Wednesday, October 29, 2014
The West Virginia University College of Law is seeking applications and nominations to replace our former dean, Joyce McConnell, who is now the provost of the University. The College of Law just completed the addition of a new wing (part of a $26 million infrastructure project), and has made significant and exciting progress. We're seeking a dean who can help continue that trend.
Admitting my bias, WVU is a great place to be. It's beautiful, especially in the fall, and we have access to much more than many people recognize. In addition to a solid opportunities to enjoy music and the arts in Morgantown, we're a lot closer to other areas of interest, if big city access is desired. We're 75 miles to Pittsburgh; about 3 hours and 15 minutes to Baltimore, Washington, DC, and Cleveland, OH; 6 hours to New York City; a little less to Niagara Falls; 5 hours to Philadelphia, PA, and Lexington, KY. You get the idea.
The posting is below. Please apply if you are interested, and please share this with anyone else you think might be interested. And, of course, please feel free to contact me directlt with any questions.
The full posting is available at the link above or just click the button below.
Tuesday, October 28, 2014
Many financial industry analysts are bearish on the oil industry right now. I'm not sure they're right, as I note below, but I also think it's important to recognize that financial market impact of oil price fluctuations is not the only impact U.S. oil production has on markets generally.
One thing I want to make clear at the outset, though, is that I am not a financial analyst, or an economist (as I have previously noted). My comments here are reactions to things analysts are saying based on my experience researching U.S. shale oil markets and activity, as well as the U.S. transportation sector in recent years. My thoughts are related to my expectations for how I think the companies and people in the industry are likely to react, and reflect my hope that financial market changes don't negatively impact other essential planning, in areas related to health, safety, and the environment, the industry desperately needs.
Back to the market predictions: Goldman Sachs and some other analysts see the oil sector as over saturated and anticipate continued supply gluts to keep prices down. According to a report from Goldman analysts, U.S. price indicator West Texas Intermediate (WTI) crude will fall to $75 a barrel and Brent crude is expected to be at $85 a barrel in the first quarter of 2015. That would be a $15 per barrel discount from the last such report.
In accord is Jim Cramer, of MSNBC fame, who says, "This is uniquely a perfect storm against oil." Several others see an OPEC "price war" with some saying oil is teetering on the brink of collapse. I'm even less sure that's right, in part because of where Jim Cramer comes out on this. (I'm not a huge fan of his advice or style, but for those who don't know, I'll let Jon Stewart catch you up on that here.) I don't see a "perfect storm" or even much more than a "light shower" coming in the oil sector from pricing or demand problems.
I'm not alone. Others see this recent price dip as real, but short lived. Dan Dicker, president of money manager MercBloc, sees oil prices increasing within the next two years going up to $125 per barrel or even $140. Dicker called the pricing a "Mirage." (I think these predictions are a bit bold in the other direction, too, as I expect to some fluctuation but think prices will reside mostly north of $85-$90 barrel, then increase into the $100s. Again, though, remember this is a law professor's opinion.)
Though I am sure he is not alone, Jim Cramer is the one person I have seen suggesting that a U.S. oil slowdown is likely, at least if oil prices drop to $70 a barrel. Possible, but I still don't see it. As I have suggested elsewhere, I don't think the price of oil, which is largely a global price, will drop to a point where it is not profitable to oil companies. Obviously the price can (and will) fluctuate, and the reality is that oil demand increases and decreases, but it has a higher baseline than I think some people are appreciating.
For years we heard about Peak Oil and the end of oil, but what we were really seeing was the end of really cheap oil. As the recent shale boom has demonstrated, there's plenty of oil available at the right price. The current price dip, I think, just an indication that supply is more abundant than expected, but not that the oil market is about to crater. Thus, perhaps we will see a slowing of the rate of new drilling activity, but I don't see an actual slowdown in growth in the sector -- just in the rate of growth.
Historically, we've had other ways to deal with price drops, too. The Complete Idiot's Guide to Options And Futures, 2nd Edition, By Scott Barrie, repeats the old trader's adage, "the best cure for low prices is low prices," and "the best cure for high prices is high prices." Low oil prices in the 1990s helped lead the way for the boom of SUVs. Before that, in the 1970s, companies like Honda and Toyota made their way into the U.S. market with their fuel-efficient vehicles following the oil embargo and high gas prices. Unlike when those market changes occurred, though, we have a full complement of both SUV and hybrids available to take advantage of price changes in the relatively near term when gas prices change.
Ultimately, if stock price is why people care about oil prices and production in the United States, it's entirely possible the bears are right that company valuations will come down in the near term. In the mid to long term, though, oil production is going to at least stay steady. As such, regardless of the market impact of the oil boom, oil will continue to flow, which will mean it will continue to need transportation. Therefore, it's important that we assess safety risks for infrastructure improvements, such as oil and gas pipelines, that can improve safety in areas that like rail and trucking, which are currently being taxed by the current level of oil and gas development in the country. In addition, a potential slowing of growth rates does not mean that other environmental and social challenges will go away soon.
Of course it makes sense to plan for a financial future and predicting how oil will fare in the coming months is part of the analysis for some. But changes in market expectations don't quickly, or necessarily significantly, impact the real world experience for those in affected areas. Frankly, a slow down in growth rates likely would be welcome in many areas experiencing the oil boom, but a slow down doesn't mean the work necessary to maximize economic opportunity, minimize environmental harm, boost social conditions, and improve safety can come to an end. It might simply be a chance for impacted areas to catch up before the next boom begins (or this one continues). We shouldn't miss that chance.
Tuesday, October 21, 2014
In Business Organizations today, I spent some time reviewing the differences between varying entity types. I made the point that courts often make mistakes on this front, especially with LLCs and corporations, and it reminded me I needed to follow up on my own pet LLC protection project.
Over the years, I have taken more than a passing interest in how often courts refer to (and ultimately treat) LLCs. I have this thing where I think LLCs are not treated as well doctrinally as they should. In February of this month, I made the argument, Courts Should Get the Doctrinal Distinction Between LLCs and Corporations, and I have made other similar arguments (here, here, and here).
