Property Rights Flashcards
Rule of Capture
Basic default rule for mineral rights in Tx
Rule of non-liability for causing oil and gas to migrate across property lines, resulting in drainage of oil and gas from under another person’s land
What can neighbors do to protect themselves from drainage?
Drill their own wells
Limitations to the Rule of Capture
Limited by the doctrine of correlative rights, which means that every O/G owner has a right to a fair opportunity to produce O/G from a common reservoir underlying his property
Rule of capture DOES NOT apply to:
- Negligently drilled O/G
- Illegally drained O/G
- Stored gas
What is stored gas?
Personal property
Gas depleted from one field and then re-injected into a depleted underground reservoir for storage
Storer has burden to show it was stored not native gas
Fee Simple Interest and Severance
A FS owner of property owns both the surface and minerals below the surface. A property owner may transfers less than her entire estate through severance
O to A, “all minerals in Blackacre”
- A has FS interest in mineral estate and vested possessory interest in real property
- O has a FS in surface estate
*What rights does the owner of the mineral interest have?
(1) Development right = exclusive right to explore, produce, and develop the minerals
(2) Executive right = right to lease the minerals
(3) Economic benefits, including:
- Bonus: an upfront payment for signing lease
- Royalty: fractional share of any O/G produced that is free of costs of production (usually 1/8)
- Delay rentals: compensation for deferring drilling during the primary term of the lease
*From whom does Big Oil need permission to do seismic exploratory work on the surface?
Owner of the mineral estate, not the surface estate
*Which estate is dominant?
The mineral estate is dominant when the ME has been severed from the surface estate
*The owner of the ME can use the surface as is reasonably necessary to develop the O/G
*Accommodation Doctrine
Requires the mineral owner to accommodate surface uses, but only under three conditions:
(1) Surface owner has a preexisting use of the surface
(2) ME owner (or lessee) has a reasonable alternative method of developing the O/G that is less destructive of the surface, but still allows the ME to drill and produce economically
(3) Reasonable alternative is available on the leased tract
*What interests are created by O/G leases?
An O/G lease conveys a deed to a FSD: the lease may last forever, but it may terminate if there is no production at the end of a specified time
O/G lease creates two sets of interests:
(1) 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
(2) Royalty interest gives the LESSOR a share of the production that is free of the costs of production
*What are Big Oil’s rights and interests under an O/G lease?
(1) FSD - all O/G as real property
(2) Working interest
(3) K obligations to ME owner
*What are the ME owner’s rights and interests under an O/G lease?
(1) Possibility of reverter - future interest in O/G
(2) Econ. benefits under the lease:
- Bonus
- Royalties
- Delay rentals
What is the legal relationship b/w Big Oil and ME owner under an O/G lease?
Lessor/lessee (not co-tenants)
Non-Participating Mineral Interest
Owner of Blackacre deeds to A “an undivided 1/2 mineral interest in Blackacre, but Owner reserves the executive right on all of Blackacre,” A has a non-participating mineral interest
*“1/16 royalty on Blackacre”
1/16 of ALL production (fixed, flat NPRI)
