Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 2
I. Opening Remarks
− Larry Nettles, Vinson & Elkins, Environmental and Natural Resources
II. Where Are We Going? Federal Resource Development Policy Under the Biden Administration
− Corinne Snow, Vinson & Elkins, Environmental and Natural Resources
III. Environmental Enforcement in the Biden Administration
− Patrick Traylor, Vinson & Elkins, Environmental and Natural Resources
IV. Litigation Developments and Future Directions
− Nick Shum, Vinson & Elkins, Energy Litigation
V. Labor Issues in a Pandemic and Post-Pandemic World
− Chris Bacon, Vinson & Elkins, Employment, Labor and OSHA
VI. What a Difference a Year Makes – 2021 Transactional Update
− John B. Connally, Vinson & Elkins, Energy Transactions and Projects
VII. Q&A
Today’s Agenda
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 3
January 2010 – June 2021
U.S. Production Trends
Source: U.S. EIA
0
2
4
6
8
10
12
14
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
CR
UD
E O
IL P
RO
DU
CT
ION
(M
MB
D)
U.S. Crude Oil Production
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January 2010 – June 2021
Global Production Trends
0
2000
4000
6000
8000
10000
12000
14000
Jan
-10
Ma
r-1
0
Ma
y-1
0
Jul-
10
Se
p-1
0
No
v-1
0
Jan
-11
Ma
r-1
1
Ma
y-1
1
Jul-
11
Se
p-1
1
No
v-1
1
Jan
-12
Ma
r-1
2
Ma
y-1
2
Jul-
12
Se
p-1
2
No
v-1
2
Jan
-13
Ma
r-1
3
Ma
y-1
3
Jul-
13
Se
p-1
3
No
v-1
3
Jan
-14
Ma
r-1
4
Ma
y-1
4
Jul-
14
Se
p-1
4
No
v-1
4
Jan
-15
Ma
r-1
5
Ma
y-1
5
Jul-
15
Se
p-1
5
No
v-1
5
Jan
-16
Ma
r-1
6
Ma
y-1
6
Jul-
16
Se
p-1
6
No
v-1
6
Jan
-17
Ma
r-1
7
Ma
y-1
7
Jul-
17
Se
p-1
7
No
v-1
7
Jan
-18
Ma
r-1
8
Ma
y-1
8
Jul-
18
Se
p-1
8
No
v-1
8
Jan
-19
Ma
r-1
9
Ma
y-1
9
Jul-
19
Se
p-1
9
No
v-1
9
Jan
-20
Ma
r-2
0
Ma
y-2
0
Jul-
20
Se
p-2
0
No
v-2
0
Jan
-21
Ma
r-2
1
Ma
y-2
1
CR
UD
E O
IL P
RO
DU
CT
ION
(M
MB
D)
Russia Saudi Arabia United States Source: U.S. EIA
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 5
Looking Forward
Increasing Global Oil Demand
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January 2010 – October 2021
U.S. Rig Count v. Crude Oil Prices
-
200
400
600
800
1,000
1,200
1,400
1,600
1,800
0
20
40
60
80
100
120
Jan
-10
Ap
r-10
Jul-
10
Oct-
10
Jan
-11
Ap
r-11
Jul-
11
Oct-
11
Jan
-12
Ap
r-12
Jul-
12
Oct-
12
Jan
-13
Ap
r-13
Jul-
13
Oct-
13
Jan
-14
Ap
r-14
Jul-
14
Oct-
14
Jan
-15
Ap
r-15
Jul-
15
Oct-
15
Jan
-16
Ap
r-16
Jul-
16
Oct-
16
Jan
-17
Ap
r-17
Jul-
17
Oct-
17
Jan
-18
Ap
r-18
Jul-
18
Oct-
18
Jan
-19
Ap
r-19
Jul-
19
Oct-
19
Jan
-20
Ap
r-20
Jul-
20
Oct-
20
Jan
-21
Ap
r-21
Jul-
21
Oct-
21
RIG
CO
UN
T
CR
UD
E O
IL P
RIC
E (
US
D)
Crude Oil Prices Rig Count Across Primary US Producing Regions Source: U.S. EIA
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 8
July 6, 2021
Energy and Gas Prices: The Biden Administration is Working on It
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 9
August 11, 2021
President Biden: Call for OPEC to Increase Production
10Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com
Where Are We Going?