As part of this I committed to noting when courts refer to LLCs as "limited liability corporations" and not "limited liability companies," as they should. Almost one year ago, I noted this continuing theme, repeating the search I did for a 2011 article, where I found in a May 2011 search of Westlaw’s “ALLCASES” database that there were 2,773 documents with the phrase “limited liability corporation," in describing an LLC. (That article is here.) Things are not getting much better. Since Oct. 15, 2013, there have been 410 more cases making that same mistake. Just since my February 4, 2014 post, reference above, there have been 300 of those cases.
As I read through some of these cases, many of which don't seem to turn on whether the entity is a limited liability company or a corporation, I have noticed that some of the case may have an entity structure issue that no one is raising. That's a failure of at least one of the parties, and potentially the court. I plan to follow up with a few example of such cases, but for now, I'll part with my familiar refrain: as long as courts keeping describing limited liability companies as corporations, I'll keep pointing it out.
Tuesday, October 14, 2014
To be clear, I'm not an economist. I do, however, have an interest in economics, economic theory, and especially behavioral economics. I incorporate basic concepts of economics into my courses, especially Business Organizations and Energy Law. This week's announcement of Jean Tirole as the 2014 Nobel Laureate in economics thus caught my eye.
I admit I did not much about Tirole before the announcement, and after just a little reading, it's clear to me that I need to know more. A nice summary of Tirole's work (written by Tyler Cowen) can be found here. Cowen introduces the announcement and Tirole this way:
A theory prize! A rigor prize! I would say it is about principal-agent theory and the increasing mathematization of formal propositions as a way of understanding economics. He has been a leading figure in formalizing propositions in many distinct areas of microeconomics, most of all industrial organization but also finance and financial regulation and behavioral economics and even some public choice too. He is a broader economist than many of his fans realize.
Tirole is a Frenchman, he teaches at Toulouse, and his key papers start in the 1980s. In industrial organization, you can think of him as extending the earlier work of Ronald Coase and Oliver Williamson with regard to opportunism and recontracting, but applying more sophisticated and more mathematical forms of game theory. Tirole also has been a central figure in procurement theory and optimal contracts when there is asymmetric information about costs. The idea of mechanism design runs throughout his papers in many different guises. Many of his papers show “it’s complicated,” rather than presenting easily summarizable, intuitive solutions which make for good blog posts. That is one reason why his ideas do not show up so often in blogs and the popular press, but they nonetheless have been extremely influential in the economics profession. He has shown a remarkable breadth and depth over the course of the last thirty or so years.
Cowen then summarizes (or at least introduces) much of Tirole's work. I am now working my through a paper Tirole wrote with Jean-Jacques Laffont that discusses when regulatory capture is likely to happen. (Cowen notes, " I have yet to see the insights of this paper incorporated into the rest of the literature adequately.")
The papers is called The Politics of Government Decision-Making: A Theory of Regulatory Capture. Two of my favorite lines:
- "The assumption that Congress is a benevolent maximizer of a social welfare function is clearly an oversimplification, as its members are themselves subject to interest-group influence."
- "In contrast with the conventional wisdom on interest-group politics, an interest group may be hurt by its own power."
Here's the abstract (paper available on JSTOR):
The paper develops an agency-theoretic approach to interest-group politics and shows the following: (1) the organizational response to the possibility of regulatory agency politics is to reduce the stakes interest groups have in regulation. (2) The threat of producer protection leads to low-powered incentive schemes for regulated firms. (3) Consumer politics may induce uniform pricing by a multiproduct firm. (4) An interest group has more power when its interest lies in inefficient rather than efficient regulation, where inefficiency is measured by the degree of informational asymmetry between the regulated industry and the political principal (Congress).
It's worth a read, even if the math part is a little beyond some of us.
H/T: Geoffrey Manne
Tuesday, October 7, 2014
Maryland State Senator and American University Washington College of Law professor Jamie B. Raskin recently wrote an opinion piece for the Washington Post, A shareholder solution to ‘Citizens United’. In the piece, he explains that
Supreme Court Justice Anthony M. Kennedy’s majority opinion in Citizens United essentially invites a shareholder solution. The premise of the decision was that government cannot block corporate political spending because a corporation is simply an association of citizens with free-speech rights, “an association that has taken on the corporate form,” as Kennedy put it. But if that is true, it follows that corporate managers should not spend citizen-shareholders’ money on political campaigns without their consent.
Senator Raskin further notes that the Congress doesn't appear interested in moving forward with the Disclose Act, and the Securities and Exchange Commission has not pursued requiring campaign spending disclosures. In response, the senator has a proposal:
Our best hope for change is with the state governments that regulate corporate entities throughout the year and receive regular filings from them. I am introducing legislation in January that will require managers of Maryland-registered corporations who wish to engage in political spending for their shareholders to post all political expenditures on company Web sites within 48 hours and confirm that any political spending fairly reflects the explicit preference of shareholders owning a majority interest in the company.
Further, if no “majority will” of the shareholders can form to spend money for political candidates — because most shares are owned by institutions forbidden to participate in partisan campaigns — then the corporation will be prohibited from using its resources on political campaigns.
Back in early 2010, as a guest blogger here, I wrote a post, Citizens United: States, where I noted my reaction to the case, which was that I wondered how states would react and that the case made the issue "an internal governance issue, which is a state-level issue." (Please click below to read more.)
Tuesday, September 30, 2014
There is a growing drumbeat for banning laptops in the classroom, as a recent New Yorker article explained. The current case for banning laptops appeared on a Washington Post blog (among other places), in a piece written by Clay Shirky, who is a professor of media studies at New York University, and holds a joint appointment as an arts professor at NYU’s graduate Interactive Telecommunications Program in the Tisch School of the Arts, and as a Distinguished Writer in Residence in the journalism institute.
