Oil and Gas Flashcards
What is the accommodation doctrine?
The mineral estate is dominant when severed from the surface estate. BUT a mineral owner must accommodate pre-existing surface uses if there is a reasonable alternative method of developing the oil and gas that is less destructive to the surface use. The alternative must be available on the tract.
What are minerals?
Oil and gas and 9 other substances as a matter of law. IF not, then for a pre-1983 conveyance, apply the surface destruction test (if extraction would destroy the surface, then it belongs to the surface). For a post-1983 conveyance, apply the ordinary and natural meaning test.
How do courts interpret a conveyance?
Construed against grantor and read literally (Duhig). Royalty interest is indicated by “produced and saved” and mineral interest is indicated by “in, on, or under.” If mixed language, presumption for mineral interest
What do NPRI’s (non-participating royalty interest) own?
A share of production that is free of the costs of production, but no right to participate in the leasing transaction (when royalty owner is not mineral owner)
What are a cotenant’s rights with respect to the minerals?
Every cotenant has the right to drill or lease without consent of other cotenants, but they have to account to the cotenants for their share of profits from production. An unleased cotenant can chose to ratify the lease or retain a profit share interest in the well
What are the rights of the life tenants and remaindermen?
Both the LT and remaindermen must join for a lease to be valid. If life tenancy grant does not specify, LT is entitled to current income and interest (all delay rentals, interest on bonus/royalty) and remaindermen entitled to principal of bonus and royalty. Exception for open mine doctrine (prior lease in existence - all benefits to LT)
What share of a trust does the income beneficiary receive of oil and gas?
If it was created before July 1, 2004 - life tenant gets delay rentals and 72.5% of royalties and bonus plus interest on the 27.5% remainder. After July 1, 2004, life tenant will get an equitable share of everything (85% is presumed to be equitable)
What typical savings clauses appear in an oil and gas lease?
Typically, a completion clause, force majeure clause, and shut in gas royalty clause (ceases PPQ due to market conditions)
Habendum Clause - what is the formula for production in paying quantities?
Revenues minus royalties minus operating cost = positive number. Usually viewed on a yearly basis. Would a reasonably prudent operator interested in making a profit rather than speculation continue to operate the well at a loss?
What is the temporary cessation doctrine?
Once PPQ is established, a sudden stoppage, due to a mechanical breakdown or the like will not termiante the lease. If there is an express clause in the lease it will control. Must have production resumed w/in a reasonable amount of time.
What is the effect of failure to pay money owed to the lessor?
Failure to pay delay rentals (primary term; unless = condition, or = covenant), terminates the lease (but if lessor accepts late payment, lease comes alive again). Failure to pay royalties does not terminate the lease, but the lessor has a claim against the lessee.
What is the effect of a pooling clause?
Allows a lessee to hold multiple tracts under lease with PPQ from one well on one of the tracts. Royalty from producing well is split between all tract owners. NPRI is not bound by pooling agreement.
What implied covenant exists in an oil and gas lease?
Implied covenant to protect against drainage. Covenant for reasonable development (but NO covenant to explore). Express clauses negate implied covenants. In any case, to win the lessor must show that a reasonably prudent lessee would drill 0 that is that it would be profitable to drill
