Roth: Can you feel the heat?

By Jim Roth, Director and Chair of the Firm’s Clean Energy Practice Group. This column was originally published in The Journal Record on April 25, 2016.


Jim Roth is a Director and Chair of the firm’s Clean Energy Practice.

Jim Roth is a Director and Chair of the firm’s Clean Energy Practice.

Can you feel the heat?

Although the spring season officially began one month ago, the temperature of spring was far ahead of the calendar this year. Did you feel the heat of 70-degree days in January and the warmest March in recorded history?

The combined average temperature over global land and ocean surfaces for March 2016 was the highest in the 1880–2016 record, at 1.22 degrees Celsius (2.20 degrees Fahrenheit) above the 20th-century average of 12.7 degrees Celsius (54.9 degrees Fahrenheit). In fact, March was the 11th consecutive month of historically warm records for the entire globe.

Average global temperatures have been rising for many years, and scientists have been watching closely to observe the effects of the warming climate. Temperatures began to rise during the industrial revolution in the early 20th century.

Scientists credit the burning of fossil fuels, as well as the cutting down and burning of forests, for causing this warming trend. The average global temperature has already risen 1 degree Celsius since 1900, and experts fear that if the average temperature rises an additional 1 degree there will be catastrophic effects.

The rising temperatures have caused natural disasters, including flooding, drought and wildfires. Over the past few days, an estimated 240 billion gallons of rainwater has fallen in and around Houston. Flooding there has claimed at least seven lives and caused at least $5 billion in property damage.

While south Texas has been bombarded with rain, other parts of the country are in desperate need of moisture. A wildfire that started in Oklahoma last month burned more than 400,000 acres of land in Oklahoma and Kansas. This was the largest wildfire the state of Kansas has ever experienced. On the other side of the globe, Ethiopia is experiencing its worst drought in over 30 years. The United States sent disaster relief teams to Ethiopia last month to help them deal with the lack of food and fresh water.

Fresh drinking water is also at risk in Peru. There, glaciers have melted and reduced in surface area by 40 percent over the past 40 years. The runoff from all of this melting has carried acidic metals downstream and contaminated water sources.

Global warming has caused sea levels to rise an average of 7 inches over the past century, due to both glacial melting and the expansion of water as its temperature has increased. Elevated sea levels have caused coastal erosion, flooding, and aquifer contamination. In 2014, the Research Service in Wales estimated that 23 percent of its coastline experienced erosion, costing the country more than 287 million U.S. dollars.

Climate change has not only affected humans, it has also had detrimental effects on other ecosystems and habitats. Penguin populations in Antarctica have plummeted due to rising temperatures. Warmer, longer summers have caused beetle populations in Alaska to skyrocket, and they have chewed through millions of acres of spruce trees. The severe reduction of sea ice platforms has caused polar bear size and population to decrease dramatically.

In the Hudson Bay area, the ice-free summers have grown longer, shortening the polar bears’ hunting season. As a result, polar bear weight has dropped approximately 15 percent, and the population has declined by more than 20 percent.

While some may say we shouldn’t be alarmed by the loss or decline of these many species, I submit to you that the erratic nature of climate change is cause for concern for all species along the food chain, including humans at the top. A world out of balance, with crop failures, famine and massive human migration will cost the Earth inhabitants more in many ways not even fathomable today. While I am a curious person by nature, this risky future is something I would rather not learn firsthand.

Jim Roth, a former Oklahoma corporation commissioner, is an attorney with Phillips Murrah PC in Oklahoma City, where his practice focuses on clean, green energy for Oklahoma.

Safe digging month and the web beneath us

By Jim Roth, Director and Chair of the Firm’s Clean Energy Practice Group. This column was originally published in The Journal Record on April 18, 2016.


Jim Roth is a Director and Chair of the firm’s Clean Energy Practice.

Jim Roth is a Director and Chair of the firm’s Clean Energy Practice.

Safe digging month and the web beneath us

This time of year many Americans are coming out of their homes and their winter hibernations and beginning to tackle outdoor activities like gardening and projects around the home. But before you dig into spring projects, make sure you practice safe digging.

The Common Ground Alliance, a national organization dedicated to underground damage prevention, has proclaimed April as Safe Digging Month. Excavation damage is one of the leading causes of pipeline accidents and the unfortunate injuries that occur.

It is recommended that we Call 811 at least a few days before starting any digging project. Whether you are planning to do it yourself or hire a professional, smart digging means calling 811 before each job. Data shows that when one calls 811 the appropriate amount of time before digging, there is less than a 1-percent chance of striking a buried utility line.

Here are a few things to know about the massive web of lines, pipes, wires and utilities underground here in Oklahoma and across America. An underground utility line is damaged once every six minutes nationwide because someone decided to dig without first learning what improvements exist below the surface of the earth. Digging without knowing the approximate location of underground utilities can result in damage to gas, electric, communications, water and sewer lines, which can lead to service disruptions, costly repairs, serious injuries and even death.

For decades, and in some places for centuries, common utilities, lines and infrastructure have been placed just below the surface to carry many life necessities from point A to B. According to the Common Ground Alliance, there are more than 20 million miles of underground utilities in the United States, according to data compiled from various industry groups. That figure equates to more than one football field’s length (105 yards) of buried utilities for every man, woman and child in the U.S. And in an energy-producing state like ours, the intricate web is vast, including natural gas gathering systems, high-pressure transmitting pipelines and many other aspects of energy production and market distribution.

In Oklahoma, please call Oklahoma One-Call System Inc. at 811 or 1-800-522-6543. And if you will call no sooner than 48 hours they will be able to mark the areas on inquiry, and those markings, paint or flags should be safely valid for 10 days for you to dig.

The Oklahoma One-Call System Inc. (OKIE811) is a nonprofit 501(c)6 corporation, incorporated in the state of Oklahoma in 1979. It was formed for the purpose of preventing damage to underground facilities. Thirty-seven companies originally joined to fund a statewide one-call notification center. On April 22, 1981, Gov. Henry Bellmon signed into law an act known as the Oklahoma Underground Facilities Damage Prevention Act. The legislation, sponsored by Rep. Cal Hobson of Lexington and Rep. John Monks of Muskogee, became effective Jan. 1, 1982. The act provided that owners and operators of underground facilities must register through a notification system and all excavators must give notice to such underground operators at the notification system prior to excavation. Many lives have been saved because this system exists.

So please enjoy this wonderful spring weather and feel confident to tackle your excavation projects, but please first protect your life and your property by contacting 811 and learning what all exists below the surface of the land where you live, walk, work, drive, dig and garden.

Jim Roth, a former Oklahoma corporation commissioner, is an attorney with Phillips Murrah PC in Oklahoma City, where his practice focuses on clean, green energy for Oklahoma.

Roth: Deaths in the oil patch from exposure to fumes

By Jim Roth, Director and Chair of the Firm’s Clean Energy Practice Group. This column was originally published in The Journal Record on April 11, 2016.


Jim Roth is a Director and Chair of the firm’s Clean Energy Practice.

Jim Roth is a Director and Chair of the firm’s Clean Energy Practice.

Deaths in the oil patch from exposure to fumes

When I first joined the Oklahoma Corporation Commission years ago, the agency’s many talented Oil and Gas Division employees and inspectors taught me a lot about the issues in the field.

One new lesson that was a shock to learn was about the enormous dangers of deadly hydrogen sulfide in and around tank batteries, where oil and gas is collected from nearby wells. This killer gas is deadly in small amounts and it can stop a person’s breathing in seconds, rendering them unconscious or dead without much warning. In fact, as the concentration increases it apparently deadens a person’s sense of smell, rendering them unable to even detect the danger.

Since 2010, at least nine workers have died from exposure to hazardous gas vapors on oil production and storage tanks. These workers were alone, usually in the middle of the night, and were later found dead near an opening on top of the tanks. There seemed to be a pattern going unnoticed, and Mike Soraghan, a reporter for Energy Wire, sought to reveal it.

Five of the deceased workers were collecting fluid samples, and the remaining four were manually measuring production levels. To perform both of these tasks, workers had to climb ladders to access so-called “thief hatches” on top of the tanks. Once the hatch is opened, gas vapors that have built up in the tank rush out of the hatch. These vapors greatly displace oxygen in the air surrounding the hatch that can asphyxiate a person in a matter of seconds.

What makes these deaths even more tragic is that they were completely avoidable. There are ways to perform these tasks automatically without exposing workers to these toxic vapors. Unfortunately, the cost of installing the necessary equipment has caused many operators to continue using these dangerous methods.

Another problem is that safer practices cannot be employed on federally owned land due to outdated government agency rules. On federal and tribal leases, strict federal regulations allow only two methods of measurement: Lease Automatic Custody Transfer or manual measurement. LACT is the only automated method of measurement currently allowed on federal land. Because this system is so expensive, the vast majority of storage tanks on federal land are still checked manually.

The Bureau of Land Management is finally revising its rule regarding storage tank measurement, which has not been updated since 1989. However, the proposed new rule adds only one additional automatic measuring method. This additional method is also expensive, which will still prevent smaller operators who cannot afford the necessary equipment from upgrading their storage tanks.

Many of the incidents were reported as deaths from natural causes, such as cardiac arrest. Some were even attributed to the workers attempting to get high off of the fumes. Initially, the Occupational Safety and Health Administration did not find any safety violations where these nine workers died. But OSHA has now recognized the risks involved in manually measuring and sampling fluids in storage tanks. In February, it issued an alert warning operators and workers of these risks. Let’s pray these warnings help save lives.

If interested, you can also find out more on National Public Radio’s website at www.npr.org/sections/health-shots/2016/03/30/472341181/mysterious-death-uncovers-risk-in-federal-oil-field-rules and to learn ideas for avoiding the exposure risks, please check out Inside Energy at insideenergy.org/2016/03/03/what-workers-need-to-know-about-oilfield-gas-exposure.

Jim Roth, a former Oklahoma corporation commissioner, is an attorney with Phillips Murrah PC in Oklahoma City, where his practice focuses on clean, green energy for Oklahoma.

What effect does bankruptcy have on oil and gas leases?

Gavel to Gavel appears in The Journal Record. This column was originally published in The Journal Record on Mar. 31, 2016.


Melissa R. Gardner is a Director who represents both privately-owned and public companies in a wide variety of oil and gas matters, with a strong emphasis on oil and gas title examination.

By Phillips Murrah Director Melissa R. Gardner

It is an understatement to say these are trying times in the oil and gas industry.

There are multiple reports in the news that predict we have not hit bottom and that our state will be uniquely affected. While oil and gas companies, contractors and service companies have industry insiders to rely on, many individual mineral owners might find themselves without resources or direction, wondering what effect these proceedings will have on the benefits they’ve come to expect under oil and gas leases.

Here’s some helpful information for those who have executed these leases, who are faced with persistent negative news about the companies holding the leases.

It is important to note that, if a company is considering bankruptcy, it could take various forms. Chapter 7 and Chapter 11 are the two most common types of business bankruptcy.

In the first, business typically ceases and a trustee takes control of all assets, including the business’s oil and gas leases, with any eye toward liquidation. However, in Chapter 11 bankruptcy proceedings, the company generally remains in control of its assets and develops a plan of reorganization, often with the goal of remaining in business after its debts are restructured. While Chapter 11 may be ultimately more favorable to the mineral owners, one can take comfort that current payments and leases are not necessarily in jeopardy in either case.

In a bankruptcy proceeding, the bankruptcy trustee or Chapter 11 debtor in possession is only ultimately entitled to property of the bankruptcy debtor, which generally would not include royalties payable to mineral owners. Likewise, in Oklahoma, oil and gas leases typically survive the bankruptcy. This means royalty payments frequently continue, virtually uninterrupted, after a bankruptcy case has been filed and the leases may continue to be developed for the benefit of all notwithstanding the bankruptcy.

Obviously, this downturn has been difficult for many in our state. Hopefully, these facts will provide a mineral owner with some comfort that, even in these times, the payments they have come to rely on under existing oil and gas leases will not automatically be affected adversely by a leaseholder’s bankruptcy. It’s certainly worth investigating more before you assume these benefits will disappear.

Low oil and gas prices create opportunity for estate tax planning

This article was published in OIPA Wellhead, a publication produced by Oklahoma Independent Petroleum Association and distributed to its membership.

By Elizabeth K. Brown and Mike McDonald

brown-elizabeth-portrait

Liz Brown is a director at Phillips Murrah, P.C., where she has practiced for most of her legal career. Liz is primarily a tax and transactional lawyer with a special emphasis in the energy industry.

Act now to preserve your estate. Low oil and gas prices create opportunity for estate tax planning.

The current economic downturn in the oil and gas industry combined with the low interest rate environment and the availability of valuation discounting techniques creates a number of unique opportunities for tax planning.

Two planning concepts used to save estate taxes that work especially well while oil and gas prices are low are the gifting or sale of equity interests in a family business to children or trusts created for their benefit. The following is a typical structure of this planning concept.

