Chapter 1 Flashcards
Private Ownership
Leads to fractionalization of ownership (which can cause problems).
i. Expensive title work
ii. Specialized work/continued liability
(Wrong title opinion, you get sued 20 years later)
iii. Unrecorded instruments
Who owns what and how much?
People might not know they own it?
iv. Time constrains for development (Think: Title Opinions)
Short time to do a lot of research
v. Difficult leasing options
Must get valid signatures of all parties and avoid family fights, even if there are 100 owners
vi. Negotiation of terms
(Everyone has to agree w/deal to get signatures)
Problems with Unleased interests
Unleased = Carried Interest; If it gets too big it is no longer profitable for the O&G co.
i. If you own 100% of the minerals, oil company comes to you – you get 20% royalty – oil company gets 80% profit = Worthwhile for O&G company
ii. You own 80%, neighbor owns 20%, 20% royalty; 20% owner cannot be found. O&G only gets 80% of 20% for the 80% owner.
Federal Ownership
The Federal Gov. Owns 30% of the land area in the 50 states. (662 million acres).
> 25% of Oil Production & .25% US NG production come from federal other-continental shelf lands
85% of US offshore waters are off limits
Land Descriptions
- Property rights associated w/O&G rely upon surface boundaries to define and identify the rights.
- Most lands in the US are described in accordance w/ a federal “rectangular” surveying system mandated by Congress in the Land Ordinance Act of 1785. (Texas does not, NM does)
Range Lines/ Township Lines
Range Lines = E to W of the selected principal meridian (Principal Meridian = Prime Meridian)
Township Lines = N to S of the chosen base line
Townships:
Townships:
1. Interacting RL and TL = Squares of 6 miles on
` each side
(1 Section = 1 mi x 1 mi = 640 Acres)
2. Main adjustment = periodic full width (6mi)
“correction” to township lines
(Adjustment made based on the Earth not lying flat and the “grid” lying over it.)
Ownership in Place
(Corporeal): Creates MI:
Owner of the O&G rights owns the right to search, develop and produce. Plus, a possessory right to the O&G beneath the owner’s tract of land.
Non-Ownership
(Incorporeal):Owner of O&G rights own rights to search, develop and produce but no possessory right to O&G in place. (OK, CA, and LA/Minority)
Creates profit a pendre
Allows someone to take part of the land that someone else and produce from it
O&G Interests: Realty or Personalty?
Mineral interest is real estate, regardless of ownership theory. (Both estates and profits = real estate; interest’s duration is that of a freehold estate)
Leasehold could be either (Both K and deed) (Most states = Real property)
Royalty could be either (Most states= Real Property)
Ad Coleum Doctrine
“Heaven and Hell Theory of Ownership”: From the ground to the sky above.
Rule of Capture
Governs entitlement to O&G production:
1. A producer is entitled to all of the production form a well or wells drilled w/in the producer’s land (Even if some of that production is drained from beneath the land of a neighboring land owner)
Limits to the Right to Capture
- Allows each owner to act independently to develop resources & obtain title.
- No landowner can negligently or intentionally damage the reservoir so it impairs the ability of other landowners to exercise their rights.
- Each landowner’s right is “correlative” w/the neighboring landowners
Correlative Rights
i. Each landowner must be given the opportunity to recover (w/o waste) their fair share of O&G in common reservoir.
1. Each landowner has a duty to produce from a common reservoir w/o wasting O&G and negligently damaging reservoir.
Why Rule of Capture?
- Initially belief that O&G acted as wild animals
- Promotes self help: You don’t like it, drill your own well
- Easier to administrate, hard to determine amount
Gas Storage: Who do you lease from?
- A question of pore space ownership
- Rights of severed mineral/surface right owners are first determined by the severing instrument
a. If made clear, get lease from that party
b. The severing instrument trumps
(Most states = SO; Texas: If pore space is inside a mineral, it belongs to the mineral owner)
Fair Share Principle
Within reasonable limits, each operator should have an opportunity equal to that afforded other operators to recover the equivalent of the amount of recoverable oil underlying his property.
Conservation Principles
i. Goals:
1. Prevent Waste: Surface, economic, & underground
2. Protect correlative rights
ii. Regulation:
1. Requires permit for drilling
2. Restrict Drilling
