Western Energy Blog

Supreme Court Caps Punitive Damages in Philip Morris USA v. Mayola Williams (Feb. 20, 2006)

More later.  For now see the related Wall Street Journal article. 

BDS International - an Important New Colorado Preemption Case

An important new Colorado Supreme Court case expands the scope of local regulation of oil and gas drilling projects.  In BDS International, the Colorado Supreme Court held that a "full evidentiary hearing" when it is all but clear that a local regulation affecting oil and gas drilling isn't preempted by the state. Board of County Commissioners of Gunnison County v. BDS International, LLC, 2006 WL 3627604 (Colo. App. Dec. 16, 2006). This "full evidentiary hearing" would investigate how the local regulations operate and whether this operation would "materially impede or destroy the state interest."

Under BDS Int'l, in most instances a special use permit applicant cannot rely on their own understanding of the scope of state and local laws and regulations in determining an "operational conflict" and thus preemption of an asserted local law.  [I]in determining whether the County Regulations are in operational conflict with state statute or regulation, [the court] will construe the County Regulations, if possible, so as to harmonize them with the applicable state statutes or regulations. Where no possible construction of the County Regulations may be harmonized with the state regulatory scheme, we must conclude that a particular regulation is invalid."

The bottom line for oil and gas companies: a "full evidentiary hearing" becomes all but necessary in asserting state preemption against a local regulation.  More broadly, this means more litigation risk and unnecessary compliance costs.

The Problem Facing Many IOCs

Jeremy Smith, manager of Neptune Investment Management is bearish on Western (US and Europe -based) energy stocks:

BP and Shell - claiming that although their valuations look cheap, they do not reflect the changing nature of the oil market. Smith believes that with a growing proportion of oil demand coming from the eastern hemisphere, the likes of BP and Shell, which have most of their assets in the West, are poorly equipped to meet demand from the East. Furthermore, with growing cost bases, he says that these companies need to grow at a substantial rate to even stand still each year.

This comment reflects a concern throughout the industry, namely: how do we position ourselves to take advantage of the exponential growth in demand for hydrocarbons in Asia? 

FERC Approves Two Mississippi LNG Projects

Quoting the original article by Maya Jackson Randall:

[T]he two projects will bring an additional 3.1 billion cubic feet per day of natural gas to the Southeast market and increase the number of U.S. LNG projects to 18. [...]

  FERC Chairman Joseph Kelliher said LNG import facilities are critical as the natural gas market becomes more international.

'The North American natural gas market is changing.' he said. 'The plain fact is that North American gas supply is no longer adequate to meet North American gas demand. Our gas market is no longer a U.S. gas market, and increasingly is no longer a North American market.'

Instead, the U.S. is becoming part of a broader international gas market, Kelliher said, adding that as that trend advances, LNG import capacity is necessary to receive gas supplies from other countries.

Gov. Palin (Alaska) to Introduce Bill to Incentivize North Slope Gas Pipeline

The proposed legislation would replace the Stranded Gas Act.  In its place, the Gov. Palin plan would provide energy companies "inducement incentives" if they meet "project criteria."  These include (quoting from the Anchorage Daily News)

• Providing for a minimum of five off-take points in Alaska. This means gas can be withdrawn from the line to power homes and businesses statewide.

• Committing to a local project headquarters in Alaska. The means establishing hiring halls across the state, to give Alaskans access to the thousands of new pipeline jobs.

• Pledging to expand the pipeline project when new gas is available. This can accommodate untapped fields; for now there are about 35 trillion cubic feet of proven natural gas reserves.

Oil and Gas Regulation in Colorado Faces a "Shake-up"

Several new bills are pending in the Colorado legislature that promise to have substantial impact on how oil and gas companies do business in Colorado.  Among these bills:

1. A bill to give surface owners more rights against gas companies.  (Rep. Ellen Roberts, R-Durango, and Sen. Jim Isgar, D-Hesperus).
2. New rules to curb habitat fragmentation caused by roads and closely spaced well pads.  (Rep. Dan Gibbs, D-Silverthorne).
3. Requiring the Oil and Gas Conservation Commission to cooperate with the state health department to set rules on public health.  (Rep. Kathleen Curry, D-Gunnison).

Gov. Bill Ritter himself is said to be involved in "discussions of a possible significant change in the makeup of the [Oil and Gas Conservation Commission]."  Moreover, "Last year, the commission approved 5,904 drilling permits, setting a record for a third consecutive year. Ritter has said he's not comfortable with the high number of permits being issued."