The depressed value of oil and gas prices means business valuations are substantially lower than they were a year and a half ago. As a result, more assets can be given away to family members or trusts for the benefit of family members within the confines of the lifetime gift tax exclusion. All the while, the business owner can still maintain control over the business after the gifts.

Currently, there is a $5,450,000 (or $10,900,000 for a husband and wife) estate and gift tax exemption available to shelter assets transferred during lifetime or at death from gift and estate tax. This means that a business owner and his/her spouse can transfer up to $10,900,000 in asset value (either during lifetime or at death) in the aggregate to any one or more family members or others with no gift or estate tax liability. The value of assets transferred during lifetime or at death in excess of $5,450,000 (or $10,900,000 for a couple) is generally subject to estate tax on the death of the survivor of the business owner and his/her spouse.

If the business owner and his/her spouse have a net worth that exceeds $10,900,000, other planning techniques, such as gifting, can substantially reduce any potential estate tax liability. By the gifting or sale of interests in an independent oil and gas company, the value of the interest transferred is in effect “frozen” as of the date of the gift so that future appreciation in the value of the gifted interest is excluded from the business owner’s estate for estate tax purposes.

Gifts of equity interests in the oil and gas company made in trust instead of outright to the business owner’s children have other advantages as well. For example, if the business owner makes a gift of equity interests in the oil and gas company to a “granter trust,” the business owner will continue to be treated as the owner of the gifted interests after the gift for income tax purposes (but not for estate tax purposes).

As a result, the business owner will continue to pay the income tax on the income generated by the gifted equity interest in the oil and gas company. By doing so, the income tax attributable to the gifted interests paid by the business owner (instead of by the trust or the children) is, in effect, an additional gift from the business owner to the business owner’s children that is not taxable for gift tax purposes.

Additionally, assets gifted to multi-generational trusts can pass to younger generations free of gift or estate tax. Finally, gifts of equity interests in the oil and gas company made to a trust are protected from the claims of both the business owner’s creditors and the children’s creditors.

EKB Wellhead gfx 032816

Click to enlarge.

The benefit of gifting interests in an oil and gas company while oil and gas prices are down is illustrated by this example. If a 1 percent interest in an oil and gas company was worth $50,000 when oil prices were at $100 per barrel, a gift of a 20 percent interest in the oil and gas company would be worth $1,000,000 and would reduce the business owner’s unified estate and gift tax exemption by $1,000,000 ($50,000 x 20), leaving an exemption of $4,450,000 to shelter future estate or gift tax liability. If that same 1 percent interest in the oil and gas company is now valued at $15,000 with oil prices at a little over $30 per barrel, then the value of a gift of a 20 percent interest in the oil and gas company would be only $300,000 ($15,000 x 20) and would reduce the business owner’s gift tax exemption by only $300,000, leaving an exemption of $5,150,000 to shelter future estate or gift tax liability.

Any future appreciation in the value of the gifted or sold interest in the oil and gas company now valued at $300,000 would escape taxation in the business owner’s estate. So, if next year, oil prices go back to $100 per barrel, the 20 percent interest in the oil and gas company would have appreciated by $700,000. That appreciation would escape taxation in the business owner’s estate. In that event, the gift or sale of a minority interest in the oil and gas company made while prices are hovering around $30 per barrel would result in an overall tax savings of approximately $277,200 ($700,000 x the maximum estate tax rate of 39.6%).

As the value of the gifted interests increases over time, the tax savings would be even greater. The result of lower oil and gas prices is that greater quantities of oil and gas assets can be transferred out of the business owner’s estate and sheltered from tax, given the current depressed state of the energy industry. This can be particularly helpful long-range when the inevitable turnaround in the energy industry does occur.

In addition to future increases in oil prices, other foreseeable factors very well may adversely impact these planning techniques in the near future, including increases in interest rates and the anticipated change in the tax law limiting the use of discounting techniques.

The Federal Reserve has made it known that it intends to increase interest rates periodically throughout the year and the IRS has been considering issuing proposed regulations to limit the use of discounts for lack of marketability and lack of control in determining the value of gifts of equity interests in a closely held business. The low interest rate environment, along with lower business valuations, make oil and gas company and other estate tax planning techniques work especially well at this point in time.

If you are concerned about the partial impact of estate taxes on your oil and gas business, now is a great time to plan – before the recovery in oil and gas prices, the inevitable increase in interest rates, and the possible elimination of discounting techniques.

Don’t let this opportunity pass you by.

Elizabeth K Brown is an attorney and Director of Phillips Murrah P.C, a member of the OIPA board of directors and CEO of The Gloria Corporation, an oil and natural gas exploration and production company.

Mike McDonald, of Triad Energy in Oklahoma City, has served as chairman of the OIPA and president of the Domestic Energy Producers Alliance, and holds a Juris doctor the University of Mississippi and a master of laws degree from New York University.

Roth: An all-time-low rig count

By Jim Roth, Director and Chair of the Firm’s Clean Energy Practice Group. This column was originally published in The Journal Record on March 28, 2016.


Jim Roth is a Director and Chair of the firm’s Clean Energy Practice.

Jim Roth is a Director and Chair of the firm’s Clean Energy Practice.

An all-time-low rig count

The current national rig count hit an all-time low this month, totaling 476 rigs engaged in the exploration and production of oil and gas in the U.S. Of that number, 446 rigs were engaged in land operations, while 27 rigs were offshore and three were inland water activity. And this week it dipped even lower to a total rig count of 464.

This new low may not be a surprise to us Oklahomans, who are feeling the pain of a depressed commodity environment, massive job losses and a state budget in seeming free fall. But the decline is very dramatic, with the rig count being less than half of last year’s level and less than 25 percent of the 2008 peak exceeding 2,000 rigs in the U.S.

And the numbers are even starker for natural gas rigs, with just 89 rigs directed at natural gas, down from the 2015 count of 242, and way off the 2008 number of more than 1,600 natural gas-directed rigs. Plenty of news for a pessimist to find comfort. But what about an optimist?

Some observers suggest that tight oil production today occurs with greater success because of shale rig efficiency, and therefore production will continue to increase in spite of lower rig numbers. Others believe that the rig count is meaningless because rig counts are tied to longer-term contracts between operators and drilling companies and aren’t a week-to-week barometer of the rise or fall of oil or natural gas prices.

And still others drill down further (pun intended) for data points specific to the tight oil plays, where wells are the most productive typically, and further into the horizontally drilled wells in those plays, as the most productive specifically. Our state’s own Mississippi Lime and Granite Wash, as well as the Eagle Ford, Niobrara, Permian Basin and Bakken are watched closely for this very glimpse for production specificity. And these plays have also seen massive drops in their rig count year over year, which perhaps gives us an even clearer impression of the general direction of future production.

So whether you are inclined to watch the specific rig counts in tight oil plays in your own production areas and neighborhood, whether you follow the Saudis and OPEC for signals about oil (and gas) prices and production on the world stage, or whether you monitor domestic storage levels as the indicator of prices and activity to come, it’s probably best to contemplate it all rather than one singular data point such as American rig count.

Either way, let’s hope this new low is truly the bottom and that better prices, new jobs and brighter budget days are ahead for a producing state like ours sooner than later.

And just in case it’s not, we should probably say an Easter prayer that Oklahoma doesn’t have all its eggs in one energy basket and that wind and solar and other energies can offset the pain we feel from our old friend oil.

Jim Roth, a former Oklahoma corporation commissioner, is an attorney with Phillips Murrah PC in Oklahoma City, where his practice focuses on clean, green energy for Oklahoma.

Roth: Wind energy essential to Oklahoma’s energy mix, economy

By Jim Roth, Director and Chair of the Firm’s Clean Energy Practice Group. This column was originally published in The Journal Record on March 21, 2016.


Jim Roth is a Director and Chair of the firm’s Clean Energy Practice.

Jim Roth is a Director and Chair of the firm’s Clean Energy Practice.

Wind energy essential to Oklahoma’s energy mix, economy

Wind energy is vital to Oklahoma’s energy mix and economy. In addition to providing 17 percent of the electricity powering our state, the wind energy industry has invested billions in our communities through capital projects, jobs, taxes, landowner payments and contributions.

Recently, a small faction of renewable energy opponents has spread inaccurate, inconsistent and misleading information at the Capitol and among Oklahomans. It’s time we hold this group accountable by dispelling myths and sharing facts about wind energy and its contributions to our state. Wind energy companies have invested nearly $10 billion in Oklahoma electricity-producing facilities in the last decade-and-a-half.

Wind energy companies contribute tens of millions of dollars annually in taxes, including those that support Oklahoma schools, and pay more than $11 million each year to Oklahoma landowners through land lease payments. Economists estimate that owners of wind energy projects will pay more than $1 billion in ad valorem taxes from 2003-2043, providing significant funding for our schools and career technology centers.

As our state leaders face budget challenges, there’s been much conversation about the wind industry’s one remaining tax incentive. At the end of 2016, there will be only one tax credit remaining for companies that produce electricity using zero-emissions facilities in our state, including wind, solar, hydropower and geothermal energy. This tax credit directly benefits customers, as wind is currently Oklahomans’ cheapest form of electricity. And that cost savings in our utility bills benefits every single Oklahoman.

In light of our state’s budget issues, we should actively encourage wind developers and others to invest in Oklahoma versus taking their jobs, tax dollars and land lease payments elsewhere, like Kansas or Texas.

Gov. Mary Fallin and other pro-Oklahoma leaders have emphasized the importance of not only nurturing growth of businesses within Oklahoma, but also bringing out-of-state investment here. The wind energy industry is a textbook example of attracting dollars into the state that contribute to the success of Oklahoma businesses, such as construction, manufacturing and more. These are dollars that in the future could be invested elsewhere.

A diverse economy and energy supply is good for our state, communities, schools and citizens. And that’s especially true when some energy sectors are struggling because of global pressures like oversupply of world oil. Ask your legislator to support wind energy, a crucial part of Oklahoma’s long-term economic health and diverse energy mix.

Jim Roth, a former Oklahoma corporation commissioner, is an attorney with Phillips Murrah PC in Oklahoma City, where his practice focuses on clean, green energy for Oklahoma.

Roth: Oil theft – making ends meet and funding terrorism

By Jim Roth, Director and Chair of the Firm’s Clean Energy Practice Group. This column was originally published in The Journal Record on March 14, 2016.


Jim Roth is a Director and Chair of the firm’s Clean Energy Practice.

Jim Roth is a Director and Chair of the firm’s Clean Energy Practice.

Oil theft – making ends meeting and funding terrorism

The fact that crude oil theft is a booming business in south Texas may be surprising, considering the current low commodity price. But low oil prices are precisely the fuel that is causing this fire to spread.

Economies in oil-producing states have been crushed by the plummeting price of oil. Many people are being laid off, and they are desperately searching for ways to make ends meet. Just look at the enormous hole in Oklahoma’s state budget because of this oil and gas downturn and the lower taxes received from low production levels. These economic pains are being felt on the macro and the micro level. Unfortunately, some have even resorted to stealing crude oil to make money.

Reports in energy-producing states have begun to suggest that oil theft is occurring, many times, from ex-employees who know where oil is being stored by their previous employer. If the ex-employee has access to a tanker truck, it is easy to hook up to the storage tank and steal the product. To launder the stolen crude, some will sell it at a fraction of the market price to operators of wells that have not been producing. Others tell buyers that the stolen crude has been skimmed off of wastewater, which is itself a common occurrence in production areas.

The Energy Security Council estimates that 1 to 3 percent of all the oil produced in Texas is being stolen and sold on black markets. This could be costing Texas producers over $2 billion per year.

And Texas isn’t alone. Oil theft is also a key source of funding for ISIS, which generates more than $1 million per day for the terrorist organization through stolen oil. ISIS has been smuggling oil out of Syria and Iraq since it invaded the region in 2014, and it has raised several hundred million dollars during this time. This is how ISIS rapidly grew from a few radicals to a global extremist network.

As with the Texas oil thieves, ISIS smugglers have to launder the stolen oil. This is easily accomplished by ISIS due to its dominance in the region – not only from a military standpoint, but also over the oil and gas industry. ISIS has infiltrated many of the small refineries in Syria and Iraq, and it sells the crude oil it steals to those refineries. The terrorist group has also cut off outside sources of petroleum products. Thus, many people have no other source of fuel and are forced to buy it from the refineries that are effectively controlled by ISIS.

Low oil prices are having a broad global impact. The oil smuggling in south Texas and in Syria are just two examples of how some oil-producing regions have been affected. Authorities in both regions are trying to find ways to increase security and cut down on oil theft, but progress is still needed.

At a time when genuine market prices are already harmful to companies and the broader economy, this level of oil theft is certainly adding insult to injury.

Jim Roth, a former Oklahoma corporation commissioner, is an attorney with Phillips Murrah PC in Oklahoma City, where his practice focuses on clean, green energy for Oklahoma.

