Law 3 Flashcards
1
Q
Words that must convey grantor’s intention
A
Words of grant
2
Q
What two standards must a description meet?
A
Legal validity and marketability
3
Q
An adequate description, even if unorthodox or oral if it can locate the property with reasonable certainty
A
Legal validity
4
Q
Description adequate so that title could be transferred; usually requires reference to some public document
A
Marketability
5
Q
Most commonly that established the “standard” in 1785 establishing 6 square mile “townswhips”, 36 one quare mile “sections”, of approx 360 acres each
A
Reference to government survey
6
Q
References to geological landmark or monument
A
Metes and bounds
7
Q
Identification of the parties
A
Seisin
8
Q
Parties in the transaction are capable of the transaction
A
Capacity of the parties
9
Q
The four elements of execution:
A
Signature, attestation & acknowledgment, delivery & acceptance, recording
10
Q
The ______________ signature is required by the Statute of Frauds?
A
Grantor’s
11
Q
The ______________ does not have to sign
A
Grantee
12
Q
In an oil and gas lease consideration is
A
Not binding
13
Q
Witness of signing or verifying signature by someone not party to the contract
A
Attestation
14
Q
Grantor affirmation under oath (usually a pulic notary)
A
Acknowledgment
15
Q
Any act that shows clearly that the grantors intent is that title be passed
A
Delivery
16
Q
Grantte shows they wish the transfer to be effective (usually accpeting the deed)
A
Acceptance
17
Q
An oil and gas lease is unlike other real property because it does not have a
A
face to face closing
18
Q
In most states _______________ is practical rather than a legal requirement, defends against subsequent claims
A
Recording
19
Q
Conveyance by will or intestate, follow probate law
A
By Inheritance
20
Q
Conveyance by foreclosure, lein encumbrance, compulsory pooling by conservation agency
A
By judicial transfer
21
Q
Conveyance by using a property “as an owner” for a long enough time, ownership may pass
A
By adverse possession
22
Q
What must be done to adversely possess severed minerals?
A
Drill a well producing from the well for the statute of limitations period
23
Q
How many years must property be possessed before good title can be claimed?
A
5-25 years
24
Q
Title is earned back to its beginning (when adverse possession initially took place)
A
Relation back
25
All owners have a right to present (and future) possession
Concurrent owners
26
Joint owners have a separate but undivided interest, interest can be conveyed to another
Tenancy in common
27
Each owner owns the wholte thing, subject to right of survivorship of other owners. The last owner alive takes all the interest.
Joint tenancy
28
If a joint tenancy interest is "severed" by conveyance, the interest conveyed become a
Tenancy in common with all the other interest (which is still joint tenancy)
29
In the case of death of one owner, tenancy in common will
Pass on to his or her next heir
30
In the case of death of one owner, joint tenancy will
Pass all right to the other tenant
31
Only available to husbands and wives, similar to joint tanancy
Tenancy by Entirety
32
If divorce takes place with a tanancy by entirety conveyance, the ownership is converted to
Tenancy in common
33
Rule that states that it is a waste of property in that anything that changes the nature or character of the jointly owner property is a waste, even if it improves it?
Minority rule
34
Rule that states that a tenant in common has the right to develop minerals without permission of te other cotenants, ven over their objection?
Majority rule
35
In a majority ruling, developer can recover costs but he then must
Share proceeds
36
What did Prairie Oil v. Allen involve
Tenancy in common
37
Compulsory joinder of ownership by state's police power within a proposed well spacing unit
Forced pooling
38
Court orders division on undivided interest, can be "in-kind" or foce sale for cash and divide proceeds
Judicial Partition
39
Statutes that permit mineral interest not developed or used within a stated time (usually 20 eyars) are extinquished and returned to the surface owner
Dormant minerals act
40
If a record (title) does not contain a specific reference to the interest (30-40 years) it is destroyed
Marketable Record Title Acts
41
3 types of materials rights that impact oil and gas rights?