Federal Resource Development Policy
Under the Biden Administration
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 11
Areas of
Focus
Areas Where it
Could Come Up
Climate/Air
Environmental
Justice
Permitting
New Regulatory
Requirements
Enforcement
Access to Capital
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 12
Areas of
Focus
Areas Where it
Could Come Up
Climate/Air
Environmental
Justice
Permitting
New Regulatory
Requirements
Enforcement
Access to Capital
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 13
Climate/Air: Permitt ing
Expectations Recommendations
More probing look into GHG emissions
Slow-downs in processing
Outside groups challenging before
agency or in court
Start the process earlier and be realistic
about the timeline
Proactively engage with agency and
outside groups
Internal assessments of data you may
need
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 14
Climate/Air: New Regulatory Requirements
Expectations Recommendations
EPA’s Methane Rule
SEC’s Climate Disclosure Rule
Start tracking proposed rules and
understand the operational concerns
Consider filing public comments or
otherwise engaging with the
agencies/executive branch to address
specific concerns
Understand timelines and prepare
for implementation
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 15
Facilities near low-income /
minority communities
Facilities whose emissions
could impact low-income /
minority communities
Increased Risk
Becoming targets for groups seeking to
block permits
Negative press
Slower permitting review process
Additional requirements or restrictions in
the permit
Potential challenges to the permit before
the agency or in the courts
Environmental Justice: Permitting
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 16
Environmental Justice: Permitting and Enforcement
Expectations Recommendations
NEPA Regulations
DOI Regulations
Enforcement Policies (EPA/DOJ)
Be proactive
Determine what EJ communities are
in your area and how your
operations might impact them
Consider legal risks during
community engagement
17Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com
Environmental Enforcement
in the Biden Administration
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 18
• Quick summary of increasing EPA enforcement in
the onshore oil and gas production sector
• The thinning out of political support for past
practices
• What is the EPA doing in its enforcement actions
that poses a danger to past practices?
• What happens if one of these cases gets referred
to the Department of Justice?
• What are the opportunities right now for
companies to minimize or avoid enforcement?
Overview of Presentation
18
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 1919
• The EPA is focused on emissions of volatile
organic compounds (VOCs) and methane from
upstream tank battery vapor control systems
• The EPA is using state Clean Air Act provisions to
compel reductions in vapor emissions
• Where possible, the EPA is using the Clean Air
Act’s New Source Performance Standards
applicable to onshore oil and gas production to
compel reductions in vapor emissions—these are
the NSPS Subpart OOOO and OOOOa standards
Quick summary of the EPA’s
enforcement actions
19
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 20
• Political support is thinning out for past practices
in the O&G sector
• Executive Order on Tackling the Climate Crisis at Home and
Abroad (January 27, 2021)
• Acceptance of Paris Agreement (January 20, 2021)
• Abrogates President Trump’s Executive Order on Promoting
Energy Infrastructure and Energy Growth (April 10, 2019)
• Congressional Review Act repeal of Trump Administration
“Policy Amendment” to NSPS Subpart OOOOa that removed
methane as a pollutant
• American Petroleum Institute shift on methane
Political Support is Shifting
20
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• Energy Extraction National Enforcement Initiative
• 2015 Compliance Alert
• Early enforcement cases in the Obama
Administration (Noble Energy, Slawson)
• Ongoing enforcement in the Trump Administration
(PDC Energy, High Point Energy, KP Kaufman,
and Gulfport)
• Additional more recent enforcement in NM, PA,
and TX
• New owner audit program/existing owner audit
program (carrots and sticks)
What has the EPA done?
21
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 22
• Evidence of inadequate operations and
maintenance
• Evidence of inadequate vapor control system
design
• Evidence of noncompliance with SIP and NSPS
OOOO/OOOOa requirements
What is the EPA looking for?
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 23
• Factual predicate is higher-than-expected actual
emissions
• NSPS OOOO/OOOOa applicability
• Applicability of old-style and newer SIP provisions
• The previously “special” case of Texas
What are the EPA’s typical legal
claims?
23
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 24
• Representative pressurized fluid samples
• Modeling guideline
• Engineering design standard
• Vapor control system engineering
evaluation
• Vapor control system verification
What are the corrective actions the
EPA imposes?
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 25
• Preparing for post-COVID on-site inspections
• Use of information collection requests about vapor
control design prior to on-site inspections
• Overflight optical gas imaging inspections
• Training Department of Justice litigators on how to
develop these cases and conclude them through
negotiations or trial
• Expanding geographic scope of investigations
(TX, NM, PA) and planning “second passes”
through CO and perhaps ND
What is the EPA doing right now to
prepare for increased enforcement?
