Oil & Gas

Question 1

Preamble

Answer 1

TX oil and gas law and constitution apply as governing law

Question 2

Approach to Question

Answer 2

1. identify the interest

2. how to profit from

Question 3

Types of O&G interest

Answer 3

1. mineral interest
2. surface interest
3. royalty interest
4. leasehold interest
5. royalty/mineral mixed
6. production payment

Question 4

Mineral Interest Owner’s Rights

Answer 4

1. development rights: exclusive right to explore, produce, and develop minerals
2. executive rights: right to lease minerals
3. lease benefits: minus, royalty, and delay rentals

Question 5

What is a Delay Rental Clause

Answer 5

1. allows lessee to delay drilling during primary term and secondary term by paying a stipulate sum

Question 6

What is a Shut in Royalty

Answer 6

shut capable well if able to produce only, pay shut in royalty

Question 7

What is Pooling

Answer 7

allows lees to hold several tracts under a lease w/ producing just one well located on on of the tracts

Question 8

Continuous Op

Answer 8

prevents expiration of the lease at the end of the primary term if drilling operation is in progress

Question 9

What is the Accommodation Doctrine

Answer 9

1. ME/lessee must accommodate surface uses only if:
2. SE owner pre-existing use
3. ME reasonable alternate method of developing O&G
4. alternative available on leased tract

Question 10

Dry Hole

Answer 10

defines what lessee must pay to maintain lease after drilling a dry hole

Question 11

Habendum Clause

Answer 11

fixes ultimate duration of the lease

Question 12

Main D/O Issues

Answer 12

1. binding until revoked
2. never change or contradict lease
3. lessee withholds payments if title dispute
4. provide lessors royalty paid of “market value at well”

Question 13

Pugh Clause

Answer 13

1. only part of acreage under lease is pooled,, lease on the unrolled acreage may not be maintained by production from pooled unit

Question 14

What is the Mineral Estate Interest

Answer 14

1. dominant estate
2. implied easement to use surface
3. as reasonably necessary
4. owner does not pay surface owner

Question 15

Implied Covenants

Answer 15

1. covenant to protect against drainage
2. covenant to market
3. covenant for reasonable development

Question 16

Minerals that are a part of Mineral Estate by Law

Answer 16

1. building stone
2. limestone
3. caliche
4. surface shale
5. sand
6. gravel
7. water
8. near-surface lignite
9. iron ore

Question 17

Basic Tenets of State O&G Regulations

Answer 17

1. RR commission regulates production to prevent waste
2. protect correlative rights
3. protect environment
4. requires wells properly plugged
5. enforce against
   a) operators (1 yr)
   b) non-operators owning working interest at time well ceased operation
   c) state of TX oil clean up fund

Question 18

What is Rule of Capture

Answer 18

1. landowner entitled to all O&G
2. brings to surface
3. by drilling
4. even if from adjacent owner’s land

Question 19

Language that Conveys a Royalty Interest

Answer 19

“oil, gas, and other minerals produced and save”

Question 20

Language that Conveys a Mineral Interest

Answer 20

“oil, gas, and other minerals in, on, or under the land”

Question 21

Language that Conveys Mixed Royalty and Mineral Interest

Answer 21

indicates mineral interest

Question 22

Basic Tenets of O&G Regulation

Answer 22

1. prevent waste
2. protect correlative rights
3. protect environment
4. properly plugged
5. operators (1 yr)
6. non-operator owning work interest @ time
7. state (oil clean up fund)

Question 23

What is a Force Majeure Clause

Answer 23

lists acts of god excuse to production

Question 24

What is Formula fo Production

Answer 24

revenues - royalties - operating cost = positive #

Question 25

When are Drilling Operations Considered Commenced

Answer 25

1. objective physical act | 2. subjective good faith intent

Question 26

Introduction Paragraph

Answer 26

1. O&G lease includes habendum clause that sets forth the primary and secondary term of the lease 2. during primary term, lessee general is not obligated to undertake any specific activities on the land 3. secondary term is an indefinite term where the lessee may hold the lease and explore and develop minerals so long as PPQ is obtained 4. lease ordinarily ends at end of primary term if no drilling has commenced 5. delay rental allows lessee to pay certain sums of $ (delay rentals) to extend term of primary lease 6. delay rental may either be a condition to lease or covenant of lease 7. use of "unless" in clause indicates that delay rental is a condition and failure to make such rental shall automatically terminate the lease 8. NPRI holder not entitled to portion of delay rental since such rentals act as payments essentially for extend primary term