Dower/curtsy, homestead, community property
42
Spouses are entitled to equal interest in property acquired during marriage (usually a 1/3 life estate) upon the death of their partner
Dower/curtsy
43
Stututes that bar transfer unsless both spouses join
Homestead
44
Texas, NM, LA law that states each spouse ownes 1/2 of all property acquired during marriage
Community property
45
Successive interest is divided between present and future ownership
Life tenants/remainderman
46
In common law states _________________ and __________________ must agree to make an oil and as lease because neither has full rights in the property
Life tenant and reaminderman
47
In he absence of an agreement, courts allocate proceeds on basis of income or corpus (asset)
Division of proceeds
48
If corpus, funds are invested and turned over when
The life tenant dies
49
Delay rentals are considered _____________ and go to the _______________?
Income, life tenant
50
Bonus and royalty go to the ?
Remainderman
51
If the oil and gas is producing when the tenancy is created, lease payments (including the bonus and royalty) are income to the ?
Life tenant
52
Grants the estate for a specified term of years, rarely includes oil and gas rights
Term interest
53
The three steps for Judicial Interpretation as to the intent of the parties?
Interpretation of the instrument, use of construction aids and rules of construction, consideration of extrinsic evidence.
54
Courts look to perms as written, not what the parties say
Interpretation of the instrument
55
Construe against the party that prepared it as they were in a position to have made it clear
Use of construction aids and rules of construction
56
Consider attendant eveidence and circumstances, consider parol (oral) evidence
Consideration of extrinsic evidence
57
General words follow specific words - "oil and gas and other minerals" = minerals like oil and gas, not like copper or gold.
Ejusdem generis
58
Did the community consider it a mineral at the time of conveyance?
Community acknowledge test
59
Was the substance valuable at the time of the conveyance?
Exceptional-characteristic test
60
What th eparties did with the subtance after the conveyance can show intent?
Rule of practical construction
61
When production requires the descrution of the surface, it's not a mineral
Surface destruction test
62
What year did the Surface-Destruction test become a law?
1971
63
What test replace the Surface-Destruction test in 1984?
The Ordinary and Natural Meaning Test
64
A type of interest that posses the right to develop or lease?
Mineral interest
65
Lack the right to develop or lease but has the right to share in the production or revenues without burden of costs?
Royalty interest
66
A court will inerpret the conveyance in sequence (ex. Interpret what one person is granted before considering another person's reservation)
The In-Sequence Rule
67
Special application of the In-Sequence rule, a dded that does not specifically limit the quantity conveyed is assumed to convey 100% of both surface and mienrals
100% rule
68
Words of conveyances are given their literal meaning
The Literal-Interpretation Rule
69
Transactions in which the otal of the fractions reserved and conveyed is grater than 100%
Over conveyance
70
Where grantor does not have enough interest to cover both the reserved and the conveyed gracts, there differences comes out of the grantor's portion
The Duhig Rule
71
Texas does not apply what rule to leases?
The Duhig Rule
72
A full mineral interest under one acre of land, presents a problem in that the acreage may not equal total percentage interest if the acreage measurement is off
Mineral acres
73
The full lease royalty unde rone acre of land - not used much - avoid it
Royalty acres
74
Protects the grantor against claims for breach or warranty because of an outstanding lease and avaoids the Duhig problem?
Subject-To Clause
75
Minority view that treats royalties as rents, presuming tha toil as producible from all parts of the sub-divided land
The Apportionment Rule
76
Follows the rule of capture, royalties are paid to the owner of the tract where the well is located
The Non-Apportionament Rule
77
If the owner of a property anticipates subsequent subdivision at the time of the grant of lease, they may insert an ______________ to provide for apportionment of royalties
Entirety clauses
78
An oil and gas lease covering property already subject o an oil and gas lease
Top leasing
79
Lessee will top lease their own bottom lease to extend the duration of its rights to the property
Two-party top lease
80
The top lease is taken by someone other tan the bottom lessee, the top lessee is speculating that the bottom lessee will terminate and they will aquire the rights
Three-party top lease
81
A contingent future interest (top lease) must best in 21 years or it must be destroyed?