25
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 26
• Core injunctive remedies ($14k-$66k per facility)
• Civil penalties ($2.5k-$15k per facility, at a
minimum)
• Environmental mitigation projects ($500k-$4.5MM)
• Supplemental environmental projects ($250k-
$3MM)
When DOJ Gets Involved:
Key elements
26
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 27
• Independent settlement auditors
• Directed inspection and preventative maintenance
program
• Storage tank emission management plans
• Advanced monitoring and corrective action
• Tank pressure monitoring
• Expensive and disruptive settlement negotiations
Elaborate and intrusive compliance
assurance mechanisms
27
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 28
• Use EJSCREEN—EPA enforcement will be
• No unlit or smoking flares
• Dogged down thief hatches
• PRV/thief hatch weight calibration
• PRV/thief hatch O&M
• VRU O&M
Minimize the likelihood that your
facility will be selected for closer
attention
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 29
• Information collection request policy
• Vapor control system O&M records
• SOPs for VCS O&M
• Complete permitting/registration file
• LDAR records
• These give you a starting point for negotiating the
scope of an information request
Position yourself to avoid the most
intrusive information requests
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 30
• Informal internal audit of representative facilities,
using a “red team” approach to outside resources
• Formal audit and self-disclosure under federal or
state audit statutes/policies using outside
resources
• Consider attorney-client privilege
• Consider the danger that procedural missteps with
audit statutes/policies could disqualify the
disclosure
• Scope of audit and corrective action
Position yourself to realistically
evaluate your compliance
30
31Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com
Litigation Developments and
Future Directions
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 32
• U.S. Supreme Court Declines to Hear Fracking Moratorium Case
• Climate Change Litigation Update
• Royalty Lawsuits
• Operator/Non-Operator Disputes
Overview – Lit igation Topics
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 33
• Next Energy LLC v. Illinois Department of Natural Resources
− In June 2021, the U.S. Supreme Court denied Next Energy’s petition for review of its claim that Illinois’s
burdensome fracking regulations amounted to a regulatory taking of Next Energy’s leases
− The 2013 Hydraulic Fracturing Regulatory Act imposed severe restrictions on fracking in Illinois
− Next Energy claimed that these restrictions were so onerous as to make its leases worthless
− Denied on ripeness grounds: Illinois state courts held that because Next Energy had not applied for a permit—
however expensive—it could not claim a taking
Fracking Moratoria and Takings Lit igation
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 34
• In April 2021, building on Executive Order N-79-20, Governor
Newsom directed the California Department of Conservation’s
Geologic Energy Management Division (“Cal GEM”) to initiate
regulatory action to end the issuance of new permits for
hydraulic fracturing by 2024
• California already has one of the nation’s most stringent permitting
processes for fracking
• What regulations will Cal GEM implement? Will challenges to
these laws have different result?
California Fracking Moratorium Next?
34
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• Over 1,000 “Climate Change” cases pending in
U.S. courts
• Recent trend toward state-law fraud and
consumer protection-type claims, alleging
companies misled consumers about the dangers
posed by their products
• Plaintiffs typically file in state court
• No clear answer on whether state or federal
jurisdiction applies
Climate Change Lit igation Update
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 36
• BP P.L.C. et al. v. Mayor & City of Baltimore
− After the U.S. Supreme Court’s decision, the appropriate
jurisdiction for Climate Change litigation remains
unsettled
− Sued in Maryland state court, BP and 25 other energy
companies removed, arguing that fossil fuel production
involved federal law and federal officials
− Fourth Circuit affirmed remand
− U.S. Supreme Court reversed, holding that the Fourth
Circuit had to consider every ground for removal, not just
the federal-officer removal statute (28 U.S.C. §
1442(a)(1))
Climate Change Lit igation: Jurisdictional Wrangling Continues
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 37
• BlueStone Natural Resources II LLC v. Randle (Texas Supreme Court, March 2021)
− The Texas Supreme Court held that BlueStone had wrongfully deducted postproduction costs from royalties
− Pre-printed lease form language – “market value at the well”
− Lease addendum language – “Lessee agrees to compute and pay royalties on the gross value received”
− Lease addendum contained a superseding clause
− Court found that “gross value received” conflicted with “at the well” language in the pre-printed lease form such that
the lease addendum controlled
− Bottom Line: “At the well” language isn’t a trump card—a departure from the trend established by Heritage
Resources and Burlington Resources
Royalty Lit igation Update: The BlueStone case
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 38
• Nettye Engler Energy, LP v. BlueStone Natural Resources II, LLC (Texas Supreme Court)
− Last month, the Texas Supreme Court agreed to review a Fort Worth Court of Appeals decision confirming
BlueStone’s right to deduct postproduction costs from a 1/8th NPRI
− Mineral deed language – “to be delivered to Grantor’s credit, free of cost in the pipeline, if any, otherwise free of
cost at the mouth of the well”
− Petitioner’s argument – a gathering line isn’t a pipeline
− Respondent’s argument – Burlington, which held that “into the pipelines, tanks, or other receptacles” established an
at-the-well valuation point, squarely addresses this issue
− Oral argument scheduled for October 28, 2021
Royalty Lit igation Update: Another BlueStone case
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 39
• For the first time, the North Dakota Supreme Court
addressed deducting postproduction costs from oil
royalties
− On certified question from North Dakota federal court,
implicating 5 proposed federal class actions
− Lease language – “free of cost, in the pipeline to which
lessee may connect wells on said land”
− Following Texas’s lead, the North Dakota Supreme Court
held that such language establishes an at-the-well
valuation
Royalty Lit igation Update: Blasi v. Bruin E&P Partners
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 40
• Removal of Operatorship Rights
• Failure to Develop Claims
− Does RPO have a duty to drill an uneconomic well?
