Pipeline Close-Up
Pipeline Installation Photographs
The following image is a close-up of a pipeline in Eastern Ohio that was being installed in the early fall of 2017.
You can see the welded section (red), the remainder of the pipe (green), and the markings done by welding inspectors. In this instance you can see the word ‘repair’ along with some specific references to dates and inspector numbers. On my client’s properties with high pressure FERC pipelines, I require that 100% of the welds be x-rayed in advance. This is a good illustration as to why I require this. Had this weld not been inspected, the pipeline would have certainly blown out during the water pressure test. Generally, FERC pipelines are tested with water at 110% in excess of design capacity pressure prior to flowing natural gas through the pipeline. While fresh water certainly wouldn’t harm your property from an environmental standpoint, it could definitely cause damage to nearby trees, crops and structures. I have heard of a bad weld causing a barn to blow down entirely during a water pressure test. This is one of the innumerable things to watch out for during contract negotiations.
Let’s look at another picture:
In this picture, notice the nice distance between the spoil pile and the nearby trees. Dumping excessive dirt on top of tree roots can cause rampant tree death on your property. Finally, you’ll also note the some rocks below the pipeline. Just a quick note to say that I highly recommend a rock sifting and removal clause.
In general, this pipeline company did a fairly good job with installation. Reclamation is yet to come.
Read More
Pipeline Construction Issues
Pipeline Construction Issues
As a pipeline attorney, I spend a lot of time impressing upon potential clients the importance of having a rock-solid pipeline contract (this can be an Easement or Right-of-Way). The importance of a thorough, specific pipeline contract cannot be overstated. There is something else I say that often surprises landowners, and that is, “no matter how solid I make the contract, neither of us can control what happens on your property during construction.”
Over the course of the last twelve years, I have seen the good, the bad and the ugly with respect to pipeline construction. I’ve seen A+ operations and F- ones. And the reality is that even the best contract in the world cannot control the physical operations. All it can do is set you up for success in dealing with problems. Let me give a few examples.
This fall I was standing in knee-deep mud on a property in Eastern Ohio. Immediately in front of me was a ten-foot ditch. On the other side of the ditch was a thirty-six-inch diameter pipeline ready to be lowered into the ground. On the far side of the pipeline was my client’s “back fields” with head-high hay and waist-high beans. Oops. In this situation, we had written the contract specifically to say that the pipeline company would leave two land bridges during construction which would allow my client to take his combine and baler across the ditch to his backfields. The construction crew ignored their instructions and didn’t leave my client either land bridge. So now his crops were neglected and when he eventually got to the other side he was going to have problems getting them cut down to size without damaging his equipment. Let alone the fact that it was coming into October and he might not be able to sell the crops he was able to cut.
Earlier this summer, a different pipeline company failed to close a gate behind them and let a client’s cattle out into the middle of a state route. Last year I had multiple clients who had ‘water boxes’ placed on their property outside where the pipeline company was allowed to be per the contract. I’ve seen pipeline companies fail to clean up the windrows of brush and small timber that they created during construction. I’ve seen them block driveways where they weren’t supposed to be. I’ve seen them take trees down where they weren’t supposed to be.
Despite all of the above, I’ve also seen pipeline companies go above and beyond the call of duty. I’ve seen them fill low-lying areas with extra soil to help out a landowner. I’ve seen them rise to the occasion and admit their mistake and help wrangle escaped cattle. I’ve seen them return a property to golf-course conditions.
What I want to impress upon you is that no contract can prevent these “accidents.”
This makes it extremely important for you, as a landowner, to work with an attorney who 1) has seen it all, 2) has an existing relationship with pipeline companies who know she means business, 3) understands the potential solutions to construction issues, and 4) doesn’t mind getting her boots dirty to come up with creative solutions.
The contract is only 75% of the battle.
Read MoreThings Land Agents Say – Part Two
This is a second post in a series describing common promises or other statements land agents make to entice landowners to signing leases, easements, or other agreements relating to oil and gas or pipeline transactions.
Click here to view part one.
“The crops will grow right over it, you won’t even know it’s there!” While the first part of this statement may be true, the second part is a loaded gun. True, most pipeline contracts allow farmers to plant crops on top of the easement. But trust me, the farmers will know that it’s there. Under the best case scenario circumstances a farmer will suffer yield loses in the first four years. Year one is construction. Year two is reclamation (for farm ground this should include fertilization and disc’ing, aeration, etc. to prevent compaction). Even if these methods are implemented correctly, I still usually see up to two years significant yield loss. With the worst case scenario you could see issues with compaction, erosion, snow melt, poor fertilization, and any other number of problems for years to come. Most of these issues can be addressed in your contract. Any pipeline contract worth its salt deals with specific methods for reclamation and particular fertilization methods [by the way, the same is true for non-crop lands!]. An exceptional pipeline contract will also deal with what happens when the pipeline company doesn’t follow the contract, or a perfect storm of weather circumstances causes severe compaction or erosion. Trust me, you’ll know it’s there. Please speak with an experienced pipeline attorney to plan for the worst-case scenario.