The Rule Against Perpetuties
82
Spells out the rights that the mineral interest owner grants to the lessee, must identify the size of the interest granted, substances covered, land covered, specific usage
Granting Clause
83
Wording added intended to cover all land owner by the lessor in the area
Mother Hubbard clause
84
Doctrine that says a mineral owner must accommodate the surface owner if he has a reasonable alternative available (example - lower well height to clear irrigator)
The Accommodation Doctrine
85
Also called the "term clause" sets the period of time for the rights in the granting clause
The Habendum Clause
86
The majority view on the term "held by production" is that the product must be ____________ and _____________
Produced and marketed
87
How much production is required for a lease to be "held by production"
Production in paying quantities
88
The Litmust Test requires consideration of what three factos to determine if a lease is "held by production"?
Operating revenues, operating costs, the time factor
89
In most states, other factors can be considered as to why a "reasonable prudent operator" would continue to operate an unprofitable well
The Legal Test
90
Clause that ensures that the lessee has no obligation to drill during the primarty term by negating any implied obligation to test the property
The Drilling-Delay Rental Clause
91
At the end of the primary term, the lease automatically terminates "unless" drilling commences or a payment of delay-rental is made
The "UNLESS" clause
92
Lessee must either commence drilling "or" pay delay rental "or" surrender the lease
The "OR" caluse
93
Payment of delay rentals must be paid with "perfect" performance
Paid in the proper amount, on or before the due date, to the proper parties and in the manner permitted by the lease
94
A clause inserted to affirm the lessee's right to maintain the lease for the remainder of the primarty term by paying delay rentals
The Dry-Hole Clause
95
Language that modifies the general rule that a lease expires at the end of the primary term unless there is production in paying quantities and consist of five clasues:
Constructive Production
96
Clause that protects the lessee against expiration of the primary term while drilling is in progess
Operations clause
97
Clause that permits only the completion of drilling operations started before the end of the primary term
Well completion clause
98
Clause that permits the completion of a well before the end of the primary term, abandon it after the end of the primary term, and then within sixty days start another well
Continuous operations clause
99
Courts extend the lease a reasonable time to give the lessor time to __________ and ____________ after completion
Hookup and produce
100
Bringing together small tracts or fractional mineral interest for the drilling of a sinble well for primary production on a spacing unit
Pooling
101
Combining leases and wells over a producing formation for field wide operations associated with pressure maintenance or secondary recovery
Unitization
102
A single lease covering two or more tracts of land or fractional mineral interest
Community leases
103
Grants the lessee a power of attorney to pool the lessor's interest and changes the lease in two ways
Pooling Clauses
104
In what two ways do pooling clauses changes a lease?
Modifies the habendum clause and obligates the lessor to accept royalty in proportion to the contributed land in the unit
105
Clause that modifies the lease just like in pooling above, royalty is calculated on unit production not just wells on the lease
Unitization clauses
106
A lessee cannot "gerrymander" leases into a pool for the benefit of what?
Extending lease terms
107
What must be given for a pooling to be effective
Notice or recording of pooling
108
In pooling, the __________ must act to protect the __________ because he has taken the rights to act for himself from the lessor
Lessee, lessor
109
Each person in the pooling acquires a proportionate property interest in the land of others.
Cross-conveyance theory
110
Owners of ____________ _____________ could beome parties to pooled interest lawsuits
Pooled interest
111
What clause modifies usual pooling language to provide that operations or production from a pooled unit will not preserve the whole lease?
Pugh clauses (freestone riders)
112
Clause that enables the lessee to preserve the lease in the event of cirumstances beyond its control?
Force-Majeure Clause
113
Force-majeure will provide constructive production to maintain a lease if?
The event is defined in the language of the clause, production is excused by the event, there is a casual relationship between the event and failure of production, lessee gives timely notice.
114
What clause maintains the lease when the well is completed and ready for production but waiting for a market?
Shut-in Royalty Clause
115
What clause provides for constructive production, maintaining the lease, typically in the form of a shut-in royalty?
Shut-in Royalty Clause
116
Failure to pay a shut-in royalty payment will?
Terminate the lease
117
The shut-in clause should be written to cover both ________ and ________ wells
Oil and gas
118
For a well to be considered "shut-in" for the purpose of the clause, it must
be capable of producing in paying quantities
119
For a producing well to be considered "shut-in" for the purpose of the clause, the
control valves must be turned to stop production
120
Clause dealing with wells that will not produce without repairs and maintenance which temporarily halt production?
Cession-of-Production Clauses
121
Clause dealing with wells that will not cause a termination of a lease because the cessation is determine to be temporary?
