Oil and gas outline

Topics: Property law, Royalties, Natural gas Pages: 12 (5984 words) Published: April 19, 2014
INTERESTS

Fee interest – ownership of both the surface and mineral rights in fee simple absolute.

Surface interest – rights of land ownership that remain after mineral interest is severed.

Subject to an implied easement of surface use by the mineral interest owner.

Surface interest has rights to many substances (ground water) and to many uses (geologic formations for storage of natural gas)

Mineral interest – fee simple ownership of OG under tract; separate estate

Exclusive right to search for, develop, and produce oil and gas from the property.

Implied easement to use the surface in such ways and to such an extent as is reasonably necessary to obtain the minerals under the property

Mineral interest owner has executive RIGHT to:

a. Grant leases

b. Bonus - payments made to induce the signing of the lease

c. Delay rentals – payments for maintaining the lease without development or production

d. Royalty – share of production

e. Profits and duty to pay costs incurred in use (profit sharing and cost bearing).

DominantMineral interest

ServientSurface interest

Leasehold interest (working or operating)

Lease usually imposes duties upon the lessee.

Lessor typically retains a possibility of reverter and a royal interest in production

Lease conveys a fee simple determinable.

Production payment – free of costs of production that terminates when an agreed sum has been paid.

Royalty interest – share of production but free of production costs

DOES NOT have the right of surface use other than to go to onto the property to collect the share of production

FREE of costs of production and paid EVEN IF producing is a money losing venture

NO RIGHT to grant OG lease OR to share in lease benefits such as bonus or delay rentals

TYPES OF ROYALTIES

1. Landowner's royalty – interest in production retained by Lessor.

2. Overriding royalty –carved out of Lessee's leasehold interest, frequently used to compensate landmen, lawyers, geologists or others who have helped in a drilling venture.

3. Nonparticipating royalty –carved out of the Lessor's mineral interest; entitles the holder to a share of production. Holder does not participate in other benefits such as delayed rentals and bonus

Created even when there is no lease

4. Term royalty – may be fixed or defeasible

5. Perpetual royalty – may extend forever and not limited in time

ADVERSE POSSESSION

An adverse possessor takes only what person possesses

1. Unsevered Mineral Interest

If mineral interest has NOT been severed, an adverse possessor of surface can acquire both the surface and mineral interests.

2. Severed Mineral Interest

If mineral interest HAS been severed, adverse possession of the surface is NOT adverse possession of the mineral interest.

3. Severance After Adverse Possession Begins

If a mineral interest is severed AFTER adverse possession begins, the severance will not interrupt adverse possessor's right to acquire the mineral interest by possession of the surface. Title so acquired relates back to the beginning of possession.

RULE OF CAPTURE

Ownership in place – mineral owner owns ALL oil and gas in place under tract, as well as the exclusive right to search, develop, and produce from the land.

Mineral estates MAY be created and conveyed like any other estate and treated as separate entity.

Landowner is entitled to ALL the OG s/he may bring to the surface by drilling without TRESPASSING or interfering with the rights of neighboring owners.

Before Production – Landowner

At Production – Capturer

After Production - Domesticator

ESCAPED GAS

Gas in its natural state is subject to capture, but once captured, it remains the property of the one who captured it until abandoned.

CORRELATIVE RIGHTS

Correlative rights of adjacent Landowners:

1. Owner has duty to other landowners to capture in a non-negligent, non-wasteful way...
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