“Pipelines are safe.” Pipelines are widely considered to be the safest method of transporting petroleum, natural gas and their constituents. But this is largely because a pipeline’s only competition is rail, truck and barge, which also come with fairly severe safety considerations of their own. The debate rages on inside and outside of the industry as to what ‘safe’ really means. As a landowner, what you care about is the two measures of distance: how far away from your home/business/buildings the pipeline will be, and how deep in the ground it will be. The larger these distances, the more you have set yourself up for success in the event that a catastrophe happens. Sometimes you can control (or at least have input in) where the pipeline goes across your property—sometimes you can’t. This depends on what type of pipeline is being installed. Typically, a landowner can have input into how deep the line is buried, although most pipeline companies act like you can’t. Getting good legal representation is key to understanding both these issues on your specific property.
“We can’t do that because of our regulations.” This phrase is most often used when you’ve asked a pipeline company to do something that they don’t want to do because it will be expensive for them. I hear it a lot when a landowner asks for extra depth of cover. On a FERC (federally regulated) pipeline, it’s true that the company will have to follow regulations, what they don’t tell you is that often they are allowed to raise the bar above FERC regulations. For example, FERC may require three feet of cover on top of the pipeline, but there is nothing stopping the pipeline company from agreeing to five feet of cover over the line. There are innumerable examples here. Also note that non-FERC pipelines have very few regulations at all.
An experienced pipeline attorney can help you translate the above statements to fit your needs.
Read MoreThings Land Agents Say
Things that Land Agents Say – Part One
Part Two can be viewed here.
Today I thought I would write some of the things that I’ve heard land agents say to entice landowners to sign oil and gas documents. Part One will cover things that are not specific to a particular type of oil and gas contract, meaning that you could hear these phrases in lease, well-pad, pipeline, or other oil and gas negotiations.
“Don’t worry, we will just call most of your payment ‘damages’ so that you don’t have to pay taxes.” When I hear this phrase, it makes me want to scream. First, please don’t ever take tax advice from a land agent. Call an accountant—preferably a seasoned accountant who understands oil and gas contracts. Second, most damages are taxable per the I.R.S.! Third, for those non-taxable damages (a rare occurrence to begin with), they are generally limited in scope so that they can only be used one time. For those folks that live in oil and gas country it would be common to have multiple leases, pipeline rights of way and possibly even a well pad agreement. If you’ve used up your damages in some of your early transactions, you may not have any more to use! Crop and timber damages (of any kind) are generally taxable at ordinary income levels no matter what you do. Lease bonus money is also taxable at ordinary income levels because it is considered rent by the I.R.S. Sales of mineral rights can be capital gains (lower tax rate) in the right circumstances. Pipeline and well-pad damages can sometimes be considered damages to the residue of your property, which could mean not paying taxes, but can only be used one time. I have seen too many people take tax advice from land agents and they end up almost losing the farm by the time April 15 rolls around. Please call a knowledgeable accountant and oil and gas attorney to help minimize your tax burden.
“Hurry up and sign today, I can only give you this price through today.” This phrase comes in a bunch of different flavors, so you can use your imagination here. The point is the land agent is trying to entice you to hurry up and sign before you ask too many questions. I call these ‘used car salesman tactics.’ Now just like car salesmen, there are good and honest land agents—this is not intended to disparage either profession—but at the end of the day, they are in a sales job where numbers matter. I encourage landowners to remember that at the end of the day their agent has to report into his boss how many signatures he collected from landowners. No land agent wants to finish the day empty. Prices in this industry fluctuate, that’s just the way it goes. Have an attorney review your paperwork and your offer. Make your deal with the information you have in front of you at the time and don’t let yourself feel buyer’s remorse after the fact. Above all else, please don’t fall victim to land agent sales tactics. Take your time and do it right. Even if you do lose a couple dollars, you’ll still come out ahead in the end.
Read MorePipeline Installation and Current Use Taxation in New Hampshire
Would the installation of a pipeline pull the affected land out of the favorable “current use” valuation regime and cause it to be taxed more heavily?