The piece makes a compelling case for banning laptops, and I agree there are a number of good reasons to do so. I’ll not recount the whole piece here (I recommend reading it), but here’s a key passage:
Anyone distracted in class doesn’t just lose out on the content of the discussion but creates a sense of permission that opting out is OK, and, worse, a haze of second-hand distraction for their peers. In an environment like this, students need support for the better angels of their nature (or at least the more intellectual angels), and they need defenses against the powerful short-term incentives to put off complex, frustrating tasks. That support and those defenses don’t just happen, and they are not limited to the individual’s choices. They are provided by social structure, and that structure is disproportionately provided by the professor, especially during the first weeks of class.
I am sympathetic to this line of thinking, and I am even more sympathetic to another point made in the article: that the laptop distractions can leak from one student engaging in social media or other non-classroom activities to those around them. That is a serious concern.
Still, I don’t ban laptops in my classes, though I have thought about it. I let students use them in my larger-enrollment classes: Business Organizations, which usually is near the cap of 70, and Energy Law, which is usually in the 34-55 range. There is no doubt the risk of distraction in those courses is higher than in others. Interestingly, in my last two seminar-style classes, I did not have a ban, either, but students rarely used laptops. They opted-in for the discussions (self-selection for certain topics can certainly help on that front).
I continue to think about how I want to proceed, but for now, I see value in allowing my students the option to choose how they wish to engage. There have been some other defenses of the idea of keeping laptops in the classroom (see, e.g., here), but my views are an amalgam of different styles and rationales.
First, part of learning, especially in becoming a life-long learner (which is what lawyers need to be), one must choose to engage. Law students are grown ups, and they must learn how they learn. They must decide. I won’t be there when they get to their job and they have to use the computer to actually do the work of a lawyer. They will, at some point, have to decide when to focus and when to play.
Second, I value diversity of styles in the classroom. That is, if most other professors are using open-book exams or take home exams, mine will probably be closed book, and closed note. I have taught using quizzes, blog posts, midterms, short papers, etc., to add some variety to the experience. Now that more classes, at least at my school, are without laptops, it actually gives me a reason to consider keeping them.
Finally, at least so far, allowing laptops is part of my deal with students. It’s part of how I connect and model for them my view and expectation that they are grown ups. I give them power, and I expect them to act appropriately. As my friend, former colleague, and teaching mentor Patti Alleva (recognized as one of the nation's best law teachers) explained in a recent National Law Journal piece, teaching is ultimately about respect and what she calls “intentionality.” She explains:
The simple fact is that teaching does not always produce learning, even if thoughtfully done. Creating that causal link between the two can be a mystifying challenge, especially given the infinite number of unknowable factors and forces that may reduce a teacher's effectiveness or a student's willingness or ability to learn.
. . . .
Teachers, as fiduciaries of their students' educational experience, owe them compassionate deference, based on a benefit of the doubt, coupled with high but reasonable expectations for a meaningful learning collaboration.
. . . .
Ultimately, the best professors are themselves students who learn as much as they teach. And they seek, not to impose ideas on students, but to help equip them with the metacognitive tools to test those ideas and use them in service of problem-solving. Hopefully, students will develop their own senses of respect — for the legal profession, for themselves as aspiring lawyers and for the learning partnership we share. So, if years ago, in that tense seminar room, each of us left with respect for our disagreements and for the pedagogic processes that allowed us to critically and creatively examine, and grow from, those differences, then invaluable learning did take place that day with respect providing a bridge between teaching and learning when other things may have temporarily obscured the connection.
I hope that as teachers we can all appreciate that we, like our students, have different views on the best way to teach and to learn. Just because we choose different paths, it doesn't make any path wrong. As long as the path is thoughtfully chosen, with a purpose and a goal, there’s a good chance it’s right for that teacher, in that moment, for that class. And if it’s not, the key is not about dwelling on the mistake. It’s about learning, adjusting, and doing a better job next time, because the best teachers really are the ones who are trying to “learn as much as they teach.”
Tuesday, September 23, 2014
March of the Benefit Corporation: So Why Bother? Isn’t the Business Judgment Rule Alive and Well? (Part III)
(Note: This is a cross-posted multiple part series from WVU Law Prof. Josh Fershee from the Business Law Prof Blog and Prof. Elaine Waterhouse Wilson from the Nonprofit Law Prof Blog, who combined forces to evaluate benefit corporations from both the nonprofit and the for-profit sides. The previous installments can be found here and here (NLPB) and here and here (BLPB).)
In prior posts we talked about what a benefit corporation is and is not. In this post, we’ll cover whether the benefit corporation is really necessary at all.
Under the Delaware General Corporation Code § 101(b), “[a] corporation may be incorporated or organized under this chapter to conduct or promote any lawful business or purposes . . . .” Certainly there is nothing there that indicates a company must maximize profits or take risks or “monetize” anything. (Delaware law warrants inclusion in any discussion of corporate law because the state's law is so influential, even where it is not binding.)
Back in 2010, Josh Fershee wrote a post questioning the need for such legislation shortly after Maryland passed the first benefit corporation legislation:
I am not sure what think about this benefit corporation legislation. I can understand how expressly stating such public benefits goals might have value and provide both guidance and cover for a board of directors. However, I am skeptical it was necessary.
Not to overstate its binding effects today, but we learned from Dodge v. Ford that if you have a traditional corporation, formed under a traditional certificate of incorporation and bylaws, you are restricted in your ability to “share the wealth” with the general public for purposes of “philanthropic and altruistic” goals. But that doesn't mean current law doesn't permit such actions in any situation, does it?
The idea that a corporation could choose to adopt any of a wide range of corporate philosophies is supported by multiple concepts, such as director primacy in carrying out shareholder wealth maximization, the business judgment rule, and the mandate that directors be the ones to lead the entity. Is it not reasonable for a group of directors to determine that the best way to create a long-term and profitable business is to build customer loyalty to the company via reasonable prices, high wages to employees, generous giving to charity, and thoughtful environmental stewardship? Suppose that directors even stated in their certificate that the board of directors, in carrying out their duties, must consider the corporate purpose as part of exercising their business judgment.