− Different companies view economics differently
− Develop acreage before new regulations implemented?
• What does the Contract say?
− Joint Operating Agreement
− Joint Development Agreement
Operator v. Non-Operator Disputes
41Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com
Labor Issues in a Pandemic and
Post-Pandemic World
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 42
• WHAT WE KNOW: On September 9, 2021, President Biden directed OSHA to draft an Emergency
Temporary Standard (ETS) requiring all employers with more than 100 employees to require all
employees to be either fully vaccinated or tested weekly for COVID-19.
• WHAT WE DON’T KNOW:
− When will the ETS be issued and when will it go into effect?
− How will the 100-employee threshold be counted? (Enterprise-wide or site-based?)
− Will PTO be required for vaccinations, testing and recovery from vaccination side effects?
− Who will be responsible for cost of testing?
− Will religious or medical exemptions be allowed?
− What record-keeping requirements will employers have to follow?
− What will be the penalties for non-compliance?
− Will the ETS survive legal challenges?
Vaccine Mandate for Large Employers is Coming
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 43
• “No entity in Texas can compel receipt of a COVID-19 vaccine
by any individual, including an employee or a consumer, who
objects to such vaccination for any reason of personal
conscience, based on a religious belief, or for medical reasons,
including prior recovery from COVID-19”
• No private cause of action
• Maximum fine $1,000
• Preempted by federal law?
Governor Abbott Issues Executive Order GA 40
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 44
• Federal contractors must mandate vaccinations.
• Requirements go into effect on the later of December 8, 2021, or the first day
of performance on a newly awarded covered contract.
• No testing alternative but contractor employees may request exemptions for a
sincerely held belief, or a medical condition that affects their ability to receive a
vaccine.
• Covered employees and visitors must follow CDC guidance for masking and
physical distancing which are based, in part, on community transmission at a
given location.
Vaccine Mandate already applies to Federal Contractors and
Subcontractors
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 45
• General duty clause applies: All employers must provide their employees a place of employment that is "free from recognized hazards that are causing or are likely to cause death or serious physical harm."
• All employers should develop protocols to prevent the spread of COVID-19.
− Implement screening for employees and require employees to stay at home if they have symptoms.
− Conduct hazard assessments. COVID-19 exposure should be the part of the JSA process.
− Develop administrative controls (policies and work rules) to prevent exposure
• Distancing and mask requirements
• Employee training (post signs to remind employees of respiratory etiquette, masks, handwashing)
• Limit use of shared work stations
• Cross-train employees to ensure critical operations can continue during worker absence
− Develop engineering controls
I f an employer is not a federal contractor and has fewer than 100
employees, what is the employer required to do?
46Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com
What a Difference a Year Makes –
2021 Transactional Update
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 47
• Setting the stage – prices
• What factors are influencing deal activity?
• What’s been happening? – deal activity
• Where do we go from here?
Market Update
Agenda
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 48
Market Update
Sett ing the Stage – Prices
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 49
Market Update
Sett ing the Stage – Prices
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 50
Market Update
What factors are inf luencing deal activity?
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 51
Market Update
What factors are inf luencing deal activity?
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 52
Market Update
What factors are inf luencing deal activity?
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 53
Market Update
What factors are inf luencing deal activity?
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 54
Market Update
What’s been happening? – deal activity
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 55
Market Update
What’s been happening? – deal activity
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 56
Market Update
What’s been happening? – deal activity
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 57
Market Update
What’s been happening? – deal activity
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 58
Market Update
What’s been happening? – deal activity
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 59
Market Update
Where do we go from here?
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 60
Market Update
Where do we go from here?
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 61
Market Update
Where do we go from here?
Confidential & Proprietary ©2021 Vinson & Elkins LLP velaw.com 62
Questions?
Larry NettlesPartner – Environmental & Natural
Resources
Houston
+1.713.758.4586
Corinne SnowCounsel – Environmental &
Natural Resources
New York
+1.212.237.0157
John B. Connally IVPartner – Energy Transactions &
Projects
Houston
+1.713.758.3316
Nick Shum
Partner – Energy Litigation
Houston
+1.713.758.2109
Chris Bacon
Counsel – Labor & Employment
Houston
+1.713.758.1148
Patrick TraylorPartner – Environmental & Natural
Resources
Washington & Houston
+1.202.639.6734