Health care industry leaders need to understand history of regulations

Mary Richard is recognized as one of pioneers in health care law in Oklahoma. She has represented institutional and non-institutional providers of health services, as well as patients and their families. She also has significant experience in representing providers in regulatory matters.

Mary Richard is recognized as one of pioneers in health care law in Oklahoma. She has represented institutional and non-institutional providers of health services, as well as patients and their families. She also has significant experience in representing providers in regulatory matters.

By Mary Holloway Richard, JD, MPH

On March 10th, the industry magazine, Modern Healthcare, posted news hot off the presses that a physician, Dr. Benjamin Chu of Kaiser, has been selected to be the CEO of Memorial Hermann Hospital in Houston.

As I read this, I couldn’t help but remember my first job out of graduate school—the lowest level administrator at Hermann Hospital in Houston at the Texas Medical Center.  I was responsible for ambulatory care at a time when layoffs in the emergency department and the outpatient clinics were required.  It was quite literally a baptism by fire.

I had come to that position from graduate school where I studied about the needs of the health care system—continuity, quality, cost effectiveness.  This likely sounds familiar to you if you are involved in health care in any capacity.  During my final semesters in graduate school, I interned at the Old University Hospital in what developed into the session in which the legislature refused to, once again, bail the hospital out in meeting its payroll. That unfortunately also sounds familiar.

In the classes I teach at OCU law school, I remind my students, who are largely enthralled with the idea of a health care law practice, of the importance of understanding the language and limitations of the pervasive regulations, but also their history.  It is important to have the context within which to place the regulations, statutes and case law that impact our providers.

Similarly, I advise clients to look forward, to be proactive in their compliance efforts.  It will be interesting to observe physician leadership in the Memorial system.

You can read more articles by Mary Holloway Richard here.

Roth: There are no words

By Jim Roth, Director and Chair of the Firm’s Clean Energy Practice Group. This column was originally published in The Journal Record on March 7, 2016.


Jim Roth is a Director and Chair of the firm’s Clean Energy Practice.

Jim Roth is a Director and Chair of the firm’s Clean Energy Practice.

There are no words

There are no words to appropriately and fully describe the life and loss of my friend Aubrey McClendon. And there certainly isn’t a way, when a friend grieves, to provide comfort in 500 words as this column length limits.

So I will simply say: I am a better man because I knew you, Aubrey Kerr McClendon, and because I have the high honor of calling you my friend.

As a young man I came across a quote from Robert F. Kennedy, who said, “There are those who look at things the way they are, and ask ‘Why?’ I dream of things that never were, and ask ‘Why not?’”

This optimistic edict propelled me to pursue serving the public around me. And in all of my life, you are the only person who I’ve witnessed truly live this ideal every day, challenging the status quo to think far beyond their own selves and for the enormous benefit of millions of strangers. The world is different because you lived.

Thank you, Katie, for sharing so much of yourselves and your lives for the benefit of the world around you both. I wish you and your family the greatest of peace, strength and healing.

Rest in peace, friend.

Jim Roth, a former Oklahoma corporation commissioner, is an attorney with Phillips Murrah PC in Oklahoma City, where his practice focuses on clean, green energy for Oklahoma.

Roth: 2016 candidates and their energy views

By Jim Roth, Director and Chair of the Firm’s Clean Energy Practice Group. This column was originally published in The Journal Record on February 29, 2016.


Jim Roth is a Director and Chair of the firm’s Clean Energy Practice.

Jim Roth is a Director and Chair of the firm’s Clean Energy Practice.

2016 candidates and their energy views

Once every four years something extraordinary happens this time of year and I don’t mean Leap Year’s Feb. 29. I’m referring to Oklahoma’s primary election and what’s commonly referred to as “Super Tuesday.”

According to Wikipedia: “In the United States, “Super Tuesday,” in general, refers to the Tuesday in February or March of a presidential election year when the greatest number of states hold primary elections to select delegates to national conventions at which each party’s presidential candidates are officially nominated. And depending on your opinion of the candidates and how they perform on Tuesday, your definition of “super” may be something different. The reality for these candidates is that on Super Tuesday, more delegates can be won that day than any other single day in the primary election season.

And for us Oklahomans, as one of America’s leading energy states, it might be helpful to know where these top remaining candidates stand on issues of importance to our energy futures. This information is made available on Ballotpedia.org.

Democratic candidates

• Hillary Clinton (www.hillaryclinton.com): Advocates for wind and solar, exporting natural gas; opposes drilling in the Arctic National Refuge; and pledged to power at least half of U.S. energy needs with renewable sources by 2030.

• Bernie Sanders (www.berniesanders.com): Introduced legislation to block offshore drilling; opposes Keystone XL and drilling in the Arctic National Refuge; has pushed for federal carbon policies; and pledged to power at least half of U.S. energy needs with renewable sources by 2030.

Republican candidates

• Ted Cruz (www.tedcruz.org): Opposes all energy subsidies, including oil, gas, wind and ethanol; proposes to revoke the offshore drilling moratorium; co-sponsored legislation to block the federal government from regulating power plant carbon; has hosted hearings denouncing the existence of climate change; and claims satellite data refutes climate change.

• Marco Rubio (www.marcorubio.com): Voted to lift the ban on crude-oil exports; prefers local regulation of energy production vs. feds; has been a strong advocate against carbon policy and the Environmental Protection Agency; introduced legislation against EPA regulating American land or waterways; and has stated opposition to climate change policies that hinder business.

• Donald Trump (www.donaldjtrump.com): Has described the Marcellus Shale as “the mother lode of natural gas” and believes it can help buy time for innovation of cheaper and cleaner energies; has attacked President Obama’s denial of the Keystone XL pipeline; has described wind turbines as “an environmental and aesthetic disaster”; has claimed climate change is a “hoax”; and has claimed that global warming was created by the Chinese to make U.S. manufacturing non-competitive.

As candidates for public office have many diverse positions and public statements, please do some research of your own on issues that are important. It is impossible to capture all of the many nuances of the many complicated facets of energy and environmental policies, but for a state like Oklahoma it is especially important.

So whether your candidate for president of the United States is in the list above or not, please vote. That would be super.

Jim Roth, a former Oklahoma corporation commissioner, is an attorney with Phillips Murrah PC in Oklahoma City, where his practice focuses on clean, green energy for Oklahoma.

Roth: Justice Antonin Scalia and the Clean Power Plan

By Jim Roth, Director and Chair of the Firm’s Clean Energy Practice Group. This column was originally published in The Journal Record on February 22, 2016.


Jim Roth is a Director and Chair of the firm’s Clean Energy Practice.

Jim Roth is a Director and Chair of the firm’s Clean Energy Practice.

Justice Antonin Scalia and the Clean Power Plan

U.S. Supreme Court Justice Antonin Scalia’s sudden death at the age of 79 leaves a vacancy on our nation’s highest court larger than one single person. In fact, it probably leaves a vacancy the size of many people, as the justice’s 29-year tenure certainly suggests.

English philosopher John Stuart Mill, a political economist, feminist and civil servant in the 19th century, probably wouldn’t have agreed much with our late Justice Scalia, but one of his quotes seems a foreshadow of the impact of just such a man:

“One person with a belief is equal to a force of ninety-nine who have only interests.”

Justice Scalia certainly was a man of firm beliefs. He has long been described as the “intellectual anchor for the originalist and textualist position” of the U.S. Supreme Court’s conservative wing. It was Scalia’s consistent belief that the U.S. Constitution provided clear lines of separation among the three branches of government: legislative, executive and judicial.

This rigidity was evident in his approach to three decades of opinions, including those cases involving America’s energy and environmental issues.

Just this month, Scalia joined the majority in an unusual move to grant a judicial stay on the regulatory efforts of the U.S. Environmental Protection Agency and its Clean Power Plan, which prior to the stay seemed on its own path for review on the merits at the D.C. Circuit Court level, then likely headed to the Supreme Court for review.

However, the SCOTUS stay halts states’ implementation of the final rule requiring states to develop plans to limit carbon emissions from the power sector in the coming years, with a deadline of September.

Now the fate of the Clean Power Plan, albeit delayed in time, is likely going to land in the hands of a different Supreme Court in the coming years. The issues being debated in the Clean Power Plan case – EPA authority, congressional actions within the Clean Air Act, states’ rights, citizens’ health and environmental protections – will be an early test for a new, possibly rebalanced SCOTUS.

In most every opportunity, Scalia strongly opposed the idea of a living Constitution, the notion that the judiciary can revisit the meaning of constitutional provisions in applying the facts of modern times. He believed instead that those laws must be viewed in their historical context, as they would have been understood at the time they were drafted.

Only time will tell if his viewpoints, beliefs and work-product legacy will receive the same frozen-in-time approach, or whether his beliefs live beyond the life of the believer.

Jim Roth, a former Oklahoma corporation commissioner, is an attorney with Phillips Murrah PC in Oklahoma City, where his practice focuses on clean, green energy for Oklahoma.

Bankruptcy as a backdrop

Clay Ketter’s guest column, Gavel to Gavel, originally published in The Journal Record on February 18, 2016.
View Clay Ketter’s attorney profile here.


Clayton D. Ketter is a litigator whose practice involves a wide range of business litigation in both federal and state court, including extensive experience in financial restructurings and bankruptcy matters.

Clayton D. Ketter is a litigator whose practice involves a wide range of business litigation in both federal and state court, including extensive experience in financial restructurings and bankruptcy matters.

Chesapeake Energy’s stock price took a hit last week after news outlets reported that it retained Kirkland & Ellis, widely recognized as one of the nation’s top corporate bankruptcy law firms. Chesapeake was quick to issue a press release stating that it has no plans to pursue bankruptcy, which led to a small rebound in its stock price.

People may wonder why a company with no plans to file bankruptcy would hire an experienced bankruptcy law firm. The answer is likely prudence; the company wants to be fully informed about available options.

When companies detect potential financial trouble, it is not unusual for them to retain a law firm’s restructuring specialists to assist in assessing the situation and weighing alternatives for resolving the issue in the best possible way. That may not include filing for bankruptcy protection, but, rather, simply help in restructuring debt obligations.

When a company experiences financial stress, there is value in thoroughly preparing a well-thought-out plan to address the problem, which often involves developing a bankruptcy strategy as a point of reference and being prepared to file, if appropriate. With a bankruptcy scenario as a backdrop, a company and its restructuring advisers typically attempt to work with the company’s creditors to restructure their agreements in a manner more favorable to the creditor than they might receive in bankruptcy. Ideally, this would allow the company to get back on the right financial track and, ultimately, to make things right with its creditors without a bankruptcy filing.

Creditors of large corporations, usually sophisticated financial institutions, will be aware that restructuring specialists are prepared to put the company into bankruptcy for its protection should an alternative agreement not be reached. However, bankruptcy can be a disruptive, risky process that does not always yield the best outcome for either side. Risks on one side include company ownership being transferred to the creditors, and on the other, the creditors’ recoveries being less than what they might have recovered in the absence of a bankruptcy.

Thus, bankruptcy considerations often educate and motivate both sides to work together to find an out-of-court solution to their debt issues and, thereby, avoid bankruptcy altogether.

However, in situations where parties are unable to come to terms, the due diligence done by the company and its restructuring advisers can be used to take appropriate action to protect the company and its interests.

NewsOK Q&A: New health measures will require baseline screenings

From NewsOK / by Paula Burkes
Published: February 18, 2016
Click to see full story – New health measures will require baseline screenings, more data

Click to see Mary Holloway Richard’s attorney profile

Mary Richard is recognized as one of pioneers in health care law in Oklahoma. She has represented institutional and non-institutional providers of health services, as well as patients and their families. She also has significant experience in representing providers in regulatory matters.

Mary Richard is recognized as one of pioneers in health care law in Oklahoma. She has represented institutional and non-institutional providers of health services, as well as patients and their families. She also has significant experience in representing providers in regulatory matters.

Q: The Centers for Medicare and Medicaid Services (CMS) released core quality measures for physicians on Feb. 15. What does this mean for physicians and for patients?

A: Physicians currently are required to report multiple quality measures to a variety of entities, and this has been confusing for providers and difficult to report effectively. The quality measures, spearheaded for some time now by federal health care reimbursement programs and by commercial insurers, are being used to standardize care and to establish baseline performance for providers they reimburse for services provided to their beneficiaries. These measures are seen as a cost containment initiative and a way to facilitate provision of baseline quality services. It’s also envisioned as an opportunity to empower consumers to become informed decision-makers.

Q: How were these quality measures established?

A: CMS and America’s Health Insurance Plans came together, along with consumer groups, national physician organizations and employers, to form the Core Quality Measure Collaborative. The seven sets of core measures include: accountable care organizations, patient-centered medical homes and primary care; cardiology; gastroenterology; HIV and hepatitis C; medical oncology; obstetrics and gynecology; and orthopedics. CMS currently is using measures from each of these core sets. An example of a core measure for primary care (family practice) is control of high blood pressure by first obtaining a core set of data about the patient. Another primary care example for comprehensive diabetic care is performance of an eye exam.