Background
Northeast Energy Direct (NED) has applied to the Federal Energy Regulatory Commission for a license to install a natural gas pipeline across southern New Hampshire. The question has arisen as to the tax effect on an affected landowner under RSA 79-A, Current Use Taxation. The issue: Would the installation of a pipeline pull the affected land out of the favorable “current use” valuation regime and cause it to be taxed more heavily?
What is the Current Use Tax rule?
New Hampshire has declared in RSA 79-A that it is the public purpose of the state to encourage the preservation of open spaces as a means of promoting an “attractive outdoor environment for work and recreation” and to conserve “land, water, forest, agricultural and wildlife resources.” To that end the state has determined not to tax land at values “incompatible with open space usage” and to assess land at its “current” (open space) use, as opposed to its theoretical “highest and best” use. The value of land, as such, is assessed at the property’s value based upon its “income-producing capability” in its current use for growing forest or crops, not upon its fair market value.
What types of Land Uses are there?
For valuation purposes under the statute, a distinction is made between “farm land,” “forest land, “unproductive land” and “wetlands.” “Farm land” means cleared land capable of growing crops. “Forest land” means land growing trees. “Unproductive land” means land incapable of growing crops or forest because of poor soil or because it is rocky, steep, etc.
“Open space lands” can mean farm, forest or unproductive land. “Wetlands” are those areas of forest, unproductive or crop land that are inundated or saturated by surface water such they that support hydric vegetation. If land is deemed “unproductive” it is valued and taxed at the lowest current use value.
Who classifies the land? What values do they use?
The Selectmen or assessing officials are to appraise open space land—excluding buildings or other improvements— at valuations based upon current use values established by the Current Use Board established under RSA 79-A3. Farmland values flow from a board-established soil potential index.
What happens when the land use changes?
When the usage of land that had been classified as “open space land” changes, it is subject to a “land use change tax.” Pursuant to RSA 79-A:7, I, the LUCT is assessed “at the rate of 10 percent of the full and true value determined without regard to the current use value of the land which is subject to a non-qualifying use.” The tax is in addition to the annual real estate tax imposed on the property and is due upon the land use change. Once land has come out of current use valuation, it is taxed at its full fair market value under RSA 75:1.
What triggers a land use change?
A land use is considered “changed” when actual construction begins causing physical changes in the earth, such as building a road to service a new home or subdivision, or excavating a construction site. (It is noted that a land use is changed if excavated materials from the property are sold. Thus, where ledge is involved in the installation of a pipeline and it must be shot by dynamite, it should be specified in the right-of-way agreement with the pipeline company that it is the obligation of the company to dispose of shattered rock off premises—the landowner probably does not want to try to sell the debris for road fill….) Only land that is specifically affected is subject to the change tax. Under RSA 79A VI there are exceptions, however.
Land use is not considered changed if:
• Land under current use is taken by eminent domain or any other type of governmental taking which would cause the use change penalty to be invoked.
• Land abutting a site taken by eminent domain…upon which construction is in progress is used to stockpile earth taken from the construction site.
• Land accorded current use assessment in one category is changed in use to any other qualifying category.
• Land under current use assessment is eligible for conservation restriction assessment pursuant to RSA 79-B.
Does the installation of a pipeline trigger a land use change?
It would seem clear that where land (in this case an easement) is taken by eminent domain, no change in use occurs. The Natural Gas Act regulates interstate natural gas pipelines. Section 717f (h) of the Act provides:
When any holder of a certificate of public convenience and necessity cannot acquire by contract, or is unable to agree with the owner of property to the compensation to be paid for the necessary right-of-way to construct, operate, and maintain a pipe line or pipe lines for the transportation of natural gas, and the necessary land or other property, in addition to right-of-way, for the location of compressor stations, pressure apparatus, or other stations or equipment necessary to the proper operation of such pipe line or pipe lines, it may acquire the same by the exercise of the right of eminent domain in the district court of the United States…, or in the State courts….
What if the land was seized by eminent domain?
This presents the question as to whether a negotiated right-of-way under the “threat” of eminent domain—short of a litigated taking-in-court—constitutes a “taking by eminent domain,” or “any other type of governmental taking” within the meaning of the N.H. statute. It would seem that it does. Eminent domain is often referred to as an “involuntary conversion,” meaning, once a landowner is in the headlights of the government taking process, he/she is being forced to do something; taking is involuntary and absolutely beyond the control of the landowner. The inevitable road to the loss of property interest is straight and clear, though the ultimate process for determining compensation (negotiation or trial) is not yet determined. Negotiation is obviously favored as saving the resources of condemnor, condemnee and the courts.