Temporary-cessation-of-production doctrine
122
Clause that states specifically that a lease will be maintained for (sixty to ninety) das before production must be restarted?
Cession-of-Production Clauses
123
Clause that states when paying a payment to a bank, payment is counted when the check is mailed; and check is permitted?
Payment of Delay Rentals
124
Clause that permits the lessee to recover damges from the lessor from failure of title?
Warranty Clause
125
Clause that permits the lessee to reduce benefits paid to the lessor to the extent the lessor owns less interest than described in the lease?
Lessor-Interest Clause
126
Clause that empowers the lessor to pay taxes or mortgages encumering the property (in default or late), then stepping into the creditors shoes to the collect from the lease?
Subrogation Clause
127
Clause that allows lessee to remove equipment after expiration of the lease within reasonable time?
Equipment removal provisions
128
Clause that allows the lessee to rely on the name in the lesase for payment unsless otherwise notified. Prevents having to check public records each time a check is written.
Notice-of-Assignment Clause
129
Provisions that relieves the lessee from having to provide separate measuring or storage facilties if the lessor sub-divides a lease?
No increase of burden provision
130
Clause that attemps to prevent losing the whole lease when a partial assignment of that lease fails. Not very effective.
Separate Ownwership Clause
131
Clause that attemps to allow lessee to surrender a portion of a lease (found to be unproductive)?
Surrender Clause
132
Clauses that require lessor to give notice to the lessee of a breach giving an opportunity to correct them?
Notice and Demand, Notice before Forfeiture, and Judicial Ascertainment clauses
133
In a lease royalty clause, a lease royalty is usually stated in
Percentage of production
134
Usually in a lease royalty provision, a royalty is listed as a ___________ _____________ of ___________________?
Fixed percentage of production
135
Oil can be taken
"In-Kind"
136
Gas is taken in ___________ as storing gas is not practical.
Cash
137
Usually, lessor's interest in a lease is _________ property but after hyrdrocarbons are taken from the ground, they become ___________ property?
Real, personal
138
If a lessor only has the right to share in the proceeds, there is a ________________ _____________ between the lessor and lessee where the lessor becomes a creditor in default?
Contract right
139
The issue covering if "market value" can be greater than proceeds under a long term contract?
The Market Value/Proceeds Problem
140
Additions costs such as transporting, compression, treating improves the value of the product away from the ______________ but royalty is due at the _______________.
Wellhead
141
When gas is sold "at the well" lessor gets paid on the the
Amount realized
142
The term used as what the willing buyer and the willing seller would agree to under the circumstances?
Value
143
What is the best indicator of "value"?
Actual sale at the wellhead
144
Provision generally associated with long-term contracts?
Take-or-pay
145
A type of contrac that obligates the purchaser to pay for a percentage of the gas the producer can produce, whether or not the purchaser actually takes it?
A take-or-pay contract
146
A lessee is required to pay all ______ of production but can share _______ subsequent to production with the lessor?
Costs
147
The rule that states that "production" occurs (for royalties) when oil or gas is captured and held at the wellhead (lease)
The Capture-and-Hold Rule
148
The rule that states that "production" occurs when the product is captures and also made marketable?
The Marketable-Product Rule
149
A statement executed by all parties who claim an interest in proceeds of production sales, stipulating the distribution?
Division orders
150
What are the fuctions of division orders?
Protect the purcahsers production, do not alter the lease, are not true contracts, need not be signed
151
If a lessee fails to pay royalties, a lessor's remedy is to
Sue for royalty plus interest as it is a breach of covenant
152
Courts are reticent to terminate a lease if financial damages can make the lessor
Whole
153
An unwritten promise that generally imposes a burden on lessees to protect lessors?
Implied covenants
154
What standard requires the operator conduct themselves as a reasonable and prudent operator?
The Reasonably Prudent Operator Standard
155
Relating to technology and operating practices of the oil and gas industry?
Competence
156
What are the six commonly encountered implied covenants?
To test, to reasonably develop,for further exploration, to protect against drainage, to market, and conduct diligent and proper operations
157
Once oil and gas are discovered, lessee has obligation to prudently develop
The implied covenant to reasonably develop
158
Lessor must show that lessee would have been able to drill and make a profit
Probability of profit
159
When the number of wells or development plan is written into the lease, it overrides the
Implied covenant if reasonable
160
Lessee argues that lessor has not explored undeveloped parts of the lease or formations?