Q: Does CMS intend to establish core measures for other medical practice “sets”?

A: The CMS news release of the Collaboration’s Core Quality Measures appears to be a single step in a process that will result in future proposed rules in additional clinical areas. Presumably CMS has stated that it will continue to engage in a multi-stakeholder collaboration including additional notice and public comment rulemaking. CMS isn’t newly committed to applying outcome metrics to payments for physicians and other providers. In fact, it’s not unusual for hospitals and other institutional providers to include baseline quality and performance metrics as a prerequisite to salary or bonus compensation in physician employment and other agreements.

Q: Are these additional regulations a win for Medicare, commercial insurers, physicians, patients?

A: The announcement of these regulations is thought to signal successful progress by Medicare and commercial insurers toward value-based purchasing. This is an effort to make the federal and private health care dollars go farther. Part of the federal health care agenda is based upon recouping financial savings by enabling a healthier population. For physicians, although this may initially seem like another layer of regulations tied to reimbursement, the standardized core measures are likely to simplify patient data the information that must be maintained and provided. For patients, although quality improvement is entirely positive, the logical extension of the efforts of the collaboration is to standardize care that will covered by these federal and commercial insurance programs. It’s possible that it will improve services provided to some patients while limiting that available to others.

Roth: Oklahoma’s energy tax incentives

By Jim Roth, Director and Chair of the Firm’s Clean Energy Practice Group. This column was originally published in The Journal Record on February 15, 2016.


Jim Roth is a Director and Chair of the firm’s Clean Energy Practice.

Jim Roth is a Director and Chair of the firm’s Clean Energy Practice.

Oklahoma’s energy tax incentives

Oklahoma’s state budget is in trouble. And the shrinking revenue picture keeps getting worse, which has led some legislators to call for an end, or at least a moratorium, on some state tax incentives that attract investment.

We are in a difficult place for sure. So what to do when multiple good causes are competing for the same dwindling dollars?

One idea is getting early consideration and probably deserves a more cautious approach from state leaders: the idea to eliminate or freeze state tax incentives.

Here’s a quick look at those existing tax incentives, at least those related to Oklahoma energy production:

Oil and gas

• Gross production tax: The production of oil, gas, or oil and gas from wells spudded by July 1, 2015, shall be taxed at a rate of 2 percent starting with the month of first production for 36 months.

• Secondary recovery projects: For projects approved or starting by July 1, 2000, and before July 1, 2020, any incremental production attributable to the working interest owners shall be exempt from the gross production tax for a period not to exceed five years from the initial project beginning date or for a period ending upon the termination of the secondary recovery process, whichever occurs first.

• Tertiary recovery projects: For projects starting by July 1, 1993, and before July 1, 2020, any incremental production attributable to the working interest owners shall be exempt from the gross production tax from the project beginning date until project payback is achieved, not to exceed a period of 10 years.

• Inactive wells and production enhancement projects: Exempt from gross production tax for 28 months from the date production is re-established before July 1, 2020.

• Horizontally drilled wells, deep wells, ultra-deep wells, new discovery, three-dimensional seismic shoot and wells not eligible for any other exemption: Production started after July, 1, 2015, taxed at 2 percent for first 36 months.

• Economically at-risk oil or gas lease: Exemption extended from the gross production tax for production through Dec. 31, 2020, on lease during the previous calendar year. If the gross production tax rate levied was 7 percent, then the exemption shall equal six-sevenths of the gross production tax levied. If the gross production tax was 4 percent, then the exemption shall equal three-fourths of the gross production tax levied.

• Deductions of marketing costs: Producers of natural gas and casing head gas who incur marketing costs of the gas produced may deduct the costs from the gross value subject to the gross production tax.

Wind

• Five-year ad valorem exemption that phases out Dec. 31, 2016.

• Zero-emissions tax credit for electricity generated on or after Jan. 1, 2007 but prior to Jan. 1, 2021 of $0.0050 per kilowatt-hour.

Coal

• Oklahoma Coal Production Incentive Act. There shall be allowed a credit against the tax imposed … for every person primarily engaged in mining, producing or extracting coal, and holding a valid permit issued by the Oklahoma Department of Mines. … For tax years beginning on or after Jan. 1, 2007, the credit shall be $5 for each ton of coal mined.

Gov. Mary Fallin rightly urged state lawmakers to be very cautious about reining in tax credits, as companies like Boeing may discontinue investment plans in Oklahoma if our sales strategies change mid-sale, so-to-speak. The same is certainly true for the billions of dollars deployed each year based upon the energy incentives. I hope state leaders take forward steps very carefully to not more deeply harm our ability to come out of this current downturn, as quickly as possible.

Jim Roth, a former Oklahoma corporation commissioner, is an attorney with Phillips Murrah PC in Oklahoma City, where his practice focuses on clean, green energy for Oklahoma.

FDA announces multi-step response plan to mitigate abuse of pain killers

By attorney Mary Holloway Richard

Mary Richard Oklahoma health care law

Mary Richard is a pioneer in Oklahoma health care law. She represents providers, patients and their families in a wide variety of transactional and regulatory matters.

In response to criticism that it has been too lenient in approving addictive narcotics and reticent to take action to mitigate abuse and overuse of these painkillers, the FDA announced on Friday a multi-step responsive plan of action:

  • It plans to convene an outside advisory committee to seek advice prior to approving new opioids that don’t have abuse-deterring properties.
  • It plans to convene a separate pediatric advisory committee to examine all proposed labeling changes related to children.
  • The FDA also intends to strengthen follow-up studies to provide more insight regarding safety, effectiveness of opioid’s long-term use and to step up physician training in order to mitigate over-prescribing practices.
  • Pharmaceutical companies will be encouraged to develop more painkillers that are less subject to abuse—difficult to break, crush and dissolve—and, therefore, more difficult to ingest quickly in large quantities by snorting or injecting.
  • Finally, the agency will engage in efforts to increase access to naloxone and other treatments to counteract the effects of heroin and opioid overdoses.

Some pundits suggest that this response by the FDA is designed to ease tense relations with senators and to prepare the way for confirmation of President Obama’s appointee for agency director. In the face of industry- and society-wide recognition of the “opioid epidemic,” even action potentially based upon self-serving agency motivation, if effective, will save lives and scarce resources.

Roth: China’s slowing economy and its impact on global energy

By Jim Roth, Director and Chair of the Firm’s Clean Energy Practice Group. This column was originally published in The Journal Record on February 1, 2016.


Jim Roth is a Director and Chair of the firm’s Clean Energy Practice.

Jim Roth is a Director and Chair of the firm’s Clean Energy Practice.

China’s slowing economy and its impact on global energy

As China “rebalances” its economy, shifting away from manufacturing and exports to consumption and services, its energy demand continues to plummet.

In a recent report, the International Monetary Fund indicates that several factors are contributing to the sharp decline in growth and demand in China, including: the aging workforce and higher life expectancy, the slowing of technological advancements, and declining productivity. Others cite the declining workforce participation and tax base as young, working-age individuals pursue higher education instead of entering labor markets, as well as a shrinking middle class as the wage gap continues to expand.

Part of the problem is China’s economic structure: It is driven by exports, as opposed to being dependent on domestic consumption. This becomes a problem when advanced economies, such as the United States, experience economic downturns that curb growth and demand. Some economists predict slow U.S. growth over the next several decades due to the aging population, increased student debt, and increased income inequality. This will cause U.S. imports to decline, which will in turn negatively impact China’s export-centric economy.

Another major factor causing reduced demand in China – especially its demand for fossil fuels – is China’s shift in energy policy. China is taking action to combat climate change. President Xi Jinping has announced that China will implement a nationwide cap and trade system in 2017.

China is a global leader in wind power, adding 19.8 gigawatts of wind turbines to its grid in 2014 alone, and it added more solar panels than any other country that same year. The expansion of renewables in China has led to increased competition for fossil fuels, which has contributed to the sharp decline in demand for conventional energy.

Both China’s change in economic policy and its clean energy strategy have affected global energy markets and caused coal-boom towns, such as Yulin, to turn into so-called “ghost cities.”

China’s shift away from coal to gas and renewables has contributed to the sharp drop in coal prices in recent years. Thermal coal prices have fallen about 60 percent from a 2011 peak, and Brent oil prices have fallen approximately 75 percent over the same time frame.

The demand for oil in China has dropped dramatically, partially due to its improved consumption efficiency. A 2015 study showed that “oil demand (in China) grew about 0.69 percent for every 1 percent of GDP growth in 2014, which is significantly lower oil intensity than the 0.94 percent ratio that prevailed ten years ago.”

China’s demand for natural gas has also slowed down, which has been caused, in part, by government-regulated pricing. As global oil prices continue to drop, both oil and coal have become cheaper alternatives to natural gas. While China’s natural gas consumption had been increasing at rates in the double digits since 2000, its increase in gas consumption was only about 3 percent in 2015. This data shows that even clean technologies like natural gas are not immune to the overall drop in energy demand in China.

One positive result from China’s shift to clean technologies is that it is providing significant opportunities for private investment and innovation. For example, Apple Inc. announced that it will invest millions of dollars to build over 200 megawatts of solar capacity in China. Many diplomats and conservationists, such as former Treasury Secretary Henry Paulson, believe that China is in a unique position to lead the world in sustainable development. They see the U.S. playing a key role in advancing technology to meet China’s growing – albeit slower than expected – energy demand. There is still American opportunity in a slowing global economy.

Jim Roth, a former Oklahoma corporation commissioner, is an attorney with Phillips Murrah PC in Oklahoma City, where his practice focuses on clean, green energy for Oklahoma.

Limiting Liability in the Oilfield

By Catherine L. Campbell and Thomas G. Wolfe.
This scholarly article is originally published in the Oklahoma Bar Journal– Jan. 16, 2016– Vol. 87 No. 2.


Parties are free to contract in any way they see fit so long as their contract does not violate public policy. Likewise, the parties to a contract may agree to allocate the risks of loss between them — including pre-performance exoneration of a negligent service provider from the consequences of its own negligence — if their consent to such risk allocation is mutual.

Limiting Liability in the Oilfield

Click to read full article @ okbar.org

Oklahoma courts judge the existence of mutuality of consent, in part, by determining whether the parties enjoy sufficiently-equal bargaining power. This inquiry depends on the importance of the requested service to the economic well-being of the party seeking the service, and the nature of the market providing that service. On the one hand, courts are more likely to conclude that a customer seeking a service it wants but does not need in a market with numerous providers is on equal footing with the service provider. On the other, a customer seeking a necessary service offered by few providers, or offered by many providers that demand similarly onerous contract terms, has no power to allocate risks in a way more beneficial to it. The choice between accepting unfavorable terms hoping nothing goes wrong or declining the necessary service altogether is no choice at all.

These principles apply to oilfield service contracts. Undoubtedly, the economic risks in the oilfield are high. Although pre-service allocation of the risks is preferable, only a negotiated — and thus mutually agreed allocation of risks based upon equality of bargaining power — will pass judicial muster.

THE OKLAHOMA LAW IN GENERAL

A basic premise of Oklahoma law, and indeed contract law in general, is that parties are free to contract as they see fit,1 as long as the contract is not contrary to law or violative of public policy.2 However, Oklahoma prohibits contracts that attempt to exempt a contracting party from responsibility for its own fraud, willful injury to persons or property, gross negligence or that otherwise violate public policy.3

Oklahoma distinguishes between various risk-shifting tools — broadly characterized as “exculpatory provisions,”4 — including limitation of liability clauses, indemnity provisions and exculpatory clauses. Because under certain circumstances exculpatory provisions are valid and enforceable, they are ubiquitous in modern commercial life. Oklahoma courts enforce exculpatory clauses only if: 1) they “clearly and unambiguously” exonerate the defendant with respect to the claim; 2) there exists no significant difference in the bargaining power between the contracting parties; and 3) enforcement will not otherwise violate public policy.5 While an exculpatory provision need not mention the word “negligence” to be valid,6 the agreement to exculpate must be clear from an examination of the entire contract.7 An exculpatory clause is sufficiently clear and unambiguous when it identifies the party to be indemnified and the nature and extent of damages.8

As for equality in bargaining, courts have traditionally concluded that public policy forbids enforcement of exculpatory provisions in 1) bailment contracts, 2) employment contracts, 3) contracts with common carriers, 4) contracts with innkeepers and 5) utilities contracts.9 In these instances, courts perceive that the service provider enjoys vastly superior bargaining power over the consumer. Not incidentally, these service providers often use adhesion contracts — “standardized contract[s] prepared entirely by one party to the transaction for the acceptance of the other.”10 Adhesion contracts are take-it-or-leave-it since “the services that are the subject of the contract cannot be obtained except by acquiescing to the form agreement.”11 By definition, the parties to an adhesion contract do not share equal bargaining positions.12

That a contract is one of adhesion (with the consequent presumption of lack of equal bargaining power) is not sufficient, standing alone, to invalidate an exculpatory provision. Instead, Oklahoma courts require evidence of something more than a slight disparity in bargaining power between the parties to nullify an exculpatory provision. When the disparity of bargaining power renders the freedom to contract illusory, an exculpatory clause is unenforceable.