The public policy of the New Hampshire law is echoed and amplified in I.R.C. Section 1033 (a), which deals with the tax consequences of an involuntary conversion of property into cash or other property. It reads:
(a) General rule: If property (as a result of its destruction in whole or in part, theft, seizure, or requisition or condemnation or threat or imminence thereof) is compulsorily or involuntarily converted….
The statute then provides that there is no tax recognition of the proceeds of the involuntary conversion, provided the landowner purchases similar property within a certain time frame. The point is that the federal statute accords recognition to the practicalities of the taking process. Most cases are settled short of trial; in fact, most often landowners negotiate a fair settlement with the government without a formal takings case being filed. It would seem under New Hampshire law that settling with a public utility, short of trial and even short of the utility filing suit should be seen as being in the eminent domain process and should not constitute a change in use. A practical tip: It is recommended that certain verbiage be incorporated into the easement agreement that reflects that the parties came to agreement in the face of the appropriation process that otherwise would have been forthcoming.
Assuming that a New Hampshire town would interpret this portion of the law otherwise, other relief from the change use tax is available. RSA 79-A VI provides further:
VI. For purposes of this section, land use shall not be considered changed and the land use change tax shall not be assessed when:
(c) Land accorded current use assessment in one category is changed in use to any other qualifying category.
What happens when a pipeline is installed in farmland?
In farm country, nothing. In other words utility easements typically do not forbid growing crops. Of course, most of New Hampshire is forestry lands. Yes, it is true that trees are not permitted to be grown on pipeline rights-of-way, but there is nothing to say that a landowner could not plant, for instance, blueberries. In other words the use would be changed from “forest land” to “farm land.” Again, RSA 79-A defines “farm land” as “cleared land capable of growing crops”—it does not say crops actually have to be grown.
Finally, RSA 79-A VI concludes:
VI. For purposes of this section, land use shall not be considered changed and the land use change tax shall not be assessed when:
(d) Land under current use assessment is eligible for conservation restriction assessment pursuant to RSA 79-B. Such land shall then be allowed to change from current use assessment to conservation restriction assessment with no land use change tax being applied.
Under RSA 79-B “conservation restriction” means a permanent restriction of open space land by deed granted in perpetuity… to a federal, state, county, local or other government body, or to a charitable, educational, or other nonprofit corporation established for the purposes of natural resource conservation…. A landowner contemporaneously with the grant of a pipeline easement in theory could grant to, for instance, a town an appropriate conservation easement co-terminus with the pipeline easement.
One final matter of note, a further reduction in the current use value of land is offered under RSA 79-A:4 where land is open 12 months of the year to recreational activity such as skiing or hiking.
Conclusions
In sum, where an affected property owner properly asserts his/her rights under RSA 79-A and 79-B, and where he/she correctly memorializes his/her interactions and agreements with NED the installation of its pipeline should not trigger the land use change tax.
Read MoreOhio Pipeline Map and Proposed ET Rover and Leach XPress Routes
Ohio has so many pipelines that if I tried to put them all on one map, you wouldn’t be able to see much. What I’ve done here is shown what I consider to be the major, state-wide pipelines. All of these lines are interstate (crossing into at least PA, WV, IN or KY). They carry different products. They are different sizes. They have different destinations. What unifies them is their scale- each of these pipelines was a massive undertaking and involved a large number of Ohio landowners.
This map also shows two newly proposed pipelines: ET Rover and Leach XPress. These projects are just getting off the ground now (September of 2014). If you are contacted by ET Rover or Columbia (Leach Xpress), please give us a call. We are forming landowner groups for both pipelines as we believe it gives landowners the leverage to negotiate their best contract possible and receive their best compensation. Read more about the landowner groups here.
Announcing the ET Rover and Leach Xpress Pipelines
Statistics suggest that 75% of landowners will sign the pipeline agreements and negotiate a settlement without getting an attorney involved. The pipeline companies hope that you make that mistake. Be smarter than the 75%– learn about how you can protect your bottom line and your property by joining a landowner group.
Johnson & Johnson has recently teamed up with attorneys Steve Davis and Craig Vandervoort, also known as the Ohio Pipeline Attorneys. Steve, Craig and Molly are currently forming pipeline groups for both the ET Rover and Leach Xpress pipelines. We use our own tried-and-true method of individual representation within a group setting. We believe this gives our clients the best of both worlds.
Read MorePipeline Installation – Wet Spots
When a property is known to be wet (or have wet spots) it needs to be dealt with specially. This issue is not to be confused with wetlands, which require substantially different treatment. When a property is simply muddy, the heavy construction equipment can sink. This is bad news for you because it can cause more damage to your property than necessary. It’s bad news for the pipeline company because it can damage their equipment and delay the project (and time is money).
Read More