Exam

Question 1

What are the three theories of oil and gas ownership?

Answer 1

Texas - ownership in place
OK - exclusive right to take
Civil law - servitude

Question 2

What are the incidents of ownership of a mineral estate?

Answer 2

Use of the surface
Right to develop minerals
Right to alienate
Right to retain lease benefits

Question 3

What are the degrees of liability for trespass in oil and gas?

Answer 3

IF good faith —> net value of production

IF bad faith —> total value of production (form of punitive damages)

Question 4

In what jurisdictions can someone abandon their mineral estate?

Answer 4

TX, KA - severed mineral estate is real property (a fee) —> can’t abandon
OK - severed mineral estate is personal property, like an easement —> can abandon

Question 5

What is the test for drilling operations?

Answer 5

(1) Physical work on premises
(2) Good faith
(3) Diligence

Question 6

What is the test for production?

Answer 6

(1) Is income > operating costs? If “profitable” within a reasonable amount of time, then the wells is producing in paying quantities.
(2) If income is not > operating costs, would a reasonably prudent operator nevertheless continue production?

Question 7

What is the difference b/w OK and TX re production?

Answer 7

TX - need actual production

OK - just need the capability to produce

Question 8

In TX, does an oil and gas co have to pay for damages done to the landowner’s surface?

Answer 8

Only if that is explicitly provided in the lease.

Question 9

What does the landowner have to show to invoke the Accommodation Doctrine?

Answer 9

(1) An existing use
(2) Significant interference with the existing use
(3) Reasonably available alternatives for production that don’t interfere

Question 10

What are three clauses that limit the lessee’s pooling authority, and what do they do?

Answer 10

Anti-dilution provisions. Limits the extent to which the lessor’s royalty can be reduced by pooling
Puge clauses. Affects the primary term - eliminates the constructive operations effect
Retained acreage provisions. Affects the secondary term - eliminates the constructive production effect

Question 11

What are the three implied covenants recognized in TX?

Answer 11

(1) Reasonably develop the lease
(2) Protect against drainage
(3) Manage and administer the lease as a reasonably prudent operator

Question 12

What are the different standards that apply to the executive landowner re non-executives?

Answer 12

(1) Fiduciary - must do what’s best for the non-exec party
(2) Utmost fair dealing (three formulations)
(3) Just don’t defraud the non-exec

Question 13

What are the three formulations of the duty of utmost fair dealing? Which does TX use?

Answer 13

Try to do what other leases are doing
Try to get the same benefits for the non-exec party that you’re getting <– TX
Try to get the best lease you would get if there were no non-exec party

Question 14

What are the unique characteristics re spacing rules in TX?

Answer 14

Lessee, not agency, determines space and shape of unit

Can get spacing/density exceptions based on confiscation alone (if I don’t get an exception, my neighbor will drain all of my minerals).

Question 15

When is a spacing exception based on confiscation not available?

Answer 15

If the land was voluntarily subdivided after a reservoir was discovered

Question 16

If the land was voluntarily subdivided, what can the landowner still do to drill on the land?

Answer 16

(1) Voluntary pooling with your neighbors
(2) Compulsory pooling (invoke MIPA).
(3) Century doctrine

Question 17

How do you calculate a horizontal well allowable in TX?

Answer 17

Step 1: Start with the acreage you get for the vertical well (yardstick—surface acreage and depth of the well)
Step 2: Multiply the vertical allowable by the horizontal well multiple (HORIZ ACREAGE / SURFACE ACREAGE). So, the horizontal acreage might be 140, you divide that by 40 acres and get the multiple = 3.5. Multiply the vertical allowable by that amount.

Question 18

What are the different ways of demonstrating an unconstitutional regulatory taking?

Answer 18

(1) Actual physical invasion
(2) Deprived of all economically beneficial use of the land
(3) Meets Penn Central factors:
Character of the gov’t action
Interference with reasonable investment-backed expectations
Economic impact on the claimant

Question 19

What can an OG co do to drill in a wetland?

Answer 19

Obtain a § 404 Permit (three options):
Avoid the wetlands (e.g. with a slant well)
Minimize impact to the wetlands
Mitigate the effects of the drill site (purchase mitigation credits, donate to conservation agency, etc.)

Question 20

What’s impt to know about the Safe Drinking Water Act?

Answer 20

Exception: doesn’t apply to drilling fluids

Question 21

What is the key substantive provision of the Endangered Species Act?

Answer 21

§ 9 - Makes it unlawful for anyone to “take” any endangered species of fish or wildlife.
“Take” includes “harm”
The Interior Department: “harm” includes significant habitat modification that actually kills/injures wildlife. This includes anything that significantly impairs essential behavioral patterns, e.g. breeding, feeding, or sheltering.