Roth: Corporate agribusiness and the right to harm

By Jim Roth, Director and Chair of the Firm’s Clean Energy Practice Group. This column was originally published in The Journal Record on May 16, 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.

Corporate agribusiness and the right to harm

State Question 777 is a proposed amendment to the Oklahoma Constitution, voted on by the Oklahoma State Legislature to appear on the general election ballot on Nov. 8. But this idea didn’t originate in Oklahoma; it’s part of a national push by corporate farming interests rolling across America. Which is ironic because most of Oklahoma’s largest corporate animal processors are Chinese, Japanese and Brazilian.

The Farm Bureau, a well-respected organization, is the face pushing for this measure, while the Oklahoma Municipal League, the Sierra Club and the Humane Society are some of those opposed.

The proposed amendment would add a new section to the Oklahoma Constitution that would provide, in part, that “the rights of farmers and ranchers to engage in farming and ranching practices shall be forever guaranteed in this state.” This inspiring language has led proponents to refer to SQ 777 as the “right to farm.” However, the next sentence of the proposed amendment all but eliminates the Legislature’s ability to regulate farming in our state: “The Legislature shall pass no law which abridges the right of farmers and ranchers to employ agricultural technology and livestock production and ranching practices without a compelling state interest.” Opponents refer to this proposed amendment as the “right to harm.”

Missouri narrowly passed a constitutional amendment in 2014, also the product of corporate agribusiness pushing constitutional protections against local regulation. That amendment was also sponsored by the national Farm Bureau and the like. The vague and sweeping language of the Missouri amendment – which is almost identical to the proposed amendment in SQ 777 – has already sparked litigation and legal challenges.

Not only is the language of the proposed constitutional amendment ambiguous, it is also superfluous in many ways because Oklahoma already has a right-to-farm statute that protects farmers from nuisance liability. The last subpart of the statute also provides that farmers must abide by state and federal laws, including the Oklahoma Concentrated Animal Feeding Operations Act and the Oklahoma Registered Poultry Feeding Operations Act.  Legitimate farmers are well protected by existing Oklahoma law.

According to the U.S. Department of Commerce, agriculture, forestry, fishing, and hunting provided 1.1 percent of Oklahoma’s gross domestic product in 2014. Oklahoma has more than 80,000 farms, which includes approximately 73,000 family farms and 1,900 corporate farms. About 75 percent of the land in our state is agricultural land, and the average farm size is 430 acres. The agricultural industry employs more than 120,000 Oklahomans.

If SQ 777 is passed by voters in November, it would have far-reaching and detrimental effects on family farms in our state, to the advantage of larger corporate interests. It would tie the hands of the state Legislature and municipalities, making it almost impossible to implement reasonable and necessary regulations to protect land and water from corporate pollution. As stated in the proposed amendment, the state Legislature will not be able to pass statutes regulating farming activities unless the Legislature can show a compelling state interest. This is an extremely high burden, and most proposed legislation would not be able to satisfy this threshold. What about cock-fighting? Or puppy mills? Or over-flowing waste lagoons?

No other industry is afforded this type of constitutional protection. Forcing state legislators and local regulators to satisfy such a high constitutional burden in order to protect the interests of their constituents will allow major corporate agribusiness to operate with virtual impunity in Oklahoma.

SQ 777 states that it will not overturn any existing legislation that was passed before Dec. 31, 2014. Several laws passed in 2015 could be reversed by SQ 777, including statutes regulating puppy mills in large cities and protecting pollinating insects.

If SQ 777 were passed, it would only invite more federal government intervention from agencies like the Environmental Protection Agency and U.S. Department of Agriculture. If state regulators are rendered impotent by a state constitutional provision, federal regulators will be forced to step in to address environmental concerns, animal rights, water contamination and other harms.

Surely we Oklahomans can be trusted to respect legitimate farming interests and to respect the land that we belong to as grand without having to concrete corporate farm immunity into our vaulted Constitution. Right?

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 are involuntary bankruptcies?

Gavel to Gavel appears in The Journal Record. This column was originally published in The Journal Record on May 12, 2016.


Clayton D. Ketter is a Director and 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.

