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Oil & Gas

Barbri Review

QuestionAnswer
Property Rights In Oil and Gas- Rule of capture (default rule) Rule of non-liability for causing oil and gas to migrate across property lines, resulting in "drainage" of oil and gas form under another person's land
Property Rights In Oil and Gas- Rule of capture (default rule); Limitations: Doctrine of correlative rights Every oil and gas owner has right to a fair opportunity to produce oil and gas form common reservoir underling his property
Property Rights In Oil and Gas- Rule of capture (default rule); Limitations: Doctrine of correlative rights, Correlative rights 1. Right against waste of extracted substances, 2. Right against spoilage of common supply, 3. Right against malicious depletion of common supple, 4. Right to a fair opportunity to extract a just and equitable share
Property Rights In Oil and Gas- Rule of capture (default rule); Types of oil and gas interest: Fee simple interest and severance Fee simple owner of property owns both surface and mineral below surface; Property owner, however, may transfer less than her entire interest through severance
Property Rights In Oil and Gas- Rule of capture (default rule); Types of oil and gas interest: Mineral interest's rights, Developmental right Exclusive right to explore, produce and develop minerals
Property Rights In Oil and Gas- Rule of capture (default rule); Types of oil and gas interest: Mineral interest's rights, Executive right Right to lease minerals
Property Rights In Oil and Gas- Rule of capture (default rule); Types of oil and gas interest: Mineral interest's rights, Economic benefits under lease Bonus: upfront payment for signing lease ($/acre leased); Royalty: fraction share of any oil and gas produce that is free of costs of production (usu. 1/8); Delay rentals: Compensation for deferring drilling during primary term of lease (also on acreage
Property Rights In Oil and Gas- Rule of capture (default rule); Entry to conduct oil and gas operations: Mineral estate owner Right to enter land to conduct oil and gas operations when mineral estate severed from surface estate; Can use surface as is reasonably necessary to develop oil and gas; Must comply with statutory requirements
Property Rights In Oil and Gas- Rule of capture (default rule); Entry to conduct oil and gas operations: Conditions for right to enter 1. Operator provides required notice, 2. Operator attempt good faith negotiation, 3. Operator secures surface owner's written consent/waiver, 4. Operator obtains executed surface use agrmt providing compensation to surface owner for damages/secure waiv
Property Rights In Oil and Gas- Rule of capture (default rule); Entry to conduct oil and gas operations: Accommodation doctrine Requires mineral owner to accommodate surface use under certain conditions
Property Rights In Oil and Gas- Rule of capture (default rule); Entry to conduct oil and gas operations: Accommodation doctrine, Conditions- Pre-existing use Surface owner has a pre-existing use of surface
Property Rights In Oil and Gas- Rule of capture (default rule); Entry to conduct oil and gas operations: Accommodation doctrine, Conditions- Reasonable alternative Mineral estate owner has reasonable alternative method of developing o/g that is less destructive of surface, but sill allows mineral estate to drill and produce economically; Cannot be unreasonably costly
Property Rights In Oil and Gas- Rule of capture (default rule); Entry to conduct oil and gas operations: Accommodation doctrine, Conditions- Lease tract Reasonable alternative is available on lease tract
Property Rights In Oil and Gas- Rule of capture (default rule); Entry to conduct oil and gas operations: Damages O/g producer must pay surface owner sum of money equal to amt of damages sustained by surface owner for loss of production and income, loss of land value, and loss of value of improvements
Property Rights In Oil and Gas- Rule of capture (default rule); Entry to conduct oil and gas operations: Statute of limitations From date damage is discovered or should have been discovered, limitations period in WY is 2 yrs
Property Rights In Oil and Gas- Rule of capture (default rule); Interest created by oil and gas leases O/g lease conveys title to a fee simple determinable; Lease may last forever, but it may terminate if there is no production at end of specified time; Two interests
Property Rights In Oil and Gas- Rule of capture (default rule); Interest created by oil and gas leases: Working Interest Gives lessee exclusive right to explore, develop and produce from property as well as obligation to pay all costs of production; Include- exploration, development, recovery abandonment, transporting minerals from wellhead to market pipeline
Property Rights In Oil and Gas- Rule of capture (default rule); Interest created by oil and gas leases: Royalty interest Gives lessor share of production that is free of costs of production
Property Rights In Oil and Gas- Rule of capture (default rule); Interest created by oil and gas leases: Royalty interest, Non-participating royalty interest (NPRI) Right to receive royalty payments held by someone other than mineral interest owner; If miner owner conveys right to receive royalty payment to another, but retains ownership of mineral estate person has NPRI