Please click below to read more.
Tuesday, September 16, 2014
After my long trip away from my wonderful family in western North Dakota, I stopped in Chicago for the ABA Site Evaluation Workshop on my way home. I'm not quite where my co-blogger is on the whole accreditation thing, but it was not my favorite thing to add another day away from my family. On the plus side, I got to see my brother and his family the night before it, and I appreciated my time with my colleagues from WVU and beyond, so it was okay.
It was hard to be away, but it sure was a great to get home. I even got to come home to this after a long five days:
On so many levels, I am very, very fortunate.
Thursday, September 11, 2014
Today started in Williston, ND, and we then went to Mountrail County. We vistied Tioga and Stanley, then headed south through New Town and Killdeer on the way back to Dickinson, where we stay tonight before flying out tomorrow morning (ridiculously early, I might add).
We started the day at Williston State College, where we learned about the TrainND program and other degree programs. TrainND works with companies to do OSHA and other safety training, and trained more than 16,000 people last, the vast majority of whom were employed. The College also offers degree programs for those seeking to be Lease Operators and PLC-trained operators. Interesting for academics, the college had 38% turnover last summer. The college has invested in campus housing for faculty, which can be part of the incentive package to bring people. Apartments run from $2600/mo for 1 and 2 BR options, with home rentals over $3K. Seventy percent of new faculty hires are moving into the new campus housing apartments (which looked nice from the outside). Just like the industry, the college is "catching up" with the whole thing.
We saw more densely packed well sites, such at this 9-pack (nine wells on one well pad). This is an advantage of hydraulic fracturing, in that one well pad can handle multiple wells, which leads to less land impact per well.
We also saw major traffic, including long lines of traffic coming over the
Four Bears Bridge at Lake Sakakawea. We didn't have a terrible time driving, and it was not the horror story that has been repeated at times, but it was striking to have open rolling hills with very few signs of people, other than wells, flares, and trucks.
We saw two natural gas faciltities, aswell, today, which is encourging, as it's important to have facilities to take the natural gas that's coming out of the ground along with the oil.
Also of interest was a waste water facility, which is critical to better oil production. I have written many times that the biggest concern about hydraulic fracturing in not the fracking or drilling process; it's surface concerns about spills of things like the waste water coming back up the well. (Drilling matters, too, but protecting ground water in that context is about good well casings, and the concerns are largely the same as conventional drilling.)
Such facilities are important, as they have helped vastly reduce the use of impoundment pits used for waste water in the early Bakken experience.
I heard for at least the third time today that the EPA is the biggest risk the industry faces. I continue to believe this is a red herring. That is, the biggest risk the industry faces is a major disaster from careless activities. It seems that many of the biggest concerns on that front are being handled well in North Dakota (better, in my sense, than in the Marcellus Shale). It's not to say everything is right, but there does seem to be a commitment to getting the process done well. Economic incentives are largely aligned with that goal, too.
The one thing that concerns me here, conceptually, is that people don't seem that concerned about water safety. I know most of the industry is working hard to keep things clean, but a bad chemical spill, oil spill, or waste water spill in the lake (picture above) could be disastrous. It's not that I have seen anything specific that makes me worry about the lake. I didn't. It's just that I'd prefer to hear, "We're worried about water contamination, but we're doing our best to prevent it." Instead, " I have have heard repeatedly, "Water issues aren't really a concern." I think that means that major issues haven't arisen, and not that people don't care, but that doesn't mean issue can't or won't arise.
Finally, as to the EPA, I don't think the EPA is poised to do much to slow hydraulic fracturing in oil country. And I don't think they should. That said, a major disaster would open the door to EPA or other federal action. Such a disaster would invite a shut down, and I know the industry doesn't want that. If the industry continues to improve, as it has since 2007, major disasters should be avoided. Here's hoping industry, regulators, and the people of the region continue to improve safety so that the benefits of heavy oil production increasingly outweigh the downsides. It can be done, and I sincerely hope it is.
Wednesday, September 10, 2014
We covered a lot of ground today, driving up from Medora, ND, to Williston, ND, through Watford City. The traffic was not terrible for us, though the truck traffic and the road construction was slow going for a while. We're told we missed the worst of the traffic because our timing was good. It still felt like big city traffic in what is not a big city.
Watford City has been a prime example of a place where the oil boom has caused significant growing pains. A recent article in The Atlantic asked, What If Your Small Town Suddenly Got Huge?, and explained:
The Bakken oil boom has brought rapid growth to many towns and cities in western North Dakota, including Williston, north of the Missouri River, and Dickinson, alongside Interstate 94. But Watford City, where the population has jumped from just 1,400 people six years ago to more than 10,000 today, has experienced a particularly dramatic shift in character.
There is dirt being moved everywhere: for roads, for housing, and, of course, for oil. Driving this region you see very few homes, rolling hills, a few small buttes, and some abandoned farm homes. Oil wells blend in surprisingly well in many spots, as the sites are often small, and they look like small farms, without the farm house or barn. The colors of the sites blend in with the landscape, and are often easy to miss if they are far from the road, other than the flicker (and sometimes blaze) of flared natural gas that comes up with the oil and has no where else to go.
It continues to be striking to me that here in oil country, that gas is burned rather than saved, when back in West Virginia and the rest of the Marcellus Shale play (and in Texas's Barnett Shale), millions of dollars are spent per well to pull that exact commondity from the ground. Efforts to gather the gas here in North Dakota are underway, but it's not an easy undertaking. There is little immediate need here for natural gas, as there is abundant electricity already available because of lignite coal, and even some wind and hydro power in the state. The crew camp we visited on Tuesday is completely electric (no natural gas)-- even for heat, because the prices are so low.
Later in the day discussed traffic issues in the area with the state Department of Transportation, landowner issues with a landowner group, and air and water quality with a state health department official. I plan to write more on each of these issues in the next few weeks, so for now I'll just note that, as you'd expect, traffic is bad; landowners without mineral rights are sometimes not happy; and the health department has some challenges.
