An Irreverent Look at Pipelines

This presentation is made solely for educational purposes and contains opinions of the presenter which are provided pursuant to the First Amendment of the United States Constitution. Neither Rodney M Patterson, nor any other contributor to this presentation provides legal advice about oil and gas matters or pipeline issues within the content of this presentation. This information is not intended to create and its receipt does not constitute a lawyer-client relationship. Viewers of this presentation should not act upon this information without seeking professional legal counsel.

Federal and State Regulations

Federal Regulations 49 United States Code 60101 et seq

Title 49 Code of Federal Regulations

Office of Pipeline Safety (OPS)

US Department of Transportation Pipeline and Hazardous Materials Administration (PHMA)

Federal Regulations Interstate pipelines are regulated by Federal Law regarding safety concerns which specifically includes location.

Under the legal theory of "regulatory preemption", regulation on that issue by lower governments (state, county, city, municipal) is prohibited.

Dateline: July 22, 2001The OPS is one of the smallest agencies in the federal government. It has an operating budget of about $23 million and 107 full-time employees.

Yet it is responsible for ensuring the safe and clean operation of more than 2 million miles of pipeline in the United States.

State Regulations The Texas Railroad Commission regulates safety, but does not approve location.

Texas law is unsettled as to what extent local governments can regulate pipeline location.

State Regulations Through certification by OPS, the State of Texas regulates, inspects and enforces all intrastate gas and liquid pipeline safety requirements.

This work is performed by the Pipeline Safety Section, Gas Services Division of the Texas Railroad Commission.

Texas RRC has primary jurisdiction of all persons owning or operating pipelines in Texas.

Types of Pipelines

Where are the Pipelines?

The Pipeline Easement

Look for words of grant.

grant, sell and convey

What is Being Granted?

What is Being Granted?

Paragraph 15Warranty of Title Lessor hereby warrants and agrees to defend title to Lessee hereunder . . . .

Is Paid Up a Good Thing?

Paid Up Means No Delay Rental

No Surface Use?

. . . Lessee shall have the right of ingress and egress . . . . . . . Including . . . Geophysical Operations Drilling of Wells Construction and use of RoadsCanalsPipelinesTanksWater wells

Construction and use of Disposal WellsInjection wellsPitsElectric, Telephone LinesPower StationsOther Facilities

Paragraph 10Surface Use Clause

The Granting Clause

Paragraph 1The Granting Clause--What is Being Leased

. . . along with all hydrocarbon and non hydrocarbon substances produced in association therewith . . .

The term gas as used herein includes helium, carbon dioxide and other commercial gases, as well as hydrocarbon gases.

Habendum Clause

Paragraph 2The Habendum ClauseThis lease, which is a paid up lease requiring no rentals, shall be in force for a primary term of Three (3) years from the date hereof, and for as long thereafter as oil or gas or other substances covered hereby are produced in paying quantities from the leased premises or from landspooled therewith or this lease is otherwise maintained in effect pursuant to the provisions hereof.

Paragraph 2The Habendum ClauseThis lease, which is a paid up lease requiring no rentals, shall be in force for a primary term of Three (3) years from the date hereof, and for as long thereafter as oil or gas or other substances covered hereby are produced in paying quantities from the leased premises or from landspooled therewith or this lease is otherwise maintained in effect pursuant to the provisions hereof.

primary term of Three (3) years

andfor so long thereafter as oil or gas or other substances covered hereby are produced in paying quantities

Royalty Clause

Paragraph 3Royalty ClauseA percentage share of production, or the value derived from production, paid from a producing well. Ways to Measure Royalty: Fair Market Value Proceeds Realized Determined by looking at the market place.Determined by looking at what price Lessee sells for.

Paragraph 3Royalty ClauseWhen and Where Is Royalty Measured? At the wellhead From sale thereof

Paragraph 3Royalty Clause in Sample LeaseFor OilFor oil and other liquid hydrocarbons separated at Lessees separator facilities, the royalty shall be Twenty Five Percent (25%) of such production, to be delivered at Lessees option at the wellhead or to Lessors credit at the oil Purchasers transportation facilities . . .

Paragraph 3Royalty Clause in Sample LeaseFor GasFor gas . . . the royalty shall be Twenty Five Percent (25%) of the proceedsrealized by Lessee from the sale thereof, less a proportionate part of . . . Taxes . . . and costs incurred by Lessee . . . . .

. . . provided that Lessee shall have the continuing right to purchase such production at the prevailing wellhead market price . . . .

Bonus

Dateline: Arlington, December 4, 2007$15,850.00

Dateline: Grapevine December 17, 2007$3,000 (Offer by Chesapeake)

Dateline: Meadowbrook, March 31, 2008Fort Worth Business Press$25,000.00

Dateline: Arlington April 26, 2007$26,500 (Offer by XTO)

Where Do We Go From Here?

Join Your Neighborhood Association Practice the Art of Patience Be Sure Youre Right, Then Go Ahead

What Should I Expect?

Watch Your Email and the Website for News Request for Proposal Will Be Submitted Friendly Cooperation with Other Neighborhood Associations Will Occur Oil Company Solicitations Will Occur A Proposed Lease Will Be Drawn & Submitted You Will Not Be Bound Until You Agree to Be Bound

Rodney M. PattersonAttorney at Law4200 South Hulen, Suite 415Fort Worth, TX 76109

817-732-8200www.rodpatterson.com