Property Rights In Oil and Gas- Rule of capture (default rule); Interest created by oil and gas leases: Royalty interest, Non-participating royalty interest (NPRI) may not Participate in any leasing transaction, nor receive bonus or delay rentals
Divided Ownership Ownership of mineral interest can be in one person, but may also be concurrent or successive
Divided Ownership- Concurrent ownership; Cotenancy Every cotenant can drill and produce or lease his undivided interest w/o consent of cotenants, but cannot exclude other cotenants; Must account to others for their rightful share of profits from production
Divided Ownership- Concurrent ownership; Cotenancy: Profits Revenues minus costs
Divided Ownership- Concurrent ownership; Cotenancy: Costs All reasonable drilling and operating costs on productive wells; Dry hole costs may not be assessed against unleased cotenant
Divided Ownership- Concurrent ownership; Cotenancy: Ratification Cotenant can always ratify underlying lease; However, once ratified, he cannot change mind and seek profits share as on unleased cotenant
Divided Ownership- Concurrent ownership; Cotenancy: Operating agreements Agreement b/w interested parties for development and production on tract of land, which typically sets forth duties of operator, and provisions for sharing expenses and accounting; State gov't orders supersede operating agrmt is inconsistent
Divided Ownership- Concurrent ownership; Cotenancy: Partition Cotenant has absolute right to partition property in a judicial proceeding; Ct favor partition in kind (dividing property) over partition by sale, unless dividing property is inequitable
Divided Ownership- Successive ownership; Life tenants and remaindermen: Leasing Neither life tenant nor remaindermen can grant valid oil and gas lease without joinder of other
Divided Ownership- Successive ownership; Life tenants and remaindermen: Open mine doctrine Where a lease was in place prior to the creation of life estate, life tenant gets all royalties under existing lease
Interference with Oil and Gas Interests- Trespass; Ordinary When lease expires but lessee stays on tract, lessee is trespass
Interference with Oil and Gas Interests- Trespass; Ordinary: Remedy Injuction and damages (including punitive)
Interference with Oil and Gas Interests- Trespass; Slant well drilling Bottoming well underneath someone else's tract
Interference with Oil and Gas Interests- Trespass; Slant well drilling: Remedy Injunciton and damages (including punitive)
Interference with Oil and Gas Interests- Trespass; Drilling dry well Damage to speculative lease value; If wrongful lessee enters and drills dry hole, lessor loses lease value that he could have received before world found out land was dry
Interference with Oil and Gas Interests- Trespass; Drilling dry well: Remedy Lost bonus
Interference with Oil and Gas Interests- Trespass; Geophysical or seismic trespass When somone on adjacent land explores lessor's land useing seismic vibrations, and gains information lessor's mineral potential
Interference with Oil and Gas Interests- Trespass; Geophysical or seismic trespass: Remedy Sue in assumpsit (Market value of K for right to do seismic exploration)
Interference with Oil and Gas Interests- Trespass damages; Good faith If trespasser had honest and reasonable belief in superiority of title, will get credit for costs incurred in production if costs benefited rightful owner; Fact questions
Interference with Oil and Gas Interests- Trespass damages; Bad faith Liable for gross value of production from well; Fact questions
Interference with Oil and Gas Interests- Adverse possession WY rules of adverse possession apply to oil and gas interests; Key: Whether and when mineral estate was severed from surface estate; Exam- Key: Whether trespasser started adversely possessing severed or unsevered tract
Interference with Oil and Gas Interests- Adverse possession; Possession begins prior to severance Adverse possessor gets title to both the surface and mineral estate
Interference with Oil and Gas Interests- Adverse possession; Possession begins after severance Adverse possessor gets title to surface estate only; Get title to mineral estate, adverse possessor must establish separate action of possession
Oil and Gas Lease- Granting clause; Purpose Granting clause sets forth- 1. Rights given by lessor to lessee, and 2. Description of property
Oil and Gas Lease- Habendum clause; Purpose Sets for duration of lessee's interest in premises; 1. Primary terms (Fixed period during lessee no obligations to conduct drilling operations), 2. Secondary term (Indefinite but normally linked to production)
Oil and Gas Lease- Habendum clause; Construction O/G leases are construed against Lessee, unlike typical K; O/G leases usually drafted by oil company
Oil and Gas Lease- Habendum clause; Paying quantities: Production Production in paying quatities (PPQ); (Revenue - Lessor's royalty - operating costs)
Oil and Gas Lease- Habendum clause; Temporary cessation doctrine Once PPQ established, temporary cessation due to "sudden stoppage of well or some mechanical breakdown or like" will not terminate lease
Oil and Gas Lease- Habendum clause; Temporary cessation doctrine: Key factors 1. A short, temporary shutdown, 2. Which lessee acts diligently to fix, 3. That is due to "mechanical breakdown or the like"