We also had the chance to speak with a geologist in the area, who explained the basics of the formation and how it works. It was interesting, but I'll leave that to the geology folks, as there are plenty of sources discussing that (PDF). The thing I wanted to note now was her explanation of the North Dakota's library of core samples. A recent Bismarck Tribune article explains:
In the early 1950s when the oil activity began, then-North Dakota State Geologist Wilson M. Laird, Ph.D., went to the legislature and lobbied to preserve the rocks of the producing zones and store them into a library. They bought Laird's concept, created a law based on the Model Act drafted by the Legal Committee of the Interstate Oil Compact Commission and the archives began.
This collection of rocks may be the most valuable rocks on the planet as they hold the secrets to the Bakken. Those secrets are being unlocked everyday as new technologies are created in response to the publicly-owned core samples of North Dakota.
Some states have adopted similar libraries, some have not. Looking across state lines at Montana where the Bakken crude also roams underfoot, less production is occurring. According to many in the industry, the historical shared data within the Wilson Laird library is one of the key reasons.
"In 2013, industry and academia examined 79,000 feet of core, an all-time record in the core library." Ed Burns, North Dakota State Geologist said. "More specifically, we had 28 companies and nine separate universities use the library."
In the past sharing data was not as common due to the large amounts of information, intellectually property rights and competition. North Dakota was the exception to that rule.
Apparently core samples are required about every 30 feet (horizontally or vertically) once the well gets below 8,000 feet vertically. (There are some exceptions when things get going quickly, but even then samples are needed about every 90 feet.) Because so much of North Dakota's information is publicly available, this information can help companies figure out what to look for in the drilling process, which can help maxmize production from wells.
This kind of forced data sharing is rather remarkable in that it's not something we usually see among competitors. That said, in an industry with a depleteable resource where virtually every state has a law outlawing "waste," it does makes some sense. See, e.g., the North Dakota Century Code:
43-02-03-06. Waste prohibited. All operators, contractors, drillers, carriers, gas distributors, service companies, pipe pulling and salvaging contractors, or other persons shall at all times conduct their operations in the drilling, equipping, operating, producing, plugging, and site reclamation of oil and gas wells in a manner that will prevent waste.
The industry would be well served to share such information and show a similar commitment to avoiding waste in all aspects of the process (not just oil and gas). We'd probably see less water use, better environmental protection, and faster clean up where things go wrong. There's some indication that at least the best of the industry are doing so, and I sincerely hope that continues. Stay tuned for Day 4.
Following are some pictures from my adventures so far, as described in my prior posts on my Bakken Oil trip in western North Dakota, here and here. Thanks to co-blogger Haskell Murray for the suggestion.
This is a picture of one of the mudrooms from a crew camp near Dickinson, ND, in Dunn County:
This is a VIP room in the same facility. It has a private bath, while other rooms are smaller and share a jack-and-jill style bathroom.
This is the sign for the guest laundry -- No Greasers.
This is a picture of the crude oil site for loading oil on the tanker cars.
A crude storage tank:
Most of the oil coming out of North Dakota, 1 million barrels a day, is shipped by rail:
This is North Dakota crude. It comes from the ground a little more orange in color, but mellows to this over time. It's not thick; it almost like iced tea.
Flaring natural gas remains a problem, though some gathering is underway to help reduced the amount of flaring in the state.
Finally, some pictures from Theodore Roosevelt National Park:
Tuesday, September 9, 2014
This experience has been rather remarkable, and I'm only two days in to the trip. We covered a lot of miles today, and not all of it was related to the oil and gas business. I started the day with a run, at a misty 43 degrees, after a high of 85 yesterday. This is not relevant, other than to saw I was a bit cold this morning.
Target Logistics Dunn County Lodge
A few visits of interest today: First: Target Logistics Dunn County Lodge, which is a crew camp site. These are often know as "man camps." They prefer "workforce housing." I'll stick with crew camps.
It was was an impressive site for quickly built housing. The facility provides housing that does not take away from the local community, and deals with parking, water, and utility issues, as well as other resource issues. The site has about 600 beds, and costs about $8-$10 million to build. They plan about a 20-month payoff for the build, which they met. Impressive.
Prices are geared to be market competitive. The average is about $120 per night, which includes all food and utilities, though companies negotiate their own deals. The people who work in the area tend to be transient -- two weeks on two weeks off. People who do hydraulic fracturing tend to do two weeks on, on week off. Construction people do four weeks on, two weeks off. The people who service the facility (and are also not locals, because the market is tight) work six weeks on two weeks off, and they pay their own travel.
There are mostly men on the site, but women are there. They have their own rooms or share rooms with other women with a "jill and jill" bathroom share. People generally work within 45 miles or they find other facilities. The site is zero tolerance -- no alcohol, no firearms, no visitors. The have on-site workout facilities, laundry, and food service. It's clean, well organized, and safe. It's the Cadillac of temporary housing. And I'd try very hard not to ever, ever live there. While I admit, it's better than some of my college housing, it lacks the sense of free will I had then.
Bakken Oil Express
Next was a trip to Bakken Oil Express, an oil shipping facility. It was impressive in its organization and its operation. It was big, with oil tanks, a rail yard, and lots of trucks. Oil there moves by unit train, which is 104 cars. The site has several tanks, and they can store 640k gallons of oil. Tanks are generally 90k or 105k gallons. An average truck brings 225 barrels of oil. It takes 17 to 18 hours to load a train, and the site loads about 1.5 trains per day. That is about 685 gallons per car.
A diesel refinery is supposed to come on line on the site to serve the region, which is expected in December. The site has about 75 employees, with salaries at $27/hour and up.
The site is working to upgrade safety, including fire suppression, which it doesn't have now. They are building foaming pipes to help if they have a problem. Right now, the plan in case of fire is to ship out what's possible, and let it burn out.