By Phillips Murrah Director Clayton D. Ketter

Bankruptcies are on the rise. Expectations are that, unless oil and gas prices reverse course, related bankruptcy filings will continue.

The majority of these filings will be commenced by a debtor seeking shelter from creditors, known as voluntary filings. Used much less frequently are involuntary filings, where one or more creditors initiate a bankruptcy case without a debtor’s consent.

Two requirements must be met to force a debtor into an involuntary bankruptcy. One pertains to the number of creditors involved. Debtors with less than 12 creditors require only one creditor holding at least $15,325 in aggregate unsecured claims to file the petition to start an involuntary case. Debtors with 12 or more creditors require a petitioning group of three or more creditors holding the same amount. The second requirement is that the debtor is generally not paying its debts as they become due. When these requirements are met, an individual or business (farmers are the exception), can be compelled into bankruptcy.

Involuntary bankruptcies can be used strategically by creditors in certain situations. The most common is to initiate creditor protections afforded by the Bankruptcy Code, which apply equally whether a case is voluntary or involuntary. Creditor protections include stopping a debtor from paying select debts to the detriment of other creditors, and allowing preferential and fraudulent transfers, made pre-bankruptcy, to be reversed in certain situations. The ability to potentially remove incompetent or bad-acting management is another compelling creditor protection.

Another motive is control of venue. Bankruptcy law permits a proceeding to be commenced in various jurisdictions, including an entity’s state of formation. Thus, a corporation incorporated in Delaware may file bankruptcy there, even if its headquarters, operations and creditors are in Oklahoma. Such filings can increase costs for other interested parties located in Oklahoma. To prevent such a filing, a creditor may wish to commence an involuntary case in its preferred jurisdiction.

While involuntary bankruptcy can be an effective tool for a creditor, it is not without costs and risks. A debtor can challenge by arguing that the debts of the creditor are not valid or that the debtor has been paying on time. Resolution of these issues can require expensive litigation. These potential costs should be carefully considered when strategizing on whether an involuntary bankruptcy may be advisable.

Roth: The energy jobs debate

By Jim Roth, Director and Chair of the Firm’s Clean Energy Practice Group. This column was originally published in The Journal Record on May 9, 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.

The energy jobs debate

This past week saw the release of the U.S. jobs report for April and its results of 160,000 new non-farm jobs, which was less than the expected 200,000. Worker pay did tick up 2.5 percent nationally, however, which may mean that employed Americans may have a bit more take-home pay to spend within the economy.

The U.S. unemployment rate remained at 5 percent (virtually half of what it was in May 2009), but if the labor market continues to soften, it’s now very likely that the Fed will not raise interest rates in June and perhaps only once in 2016 at the December meeting, after the presidential election.

Those of us who live in Oklahoma may be more acutely aware of the job market and the worry of a “soft” economy because as an energy state we’re seeing too many headlines lately about job layoffs. Yet, Oklahoma’s unemployment rate for March was slightly up to 4.4 percent, still below the national average, according to the Oklahoma Employment Security Commission.

But with many of our state’s economic eggs in the energy basket, worry is something we do, and we have learned from cycles now and in the past. The challenge remains to make sure our broader basket is growing and in more directions than one. And lucky for us, our Oklahoma energy mix is broader than most, with oil, gas, wind and solar options going forward for many decades to come.

A more difficult reality has hit other states like West Virginia and Kentucky, known for fewer energy options and mostly known for their Appalachia coal, which is experiencing historic declines due to its high sulfur content and environmental and health regulations.

The significance of that industry to those two states is why candidates for president are playing out the debate about energy jobs in the election foray. Recently candidate Hillary Clinton mentioned her commitment to developing a clean energy future and boasted about “putting a lot of coal miners out of work.” A tough comment for sure, especially for any of us empathetic to friends and colleagues out of work in today’s oil and gas patch. And so candidate Donald Trump pounced and at a large rally of 12,000 people in Charleston, West Virginia, a raucous crowd carrying large “Trump Digs Coal” signs cheered on the presumptive Republican nominee as he announced “We are going to get those mines open.”