Oil and Gas Lease- Habendum clause; Marginal well doctrine Some wells only produce PPQ during some months of yr; Test: Whether reasonably prudent operator would continue to operate well to make profit, not merely for speculation
Oil and Gas Lease- Habendum clause; Doctrine of repudiation Equitable rule that can extend the lease if the Lessor obstructs Lessee from developing lease
Oil and Gas Lease- Delay rental clause Clause authorizes Lessee to delay drilling or commencing production during primary term by periodically paying stipulated amt to Lessor
Oil and Gas Lease- Delay rental clause; "Unless" v. "Or" delay rental clauses Whether failure to pay delay rentals automatically terminates lease depends on language used
Oil and Gas Lease- Delay rental clause; "Unless" v. "Or" delay rental clauses: Unless delay rental clause If clause states "the lease shall terminate unless Lessee shall pay lessor sum of $... in delay rentals, then clause creates condition of lease
Oil and Gas Lease- Delay rental clause; "Unless" v. "Or" delay rental clauses: Unless delay rental clause, Remedy Lease terminates automatically
Oil and Gas Lease- Delay rental clause; "Unless" v. "Or" delay rental clauses: Or delay rental clause If clause states "lessee agrees to either drill a well or pay delay rentals" then clause only creates covenant b/w lessor and lessee, and lease does not terminate automatically
Oil and Gas Lease- Delay rental clause; "Unless" v. "Or" delay rental clauses: Or delay rental clause, Remedy Lessor must sue for breach of K, damages would be equal to unpaid amount of rentals
Oil and Gas Lease- Delay rental clause; Late delay rentals If lessor accepts late delay rental payment, lease comes alive again, based on "loose theory of estoppel"
Oil and Gas Lease- Delay rental clause; Late delay rentals: Required proof 1. An act by Lessor (cashing check), 2. Upon which Lessee has detrimentally relied
Oil and Gas Lease- Commencement of drilling clause If delay rental clause states "if operations for drilling not commenced on or before [date], lease shall terminate unless" lessee pays delay rentals, "commencement" depends on two factors- 1. Objective physical acts, 2. Subjective good faith intent
Oil and Gas Lease- Commencement of drilling clause; Objective physical acts Done on leased premises (e.g. building a road, cutting down trees, or drilling water well)
Oil and Gas Lease- Commencement of drilling clause; Subjective good faith intent To pursue drilling operations
Oil and Gas Lease- Defensive or "saving" clause To hold lease beyond primary term, Lessee needs PPQ; If delay rental not holding lease, then Lessee must satisfy a defensive or savings clause; Exam- if tested will give text of clause
Oil and Gas Lease- Defensive or "saving" clause; Shut-in royalty clause A shut-in royalty clause provides that when a well ceases PPQ due to market condition, Lessee can hold lease by paying shut-in royalties; WY- typically limited to gas leases
Oil and Gas Lease- Defensive or "saving" clause; Dry hole, continuous operations, and cessation of production clause: Dry hole clause Provides that if Lessee drills a dry hold, she can maintain lease by starting to drill another well within stated time
Oil and Gas Lease- Defensive or "saving" clause; Dry hole, continuous operations, and cessation of production clause: Continuous operations clause Covers situation where at end of primary term operations have commenced, but there was not yet actual production
Oil and Gas Lease- Defensive or "saving" clause; Dry hole, continuous operations, and cessation of production clause: Cessation of production clause Provides that if a well ceases producing, Lessee can maintain lease by commencing repairs within stated time
Oil and Gas Lease- Defensive or "saving" clause; Dry hole, continuous operations, and cessation of production clause: Tack savings clauses Lessess can tack their savings clause together over time
Oil and Gas Lease- Defensive or "saving" clause; Force majeure clause Excuses performance, or extends time for performance because of unforeseeable factors beyond lessee's control; Exam- Look to see if force majeure clause covers only covenants or also conditions
Oil and Gas Lease- Defensive or "saving" clause; Unitization clause Clause combines leases and wells over producing formation for purposes of coordinating filed-wide operations
Oil and Gas Lease- Pooling clause; General Allows lessee to hold several tracts under lease with PPQ from just one well located on one tracts; Royalty from one well is typically split b/w various tract owners; Cts require that lessee exercise pooling in good faith
Oil and Gas Lease- Pooling clause; Pugh clause If only part of leased acreage is pooled the rest should be severed unless lessee drills or pay delay rentals on remainder
Oil and Gas Lease- Oil and gas lien WY cts have held that usual K b/w provider of services or materials to develop an oil and gas lease and real estate interest holder gives rise to an oil and gas lien
Oil and Gas Lease- Farmout agreements; General Executory K where one who owns drilling rights agrees to assign all or portion of rights to another in return for drilling operations on tract
Oil and Gas Lease- Farmout agreements; Characteristics Farmout agreement different from an operating agreement; K by which one party earns mineral interest that was owned by another
