dures, testing, construction, extension, operation, replacement, andmaintenance of major oil pipelines and pipeline facilities.6Along with certain application requirements, fee explanations, and va-rious definitions, the act explains the purposes of the Major Oil Pipe-line Siting Act:a. [To] [e]nsure the welfare of Nebraskans, including protection ofproperty rights, aesthetic values, and economic interests;b. Consider the lawful protection of Nebraska's natural resourcesin determining the location of routes of major oil pipelineswithin Nebraska;c. Ensure that the location of routes for major oil pipelines is incompliance with Nebraska law; andd. Ensure that a coordinated and efficient method for the authori-zation of such construction is provided.Any person that engages in owning, operating, or managing a pipe-line that is larger than six inches in inside diameter for the transporta-tion of petroleum or petroleum components, products, or wastes mustfile an application with the Public Service Commission (the "Commis-sion").' Interestingly, the applicant is required to publish notice ofthe application in at least one newspaper of general circulation in eachcounty in which the major oil pipeline is to be construed and to servenotice of the application upon the governing bodies of the countiesand municipalities.' Within sixty days of the receipt of the applica-3. Legis. B. 1, 102d Leg., 1st Spec. Sess. (Neb. 2011).4. LBI - Adopt the Major Oil Pipeline Siting Act and Change Eminent DomainProvisions, NEB. LEGISLATURE, http://nebraskalegislature.gov/bills/view-bill.php?DocumentlD=15149 (last visited Sept. 21, 2012); Lawmaking in Nebraska, NEB. LEG-ISLATURE, http://nebraskalegislature.gov/about/lawmaking.php (last visited Aug. 24,2012) (A bill with an emergency clause requires a vote of two-thirds (33 members) ofthe legislature).5. Legis. B. 1, 102d Leg., 1st Spec. Sess. (Neb. 2011).6. Id.7. Id.8. Id.9. Id.436 [Vol. 192Texas Wesleyan Law Review, Vol. 19 [2022], Iss. 2, Art. 21https://scholarship.law.tamu.edu/txwes-lr/vol19/iss2/21DOI: 10.37419/TWLR.V19.I2.19tion, the Commission will schedule a public hearing. The Commissionmay hold additional public meetings and request reports from variousagencies, including the Department of Environmental Quality, theDepartment of Natural Resources, the Department of Revenue, theDepartment of Roads, the Games and Parks Commission, the Ne-braska Oil and Gas Conservation Commission, the Nebraska StateHistorical Society, the State Fire Marshal, and the Board of Educa-tional Lands and Funds.' 0The pipeline carrier has the burden to establish that the proposedroute will serve the public interest." To determine whether the pipe-line carrier has met this burden, the Commission will consider:a. Whether the pipeline carrier has demonstrated compliance withall applicable state statutes, rules, and regulations and localordinances;b. Evidence of the impact due to intrusion upon natural resourcesand not due to safety of the proposed route of the major oilpipeline to the natural resources of Nebraska, including evi-dence regarding the irreversible and irretrievable commitmentsof land areas and connected natural resources and the depletionof beneficial uses of the natural resources;c. Evidence of methods to minimize or mitigate the potential im-pacts of the major oil pipeline to natural resources;d. Evidence regarding the economic and social impacts of the ma-jor oil pipeline;e. Whether any other utility corridor exists that could feasibly andbeneficially be used for the route of the major oil pipeline;f. The impact of the major oil pipeline on the orderly developmentof the area around the proposed route of the major oil pipeline;g. The reports of the agencies filed pursuant to subsection (3) ofthis section; andh. The views of the governing bodies of the counties and munici-palities in the area around the proposed route of the major oilpipeline.12The commission may contract for professional services and expert as-sistance-including the services of engineers, hydrogeologists, ac-countants, attorneys, and economists-to assist with reviewingapplications.13Applications that have been denied can be amended in accordancewith the Commission's findings or may be appealed in accordance10. Id. (the agencies may submit a request for reimbursement of reasonable andnecessary expenses incurred for any consultants hired pursuant to this subsection).11. Id.12. Id.13. Id.4372013]1 NEBRASKA3Nicas and Ranieri: Nebraska Oil and Gas UpdatePublished by Texas A&M Law Scholarship, 2022TEXAS WESLEYAN LAW REVIEWwith the Administrative Procedure Act.14 If the application is ap-proved, the pipeline carrier shall file status reports with the Commis-sion every six months until completion.' 