But one must wonder how? And why? Does the candidate suggest reversing decades of Clean Air Act progress of removing toxic pollutants from the air so that coal has a growing market share again? He will need 60 senators to gut the law. And he might also need about 1,000 litigators (and 20 years) to defend the efforts from organizations like the American Lung Association, which has worked to reduce respiratory diseases by fighting for cleaner air, and the American Academy of Pediatrics, which has opposed coal plants’ mercury emissions because of the causal nexus with disease and health hazards for children.

But better health and environmental reasons aside, wouldn’t you think a candidate for president would be looking for ideas, policies and visions that moved the country forward, not back, and for which there may be wider public support of his or her energy positions?

For example, today there are more 150,000 American workers employed in the solar energy industry and growing. And the last time I looked, the sun shines over all 50 states.

In 2016, the American wind energy industry hit a new high, employing more than 88,000 American workers, and the DOE released a report recently suggesting the potential of 600,000 American jobs by 2050.

Now these numbers may seem large and they are certainly growing, but nothing compares to the 9.8 million jobs nationwide in the oil and gas industry, supporting about 8 percent of the entire gross domestic project. According to the American Petroleum Institute, 364,300 jobs in Oklahoma are supported by oil and gas, which may be good reason for the unease in our local economy today.

Whatever happens in our presidential politics this year, it’s my hope that America rallies to put the economy in drive, not reverse, and that our future energy development becomes the envy of the world. That’s what leadership can do. Please save the pandering for someone else.

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: A two-day workweek?

By Jim Roth, Director and Chair of the Firm’s Clean Energy Practice Group. This column was originally published in The Journal Record on May 2, 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.

A two-day workweek?

History and science tell us that a year is based upon Earth’s one full revolution around the sun and that months on the calendar were designed to measure the time between full moons, yet the seven-day week seems to be something left over from Babylonians’ belief in seven planets in the solar system.

Well, we now know that belief, albeit 4,000 years old, is not accurate, since we have eight recognized planets (sorry Pluto), yet the seven-day week continues.

I have often wondered how America (and the world) ended up with an established five-day workweek and a two-day weekend. I mean after all, if the economy stabilized on this 5-and-2 split, wouldn’t it just the same stabilize over time if there was a two-day workweek and a five-day weekend?

It wasn’t until early in the 20th century in America, in 1908, when an American mill became the first factory to offer a two-day weekend to accommodate both Jewish and Christian workers, forcing other factories to soon follow and a century later here we are.

Over the years, observers, sociologists and economists have predicted that advancements in technology would lead to Americans working shorter hours, perhaps even less days, which would lead to increased productivity, better health, superior performance and greater job satisfaction. Even visionaries such as Google co-founder Larry Page have suggested shorter workweeks would likely increase productivity, yet they and all the rest of us seem to be working longer hours than ever, with no change in sight.

However, due to very unfortunate circumstances impacting Venezuela and its crumbling economy, the drought-stricken country has just announced a two-day workweek and a five-day weekend for its public sector employees, which are apparently a third of the country’s workforce.

Daily blackouts at the country’s largest hydroelectric plant have seriously interrupted their fragile economy and led to energy rationing. Without electricity, factories are idled, food is spoiling and schools remain closed without lights. And there does not appear to be any relief in sight soon.

As El Nino weather brings historic rains and flooding to parts of the Northern Hemisphere, it has led to crippling droughts in the south. Water levels are dangerously low at the Guri Reservoir, the 11th-largest man-made lake in the world, which feeds the country’s Guri Power Plant, with over 10,200 megawatts of capacity. It’s the fourth-largest power station in the world and provides about two-thirds of the country’s power. To give us some point of reference, in Oklahoma if you combined the state’s two largest public utilities (OG&E at approximately 6,000 MWs and PSO at approximately 4,500 MWs), this one power station is comparable to all of these utilities’ power plants, combined.

So while crisis has caused the implementation of scheduled rolling blackouts, four hours a day in much of the country, public sector employees will be experiencing five-day weekends until the energy and economic crises subsides. Whether that proves to increase productivity, as some economists suggested a century ago, is an open question.

For now, it’s a sad reality, made worse by government leaders who haven’t moved to diversify their energy economy, considering they have enormous potential for wind energy (estimated to exceed 10,000 MWs) and the country famously sits on the world’s largest proven oil reserves, totaling 297 billion barrels as of 2014.