In Trumbower v. Sports Car Club of America, Inc.,13 the court recognized guidelines for determining whether the contracting parties enjoy relatively equal bargaining positions. First, courts should “generally consider categories of individuals rather than a particular individual.”14 Second, courts must weigh “the importance which the subject matter of the contract has for the physical or economic well-being of the party agreeing to release the other party.”15 And, the court must consider “the existence and extent of competition among [service providers] measured by the amount of free choice the [consumer].”16

Applying Trumbower, Oklahoma courts have enforced exculpatory provisions when the activity at issue is a hobby or sport.17 Moreover, the releasing party is not forced to use a particular vendor or, ultimately, to engage in the activity.18 Correspondingly, Oklahoma courts have approved exculpatory provisions where the contracting party presumably had wide choice in service providers.19

Some jurisdictions presume that commercial parties generally enjoy equal bargaining power while assuming that ordinary consumers do not.20 However, Oklahoma law mandates that courts consider the economic realities of the transaction, not the parties’ relative sophistication. Each case stands on its own facts.21

OKLAHOMA LAW AS APPLIED TO OILFIELD SERVICE CONTRACTS
All or some variation of the recognized risk-shifting mechanisms — releases, limitation of liability clauses, and indemnity provisions — “are widespread in oilfield contracts” since, like most businesses, providers and consumers of oilfield services benefit from assuring clear allocation of risks at the outset of the contractual relationship.22 Some oilfield contracts contain indemnity provisions (also known as knock-for-knock provisions) that require each party to assume all risk associated with its equipment and personnel regardless of fault.23  Often, the parties contemplate that they will insure their respective contractual obligations.24  Other oilfield contracts treat service providers more favorably.25 Finally, operators may use master service agreements with contractual terms favorable to them and which allow them to contract with service providers before any work is performed, ideally permitting the parties to negotiate terms in a lower pressure environment.26

Oilfield exculpatory clauses are typically clearly delineated and, in any case, are well known in the industry.27 Therefore, courts may conclude that such agreements “clearly and unambiguously” exonerate the intended party. Nonetheless, as three cases applying Oklahoma law demonstrate, because pre-work risk allocation in the oilfield is legally appropriate only when it results from relative arm’s length bargaining, the economic reality of the bargaining positions between the parties is the paramount consideration.

In Mohawk Drilling Co. v. McCullough Tool Co.,28 while performing “specialized” work on Mohawk’s well, McCullough lost equipment downhole requiring Mohawk to rework the well. The purchase order stated that McCullough “shall not be held liable or responsible for any loss, damage or injury” to the well resulting from the work it performed.29 The evidence showed that, because other companies that could have performed the same specialized work used contracts containing similar exculpatory language, the well owner could not obtain the necessary service without exculpating the service provider.30 Although Mohawk predates Schmidt,31 the Mohawkcourt employed the same factors — economic necessity of the requested service and availability of the service in the market free of exculpatory provisions — in determining that McCullough “enjoyed much greater bargaining strength” so that the exculpatory contract was “against [Oklahoma] public policy.”32

More than 30 years later, in Kinkead v. W. Atlas Int’l, Inc.,33 Kinkead orally contracted with Western to remove the drill string when it became impacted in the borehole. Before Kinkead executed a written work order, Western lost the drill string in the casing which ultimately resulted in abandonment of the well. First, since the evidence showed that the exculpatory language at issue was common in the industry, the court rejected Kinkead’s argument that the oral agreement with Western did not contain the same exculpatory language as the written agreement.34 Second, Western offered evidence that Kinkead could have contracted with other companies that either did not require, or would have negotiated to remove or modify, similar exculpatory language. Consequently, impliedly weighing the same factors as the Mohawk court, the court concluded that the evidence was sufficient to sustain the jury verdict for Western.35

Finally, in Arnold Oil Props., LLC v. Schlumberger Tech. Corp.,36 Arnold contracted with Schlumberger, whose contract contained both a knock-for-knock indemnity provision and a limitation of liability clause. The court concluded that the evidence at trial was sufficient to support the jury’s determination that Arnold and Schlumberger were in unequal bargaining positions because: 1) the service was “critical” to Arnold’s operations; 2) a limited number of providers could perform the services and/or most if not all providers used similar exculpatory language; and 3) the exculpatory terms of three other providers’ contracts were non-negotiable.37 The court further noted that Schlumberger’s contract did not permit the customer to bargain for a higher limit on liability.38

A review of cases applying Oklahoma law reveals that chief among the factors to be resolved in determining whether to enforce an exculpatory provision in an oilfield contract is the number of service providers and whether most, if not all, service providers demand inclusion of similarly burdensome exculpatory provisions. If providers in the market insist on the same contractual provisions, without meaningful negotiation and as a pre-condition to performing economically essential services, the contract clause is unenforceable. The size and sophistication of the provider relative to the customer is not pertinent to the inquiry. Though the customer may eventually opt to accept the offered terms from the provider rather than pay a higher contract price, it must be given a meaningful opportunity to do so. In the absence of the opportunity to negotiate terms, there is no mutual consent.

Oklahoma is not alone in recognizing the fundamental importance of economic reality in oilfield risk allocation. According to USA Today, as of Dec. 31, 2011, Texas had the most oil reserves of any state in the country while Louisiana had the 10th highest.39 To level the playing field between powerful producers and the less powerful contractors who, though forced to indemnify the producers against their own negligence could not procure insurance to adequately cover the risk, both states enacted statutes that generally void oilfield indemnity clauses.40 Louisiana and Texas made public policy choices based not on the contracting parties’ knowledge and sophistication, but on the perceived inequality of bargaining between equally sophisticated commercial entities. Though not codified in statute, Oklahoma law is similar.

CONCLUSION
Undoubtedly, form contracts and industry custom reflect past economic conditions in the oilfield; but, the market for oilfield services is far from static. In recent years, oil and gas production in the United States has markedly increased. During periods of lower production service providers may be more willing to compete for work and more willing to accept greater risk. It is equally true that, during periods of higher production, demand for services outstrips supply, increasing competition for scarce resources. These market factors are magnified when the services provided are highly specialized — which means a decreased number of available service providers.

Oklahoma case law prudently elevates economic realities over industry custom. Where the service purchaser’s ability to obtain an essential service is limited either because there are few providers and/or because most providers require acceptance of the same non-negotiable exculpatory language, exculpatory agreements may be unenforceable. Thus, in terms of commercial entities, knowledgeable in the field, the decisive factor is not whether the exculpatory language is unequivocally clear. Instead, at issue is the economic reality underlying the presumed freedom of the parties to strike a deal.

In Oklahoma no party is forced to insure against risks for which it was not afforded a chance to bargain. It is unfair to shift the burden of loss to the operator when it has no power to protect itself. Oklahoma case law is clear: each party to a contract must be allowed to balance the risks against the cost of the service provided. A contract which deprives the party of its freedom to negotiate risk allocation likely violates Oklahoma law.

1. E. Cent. Elec. Coop. v. Pub. Serv. Co., 1970 OK 80, 469 P.2d 662, 664.
2. Ball v. Wilshire Ins. Co., 2009 OK 38, 221 P.3d 717, 724, 726.
3. OKLA. STAT. tit. 15, §212.
4. Schmidt v. United States, 1996 OK 29, 912 P.2d 871, 874.
5. Kinkead v. W. Alliance Int’l, 1993 OK CIV APP 132, 894 P.2d 1123, 1128.
6. See Estate of King v. Wagoner County Bd. of County Comm’rs, 2006 OK CIV APP 118, 146 P.3d 833, 844.
7. Otis Elevator Co. v. Midland Red Oak Realty, Inc., 483 F.3d 1095, 1105 (10th Cir. 2007).
8. Mercury Inv. Co. v. F.W. Woolworth Co., 1985 OK 38, 706 P.2d 523, 530.
9. Stacy A. Silkworth, Note: The Pilotage Clause: Albatross of Admiralty Law, 64 B.U. L. Rev. 823, 848-49 (July 1984); see, e.g., Sun Oil Co. v. Dalzell Towing Co., 287 U.S. 291, 294 (1932); Bisso v. Island Waterways Corp., 349 U.S. 85, 90-91 (1955).
10. Bilbrey v. Cingular Wireless, L.L.C., 2007 OK 54, 164 P.3d 131, 135.
11. Wilson v. Travelers Ins. Co., 1980 OK 9, 605 P.2d 1327, 1329.
12. See, e.g., Max True Plastering Co. v. U.S. Fid. & Guar. Co., 1996 OK 28, 912 P.2d 861, 864.
13. 428 F. Supp. 1113, 1117 (W.D. Okla. 1976).
14. Id. (citation omitted).
15. Id. See also 57A Am. Jur. 2d Negligence §62 (noting that “a seller must offer a service that is usually deemed essential in nature”).
16. Id. See also Allen v. Michigan Bell Tele. Co., 171 S.W.2d 689, 692 (Mich. App. 1969) (“[W]here goods and services can only be obtained from one source, or several sources on non-competitive terms, the choices of one who desires to purchase are limited to acceptance of the terms offered or doing without. Depending on that nature of the goods or services and the purchaser’s needs, doing without may or may not be a realistic alternative.”).
Additionally, the Trombower approach is consistent with the RESTATEMENT (SECOND) OF TORTS §496B. Comment j states that “disparity in bargaining power may arise from the defendant’s monopoly of a particular field of service, from the generality of the use of contract clauses insisting upon assumption of the risk by all those engaged in such a field, so that the plaintiff has no alternative possibility of obtaining the service without the clause; or it may arise from the exigencies of the needs of the plaintiff himself, which leave him no reasonable alternative to the acceptance of the offered term.”
17. See Schmidt, supra at n. 4, 912 P.2d at 873 n. 7, 874 n. 18 (recreational horseback riding); Manning v. Brannon, 1998 OK CIV APP 17, 956 P.2d 156, 159 (parachuting); Martin v. A.C.G., Inc., 1998 OK CIV APP 148, 965 P.2d 995, 997 (health club). These activities are not “necessary or important to [the contracting party’s] physical or emotional well-being,”Manning, 956 P.2d at 159.
18. Martin, 965 P.2d at 997.
19. Rodgers v. Tecumseh Bank, 1988 OK 36, 756 P.2d 1223, 1226 (noting that a commercial loan agreement was not an adhesion contract since borrowers have a choice of loan providers, and the evidence showed that the parties actually negotiated the terms of the agreement in an arms-length transaction).
20. See, e.g., Henry Heide, Inc. v. WRH Prods. Co., Inc., 766 F.2d 105, 109 (3d Cir. 1985).
21. Elsken v. Network Multi-Family Security Corp., 1992 OK 136, 838 P.2d 1007, 1010; Thompson v. Peters, 1994 OK CIV APP 97, 885 P.2d 686, 688; Trumbower, supra at n. 13, 428 F. Supp. at 1117; Kinkead, supra at n. 5, 894 P.2d at 1128.
22. Chesapeake Operating, Inc. v. Nabors Indus., USA, Inc., 94 S.W.3d 163, 167-68, 180 (Tex. App. 2002).
23. Id. at 167. The Association of International Petroleum Negotiators (AIPN) 2002 International Model Well Services Contract indemnity provisions state that the indemnities are non-fault. See Chidi Egbochue & Herbert Smith, “Reviewing ‘Knock for Knock’ Indemnities Following the Macondo Well Blowout,” http://goo.gl/yJY9SG.
24. The AIPN 2002 International Model Well Services Contract allows the parties to arrange for self-insurance or insurance.See Egbochue & Smith, supra n. 23. Similarly, the IADC form drilling contract recognizes that the parties may allocate risk via the purchase of insurance; Andrew R. Thomas, “Service Contracts in the Oil and Gas Industry,” Energy Policy Center, Levin College of Urban Affairs Cleveland State University, December 2013, at 4. http://goo.gl/1be1EN.
As the court, in Appalachian Ins. Co. v. McDonnell Douglas Corp., 262 Cal. Rptr. 716, 731 (Cal. Ct. App. 1989), noted in a complex commercial case:
[I]t was not commercially unreasonable for the parties to agree [Customer] would obtain insurance to protect it against the risk of loss rather than to have [Contractor] warrant performance….As a practical matter, it was a question of whether [Customer] wanted to directly pay for insurance by obtaining insurance itself or indirectly pay for insurance by requiring [Contractor] obtain the insurance and give a warranty.
In Appalachian Ins. Co., Western Union hired McDonnell Douglas, one of two companies providing the service, to launch a communications satellite. Western Union chose McDonnell Douglas as the cheaper and more reliable option though both companies were available to launch on Western Union’s schedule. Id. at 729. Importantly, despite the limited number of service providers in the highly specialized market, the parties negotiated the terms of their contract including the exculpatory language. Id. The evidence showed that the contract resulted from an arms-length transaction between equals. See also Chi. Steel Rule & Die Fabricators Co. v. ADT Security Sys., 763 N.E.2d 839, 845 (Ill. Ct. App. 2002) (observing that there existed no evidence of disparate bargaining power between the commercial entities when 1) the provider was not the only alarm system provider in the market, and 2) the parties’ contract allowed the customer to pay more so that the provider would assume more risk indicating that the customer had the opportunity to negotiate to shift the risk).
25. See Thomas, supra at n. 24, at 4 (noting that the International Association of Drilling Contractors form drilling contract generally favors drillers by placing responsibility for damages to the rig on the operator).
26. See William W. Pugh & Harold J. Flanagan, “Master Service Agreements and Risk Allocation: In Whose Good Hands Are You?” https://goo.gl/2QW901; Thomas, supra at n. 24, at 1.
27. Kinkead, supra at n. 5, 894 P.2d at 1126.
28. 271 F.2d 627, 632 (10th Cir. 1959).
29. Id. at 629.
30. Id. at 632.
31. Schmidt, supra at n. 4, 912 P.2d at 874.
32. Id. (citing an unpublished Oklahoma Supreme Court case in predicting how the Oklahoma courts would rule on the issue).
33. 1993 OK CIV APP 132, 894 P.2d 1123.
34. Id. at 1127-28.
35. Id. at 1128.
36. 672 F.3d 1202 (10th Cir. 2012).
37. Id. at 1208.
38. Id. at 1209.
39. Paul Ausick & Michael B. Sauter, “The 10 Most Oil-Rich States,” USA Today, Aug. 3, 2013, http://goo.gl/zBHfTW.
40. See Louisiana Oilfield Indemnity Act, LA REV. STAT. ANN. §9:2780 and Texas Oilfield Anti-Indemnity Act, TEX CIV. PRAC. & REM. CODE ANN. §127.001. et seq. See also Fontenot v. Chevron U.S.A., 676 So.2d 557, 562 (La. 1996) andKen Petroleum Corp. v. Questor Drilling Corp., 24 S.W.3d 344, 348 (Tex. 2000). While top-10 producers New Mexico and Wyoming also enacted similar statutes (New Mexico Oilfield Anti-Indemnity Act, N.M. STAT ANN. §56-7-2 and Wyoming Oilfield Anti-Indemnity Act, WYO STAT. §30-1-131 et seq.), both did so to promote worker safety. Pina v. Gruy Petroleum Mgmt. Co., 136 P.3d 1029, 1033 (N.M. 2006) Union Pac. Res. Co. v. Dolenc, 86 P.3d 1287, 1292 (Wyo. 2004).

