Let's stay home
As President Obama readies a new surge in Iraq, we can sense the eerie similarity with Vietnam. In each case we intruded on a civil war; Iraq has two or three. Each action had a doubtful motive: the Gulf of Tonkin attack and the "mushroom cloud" mythical weapons of mass destruction in Iraq.
Each intervention follows a similar course: Start with air power, then introduce "advise and assist" trainers for whichever faction we pick, and finally our boots on the ground enter the fray. When Vietnam failed, we picked up what remained of our material and went home. But in Iraq we follow each failure with a new surge.
Iraq is one of the artificial countries created by the British and by League of Nations mandates after World War I. Its disparate Sunni, Shia, and Kurdish elements don't want to be together, and Iraq is destined to come apart. Our attempt at fusion in Iraq is about as difficult as nuclear fusion for commercial electric power. Positively charged hydrogen atoms don't want to be together, and only the sun has the conditions for that process.
In Vietnam and Iraq, US-backed local governments did their own thing, alienating much of the country. Poorly motivated local armies waste our training and supplies.
We persist, thinking that we need Middle East oil, or that we have to occupy various countries to prevent a domestic terror attack. Declining oil consumption and rising Western Hemisphere production mean that we no longer need Middle East oil. Occupying Muslim countries is not possible.
Let's take one lesson from Vietnam and stay home.
Rolf E. Westgard
Osher Lifelong Learning Institute
University of Minnesota
St. Paul
State royalty jurisdictions
The article "Ohio Weighs post-production costs, royalty calculations" is a welcome piece on an important issue, a good example of Oil & Gas Journal keeping its readers informed of timely legal and political issues (OGJ, June 1, 2015, p. 49). In general it will be useful to many readers because it explains some of the reasons courts in "at-the-well" and "marketable-product" jurisdictions have taken their differing positions.
But the article is not fully accurate in two areas. Its bibliography cites four articles, but all are from the at-the-well side of the debate, none from the other side. And, more significantly, the authors repeat a commonly stated error when they assert that at-the-well jurisdictions are in the majority. They are not.
In New Mexico, one of the states listed as an at-the-well jurisdiction, the New Mexico Supreme Court three times has allowed class actions certified on marketable-product grounds to proceed. The article omits Arkansas, widely acknowledged to be a marketable-product state. It treats Michigan as an at-the-well state, but in 1999 the Michigan legislature passed a statute adopting marketable-product treatment in order to correct what it clearly saw as an unacceptable judicial at-the-well rule. The article omits Nevada and Wyoming, two other states with marketable-product statutes. While statutes are not judicial decisions, for all recent leases the marketable-product rule controls in these three states.
Alaska is not mentioned. Yet in that state, where most production is on state land, the older state "DL-1" lease has been interpreted to include a marketable-product standard, although settlements later allowed some deductions, and the "new form" lease requires marketable-product treatment. Production from the largest owner of oil and gas by far in the country, the federal government, applies a version of the marketable-product rule. Finally, in California the primary cases on deductions are oil cases that long predate the marketable-product era in natural gas, and its courts have never been presented with arguments for the rule.
Accounting for these changes would show marketable-product jurisdictions in the majority whether measured by number of jurisdictions or by production and would require recoloring a large part of the map on p. 53.
John Burritt McArthur
The Law Office of John Burritt McArthur
Berkeley, Calif.
The authors respond:
We appreciate the comments provided by Mr. McArthur to our article and the information he added to the discussion.
Regarding the concern he expressed that the bibliography cites only a limited number of articles that each favor the "at-the-well" rule, two leading proponents and advocates for the "marketable-product rule," including one of the originators of the theory, are in fact referenced in the bibliography. Further, the editors omitted the bulk of the source material for the article-over 35 cases from 13 different jurisdictions and several circuit courts-from the final, published version because the formatting was not consistent with the style and format guidelines of the Oil & Gas Journal. We, of course, would be happy to supply those citations to readers upon request. The articles that were cited in the bibliography were included there only because the related arguments and discussion threads could not be referenced in the footnotes due to OGJ's formatting requirements.
As for the status of the at-the-well rule in US jurisdictions:
• We listed New Mexico as an at-the-well jurisdiction because its courts are among those that have given effect to at-the-well language and because the New Mexico Supreme Court has expressly refrained several times from adopting the marketable-product rule in place of this language. Most recently, in ConocoPhillips Co. v. Lyons (2012), it confirmed the appellate court's decision in Creson v. Amoco Prod. Co., noting, for example, that at-the-well language "typically entitles the lessee to deduct all post-production expenses." And while we are aware of one federal decision making an "Erie" guess that New Mexico would follow the marketable-product rule, we respectfully disagree given the Court's discussion in ConocoPhillips.
• We did not list Arkansas as a marketable-product jurisdiction because Arkansas courts have never explicitly adopted it and the decision in Hanna Oil v. Gas Co. v. Taylor-the case often cited by others for a contrary view-did not rely on the implied duty to market in reaching its decision. Rather, the court relied on a pure contract interpretation analysis. This is in line with at least two recent federal decisions interpreting Hanna Oil, which also concluded that the law is unclear as to whether Arkansas follows the "marketable product" rule and declined to make an "Erie" guess.
• The substance and focus of our article was on how courts in the United States have addressed the issue of post-production costs, and not state legislatures. Thus, we discussed the judicial creation of the marketable-product rule and how that rule is inconsistent with Ohio law. We did not address how some states may have altered, by statute, the method of royalty calculation to be used by the parties, as it does not inform that analysis.
• Tabulating those jurisdictions who have addressed it through the courts-as others before us have done-leaves us with the firm conviction that the at-the-well rule remains the majority rule.
Gregory D. Russell
Peter A. Lusenhop
Steven A. Chang
Vorys Legal Counsel
Columbus, Ohio