Implied Covenants- Standard of performance; Reasonableness O/g leases contains implied convenant that Lessee acts as reasonably prudent operate; Not fiduciary standard, operator not have drill/produce if not make profit; Lessor would have burden to prove Lessee can recover o/g at profit (incl. costs of drilling
Implied Covenants- To protect against drainage Lessee must act as reasonably prudent operation to protect leased premises against drainage
Implied Covenants- To protect against drainage; Lessor must prove 1. Substantial drainage, 2. Lessee could drill a profitable well to offset drainage, and 3. Damages
Implied Covenants- To market Lessee has implied covenant to market o/g with due diligence; Standard: Lessee's actions in market are judged by reasonably prudent operation
Implied Covenants- To develop Implied covenant to develop o/g lease i known producing formations; Test for breach: Whether lessor can prove lack of reasonable diligence from additional drilling, regardless of where proposed well is located (high burden)
Implied Covenants- To explore Cognizable claim for breach of implied covenant to explore; Covenant inquiry into whether under circumstances, failure to drill exploratory wells in search of new producing formations is unreasonable
Title and Conveyance Issues- Recording problems Race-notice state, the grantee usually records, but burden of recording reservations is on grantor
Title and Conveyance Issues- Fractional interest problems and "Duhig" doctrine; G/R: Deed construed against grantor Leases are construed against Lessee; If deed ambiguous, grantor usually loses
Title and Conveyance Issues- Fractional interest problems and "Duhig" doctrine; G/R: "Four corners" rule Requires cts try to harmonize all the clauses in deed to give effect to each clause
Title and Conveyance Issues- Fractional interest problems and "Duhig" doctrine; G/R: Cts read terms of deeds literally E.g., there is difference b/w "the land conveyed" and "the land described"
Title and Conveyance Issues- Fractional interest problems and "Duhig" doctrine; Proportionate reduction clause Leases typically provide clause to state whether or not noncost-bearing interest will be reduced proportionately by costs of production
Title and Conveyance Issues- Fractional interest problems and "Duhig" doctrine; "Duhif" doctrine In three or more party chain of conveyances in which the Grantor seemingly conveys more than 100% of mineral or royalty interest, the Grantor will bear loss; WY- doctrine does not apply to leases
Title and Conveyance Issues- Conveyance of mineral interest v. Royalty internship; Where ambiguous: Royalty language "Oil, gas, other minerals produced and saved"
Title and Conveyance Issues- Conveyance of mineral interest v. Royalty internship; Where ambiguous: Mineral language "Oil, gas, other minerals in, on, or under [Blackacre]"
State regulation- Generally; Policy State of WY, through Oil and Gas Conservation Commission, regulates oil and gas production to serve public objectives
State regulation- Generally; Policy: Waste To prevent waste and maximize recovery of oil and gas
State regulation- Generally; Policy: Correlative rights To protect correlative rights by giving all owners in common reservoir the opportunity to recover their fare share of minerals
State regulation- Generally; Policy: Environment To protect environment
State regulation- Generally; Methods Commission several ways enforcing objectives- 1. Drilling permits and spacing rules; 2. Requiring plugging and abandonment, 3. Protecting correlative rights
State regulation- Drilling permits and the unitization rules; Rule Drill permit required before well drilled; Unitization: combination/consolidation of properties comprising entire field/overlying entire reservoir; Commission may be application, or by own motion issue unitization order establish drill/space limit
State regulation- Drilling permits and the unitization rules; Modification Commission has continuing authority to modify its orders
State regulation- Prorationing Commission regulates maximum amt of o/g that wells can produce- both prevent waste from premature dissipation of reservoir pressure, and protect correlative rights (i.e., assure each operator/interest owner chance to receive fair share of production)
State regulation- Pooling; Definition Combination/consolidation of o/g properties for creation of one-well drilling or prorationing unit; Can be voluntary, or Commission may issue order to pool production from reservoir
State regulation- Pooling; Effect Compulsory pooling preempts Rule of Capture; Operates like default rules for allocating royalties in voluntary pooling agrmt, w/each interest owner getting share roughly proportional to relative size of interest
State regulation- Geological sequestration Statute governs increased use of carbon capture and sequestration technologies; No carbon dioxide may be injected for geological sequestration unless approved first by oil and gas commission
State regulation- Geological sequestration; Ownership of pore space Statutes provide surface owners also own pore space
State regulation- Geological sequestration; Ownership of and liability for injection carbon dioxide Presumed to be owned by injector
Created by: dmoore147