Theodore Roosevelt National Park
This is a park you should see. I think I'd say that of all national parks, but I love this one. The park is facing several challenges. This includes protecting the "sound scape and sense of solitude," that made Teddy Roosevelt love the place so much. This is a challenge for a park that has major highways running through it and major mineral operations being sought in the nearby land parcels.
The park has done well working with companies, who have responded well to requests to keep noise and other issues away from the park when issues have been raised. Bakken flaring (or natural gas) has been an issue, too, and the park is working to preserve the night sky. The area has had (and continues to have ) amazing view of the stars and the night sky, and flaring can cause haze and horizon light that makes the sky less amazing. They are working on it.
There is no drilling in the park, but drilling near has impacts, too. So far, industry, the park, and the community have done well to minimize impacts.
Tomorrow, we visit more communities, which are widely known to have had even larger impacts than what I have seen so far. The oil boom has been good for the region in many ways, but it's been hard, too. We're about to get a sense of how hard.
Monday, September 8, 2014
Today marked the first day of several meeting with people from North Dakota to discuss the oil boom and how it has impacted the state. I lived in the state, and I loved it, so I think I am a little more connected than many to what's happened here. That said, I lived on the other side of the state from the oil boom, and I only spent five (largely great) years in North Dakota, so while I'm informed, I have hardly "lived the boom." I've just been watching and trying to pay attention.
A few things I was told tonight struck me as significant:
1. Housing costs are still a huge issue. Building a new house in Dickinson can run upwards of $250 per square foot. A one-bedroom apartment can easily run $1300.
2. In 1997, there were 698 hotel rooms in the city, largely for tourism jumping off for the North Dakota Badlands. By 2004, that number was 754. As of 2013, that number has increased to 1632. (The number is true of 2014, too.)
3. In 2005, the average daily rate for a hotel room was $53.96
By 2008: $68.95
2013: $112.37 (280 rooms were added in 2013).
This does not likely mean that things are slowing down, thought perhaps they are stabilizing. More permanent housing has also been going up at a significant rate, so the increased number of hotel rooms, combined with those leaving the temporary housing market, likely explains the (relatively) modest decrease in average daily rate.
4. Traffic and road maintenance remain a big concern. One person I met tonight said he'd had a paved road to his house for years, until the oil boom came, and it's now back to being a gravel road.
5. I learned the term "Bakken charge," which I'm told refers to the premium one pays for goods and services in this region. Examples given include $5 Little Caesar's Pizzas, which are $5.99 here (or 20% more) and flyers from big box stores with 20% ot 40% higher prices than the same flyers in other markets.
6. The idea of community action is less of a focus here than in other areas, like what we've seen in some spots in West Virginia. It's not that people don't care, but they don't necessarily participate in community actions. Once can opine on the reasons why, and I have my guesses, but as a lawyer, I'll stick to reporting what I've been told on this one: if you want support, you need to go to the people where they are. (That seems like sound advice anywhere.)
7. All those people asking for minimun wage at fast-food restaurants across the country "are really just asking to be paid like the they live in Dickinson, ND."
8. A major biggest employment challenge is finding people "who can pass a drug test. Some employers say when that when potential applicants are asked that question, 'half the people just turn and walk out.""
I learned a lot more than this after a good conversation with interesting people, but I'll leave it here for tonight.
I'm currently flying at about 30,000 feet on my way to Dickinson, North Dakota. Regular readers know I do much of my research in the energy sector and that the impacts of horizontal drilling and hydraulic fracturing have had on the local, regional, national, and global economies are an interest of mine. This trip marks my first return to North Dakota since I left the University of North Dakota School of Law in the summer of 2012, and it will be my most extended trip to the Bakken oil patch in the western part of the state.
I have the benefit of traveling with a group from West Virginia University, and we're gathering information for a variety of applications, all of which I hope will help us plan for a more sustainable economic and environmentally viable energy future. The trip is scheduled to include meetings with government officials (state and local), industry representatives, landowners, farmers, educators, and others. I'm looking forward to this rare opportunity to hear so many different perspectives from people living in the heart of the U.S. oil boom.
Over the last few years, I have written about the challenges and opportunities related to the shale oil and gas reserves made available through horizontal drilling and hydraulic fracturing, with a focus on the economic, environmental, and social impacts. I'm curious to see how my earlier assessments stack up with new information regarding the current situation. Throughout the week, I plan to write about things I learn, provide some updates about what's happening, and maybe share some thoughts about what's next from the business, legal, and regulatory perspectives. Follow me on Twitter, too, @jfershee for (hopefully) in-the-moment updates.
Stay tuned for more to come, and for those interested, here are some of my recent pieces on the subject:
- North Dakota Expertise: A Chance to Lead in Economically and Environmentally Sustainable Hydraulic Fracturing, 87 North Dakota Law Review 485 (2011) (invited) (symposium issue)
- The Oil and Gas Evolution: Learning from the Hydraulic Fracturing Experiences in North Dakota and West Virginia, 19 Texas Wesleyan Law Review 23 (2012) (invited) (symposium issue)
- Facts, Fiction, and Perception in Hydraulic Fracturing: Illuminating Act 13 and Robinson Township v. Commonwealth of Pennsylvania, 116 W. Va. L.Rev. 819 (2014) (invited)
Wednesday, September 3, 2014
(Note: This is a cross-posted multiple part series from WVU Law Prof. Josh Fershee from the Business Law Prof Blog and Prof. Elaine Waterhouse Wilson from the Nonprofit Law Prof Blog, who combined forces to evaluate benefit corporations from both the nonprofit and the for-profit sides. The previous installment can be found here (NLPB) and here (BLPB).)
What It Is: So now that we’ve told you (in Part I) what the benefit corporation isn’t, we should probably tell you what it is. The West Virginia statute is based on Model Benefit Corporation Legislation, which (according to B Lab’s website) was drafted originally by Bill Clark from Drinker, Biddle, & Reath LLP. The statute, a copy of which can be found, not surprisingly, at B Lab’s website, “has evolved based on comments from corporate attorneys in the states in which the legislation has been passed or introduced.” B Lab specifically states that part of its mission is to pass legislation, such as benefit corporation statutes.
