Oil and Gas Flashcards
rule of capture
default rule for mineral rights n TX
- rule of nonliability for causing oil and gas to migrate across property lines resulting in drainage of oil and gas from under another’s land
limitations to the rule of capture: correlative rights
every oil and gas owner has a right to a fair opportunity to produce oil and gas from a common reservoir underlying his property
rule of capture does NOT apply to
- negligently drilled oil and gas
- illegally drained oil and gas
- stored gas
stored gas
personal property (real when in the ground)
if a rival operator drills into a reservoir that contains stored gas, what can the owner do
sue for damages because the rule of capture is no defense for drainage of stored gas
fee simple interest in oil and gas
owns both the surface and minerals below
- property owner may transfer less than her entire interest through severance
development right
exclusive right to explore, produce, and develop minerals
executive right
right to lease the minerals
mineral interest’s rights include
- development right
- executive right
- economic benefits
bonus
upfront payment for signing the lease usually based on dollar per acre leased
royalty
fractional share of any oil and gas produced that is free from costs of production usually 1/8
delay rentals
compensation for deferring drilling during the primary term of the lease, based on acreage
when is the mineral estate dominant
when the mineral estate has been severed from the surface estate
- the owner of the mineral estate can use the surface as is reasonably necessary to develop the oil and gas
the accommodation doctrine requires the mineral owner to accommodate surface uses, but only under the following conditions
- surface owner has a preexisting use of the surface
- mineral estate owner has a reasonable alternative method of developing the oil and gas that is less destructive of the surface but still allows the mineral estate to drill and produce economically
- reasonable alternative is available on the leased tract
interests created by oil and gas lease
coveys a deed to a fee simple determinable - the lease may last forever but it may terminate if there is no production at the end of a specified time
working interest
gives the lessee the exclusive right to explore, develop and produce from the property as well as the obligation to pay all costs of production
royalty interest
gives the lessor a share of the production that is free of the costs of production
nonparticipating royalty interest (NPRI)
right to receive royalty payments held by someone other than the mineral interest owner
- if the mineral owner conveys (by sale, gift, or will) her right to receive royalty payments to another but retains ownership of the mineral estate that person has an NPRI
concurrent ownership - cotenancy
every cotenant can drill and produce or lease his undivided interest without the consent of the cotenants but he must account to the others for their rightful share of the profits from production
plugging a well no longer in service
operator of a well has the primary responsibility to plug, usually within 1 year from the time drilling or production ceases.
- operator: person responsible for the physical control of the well at the time it is abandoned
- if operator not available then non-operators plug
Duhig Doctrine
applies when a 3-party chain of conveyances seemingly results in the conveyance of more than 100% of the mineral (or royalty interest)
- grantor, and not the grantee will bear the loss
9 substances that belong to the surface estate as a matter of law
1) building stone 2) limestone 3) caliche 4) surface shale 5) water (salt and fresh) 6) sand 7) gravel 8) near surface lignite or coal 9) iron ore
when does the accommodation doctrine apply
1) lessee’s use of the surface substantially interferes with preexisting surface use
2) alternative methods that are less injurious to the surface are practicable for the lessee to use AND
3) alternative is available on the leased tract
unless limited in some manner by express lease provisions, statutes or the accommodation doctrine, a mineral interest owner (lessee) has an implied right to…
use the surface estate as is reasonably necessary to carry out the purposes of an oil and gas lease