ABOUT THE AUTHORS
Thomas G. Wolfe is the managing partner at Phillips Murrah law firm in Oklahoma City, where his litigation practice is focused on complex business cases including product liability, oil and gas, mass tort and class action defense. He has served on the Oklahoma Association of Defense Counsel Board of Directors and is a master of the William J. Holloway Jr. American Inn of Court.

Catherine L. Campbell is a director and shareholder at Phillips Murrah law firm in Oklahoma City. She is an experienced appellate attorney whose practice is focused on commercial litigation and labor and employment matters. She has represented clients in state and federal courts of appeal in more than 100 cases including representing law enforcement agencies in civil rights actions.

Roth: White, male, (Christian?) American terrorists

By Jim Roth, Director and Chair of the Firm’s Clean Energy Practice Group. This column was originally published in The Journal Record on January 18, 2016.


Jim Roth is a Director and Chair of the firm’s Clean Energy Practice.

Jim Roth is a Director and Chair of the firm’s Clean Energy Practice.

White, male, (Christian?) American terrorists

On Jan. 2, protestors stormed the Saudi Arabian Embassy in Tehran, Iran, after the execution of 47 people in Saudi Arabia. This mass execution included several Shiites and a Shiite cleric, Sheikh Nimr al-Nimr. The tension was high between Shia and Sunni Muslims, which culminated with these executions. Some protestors attempted to enter the embassy, but the police thwarted their efforts and some arrests were made.

That same day, armed protestors took over a government building in response to two individuals being convicted of arson. This self-styled militia group claims that it is defending its territory from government overreach. The group boasts that they have 150 militiamen occupying the government building and the surrounding territory, but eyewitnesses have reported that there only appears to be 15 armed protestors on site. It has been two weeks since the militiamen took over the building, and the government has not yet responded or acted to disperse the group.

Would it surprise you to know that the latter siege occurred in the state of Oregon and was conducted by Americans who are mostly white, male and perhaps even Christian? The convictions that supposedly sparked this protest came after two Oregon ranchers (also white male Americans) set fires that spread onto lands owned by the Bureau of Land Management. Due to minimum sentencing guidelines, these two individuals (Dwight Hammond and his son Steven Hammond) were sentenced to five years in prison, which enraged the “militiamen” now illegally occupying the Malheur National Wildlife Refuge in Oregon.

Some media outlets did not use the term “terrorists” when describing the Oregon “protestors” in their initial reports. They used the phrase “self-styled militia group” or something similar. Now that the protestors have occupied the federal building for more than two weeks, and understanding their use of force to effectuate their illegal demands, the word “terrorist” seems to be a better fit.

In 2010, Ammon Bundy – the leader of the purported anti-government militia group in Oregon – received a federal loan from the Small Business Administration for more than $500,000. The Bundy family has an extensive track record of both protesting against the federal government and, perhaps paradoxically, funding federal campaigns. Notably, Ammon’s father, Cliven Bundy, was involved in an armed standoff with the Bureau of Land Management in Nevada in 2014.

However, the Hammond family and other locals in Harney County, Oregon, do not seem to support the hostile takeover of our Malheur National Wildlife Refuge. Even father Cliven Bundy has denounced the legitimacy and effectiveness of the siege led by his anti-government son.

Isn’t it ironic that the purported cause célèbres that allegedly prompted Bundy’s terrorist act don’t even support the actions of these self-appointed marauders? In fact, since the siege began, the convicted arsonists have in fact reported to prison to do their time.

Imagine if these “militiamen” who stormed and occupy an American government building were Muslim? Or brown-skinned? Might their terroristic acts have received greater condemnation and perhaps even death or arrest by now?

If we proud Americans genuinely support the rule of law, then any terrorism ought to be viewed for the act that it is and the effects that it creates, and not tied to any faith, skin color or national origin. Let’s begin by arresting these armed white hypocrites and show them how judicial process works in America. Then maybe the next time they have a grievance against the rest of us who own the property they purport to take, they can let an unarmed jury decide their fate.

Jim Roth, a former Oklahoma corporation commissioner, is an attorney with Phillips Murrah PC in Oklahoma City, where his practice focuses on clean, green energy for Oklahoma.

Jim Roth: Congress extends tax incentives for clean energy development

By Jim Roth, Director and Chair of the Firm’s Clean Energy Practice Group. This column was originally published in The Journal Record on January 11, 2016.


Jim Roth is a Director and Chair of the firm’s Clean Energy Practice.

Jim Roth is a Director and Chair of the firm’s Clean Energy Practice.

Congress extends tax incentives for clean energy development

Just before the holiday break, President Obama signed the Consolidated and Further Continuing Appropriations Act into law, which – among other things – extended tax credits for wind and solar energy development for another five years.

This is critical for the renewable energy industry because this long-term extension provides certainty that will stimulate further investment in clean energy technologies.

The tax credits for clean energy development started with the Energy Policy Act of 2005 and the Energy Improvement and Extension Act of 2008. For many years, Congress only passed temporary extensions to these credits, which caused clean energy financial markets to be unstable.

Notwithstanding this volatility, there has still been significant investment in wind and solar technologies during the past decade. Since the inception of these tax incentives, the price per megawatt-hour has dropped more than 60 percent for utility-scale wind and more than 80 percent for utility-scale solar. These dramatic reductions in cost for wind and solar power are largely attributable to the increased investment in clean energy following the passage of these tax credits.

As implementation and utilization of wind and solar energy systems continues to expand, the unsubsidized price for renewable energy will continue to drop. The cost for utility-scale wind and solar is already low enough to compete with fossil fuels, and utilities are beginning to turn to renewables for energy generation. With these long-term tax incentives now in place, investment in clean technologies will continue to rise and the cost for clean energy will continue to fall.

The newfound stability and investor confidence is evidenced by the recent activity in financial markets. Now that there is a definitive term and phase-out for the clean energy tax credits, stock prices for many solar and wind companies have soared. SolarCity, the largest home solar company in the U.S., saw its share price increase by more than 30 percent after the tax credits were extended.

These tax incentives will lead to additional U.S. jobs through increased investment in, and expansion of, wind and solar energy systems. According to Bloomberg New Energy Finance, these credits will add nearly 40 gigawatts of solar and wind energy in the U.S., which is enough to power 8 million homes.

Projects to improve renewable energy infrastructure and increase capacity will employ thousands of Americans across the country. An ancillary benefit of this long-term extension is that developers will no longer be rushed to commence construction in order to qualify for the tax credits before they expire each year. This will reduce the strain on resources for the construction of wind and solar systems and, ultimately, bring down the cost to build and utilize these systems.

Finally, the tax credits will also help the U.S. meet its clean energy and emissions goals, as set forth in the Clean Power Plan and the COP21 Agreement. By using the tax system to incentivize private investment in clean energy, the government is encouraging innovation that will help the U.S. secure its energy future and remain a global leader in the development of clean energy technologies.

Jim Roth, a former Oklahoma corporation commissioner, is an attorney with Phillips Murrah PC in Oklahoma City, where his practice focuses on clean, green energy for Oklahoma.

2015 tax extenders – a PATH forward

Gavel to Gavel appears in The Journal Record. This column was originally published in The Journal Record on Jan. 7, 2016.


Robert O. O’Bannon is a Director who represents business clients in a variety of transactional matters with an emphasis on taxation and wealth planning issues for both businesses and individuals.

By Phillips Murrah Director Robert O. O’Bannon

On Dec. 18, President Obama signed into law a package of tax extenders called “The Protecting Americans from Tax Hikes Act of 2015,” or PATH.

Tax extenders are nothing new. Historically, as tax provisions expire, extenders are put forward to temporarily keep them active. This helped extend the provisions, but it did nothing to develop the kind of certainty that many in the business community want when planning for the future. The real breakthrough for PATH is that some of the tax extenders are made permanent, including those that benefit individuals as well as businesses.

For example, for businesses, there are enhancements and permanent extensions to the Research and Development Tax Credit; the Code Sec. 179 expensing limitation of $500,000, and the $2 million phase-out limit, are retroactively and permanently extended, and both are indexed for inflation for tax years beginning this year; and Bonus Depreciation, which allows retailers and restaurants to initially depreciate half of remodeling and improvement fees. For individuals, the Child Tax Credit, American Opportunity Tax Credit and the Earned Income Tax Credit are all strengthened and made permanent.

Another breakthrough for the PATH Act is in the bipartisanship it achieved. Republicans achieved supply-side expansion that favors business and growth and Democrats enhanced and made permanent tax laws that more directly favor individuals. On both sides of the aisle, PATH turned out to be a nice Christmas present.

Moving forward into 2016, here are some other items to keep in mind about the PATH Act:

  • A deduction for state and local general sales tax in lieu of state income tax is retroactively extended and made permanent.
  • Individuals at least 70 1/2 years of age may now exclude from gross income qualified charitable distributions from IRAs of up to $100,000 per year.
  • The New Markets tax credit is extended through 2019 and the carryover period for unused new markets tax credits is extended for an additional five years, to 2024.
  • The tax credit for new, energy-efficient homes built by a contractor and acquired for a residence in the tax year is retroactively extended for two years to 2017.

Jim Roth: A breath of fresh air, finally

By Jim Roth, Director and Chair of the Firm’s Clean Energy Practice Group. This column was originally published in The Journal Record on Dec. 31, 2015.


Jim Roth is a Director and Chair of the firm’s Clean Energy Practice.

Jim Roth is a Director and Chair of the firm’s Clean Energy Practice.

A breath of fresh air, finally

The percentage of children in the U.S. with asthma is leveling off, and even finally declining in certain demographics, according to a government study published in the journal Pediatrics this week. Asthma affects a child’s life in many ways, including limiting the child’s physical stamina, keeping the child from participating in certain activities, and – if an asthma attack is severe enough – causing hospitalization and even death.