Implied covenant for futher exploration
161
Lessee must act to protect the lease from being drained by neighboring wells, even if there is no drilling and the lease is held by delay rentals?
The implied covenant to protect against drainage
162
Imposes on the lessee the duty to use due diligence to market oil and gas within a resonable time and at a reasonable price?
The implied covenant to market
163
Covenant that overlaps the other implied covenants and conforms to the "reasonable prudcent operator" standard?
The implied covenant of diligent and proper operation
164
The beach of the implied covenant of diligent and proper operation is usually based on what four types of objections?
Lessee has damaged the property by negligence, lessee has damaged the lessor by prematurly abandoning the well, lessee has dailed to use advance production techniques, lessee has failed to protect lessor by seeking regulatory action
165
Leases are often transferred and considered ___________ by oil companies?
Inventory
166
Oil and gas leases are treated as real property meaning that interest are
Freely assignable
167
Most lease forms contain language that specifically
Permits assignment
168
Unless a lease provides otherwise, a lessee who assigns the operating rights under a lease remains liable for future breaches
Further rights against the lessee
169
The transferee of a leasehold interest assumes
All the obligations imposed by the original lease
170
Transfer of an entire leasehold interest in all or part o a property, lessor can enforce the covenants that "run with the land"
Assignment
171
Transfer of less than all of an interest, lessor's rights are against the leasse/sub-lessor?
Sublease
172
When A leases land from lessor X and A ransfer lease to B retaining an ORR, and B lets lease lapse and renegoiates a new lease with X is an example of a ?
Wash out
173
A company has lease on 640acres, A transfers 320 to B, A is responbile if B fails to pay delay rentals
Failure of performance by a partial assignee
174
Contributing party gets geologic information in exchange for a payment to support drilling?
Support Agreements (contribution agreement)
175
Contributing party makes contribution in the event of a dry hole?
Dry-Hole agreement
176
Contributing party makes contribution when wells make agreed depth?
Bottom-Hole agreement
177
Contributing party agrees to contribute leases or interest in the area of the test well in exchange for information when party drills to agreed depth?
Acreage-contribution agreement
178
An agreement to assign an interest in acreage in return for the conduct of (or payment for) drilling on that acreage?
Farmout agreements
179
If farmee fails to drill a well, they may be liable for breech and damages?
Convenant
180
If farmee fails to drill, they have not liability but earn no interest?
Condition
181
A contract between cotenants or separate owners of oil and gas properties joinly operated?
Operating agreements
182
Operating agreements are created when parties decide to
Drill a well
183
Agreements between drilling contractor (who owns the rigs and equipment) and the lease operator?
Drilling contracts
184
Type of drilling contract that states a contractor is compensated on the basis of te amount of time spent drillin the well?
Day-Work contract
185
Type of drilling contract that states a contractor is compensated by the foot drilled?
Footage contract
186
Type of drilling contract where the drilling contractor does everything?
Turnkey contract
187
What are the two model form drilling contracts?
International Association of Drilling Contractors and the American Petroleum Institute
188
What is the agreement for the sale of natual gas by a producing to a pipeline, local distribution company or end user?
Gas contract
189
How long does a normal gas contract last?
Months, or 1-5years
190
What are short term contracts (day, week, month) called?
Spot market contracts
191
What is the model contract used for Spot contracts?
NAESB (North American Energy Standards Board)
192
Common issues addressed in gas contracts are?
Term, price, take provisions, commitements, reservations, conditions of devlivery
193
In short term "spot market" gas contracts, the price is usually based on
Spot market industry publications (Plat's dialy)
194
In a long term gas contract, what do take-or-pay provision obligate the purcahser to do?
Buy natural gas or pay for the gas not produced?
195
What requires the operator to maintain an under-over produced accoutns?
Gas balancing agreement
196
A statement executed by all parties who claim an interest in proceeds of production sales, stipulating the distribution?
Division orders
197
Division oder protect the purcahser of production and those who distribute proceeds by requiring those who are paid to
Warrant title and indenify those making the payments