As stated by the drafter’s “White Paper, The Need and Rationale for the Benefit Corporation: Why It is the Legal Form that Best Addresses the Needs of Social Entrepreneurs, Investors, and, Ultimately, the Public” (PDF here), the benefit corporation was designed to be “a new type of corporate legal entity.” Despite this claim, it’s likely that the entity should be looked at as a modified version of traditional corporation rather than at a new entity.
To read the rest of the post, please click below.
Tuesday, September 2, 2014
At the New York Times Dealbook, Andrew Ross Sorkin notes that public pension funds have been lately silent on the issue of corporate inversions. (See co-blogger Anne Tucker on inversions here and here.) Sorkin writes, "Public pension funds may be so meek on the issue of inversions because they are conflicted."
Maybe I am reading too much into his choice of words, but "meek" implies more to me than "moderate" or "mild" and instead conveys a value judgment that fund managers have an obligation to speak out. I am not pretty sure that's not true.
I definitely don't like companies heading offshore for mild gains, and I don't think I would support such a choice, but as a director, I'd sure analyze the option before deciding. Fund managers, too, have obligations to look out for their stakeholders, and unless I had a clear charge on this front or thought the inverting company was clearly wrong, I'd probably stay quiet, too.
Although the meek may inherit the earth, at least at this point, I might substitute "meek" with "cautious" or even "prudent." But that's just me.
Friday, August 29, 2014
BPLB's own Joshua Fershee, Professor of Law with the Center for Energy and Sustainable Development at West Virginia University College of Law, was quoted in a Greenwire story on the Kinder Morgan deal. You can read an excerpt below
Kinder Morgan deal leaves questions for investors
Mike Lee, E&E reporter Published: Thursday, August 28, 2014
Kinder Morgan Inc. may have to do more to convince its investors that its proposed $44 billion merger with its subsidiaries is in their best interest.
The company -- the nation's biggest operator of oil and gas pipelines -- took a series of steps to ensure there were no conflicts of interest during the negotiations, and the subsidiaries negotiated for a higher bid from the parent, Kinder Morgan said in a filing<http://www.sec.gov/Archives/edgar/data/1506307/000104746914007230/a2221196zs-4.htm>intended to persuade investors to vote for the merger.
The question will be: Did the company go far enough? Kinder Morgan faced similar questions when it went private in 2007 and when it bought El Paso Corp. in 2011.
The market's reaction -- prices for all three companies have risen since the deal was announced -- shows that investors are willing to overlook a temporary downside if a company has a long-term plan, said Joshua Fershee, a law professor at West Virginia University.
Kinder Morgan's CEO "knows what he's doing, and he's articulated a plan that says upfront, 'Here's where we're going to take the hit,'" Fershee said.
Tuesday, August 26, 2014
West Virginia is the latest jurisdiction to adopt benefit corporations – the text of our legislation can be found here. As with all benefit corporation legislation, the thrust of West Virginia’s statute is to provide a different standard of conduct for the directors of an otherwise for-profit corporation that holds itself out as being formed, at least in part, for a public benefit. (Current and pending state legislation for benefit corporations can be found here.)
As WVU Law has two members of the ProfBlog family in its ranks (Prof. Josh Fershee (on the Business Law Prof Blog) and Prof. Elaine Waterhouse Wilson (on the Nonprofit Law Prof Blog)), we combined forces to evaluate benefit corporations from both the nonprofit and the for-profit sides. For those of you on the Business Prof blog, some of the information to come on the Business Judgment Rule may be old hat; similarly, the tax discussion for those on the Nonprofit Blog will probably not be earth-shaking. Hopefully, this series will address something you didn’t know from the other side of the discussion!
Part I: The Benefit Corporation: What It’s Not: Before going into the details of West Virginia’s legislation (which is similar to statutes in other jurisdictions), however, a little background and clarification is in order for those new to the social enterprise world. A benefit corporation is different than a B Corporation (or B Corp). B Lab, which states that it is a “501(c)(3) nonprofit” on its website, essentially evaluates business entities in order to brand them as “Certified B Corps.”
It wants to be the Good Housekeeping seal of approval for social enterprise organizations. In order to be a Certified B Corp, organizations must pass performance and legal requirements that demonstrate that it meets certain standards regarding “social and environmental performance, accountability, and transparency.” Thus, a business organized as a benefit corporation could seek certification by B Lab as a B Corp, but a business is not automatically a B Corp because it’s a state-sanctioned benefit corporation – nor is it necessary to be a benefit corporation to be certified by B Labs.
In fact, it’s not even necessary to be a corporation to be one of the 1000+ Certified B Corps by B Lab. As Haskell Murray has explained,
I have told a number of folks at B Lab that "certified B corporation" is an inappropriate name, given that they certify limited liability companies, among other entity types, but they do not seem bothered by that technicality. I am guessing my fellow blogger Professor Josh Fershee would share my concern. [He was right.]
A benefit corporation is similar to, although different from, the low-profit limited liability company (or L3C), which West Virginia has not yet adopted. (An interesting side note: North Carolina abolished its 2010 L3C law as of January 1, 2014.) The primary difference, of course, is that a benefit corporation is a corporation and an L3C is a limited liability company. As both the benefit corporation and the L3C are generally not going to be tax-exempt for federal income tax purposes, the state law distinction makes a pretty big difference to the IRS. The benefit corporation is presumably going to be taxed as a C Corporation, unless it qualifies and makes the election to be an S Corp (and there’s nothing in the legislation that leads us to believe that it couldn’t qualify as an S Corp as a matter of law). By contrast, the L3C, by default will be taxed as a partnership, although again we see nothing that would prevent it from checking the box to be treated as a C Corp (and even then making an S election). The choice of entity determination presumably would be made, in part, based upon the planning needs of the individual equity holders and the potential for venture capital or an IPO in the future (both very for-profit type considerations, by the way). The benefit corporation and the L3C also approach the issue of social enterprise in a very different way, which raises serious operational issues – but more on that later.