Perhaps Oklahoma’s budget crisis pales in comparison to the conditions in Venezuela, but there is no time like the present to make sure our state’s economy makes the most to develop our wind and solar energy potentials, in addition to growing reliable demand for our native oil and natural gas.

But then again, I’ve always been curious about whether a five-day weekend could “work” in America.

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.

Don’t Miss Out on the Gross Production Tax Rebate for Economically At-Risk Oil and Gas Wells

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

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.

A little used gross production tax rebate may now be available to help cushion the blow of low oil and natural gas prices.  This gross production tax rebate is available to owners of economically at-risk wells.  The rebate was designed to extend production from wells that otherwise would likely be shut in during difficult times in the oil and gas industry (such as these) and has been in the law since 2005.  With the steep drop in oil and natural gas prices in the last two years, many more oil and gas wells now qualify as economically at-risk than ever before.  In fact, the Oklahoma Tax Commission estimates that the claims for the economically at-risk rebate for the 2015 year will total $132.9 million compared to total rebates of just $11 million in 2013 when prices were much higher.

An “economically at-risk oil or gas lease” eligible for the rebate is any oil or gas lease operated at a net loss or at a net profit which is less than the total gross production tax remitted for the lease during the previous calendar year.   See 68 O.S. §1001.3 (a).   A “lease” for this purpose is defined as “a spaced unit, a separately metered formation within the spaced unit, or each tract within a Corporation Commission approved unitization, or a lease which, for tax reporting purposes, has been assigned a production unit number”.   See 68 O.S. §1001.2 (b).

To determine whether a lease is economically at-risk, an operator starts with the gross production from the lease and then subtracts severance taxes, royalty, operating expenses of the lease including workover and recompletion costs for the previous calendar year, and overhead costs up to the maximum overhead percentage allowed by the Council of Petroleum Accountants Societies (COPAS) guidelines.  No deduction is allowed for depreciation, depletion, or intangible drilling costs in determining whether the well is economically at-risk.

Using that methodology, if the lease is operating at a net loss, then it will be economically at-risk and eligible for the rebate.  The amount of the rebate for economically at-risk wells subject to the standard 7-percent rate is 6/7ths of oil and gas production taxes collected, while the amount of the rebate for wells subject to the 4-percent rate is 3/4ths of oil and gas production taxes collected. To simplify, the impact of the rebate reduces the effective gross production tax rate on qualified economically at-risk oil or gas wells to 1 percent.

The operator cannot claim the rebate until after July 1 of the year subsequent to the year of the production.  So, for example, the claim for rebate for 2015 production cannot be made until after July 1, 2016.  The rebate claim must be made within eighteen months after the date the refund is first available or the claim will be barred.  The rebate claim is to be made on Form 329 “Gross Production Application for Certification – Economically At-Risk Oil Lease”.

To complete the Form 329, the operator needs to provide the following:

  • Operator’s FEI/SSN number.
  • Operator’s OCC assigned company number.
  • Operator’s name and mailing address information.
  • Lease name as found on record at the Oklahoma Tax Commission.
  • Lease description.
  • Oklahoma Tax Commission assigned production unit number.
  • Calendar year for request.
  • Total gross revenue earned for the calendar year including both oil and gas production.
  • Lease royalty.
  • Operating expenses for the lease to include expendable workover and recompletion costs for the previous year.
  • Gross production tax deducted by the tax remitter, which shall not include petroleum excise tax or any fee collected for another agency.
  • Actual overhead cost, but do not exceed the maximum overhead percentage allowed by COPAS guidelines.

The Oklahoma Tax Commission has the authority to determine if an oil or gas lease qualifies for certification as an economically at-risk oil or gas lease.  Within sixty (60) days after an application is filed for economically at-risk oil or gas lease status, the Oklahoma Tax Commission shall make its determination and shall issue either an approval letter or a denial letter to the lease operator.  Upon certification by the Oklahoma Tax Commission, a refund of the gross production taxes paid in the previous calendar year for the lease shall be issued to the well operator or its designee after July 1 of the subsequent year.