The precise cause of the decline in childhood asthma is unknown, but experts state that many factors may be contributing to this change. Improved air quality is one such obvious factor. The energy sector has helped improve air quality as energy generation continues to shift away from coal to cleaner-burning natural gas and various forms of renewable energy. Coal has long been the predominant fuel source for energy generation in the U.S. and abroad because it is technologically simple to extract and easy to transport, which has kept coal prices low for utilities to purchase for energy generation. Unfortunately, coal is the dirtiest, most carbon-intense fuel source, and burning coal is also a leading cause of smog, acid rain, and toxic air pollution. Many of these external effects, like air pollution in the forms of sulfur dioxide, nitrogen oxides, particulate matter and mercury, cause real health issues, especially for those in closer proximity to coal plants.

Utilities are turning to natural gas to fuel energy generation for two reasons: the low price of natural gas and heightened air quality regulations. Natural gas prices have dropped dramatically in recent years due, in part, to enhanced recovery technologies in shale gas production. Concerns about health impacts and climate change have influenced domestic and global policies on air quality and emissions standards such as the Clean Power Plan and the recent Paris Agreement. Renewable energy generation from wind and solar sources is also at record levels and its increase has helped lower the overall pollution profile from the power sector across our country. These changes in policy and energy generation are great for the environment and our citizens’ health, and they have likely contributed to the decline in childhood asthma and other air quality related health issues. The coal industry, however, is suffering as a result.

One indicator of the coal industry’s struggle is its poor performance in the stock market. Since 2011, the stock prices of publicly traded coal companies have sharply declined. For example, Peabody Energy – the world’s largest private coal company – was trading for over $70 per share in 2011, but now it is trading for about $8 per share. Another indicator is the decline in the coal industry’s share as a fuel source for energy generation. Over the past five years, the percentage of energy generation produced by coal across America has declined from 50 percent to approximately 40 percent, and this decline is largely attributable to the increased competition in the energy generation market from natural gas and renewables. Finally, perhaps the most significant indicator of the turmoil in the coal industry is the number of companies that are closing their doors. A recent report indicates that 26 U.S. coal companies have declared bankruptcy. According to the Department of Labor, employment is down 24 percent in the coal industry since 2011, which equates to approximately 21,000 jobs.

While these figures are certainly bad for the coal industry, cleaner fuel sources lead to better air quality and improve public health. Shifting away from coal-fired energy generation to cleaner energy solutions is one way the U.S. can improve the health of its citizens, extend life expectancies and rid children and families from life-limiting threats like asthma and other respiratory disease.

Jim Roth, a former Oklahoma corporation commissioner, is an attorney with Phillips Murrah PC in Oklahoma City, where his practice focuses on clean, green energy for Oklahoma.

Jim Roth: Focusing on the meaning of the holidays

By Jim Roth, Director and Chair of the Firm’s Clean Energy Practice Group. Gavel to Gavel appears in The Journal Record. This column was originally published in The Journal Record on Dec. 7, 2015.


Jim Roth is a Director and Chair of the firm’s Clean Energy Practice.

Jim Roth is a Director and Chair of the firm’s Clean Energy Practice.

Focusing on the meaning of the holidays

During this holiday season with parties, travel and the mad dash to purchase (and afford) gifts for those loved ones in our lives, it’s often too easy to focus on the wrapping rather than the meaning of the season.

To a variety of faiths, this time of year has significant historical meaning:

  • Christmas by Christians – It is believed that ancient Christians took over Saturnalia, an ancient Roman Pagan seven-day festival of Saturn that started on Dec. 17, and used it to commemorate the birth of Jesus Christ, although evidence within the Bible (Luke, etc.) suggests His birth during a warmer month like October when the shepherds were still in their fields keeping watch over their flocks.
  • Winter solstice is celebrated by some Native Americans and aboriginals in the rest of the world.
  • Hanukkah (aka Festival of Lights) by Jews – This eight-day/night Jewish holiday begins on the 25th day of Kislev, which can occur in very late November or during December and commemorates the redirection of the Holy Temple in Jerusalem at the time of the Maccabean Revolt against the Seleucid Empire.
  • Bohdi Day by Buddhists – recalling the day that Buddha attained enlightenment as Dec. 8.
  • Id al-Fitr or Ashura (aka Feast of Sacrifice) by Muslims – Whether Sunni or Shiite, this holiday commemorates events significant to Muhammad and typically involves fasting.

So as we rush around, too often engaged in the commercialization of the “season,” a few ideas come to mind about how we all can slow down, catch our breath and actually engage in a few ways that any deity would want for us and the world around you.

While some gifts are practical items, such as those socks and T-shirts many have come to expect each year, most gifts are really intended as gestures of love, kindness and thoughtfulness. So although many kids prefer those shiny new toys, consider giving your adult loved ones a gift of service or an experience instead of a store-bought item. Be creative and show your thoughtfulness by giving of yourself rather than your credit.

This can be done in many ways beyond material goods. Consider a homemade edible gift that showcases a family recipe to share or plants some bulbs in their yard for gifts this coming spring. Look for a family heirloom around your home that would be meaningful to share and pay it forward to the next generation. You can also offer a charitable contribution to an organization that may symbolize what’s most important to you this time of year, such as Heifer International, which helps impoverished families feed themselves, earn income and care for their environment.

Likewise, many food banks and food pantries are in ever-increasing need for help as the plight of hunger is felt by many people, including many children here in America.

So whether you choose to celebrate one of the seasonal holidays or are simply looking for ways to bring more meaning to your gift-giving, please join me in thinking of ways to demonstrate thoughtfulness to your loved ones and to the world around us; the real reason for the season.

Jim Roth, a former Oklahoma corporation commissioner, is an attorney with Phillips Murrah PC in Oklahoma City, where his practice focuses on clean, green energy for Oklahoma.

What’s a nation to do?

By Jim Roth, Director and Chair of the Firm’s Clean Energy Practice Group. Gavel to Gavel appears in The Journal Record. This column was originally published in The Journal Record on Nov. 23, 2015.


Jim Roth is a Director and Chair of the firm’s Clean Energy Practice.

Jim Roth is a Director and Chair of the firm’s Clean Energy Practice.

Warning: The following column may contain offensive or disturbing ideas to your otherwise pre-conceived notions of safety.

We Americans pride ourselves on our democracy, and for good reason: It’s the best system of governance, full of individual liberties and freedoms, known to have ever existed on planet Earth. We know we are a system of governance in which all people are collectively involved in making decisions about our government’s affairs, yet we probably think that group exercise only happens on election days and then we go back to our otherwise individual lives.

Yet, beyond the obvious shared public road that one may drive to get to that polling place, most Americans overlook the greatest socialistic aspects of all of our daily lives: electricity.

We are the second largest total consumer of electricity of any country in the world, second only to China. The U.S. ranks seventh in actual energy consumption per-capita after Canada and a few smaller nations. The enormous amount of electricity available in this country is perhaps one of the greatest ways we are connected as a nation. That connectedness is both a strength and weakness.

From an economic standpoint, America’s socialized grid provides energy across each state and into most every American home and business at a cost that many otherwise couldn’t afford to do on our own. Oklahomans (as energy producers) at 7.54 cents per kilowatt hour pay slightly less than the regional average and a good deal less than the national average of 9.84 cents/kWh, according to the Energy Information Administration.

The electricity sector includes a huge system of generation, transmission and distribution, from both public and private entities, producing and balancing power across the national grid, essentially from a large power plant somewhere all the way to your back yard meter and into your home. This happens each hour of each day, typically without incident or interruption, sans the occasional winter ice storm.

Yet, this massive grid is also perhaps one of the greatest vulnerabilities to your family’s safety and to America’s homeland security. That’s why, since the attacks of 9/11, American utilities, co-ops, transmission organizations and others along this supply chain have been investing billions of dollars, at a cost to each of us, to provide safety and security measures to prevent against a terrorist attack of our electric system. So far so good, but the attacks are underway.

U.S. law enforcement officials recently announced proof that ISIL/ISIS is beginning to launch cyberattacks against the grid, but perhaps because they aren’t yet using the latest hacking tools they haven’t been successful to date. According to a new book by former Nightline anchor Ted Koppel, “Lights Out: A Cyberattack, A Nation Unprepared, Surviving the Aftermath,” America has long known that the Russian and Chinese governments have penetrated our electric system and have the ability to wreak havoc today.

It’s likewise understood that agents of our government are currently inside those countries’ systems, and perhaps others, with the same ability to disrupt, impact their economies and their citizens’ lives. But between countries, perhaps there is some comfort in the notion of mutually assured destruction. With roving, non-nation actors like ISIL, there is less predictability and perhaps less prevention.

Some predictions (from sources like the CIA) about surgical grid attacks suggest that even a very small and unsophisticated attack could plunge parts of America into darkness, for prolonged periods of time, without heat, cooling and water systems, thereby creating massive risk of death from disease, starvation, exposure or violence caused by social breakdown.

So what’s a nation to do? Continue to invest, continue to protect, continue to be vigilant, continue to grow awareness and perhaps begin to become less-socialized in that massive vulnerability. Our future resilience against these growing threats may come from our ability to plan, cope and create a new system of mini grids, distributed grids or even a purposeful deployment of individual and community-based distributed generation. Distributed generation is power generation at the point of consumption, such as a small-scale wind turbine at your business or a roof-top solar installation on your home.

Self-reliance has always been an American ideal and virtue and it most likely is also going to be a key part of national security in our creation and consumption of energy. Stay safe.

 

ACA compliance deadline near

Gavel to Gavel appears in The Journal Record. This column was originally published in The Journal Record on Nov. 19, 2015.


Catherine L. Campbell is a versatile and experienced appellate attorney whose practice is focused on commercial litigation and labor and employment matters.

By Phillips Murrah Director Catherine Campbell

The time is upon us when certain business employers must comply with the Affordable Care Act, or ACA. Starting on Jan. 1, along with businesses with 100 or more employees, companies with 50 to 99 employees are required to offer affordable insurance to qualified employees and their dependents.

But that is not all. The ACA requires applicable large employers, or ALEs, to provide employees, by Jan. 31, a summary of the health care they offer (Internal Revenue Service form 1095-C), and, later, to provide that summary to the IRS (IRS form 1094-C). Together these forms tell the IRS information it will use to determine whether ALEs are affording ACA-mandated coverage, employees are eligible for health care exchange subsidies, and the coverage offered satisfies the ACA individual mandate.

Consider the following as the deadline approaches:

• Are you an applicable large employer?

Applicable large employer companies are employers with 50 or more full-time employees. Determining the number of full-time-equivalent employees can be tricky. For instance, if a company that employs less than 50 full-time employees is a subsidiary of a larger organization, the subsidiary could fall into the ALE category.

• Who are full-time employees?

The ACA defines a full-time employee as one who averages 30 or more hours per week, or at least 130 hours in a month including hours worked, and paid off-time (vacation, sick leave, and paid holiday hours).

• Payroll: If an employee is responsible for a portion of the cost of health care, companies must submit information sufficient to allow a determination that the provided health care is affordable to the employee. To avoid penalties, an employer must insure that premium payments by employees do not exceed a certain percentage of their wages.

The good news? After implementing procedures to capture and report the required information, future compliance should be less burdensome. The process will be similar to submitting W-2 forms.

As with other IRS requirements, there are many complex extenuating considerations. To ensure proper compliance, check with your adviser to make sure you are aware of all the details that apply to your specific circumstances.

Taxing behavior

Gavel to Gavel appears in The Journal Record. This column was originally published in The Journal Record on Oct. 8, 2015.


Dawn M. Rahme represents individuals and businesses in an array of transactional matters. The focus of her practice is assisting corporations, partnerships and individuals in general tax planning.

Dawn M. Rahme represents individuals and businesses in an array of transactional matters. The focus of her practice is assisting corporations, partnerships and individuals in general tax planning.

By Phillips Murrah Director Dawn Rahme

Generally, people think of taxes as money that governments charge citizens in order to facilitate infrastructure. However, in many cases, governments also use the tax system to modify behavior by using the power of the purse.

Behavior is undoubtedly affected by the tax code. For example, when Congress increases the expense deduction for businesses, it encourages businesses to spend money through equipment purchases or other qualifying expenditures. When they allow for charitable deductions, it encourages giving to qualified organizations.

Oklahoma also offers a variety of tax incentives, including the Quality Jobs Program and the Oklahoma Film Act, which offer credits and rebates to make Oklahoma more attractive to those deciding where to do business.

On the flip side, behavior can also be discouraged by the tax code. Some excise taxes are imposed on items deemed unhealthy, commonly referred to as sin taxes. For example, Oklahoma levies an additional tax on tobacco products, including cigarettes. The intent is to discourage tobacco use with the implication of having an overall effect on health care. Additionally, according to Bloomberg, Oklahoma sin tax revenue has risen about 200 percent in the past decade.

Some argue that sin taxes are regressive, or that they have a disproportionately higher burden on the poor because they spend a larger share of their income on consumption. However, in the case of luxury taxes, or taxes on products or services that are deemed to be unnecessary or nonessential, it can be difficult to make the argument regressive taxes affect only lower tax brackets.