Finally, let’s be clear – a benefit corporation is not a nonprofit corporation. A benefit corporation is organized at least, in some part, to profit to its owners. The “nondistribution constraint” famously identified by Prof. Henry Hansmann (The Role of Nonprofit Enterprise, 89 Yale Law Journal 5 (1980), p. 835, 838 – JSTOR link here) as the hallmark of a nonprofit entity does not apply to the benefit corporation. Rather, the shareholders of a benefit corporation intend to get something out of the entity other than warm and fuzzy do-gooder feelings – and that something usually involves cash.
In the next installments:
Part II – The Benefit Corporation: What It Is.
Part III – So Why Bother? Isn’t the Business Judgment Rule Alive and Well?
Part IV – So Why Bother, Redux? Maybe It’s a Tax Thing?
Part V - Random Thoughts and Conclusions
EWW & JPF
Tuesday, August 19, 2014
At West Virginia University College of Law, we started classes yesterday, and I taught my first classes of the year: Energy Law in the morning and Business Organizations in the afternoon. As I do with a new year coming, I updated and revised my Business Organizations course for the fall. Last year, I moved over to using Unicorporated Business Entities, of which I am a co-author. I have my own corporations materials that I use to supplement the book so that I cover the full scope of agency, partnerships, LLCs, and corporations. So far, it's worked pretty well. I spent several years with Klein, Ramseyer and Bainbridge's Business Associations, Cases and Materials on Agency, Partnerships, and Corporations (KRB), which is a great casebook, in its own right.
I did not make the change merely (or even mostly) because I am a co-author. I made the change because I like the structure we use in our book. I had been trying to work with KRB in my structure, but this book is designed to teach in with the organization I prefer, which is more topical than entity by entity. I'll note that a little while ago, my co-blogger Steve Bradford asked, "Are We Teaching Business Associations Backwards?" Steve Bainbridge said, "No." He explained,
I've tried that approach twice. Once, when I was very young, using photocopied materials I cut and pasted from casebook drafts the authors kindly allowed me to use. Once by jumping around Klein, Ramseyer, and Bainbridge. Both times it was a disaster. Students found it very confusing (and boy did my evaluations show it!). It actually took more time than the entity by entity approach, because I ended up having to do a lot of review (e.g., "you'll remember from 2 weeks ago when we discussed LLCs most recently that ...."). There actually isn't all that much topic overlap. Among corporations, for example, you've got the business judgment rule, derivative suits, "duty" of good faith, executive compensation, the special rules for close corporations, proxies, and so on, most of which either don't apply to LLCs etc.... or don't deserve duplicative treatment.
I have great respect for Prof. Bainbridge, and his writing has influenced me greatly, but (not surprisingly), I come out more closely aligned with my perception of Larry Ribstein on such issues, and with Jeff Lipshaw, who commented,
I disagree about the lack of topic overlap, and suspect Larry Ribstein is raging about this in BA Heaven right now. . . .
This may reflect differences among student populations, but the traditional corporate law course, focusing primarily on public corporations, is less pertinent in many schools where students are unlikely to be doing that kind of work when they graduate. It's far more likely that they'll need to be able to explain to a client why the appropriate business form is a corporation or an LLC, and what the topical differences between them are.
I completely agree, and I would go another step to say that I find the duplication to be a valuable reinforcement mechanism that is worth (what I have seen as limited) extra time. I am teaching a 4-credit course, though, which gives me time I never had in my prior institution's 3-credit version.
One thing I am doing differently this year is my first assignment, which seeks to build on what I see as a need for students here. That is, I think many of them will need to be able to explain entity differences and help clients select the right option.
I had my students fill out the form for a West Virginia Limited Liability Company (PDF here). I had a few goals. First, I don't like to have students leave any of my classes without handling at least some of the forms or other documents they are likely to encounter in practice. Second, I did it without any instruction this time (I have used similar forms later in the course) because I thought it would help me tee up an introduction to all this issues I want them thinking about with regard to entity choice. (It did.) Finally, I like getting students to see the connection between the form and the statute. We can link though and see why the form requires certain issues, discuss waivable and nonwaivable provisions, and talk about things like entity purpose, freedom of contract, and the limits of limited liability.
If nothing else, the change kept things fresh for me. I welcome any comments and suggestions on any of this, and I wish everyone a great new academic year.
Tuesday, August 12, 2014
Kinder Morgan, a leading U.S. energy company, has proposed consolidating its Master Limited Partnerships (MLPs) under its parent company. If it happens, it would be the second largest energy merger in history (the Exxon and Mobil merger in 1998, estimated to be $110.1 billion in 2014 dollars, is still the top dog).
Motley Fool details the deal this way:
Terms of the deal
The $71 billion deal is composed of $40 billion in Kinder Morgan Inc shares, $4 billion in cash, $27 billion in assumed debt.
Existing shareholders of Kinder Morgan's MLPs will receive the following premiums for their units (based on friday's closing price):
- Kinder Morgan Energy Partners: 12%
- Kinder Morgan Management: 16.5%
- El Paso Pipeline Partners: 15.4%Existing unit holders of Kinder Morgan Energy Partners and El Paso Pipeline Partners are allowed to choose to receive payment in both cash and Kinder Morgan Inc shares or all cash.
The most important man in the American Energy Boom wears brown slacks and a checkered shirt and sits in a modest corner office with unexceptional views of downtown Houston and some forgettable art on the wall. You would expect to at least see a big map showing pipelines stretching from coast to coast. Nope. “We don’t have sports tickets, we don’t have corporate jets,” growls Richard Kinder, 68, CEO of Kinder Morgan, America’s third-largest energy firm. “We don’t have stadiums named after us.”
August 12, 2014 in Business Associations, Corporate Finance, Corporate Governance, Corporations, Current Affairs, Financial Markets, Joshua P. Fershee, M&A, Partnership, Teaching, Unincorporated Entities | Permalink | Comments (0) | TrackBack (0)