Although Oklahoma oil and gas producers could use this tax incentive now more than ever, the economically at-risk lease rebate is itself at-risk as the Oklahoma Legislature explores options to reduce Oklahoma’s budget shortfall.  Earlier this year, a bill was introduced to suspend the rebate for economically at-risk wells.  While the bill did not advance, an amendment to the statute suspending, reducing or eliminating the rebate could be proposed at any time prior to the end of the legislative session.  Hopefully, this much needed rebate will be left alone to do what it was designed to do  –  enable producers to maintain production from their wells that are operating at a loss during this period of low prices.

Absent a statutory change this session to the gross production tax rebate for economically at risk leases, operators should be evaluating whether they may be eligible for the rebate and should be ready to submit claims attributable to 2015 production to the Oklahoma Tax Commission on or after July 1, 2016.   Don’t miss out!

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: Advance directives provide care guidance for end of life

From NewsOK / by Paula Burkes
Published: April 28, 2016
Click to see full story – Advance directives provide care guidance for end of life

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: What should we know about decision-making in the future to care for ourselves?

A: The mechanism for providing guidance to your health care professionals and to your family at the end of your life is a legal document known as an “advance directive.” The process of completing your advance directive is an important one because it makes you think about yourself in various end-of-life situations. You are telling your providers, in advance, what you will allow them to do, to the extent possible.

Q: Is there a specific form for an advance directive in Oklahoma?

A: Advance Directive forms are available at the Oklahoma Bar Association at www.okbar.org/Portals/14/PDF/Brochures/advance-directive-form.pdf. The advance directive statute requires that you must be 18 or older, of sound mind, and have two witnesses 18 or older and who aren’t beneficiaries of your will. The advance directive needn’t be notarized. It’s effective when your health state is such that your physician and another physician conclude that you no longer are able to make your own health care decisions.

Q: What kinds of provisions can I make for myself with an advance directive?

A: Advance directives provide treatment and care directions for three different conditions. You can provide directions to your providers when your condition is determined to be terminal. A terminal condition is one which, in your physician’s opinion, will result in your death within six months. You also can provide directions about your care when you’re persistently unconscious, which means that your condition is irreversible and you aren’t aware of your environment or of yourself. You also can provide your wishes for your care when you’re in an end-stage condition or an irreversible condition, and medical care would be ineffective. An advance directive also gives you the option of directing future artificially-administered food and water if you’re unable to take those by mouth in the three conditions described. You also can provide for organ donation in the advance directive.

Q: What else should I know about advance directives?

A: These decisions aren’t easy and it’s helpful if you involve your family in your decision-making so that they understand your wishes. Second, keep copies of your advance directives in a number of places and let your family members and loved ones know where they are so that guidance will be readily accessible when needed. Finally, under Oklahoma law, an advance directive for mental health also is available.

Q: Is there a specific form for the advance directive for mental health?

A: The Oklahoma Advance Directive for Mental Health form is found in our Oklahoma statutes, Title 43A Section 11-106. This advance directive allows you to provide for an alternate decision-maker for your mental health treatment. For the seriously mentally ill, this is important in terms of facilitating care when needed, at moments of crises. The advance directive on mental health becomes effective if the attending physician or psychologist determines that the ability to receive and evaluate information and to communicate decisions is impaired so that one lacks the capacity to refuse or consent to mental health treatment. “Capacity” is a determination made by the health care provider.

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.

‘Prequalifying’ Primes Pays Off for Subcontractors

By David A. Walls & A. Michelle Campney.

From The Contractor’s Compass, an educational journal of the Foundation of the American Subcontractors Association.

Published Q2 2012 – originally posted Jun 18, 2012

IN THIS ARTICLE . . .

  • Research primes’ reputations.
  • Research project liens and litigation records.
  • Investigate financial strength of prime and project financing.

Imagine that you need to fill a high-level position in your business. This position is one that will have a visible and immediate effect on your bottom line. Perhaps it is your chief estimator, COO or head of sales. Because you need this person right away, you decide not to ask any applicants for a resume or do any kind of background check. You are going to hire solely on the basis of the fact that you really need to fill the position. Sound crazy?

It is. Yet, many businesses follow this same plan when submitting bids or soliciting work from owners, developers and prime contractors — all of whom will affect their business to at least the same extent as the aforementioned employees. This is likely traceable to the difficult economic environment for the construction industry. When work is scarce, it is hard to be too picky about work. Regardless, there are some basic steps any subcontractor can and should take to assess, or “prequalify,” a prime contractor before taking on any new project.

