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Texas Bar Exam (February 2019) > Oil and Gas > Flashcards

Flashcards in Oil and Gas Deck (48)
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1

Accommodation doctrine

Requires the mineral interest owner and his lessee to accommodate existing surface uses where reasonable alternatives are available for developing the mineral estate.

2

Anniversary date

The date on which payment of delay rentals or shut-in gas well royalties must be made as a condition of keeping a lease. The anniversary date is usually one year from a specified date.

3

Apportionment:

Division of royalties (and sometimes of other lease proceeds) among the owners of interests in the land subject to the lease.

4

Automatic termination

The lessee’s interest terminates by operation of law under a general or special limitation in the lease. At the expiration of the primary term of a lease, if there is no production (or, in some cases, if drilling or reworking operations are not being pursued), then the lessee’s interest automatically terminates by operation of the conditional habendum clause.

5

Bonus

The consideration (usually cash) paid to the mineral owner by the lessee for the execution of an oil and gas lease.

6

Common reservoir

Any oil and/or gas field or part thereof which comprises and includes any area which is underlain by a common pool of oil and/or gas.

7

Continuous drilling operations clause:

A lease clause providing that a lease may be kept alive after the expiration of the primary term and without production if the lessee has initiated and continuously pursued drilling operations of the type specified in the clause.

8

Delay rental

A sum of money payable to the lessor by the lessee for the privilege of deferring the commencement of drilling operations or the commencement of production during the primary term of the lease.

9

Development

The drilling of wells in addition to the discovery of a well on a lease. The drilling of development wells may be required by the express or implied covenants of the oil and gas lease.

10

Dominant Estate Rule

The mineral owner or the lessee under an oil and gas lease is viewed as owning the dominant estate, and the surface owner or lessor is viewed as owning a servient estate. This means that the surface estate is burdened with a servitude or easement in favor of the mineral estate, which enables the mineral owner to use as much of the surface as is reasonably necessary to explore for and produce the minerals under that tract.

11

Dry hole

A well determined to be incapable of commercially producing either oil or gas.

12

Dry hole clause

A lease clause specifying the means by which a lessee may keep a lease alive after the drilling of a dry hole.

13

Duhig Rule

A rule developed by the Texas Courts to deal with the problem of the over-conveyance of fractional interests. The rule is based on breach of warranty and estoppel by deed principles.

14

Easements

Upon the severance of minerals by lease or deed, the lessee or transferee has an easement to use as much of the surface as may reasonably be necessary for exploration and development of minerals.

15

Executive Right

The power to make executive decisions regarding the mineral estate, including the power to lease. The executive right can be severed from the other incidents of mineral ownership.

16

Force majeure clause

A lease clause providing that the performance of the lessee’s covenants shall be excused if the failure of production or performance of covenants is due to causes (usually catastrophic causes) specified in the clause.

17

Forfeiture clause

A clause in an oil and gas lease framed as a condition subsequent, giving the lessor a right of reentry (or power of termination) for breach of the condition. The typical form provides that the lessee is to drill a well or pay rentals or forfeit the lease. This has been interpreted to give the lessor an option to recover the rentals as damages or to declare a forfeiture and cancel the lease when no well has been commenced prior to the Anniversary date during the primary term.

18

Fractional mineral interest (royalty deed)

A deed conveying a fractional or undivided interest in minerals or royalties rather than the entire interest.

19

Implied covenants:

Unwritten promises that generally impose duties on the Lessee and protect the Lessor. Most Courts recognize the following implied covenants:
(1) To protect the leasehold from drainage
(2) To reasonably develop the premises
(3) To produce and market the product
(4) To conduct operations with due care

20

Landowner’s royalty

A share of the gross production of minerals free of the costs of production granted to the mineral owner(s) under a lease as partial consideration for granting the lease.

21

Lessee

The person entitled to drill and operate wells under an oil and gas lease. The lessee pays the lessor a royalty and retains the remainder, known as the “working interest.” The lessee pays all production costs out of his fractional interest.

22

Mineral deed

A conveyance of an interest in the minerals in, on or under a described tract of land. The grantee is given operating rights on the land, and easements of access to the minerals are normally implied unless expressly negated.

23

Mineral interest

The property interest created in oil and gas after a severance by mineral deed or oil and gas lease. Its duration is like that of common law estates, namely, in fee simple, in fee simple determinable, for life or for a fixed term of years. The primary characteristic is the right to enter the land to explore, drill, produce, and otherwise carry on mining activities.

24

Nonexecutive mineral interest

An interest in oil and gas that does not include a right to join in the execution of oil and gas leases and/or the right to develop.

25

Nonparticipating royalty

An expense-free interest in oil or gas, if and when produced, that is carved out of the landowner’s royalty. The prefix “nonparticipating” indicates that the interest holder does not share in bonus or rental payments, nor in the right to execute leases or to explore and develop the property. A nonparticipating royalty owner is entitled to a cost-free share of production without regard to the terms of any lease.

26

Open mine doctrine

A doctrine which developed at common law and which permits a life tenant to continue to sever and appropriate minerals from a mine which was opened before the creation of the life estate.

27

Ownership in place theory

The theory that a landowner owns the oil and gas which was originally in place beneath the surface of her property. Under this theory, the landowner may, by grant or reservation, grant a corporeal or possessory interest in the minerals, separate from the estate in the surface. Despite this theory, title to the oil and gas in place may be lost by legitimate drainage under the Rule of Capture.

28

Partition

The conversion of a concurrent estate (a joint tenancy or a tenancy in common) into:
-Partition by sale—a fund of money, by sale, which is divided pro rata by the tenants;
-Partition in kind—estates are divided and owned in severalty.

Either form of partition may be made by voluntary agreement or by judicial action. In Texas, partition is available as a matter of right.

29

Pooling clause

A lease clause authorizing a lessee to “pool” or join the particular leased premises with other leaseholds for the purpose of creating a single unit.

30

Primary term

The period of time during which a lease may be kept alive by a lessee by virtue of drilling operations on the leased land or the payment of rentals, even though there is no production in paying quantities.