There are some rather notorious examples of efforts to influence behavior, including a poorly conceived idea in Dallas to place a 5-cent fee on disposable plastic grocery store bags. The tax passed, only to be repealed six months later. And who can forget New York City’s failed effort to ban sugary drinks from being sold in containers larger than 16 ounces? Although their efforts failed, the city of Berkley, California, was able to pass a 1-cent-per-ounce tax on soft drinks.

The next time you are making a purchase, it may be an interesting exercise to ask yourself how much of an influence taxes have on your decision.

Taxes and new businesses

Gavel to Gavel appears in The Journal Record. This column was originally published in The Journal Record on Aug. 26, 2015.


Dawn M. Rahme represents individuals and businesses in an array of transactional matters. The focus of her practice is assisting corporations, partnerships and individuals in general tax planning.

Dawn M. Rahme represents individuals and businesses in an array of transactional matters. The focus of her practice is assisting corporations, partnerships and individuals in general tax planning.

By Phillips Murrah Director Dawn Rahme

Starting a new business can be exciting. However, it can also be overwhelming, especially when it comes to determining tax obligations.

While income tax obligations are the most obvious, other decisions you may make when starting out will affect your business. Below are some tax tips to consider.

Structure: When starting your business, you must choose a business structure that is right for you. Your choices are many, including sole proprietorships, limited liability companies, partnerships and corporations. The most common type of business structure is a limited liability company or corporation because of the potential benefit of liability protection offered to owners.

Business structure will also determine how business taxes will impact your business. Generally, there are four types of business taxes: income, self-employment, employment and excise tax. Depending on the type of business you operate, there may be additional state and local taxes that could apply. It’s important to determine those obligations at the start of your business so you can register with the appropriate federal or state agencies and obtain any licenses or permits necessary to run your business.

Accounting: Another item to consider when starting your new business is an accounting method, which your business will need to track the organization’s income and expenses. In most cases, you can choose the cash method or accrual method, as long as you use a consistent method.

As a business owner, you should know how each method works as well as the advantages and disadvantages of each so you can choose the better one for your business.

Health care: If your new business is going to have employees, make sure to consider the tax issues that come with employee health care. Depending on the number of employees you have, you may be subject to the Affordable Care Act and information reporting responsibilities to the Internal Revenue Service regarding minimum essential coverage that you offer.

These are just a few of the decisions that you will consider when starting your new business. With proper information and planning, you can get your new business up and running and minimize the risk of being caught off guard later.

Surviving an Energy Industry Down-Cycle

This article was published in OIPA Wellhead, a publication produced by Oklahoma Independent Petroleum Association and distributed to its membership.

Resulting financial stress on your business can be survived

By Elizabeth K. Brown

brown-elizabeth-portrait

Liz Brown is a director at Phillips Murrah, P.C., where she has practiced for most of her legal career. Liz is primarily a tax and transactional lawyer with a special emphasis in the energy industry.

As we all know all too well, the profitability of the energy industry is dependent on oil and gas prices, which are often volatile and generally cyclical. Unfortunately, we in the oil and gas business are in the midst of another industry down-cycle.

According to the recent Baker Hughes’ North America Rig Count report, the number of rigs drilling for oil and natural gas has been cut in half since November. The price of oil has been cut by more than half as compared to last year. In response to lower prices, some oil and gas companies have reportedly reduced their capital expenditure budgets, reported substantial losses, and are selling off assets.  Service and drilling companies have announced major layoffs and so far appear to have been the hardest hit.

Under these circumstances, virtually all companies that are engaged in the Oklahoma energy sector, whether they are exploration and production or service companies, are dealing with reduced profitability and some are struggling to meet their financial obligations.

When a company that relies on a robust energy sector starts to feel the pinch of a down-cycle, restructuring debt or seeking relief through a Chapter 11 bankruptcy reorganization may be the way for the business to survive. Either the workout or a bankruptcy allows the business to have some time for the economy or business sector to recover or for the business to work through its financial difficulties.

What to do?

When a company is experiencing financial stress, the best course of action is to accept the reality of the situation and address it quickly. The first step is for the business to develop a budget so that it has a clear understanding of its current monthly revenues and expenses, its projected future revenues and expenses based upon reasonable assumptions, and the current and estimated future value of its assets. Once the business has that information, it can develop a pragmatic approach to dealing with its expenses and liabilities and will then be ready to approach it creditors with a plan for restructuring.

“If a company is having trouble meeting its obligations, creditors want to know why, what is being done to address the situation and, ultimately, what the overall prospects for recovery are for the business, both outside and through bankruptcy.” said Phillips Murrah bankruptcy attorney Stephen W. Elliott.

The Workout: Avoiding Bankruptcy

A workout is an out-of-court process through which the business owner and the creditors of the business try to reach an agreement to modify the terms of their contractual obligations. Workouts typically involve an agreement of the business’ primary lender to waive defaults or forbear on the lender’s rights to collect interest and principal payments on the loan for a period of time to give the business the opportunity to get back on its feet.  The workout terms may include debt forgiveness, changes in loan amortization, reduced interest rates, or deferred principal or interest payments.

The ultimate goal of the workout is to allow the business to continue operating so that (i) the creditors of the business can ultimately be paid more than they would have received if the business was shut down and the assets were sold at liquidation prices; and (ii) the business can recover from its financial difficulties, all without the costs, delays, and potential uncertainties frequently inherent in bankruptcy. If the workout would be as or more beneficial to the business and its primary creditors than a bankruptcy, then bankruptcy can often be avoided.

“In my experience, candid communication is often the key to avoiding bankruptcy and resolving financial issues through a workout,” Elliott continued.

What are Benefits of Bankruptcy?

Bankruptcy provides potential, wide-ranging benefits to the debtor not available through out-of-court workouts. In a Chapter 11, the debtor oftentimes acts as trustee of the business and continues to manage the company as the “debtor in possession.” Chapter 11 affords the business a number of tools to restructure its debt.

One of the best known is the automatic stay which stops collection efforts outside of the bankruptcy court and keeps the business and its assets from being picked apart piecemeal by creditors. Additionally, in bankruptcy, the business may be able to obtain financing on more favorable terms than it could outside of bankruptcy by giving the post-bankruptcy lender priority over other creditors. Also, there is the possibility in bankruptcy for the business to be able to rapidly sell assets free and clear of liens and even over creditors’ objections, which under some circumstances may be the only way for the business to be able to sell its assets for fair market (as opposed to liquidation) value or to obtain funds to continue the operations.

Finally, the bankruptcy process provides the business with the opportunity for the bankruptcy court to bind creditors involuntarily to the reorganization plan of the business.  The reorganization plan may restructure obligations and discharge debts of the business. This ability of the bankruptcy court to bind creditors can be critical if the business owner’s efforts to put a workout together have failed due to some creditors’ refusal to agree to the proposed workout terms or because there are too many creditors for the business to be able reach an agreement with them.

Action Beats Hesitation

The best course of action for the business owner to deal with financial stress on the business is to be proactive, regardless of whether the solution is in the form of a workout or entails a bankruptcy.  Communication among the business and its creditors is very important.  Generally the earlier the lines of communication are opened between the business and its creditors, the better the chances are of a successful resolution.  The failure of the business to communicate with its creditors concerning its financial stress will often result in creditors assuming the worst and taking legal action that the creditor might not have taken if the business owner had simply communicated with them.  Once those collection actions have begun, filing bankruptcy may be the only course of action available to save the business.

A business owner’s denial of the precarious financial situation of the business or inaction can result in a needless loss of business value and can potentially impair the business’ ability to restructure or reorganize and survive the financial crisis. If you find that your business is in a precarious financial situation, taking action now may minimize the problems created by the down-turn.

About the authors:

Elizabeth K. Brown is an attorney and director of Phillips Murrah P.C., a member of the OIPA board of directors and CEO of The Gloria Corporation, an oil and natural gas exploration and production company.

 

NewsOK Q&A: E-players enter health market

From NewsOK / by Paula Burkes
Published: August 19, 2015
Click to see full story – E-players enter health market

Click to see Mary Holloway Richard’s attorney profile

Consumers can search for doctors and clinical experts on a new product of Google called “Helpouts.” The trial is limited to symptoms related to common conditions or diagnoses and a wide range of pediatric concerns.

Mary Richard is recognized as one of pioneers in health care law in Oklahoma. She has represented institutional and non-institutional providers of health services, as well as patients and their families. She also has significant experience in representing providers in regulatory matters.

Mary Richard is recognized as one of pioneers in health care law in Oklahoma. She has represented institutional and non-institutional providers of health services, as well as patients and their families. She also has significant experience in representing providers in regulatory matters.

Q: Is Google becoming a provider of health services?

A: One new Google product, “Helpouts,” allows consumers to search for clinical experts and then to video chat with those doctors. This project is in its final stages, and Google is working with some existing medical groups who are verifying the credentials of the doctors who are participating in the trial. The trial is limited to symptoms related to common conditions or diagnoses and a wide range of pediatric concerns. One pediatrician, for example, is available for free consultations with the goal of eliminating gaps created by isolated visits in favor of applied multidisciplinary expertise. Not all of the offerings are related to health care and not all of them are free.

Q: What’s the impetus for this expansion by Google and presumably other technology companies?

A: A consulting company, PWC, has referred to this trend as a move toward “… building a new health economy centered around the consumer.” Stated another way, there are patient needs to be met and patient populations to be built by providers. This is likely to bring new players into local, state and regional health care communities who may position themselves to receive revenue from shrinking health care dollars. For example, Walmart is experimenting with health conglomerate Kaiser Permanente to access physicians via Skype in two of its California locations. Providers who’ve petitioned the Department of Health and Human Services to allow Affordable Care Organizations to be reimbursed for “connect care” argue that it will improve quality and reduce costs. Providers participating in the Medicare Shared Savings Program can’t currently bill for services provided using advanced technology.

 

NewsOK Q&A: Sunshine Act applies to dentists, podiatrists, optometrists and chiropractors

From NewsOK / by Paula Burkes
Published: August 11, 2015
Click to see full story – Law also applies to dentists, podiatrists, optometrists and chiropractors

Click to see Mary Holloway Richard’s attorney profile

Physicians should review federal Open Payments database

Mary Richard is recognized as one of pioneers in health care law in Oklahoma. She has represented institutional and non-institutional providers of health services, as well as patients and their families. She also has significant experience in representing providers in regulatory matters.

Mary Richard is recognized as one of pioneers in health care law in Oklahoma. She has represented institutional and non-institutional providers of health services, as well as patients and their families. She also has significant experience in representing providers in regulatory matters.

Q: The Physicians Payments Sunshine Act (“Sunshine Act”) was passed with the intent of limiting the affect of prescribing and treatment practices by payments to providers by manufacturers or groups involved with product selection known as group purchaser organizations. Does this mean that payments to physicians are actually listed on this website?

A: Yes, but the law doesn’t just apply to physicians. It also applies to dentists, podiatrists, optometrists and chiropractors. It doesn’t apply to medical or osteopathic residents, physician assistant or nurse practitioners. This information is reported annually by manufacturers and purchasing groups and is available to anyone on the Centers for Medicare and Medicaid Services (“CMS”) website https://openpaymentsdata.cms.gov/. The database is part of the Open Payments program created as a result of the Sunshine Act.

Q: What options does a provider have if he or she believes that information about a reported payment is inaccurate or misleading to the public?

A: There is a process by which physicians and other providers can seek to correct information they believe to be false. A dispute resolution process begins with a 45-day period during which a provider reviews and works with manufacturers or purchasing organizations to correct the information. During the following fifteen days, the reporting entity (manufacturer or group purchasing organization) can submit corrections to the Open Payments database. This combined 60-day period is the only time that corrections can be submitted by manufacturers and purchasing organizations. CMS will not mediate such disputes but encourages the parties to work together to resolve their dispute. You can see from this description that it is the physician’s or other provider’s responsibility to monitor this information on the website.  Providers can locate relevant data by their names.

Q: What kinds of payments are included in the CMS Open Payments database?

A: First, it applies to payments by manufacturers. That means manufacturers of prescription drugs, biologic agents and medical devices and supplies. Second, it also applies, as I have mentioned, to groups formed to help providers such as hospitals, home health agencies and nursing homes save money and time by purchasing in volume and obtaining manufacturers’ discounts. These are the group purchasing organizations. Third, it applies to payments such as consulting fees, honoraria, food, travel, entertainment, education, research support, charitable contributions, investment interests, grant, and any direct compensation. That’s not even a complete list.

Q: What is the impact of this database?

A: Many physicians, dentists, podiatrist, optometrists and chiropractors regularly disclose to their patients their participation as lecturers, researchers and consultants to such manufacturers and purchasing organizations. Where that is the case, there is likely to be minimal impact from such information appearing on the CMS website. There a great deal of criticism of the Open Payments program, however. For example, a listing of a specific payment or group of payments may be taken out of context and appear unexplained and create in inaccurate impression and a negative response that is not merited. It seems clear that there will be continued refinement of both the regulations and the manner in which the data is presented to the public in the future.