Texas is the headquarters of much of the energy industry in the United States, and, consequently, Texas is also home to a major portion of the oil and gas bar. However, the discoveries of oil and gas taking place outside of Texas have caused many Texas oil and gas attorneys to shift the focus of their practices out of state. In particular, the Bakken Shale development has caught their attention, shifting their eyes northward.
The Bakken Shale is a geologic formation underlying western North Dakota and eastern Montana. The discovery well in the Bakken was completed in 1952 on Henry Bakken’s farm outside Williston, notes a report on the U.S. Energy Information Administration’s website, "Technology-Based Oil and Natural Gas Plays: Shale Shock! Could There Be Billions in the Bakken?" But horizontal well drilling and production took off in the early 2000s.
A chart on the North Dakota Industrial Commission’s Department of Mineral Resources website shows that the state’s production recently hit the 700,000 barrels per day level. That’s roughly equivalent to one-half of a supertanker per day. The state now ranks second in oil production.
While Bakken oil production has been growing exponentially, data from the Texas Railroad Commission shows that activity in the Barnett Shale has declined. The Barnett underlies Fort Worth, Dallas and surrounding areas and has been primarily a natural gas play for the past decade. Many Texas firms literally came into being based on the legal work spun off from the Barnett development.
Unfortunately, the price of natural gas has fallen significantly over the past four years. Rigs began pulling out of the Barnett in late 2011, and energy legal work associated with the region plummeted shortly thereafter.
Many of the Barnett lawyers migrated to the Permian Basin play (West Texas) or the Eagle Ford Shale (South Texas). However, some Texas oil and gas attorneys looked northward to North Dakota and the Bakken formation where oil production, not gas, is the primary objective.
North Dakota is actively permitting wells. Horizontal wells for oil production are standard now, and each well drains a unit usually comprised of 1,280 acres and sometimes 2,560 acres.
Before spudding a well, an operator will request a drilling title opinion from an oil and gas lawyer that covers the entire unit. Preparing such an opinion can involve examination of a vast collection of title documents numbering anywhere from 1,000 to 3,000 items. The resulting opinion can run in excess of 500 pages, and putting the opinion together will burn a significant number of billable hours. A solo attorney can easily spend three months working on one title opinion.
All this drilling activity also generates many types of property trades, nonstop leasing activity, large mergers and acquisitions, and, of course, litigation. Unlike Texas, which has nine American Bar Association-accredited law schools, the University of North Dakota School of Law is that state’s only one.
The opportunity for experienced oil and gas lawyers is pretty obvious. Fortunately, North Dakota has reciprocity with Texas with regard to bar admission, if one can survive the detailed application process and background check, which can take up to six months.
Not in Texas Anymore
Once licensed, the Texas lawyer will discover that North Dakota mineral law is not simple and differs significantly from Texas mineral law. Many lawyers labor under the false assumption that the mineral laws and mineral title of a state with a relatively small population cannot be very complex.
For a variety of reasons, that is certainly not the case in North Dakota. Oil companies have been drilling there for more than 60 years and have carved up the mineral estate in any number of ways. A title lawyer is likely to discover that the tract under examination is a maze of conveyances, leases, liens and other encumbrances.
The North Dakota bar has authored property title standards that are more numerous than those found in Texas. In fact, the North Dakota courts have not gotten around to judicially determining the validity of many of them. As a result, using the title standards as a guide may actually give the examiner a false sense of security.
A Texas lawyer should also keep in mind that, unlike Texas, North Dakota started out as federal property. According to the Department of the Interior’s Bureau of Land Management website, the BLM administers 4.1 million acres in the western one-third of the state along with approximately 2,000 federal oil and gas leases. Dealing with the bureaucracy surrounding federal leases will be a whole new experience for many Texans.
More layers of complexity come into play when the oil and gas attorney finds that his transaction or litigation involves lands under the control of Native Americans; the U.S. Attorney’s Office for North Dakota notes that those who consider themselves Native American make up approximately 5.4 percent of the population.
Many of these lands are situated in oil and gas producing regions. State, federal and tribal jurisdictions often overlap in these areas. Oil and gas leases are issued by the tribes pursuant to authority granted under several different federal statutes. Documents pertinent to any particular lease may be recorded in six different locations, all of which must be reviewed in order to know the true status of the lease.
Bakken Shale production is expanding at a rapid pace and is truly equivalent to a new gold rush in North Dakota. This phenomenon has attracted the attention of many Texas lawyers who understand the potential upside for those who practice oil and gas law. However, those brave souls who venture into this new jurisdiction should keep in mind that they need to master a lot of law, and a general knowledge of oil and gas jurisprudence is only a starting point.