Reputation

A great deal of information can and should be learned about a prime contractor’s business reputation before bidding a new project. This is especially true if the subcontractor has not worked for the prime contractor previously, or the project is in a state where the subcontractor has not previously worked. The Internet, and particularly social networking sites, can be a wealth of information about a prime contractor. Many businesses will list their projects and customers on their Web sites, and a few quick phone calls can provide valuable information regarding how those projects turned out. Many Web sites will also list the trade groups that a prime contractor belongs to, and these can be verified and investigated. This same type of reputation investigation should be done for the project owner and the project architect. Remember that much information can be discovered simply be speaking to other subcontractors. Questions that should be asked include:

  • What type of work is the prime contractor known for in the industry?
  • What current or recently completed projects has the prime contractor done?
  • What subcontract agreement does the prime contractor use, and can it be negotiated?
  • Can a copy of the subcontract be obtained in advance of bidding?
  • Will the prime contractor work with the subcontractors when the inevitable project challenges arise?

[Editor’s note: ASA-chapter Business Practice Interchanges are a great forum for getting objective information about prospective customers.]

Project Liens and Legal Filings

Subcontractors also should do a thorough background check on the public legal records pertaining to a prospective prime contractor partner. Many states and counties make these records available on the Internet, but at a minimum they can be checked via a quick trip to the office of the records clerk.

Typically, county records can be checked to determine if subcontractors and suppliers have filed liens on projects involving the prospective prime contractor. If a foreclosure action has resulted from the lien, it may mean that, for some reason, payment issues were serious and difficult to resolve. It is important to keep in mind that liens can be filed even when a project is going smoothly, but their existence likely warrants further inquiry.

Subcontractors can check court filings to see if the prime contractor has been involved in litigation, and if so, the nature of the lawsuits that have been filed. Unfortunately, today’s society is litigious, so the mere existence of litigation does not, in and of itself, reveal much about any business. But a large volume of litigation, or a large volume relative to the number of projects undertaken, may warrant further investigation. Moreover, lawsuit records will show the names of other businesses that can be contacted to obtain additional information.

Financial Status

A subcontractor should attempt to determine the financial liquidity of the prime contractor. Examining Uniform Commercial Code filings against the prime contractor in the county clerk’s office may provide some information in this regard. If there are many filings, most of the prime contractor’s assets may be encumbered for financing. It is even more important to investigate the financial status of the owner and the project. If the project is not fully funded, there is a real possibility the project will terminate and payment in full on the subcontract will not be made. Is the project financed with public, private or a combination of public and private funding? Publicly financed projects need scrutiny, as government agencies struggle with tight or reduced, and sometimes forecasted, funding. For example, some public projects may be funded in phases and have only partial appropriations before work commences. If the project is privately financed, the project likely has to meet requirements of the financial institution. A project financed by a public-private partnership may have project financing in place, but could lack payment assurances for subcontractors, as liens cannot be filed on public property and a payment bond may not be required. The subcontractor also should scrutinize the financial health of the industry of which the owner/ developer is a part, such as oil and gas, technology, or health care.

10 Commandments of Getting Paid

“Prequalifying” the prime contractor will help ensure that the project goes smoothly and that the subcontractor will receive full payment in a timely fashion. Follow these 10 commandments of getting paid:

 

  1. Know your customer.
  2. Know your lien rights.
  3. Know your bond rights.
  4. Calendar all deadlines to file claims.
  5. Deal with payment issues immediately.
  6. Get change orders and extra work in writing.
  7. Obtain the legal description for the property or project.
  8. Understand your backcharge rights.
  9. Know what happens if you don’t get paid.
  10. Know whether the contract has an arbitration clause or venue provision.

Taking the time up-front to protect your company will save you time and money in the end.

David A. Walls and Michelle Campney are attorneys with Phillips Murrah P.C., Oklahoma City, Okla. Walls can be reached at (405) 235-4100 or dawalls@phillipsmurrah .com. Campney can be reached at (405) 235- 4100 or amcampney@phillipsmurrah.com.


Read original article HERE.

Related Link: The Foundation of the American Subcontractors Association (FASA)

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.