5B. Hydraulic FracturingOn January 6, 2012, Legislative Bill 877 was introduced, requiringthe disclosure of hydraulic fracturing treatment information.' 6 TheBill would amend section 57-905 and repeal the original section. Therequirements proposed by the bill include providing the compositionof the hydraulic fracturing fluids used to the Nebraska Oil and GasConservation Commission, including the total volume of water usedand each chemical ingredient. The information would then be postedon the Commission's web site." The Legislative Committee on Natu-ral Resources has indefinitely postponed Legislative Bill 877.1Legislative Resolution 504, introduced on March 20, 2012,designates the Natural Resources Committee of the Legislature tostudy Nebraska's statutes and regulations on hydraulic fracturing.' 9The Resolution states, "a comprehensive examination of Nebraska'slaws, rules, and regulations should be undertaken ... [to] assure thatadequate protections are in place and that Nebraska's laws are in ac-cordance with best practices[.]" 2 0III. CASE LAWA. Peterson v. Sanders21Record owners of surface property brought an equitable action pur-suant to Nebraska's dormant mineral statutes. The surface ownersclaimed the property's severed mineral interests had been abandonedand sought an order vesting title in the severed mineral interests inthem. The district court vested title to the mineral interests in thesurface owners after determining the mineral interests had been aban-doned.2 2 On appeal, the owners of severed mineral interests assignedthat the district court erred in failing to find that application of Ne-braska's dormant mineral statutes against their severed mineral inter-ests was an unconstitutional retroactive application of the statutes.2314. Id.15. Id.16. Legis. B. 877, 102d Leg., 2d Reg. Sess. (Neb. 2012).17. Id.18. LB877 - Require Disclosure of Hydraulic Fracturing Treatment Information,NEB. LEGISLATURE, http://nebraskalegislature.gov/bills/view-bill.php?DocumentlD=15637 (last visited Oct. 11, 2012).19. Legis. Res. 504, 102d Leg., 2d Reg. Sess. (Neb. 2012).20. Id.21. Peterson v. Sanders, 806 N.W.2d 566 (Neb. 2011).22. Id. at 567.23. Id. at 568.438 [Vol. 194Texas Wesleyan Law Review, Vol. 19 [2022], Iss. 2, Art. 21https://scholarship.law.tamu.edu/txwes-lr/vol19/iss2/21DOI: 10.37419/TWLR.V19.I2.19Several Nebraska statutes affect dormant mineral rights. Thesestatutes were intended to address title problems that developed aftermineral estates were fractured.2 4 The primary statute at issue in Peter-son was section 57-229.2 The Nebraska Supreme Court held that thecritical date in determining whether severed mineral interests hadbeen abandoned under the dormant mineral statutes was when theinterests were transferred to the holders by their mother, which wasyears after the enactment of the statutes, not when the interests wereoriginally severed from the surface property and reserved by themother. Thus, regardless of whether retrospective application of thestatutes to persons who owned severed mineral interests prior to theirenactment deprived those persons of due process, the statutes werenot applied retrospectively to holders.2 6B. Bedore v. Ranch Oil Co."In Bedore v. Ranch Oil Co., after a lessee attempted to preserve anoil and gas lease beyond the primary term by restoring an old well toproduction by drilling out the plug and inserting pumping equipment,the lessors brought action against the lessee seeking a declaratoryjudgment that the lease was null, void, and of no further force andeffect and alleging damages from trespass and conversion." The dis-trict court granted partial summary judgment to the lessors, conclud-ing they were entitled to a judgment declaring that the lease was nolonger in effect, and, following a bench trial, the court ruled that thelessors had failed to prove any damages from trespass and conversion24. Id. at 569 (citing Ricks v. Vap, 784 N.W.2d 432 (Neb. 2010)).25. Id. at 567-69; NuB. REV. STAT. §57-229 (2012). "A severed mineral interestshall be abandoned unless the record owner of such mineral interest has within thetwenty-three years immediately prior to the filing of the action provided for in sec-tions 57-228 to 57-231, exercised publicly the right of ownership by (1) acquiring, sell-ing, leasing, pooling, utilizing, mortgaging, encumbering, or transferring such interestor any part thereof by an instrument which is properly recorded in the county wherethe land from which such interest was severed is located; or (2) drilling or mining for,removing, producing, or withdrawing minerals from under the lands or using the geo-logical formations, or spaces or cavities below the surface of the lands for any purposeconsistent with the rights conveyed or reserved in the deed or other instrument whichcreates the severed mineral interest; or (3) recording a verified claim of interest in thecounty where the lands from which such interest is severed are located. Such a claimof interest shall describe the land and the nature of the interest claimed, shall properlyidentify the deed or other instrument under which the interest is claimed, shall givethe name and address of the person or persons claiming the interest, and shall statethat such person or persons claim the interest and do not intend to abandon the same.The interest of any such owner shall be extended for a period of twenty-three yearsfrom the date of any such acts; Provided, that the provisions of this section shall notapply to mineral interests of which the State of Nebraska or any of its political subdi-visions is the record owner." Id. (emphasis added).26. Peterson, 806 N.W.2d at 571.27. Bedore v. Ranch Oil Co., 805 N.W.2d 68 (Neb. 2011).28. Id. at 73.2013] NEBRASKA 4395Nicas and Ranieri: Nebraska Oil and Gas UpdatePublished by Texas A&M Law Scholarship, 2022TEXAS WESLEYAN LAW REVIEWand awarded only nominal damages to the lessors.29 The lessee ap-pealed, and the lessors cross-appealed asserting that the district courterred in failing to award the cost of plugging their wells and in failingto award damages resulting from trespass and conversion, costs andattorney fees, and deposition expenses.oThe Supreme Court of Nebraska affirmed the district court's ruling.The Court held that as a matter of first impression, the oil and gaslessee did not commence operations for drilling a well, within themeaning of the savings clause of the lease, when it used a drill to re-move cast iron and sand plugs from an old well. In addressing thismatter of first impression, the Court looked to the terms of the indi-vidual leases as well as the Oil and Gas Lien Act," which defines"drilling" as "drilling, digging, torpedoing, acidizing, cementing, com-pleting, or repairing," but it does not define "drilling a well." Neitherdoes the Nebraska Oil and Gas Conservation Commission's rules andregulations define "drilling a well." 3 2 The Court concluded that inspite of case law regarding the specifics of drilling, the weight of au-thority agreed that general reworking operations, which do not in-volve making a new hole, are not "operations for drilling a well." Onecommentator stated, "reworking operations will not satisfy a clausethat requires the resumption of 'operations for drilling a well."'"The Court further held that acceptance of royalties by the lessorsafter the expiration of the primary term did not waive expiration ofthe lease or estop the lessors from claiming the lease was no longervalid; the lessors were under no obligation to give notice of termina-tion to the lessee; the lessors failed to prove surface damages causedas a result of the lessee's trespass and conversion; the lessors' claim forcost of plugging the lessee's wells was premature; evidence of lost in-terest income was too speculative to support the award of damages;the lessee with whom the lessors entered into a new lease could notrecover as damages the cost of its election to renew a lease in order tomake up for time lost on the land due to the prior lessee's occupationand protracted litigation over the validity of the occupation; the dis-trict court did not abuse its discretion in failing to award attorney feesand costs to the lessors; and the district court did not abuse its discre-tion in denying the lessors' motion to compel payment of witness feesand expenses.3 429. Id. at 78, 80.30. Id. at 86.31. Id. at 84; see also Oil and Gas Lien Act, NEB. REV. STAT. §§ 57-801 to 57-820(2010); Id. § 57-801(8).32. Bedore, 805 N.W.2d at 84.33. Id.34. Id. at 85-90.440 [Vol. 196Texas Wesleyan Law Review, Vol. 19 [2022], Iss. 2, Art. 21https://scholarship.law.tamu.edu/txwes-lr/vol19/iss2/21DOI: 10.37419/TWLR.V19.I2.19

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Nebraska Oil and Gas Update

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