Oil & Gas Flashcards
The __ __ __ __ limits the rule of capture and gives every oil & gas owner a right to __ __ __ __ oil & gas in a __ __ resevoir __ her property.
The DOCTRINE OF CORRELATIVE RIGHTS limits the rule of capture and gives every oil & gas owner a right to FAIR OPPORTUNITY TO PRODUCE oil & gas in a COMMON resevoir BENEATH her property.
The three situtations where an oil & gas owner is protected by the doctrine of correlative rights are …
(1) Negligently draining oil or gas—e.g., driller on adjacent tract negligently drills a blowout that drains the common resevoir;
(2) Illegally draining oil or gas—e.g., producer on adjacent tract produces in violaiton of Railroad Comm’n order or regulation;
(3) Draining stored gas—e.g., if producer on adjacent tract produces on gas resevoir that contains stored (reinjected) gas, then storer is entitled to compensation for drainage of stored gas after carrying burden of showing how much of the drained gas was stored and not native.
Until __, a fee simple interest in property owns __ the surface interest __ the minerals beneath.
Until SEVERANCE, a fee simple interest in property owns BOTH the surface interest AND the minerals beneath.
The mineral interest owner’s rights are …
(1) the right to development—the exclusive right to use the surface estate as reasonably necessary explore, produce, and develop minerals;
(2) the executive right—the right to lease the minerals interest;
(3) the traditional economic benefits of an oil and gas lease (unless otherwise agreed).
The traditional economic benefits of an oil and gas lease include …
(1) bonus—an upfront payment for sigining the lease, usually based on a certain amount per acre leased (e.g., $10/acre);
(2) royalty—a fractional share of any oil & gas produced that is free of production costs (usually 1/8);
(3) delay rentals—compensation for deferring drilling during the primary term of the lease;
and
(4) production payments—a fractional share of all oil & gas that may be produced that is free of production costs until lessor has received a sum certain.
The dominant mineral estate doctrine means that …
… the mineral estate is dominant over a surface estate and the owner of a mineral estate may use the surface estate as REASONABLY NECESSARY to develop oil & gas.
According to the Accommodation Doctrine, a __ __ __ must accommodate __ of the __ __ __ if __ of the following conditions are met: …
According to the Accommodation Doctrine, a MINERAL INTEREST OWNER must accommodate USES of the SURFACE ESTATE OWNER if BOTH of the following three conditions are met:
(1) PREEXISTING USE—the surface owner’s use was preexisting; and
(2) REASONABLE ALTERNATIVE AVAILABLE ON THE SURFACE ESTATE—the mineral interest owner has a reasonable alternative (not unreasonably costly) that is available without having to take action on surface somewhere other than the surface estate.
Unless agreed otherwise, the traditional lessee’s interests created by an oil & gas lease are …
(1) a FEE SIMPLE DETERMINABLE, which is determinable on the passing of the primary term without production and without the lessee paying delay rentals;
(2) a WORKING INTEREST, which is the exclusive right to explore, develop, and produce; and
(3) an OBLIGATION TO ALL COSTS, which applies to 100% of exploration, production, and development.
Unless agreed otherwise, the traditional lessor’s interests created by an oil & gas lease are …
(1) a POSSIBILITY OF REVERTER, which is a future interest in the minerals possessory only on the passing of the primary term without lessee’s production and without lessee paying delay rentals;
(2) a ROYALTY INTEREST, which is a share of production that is free of production costs.
A nonparticipating royalty interest (NPRI) is …
… is created when when a mineral estate owner conveys ONLY her royalty interest to a grantee or reserves ONLY her royalty interest to herself when conveying the mineral estate; their owners DO NOT PARTICIPATE in any LEASE, but they still retain a royalty interest.
Unless otherwise specified by conveyance, NPRIs usually do not receive rights to …
… delay rentals, bonuses, or production payments.
A nonparticipating mineral interest (NPMI) is …
… given to a grantee when a mineral estate owner conveys part of the mineral estate and RESERVES the EXECUTIVE RIGHT (right to lease); their owners DO NOT PARTICIPATE in any LEASE, but they still retain the economic benefits of the MINERAL INTEREST (bonuses, royalties, delay rentals, and production payments).
If a deed reads O gives A “a 1/16 royalty” on Blackacre’s mineral interest, O later leases Blackacre mineral interest to B and reserves a 1/8 royalty, and B produces, then A gets__ and O gets __.
A gets 1/16 OF ALL PRODUCTION and O gets 1/8 ROYALTY OF THE LEASE MINUS THE 1/16 OF ALL PRODUCTION HE PAYS TO A.
If a deed reads O gives A “a 1/16 of royalty” on Blackacre’s mineral interest, O later leases Blackacre mineral interest to B and reserves a 1/8 royalty, and B produces, then A gets__ and O gets __.
A gets 1/16 OF O’S ROYALTY (1/16*1/8 = 1/128 of all production) and O gets 1/8 ROYALTY OF THE LEASE MINUS THE 1/16 of that royalty (or 1/128 of all production) HE PAYS TO A.
Every cotenant __ drill and produce or lease his undivided share __ consent of the other cotenants.
Every cotenant MAY drill and produce or lease his undivided share WITHOUT consent of the other cotenants.
If a cotenant drills and produces or leases his undivided share, he must …
… account to the others fro their RIGHTFUL SHARE OF THE PROFITS OF PRODUCTION.
Profits of production are calculated as …
… production revenues minus production costs.
Production costs include __ __ and __ __ costs on __ __.
Production costs include REASONABLE DRILLING and REASONABLE OPERATING costs on PRODUCTIVE WELLS.
When accounting to cotenants for their rightful share, a producing or leasing cotenant __ assess dry hole costs against unleasing cotenants.
When accounting to cotenants for their rightful share, a producing or leasing cotenant CANNOT assess dry hole costs against unleasing cotenants.
An unleased cotenant may __ a lease that __ __ __ __, which will …
An unleased cotenant may RATIFY a lease that PURPORTS TO COVER HIS INTEREST, which will convert his rightful share of profits of production to a rightful share of the lessor’s interest.
In Texas, a cotenant has an absolute right to __ property, which is a judicial proceeding and may be done either __ __ or by __ __, but __ __ is favored.
In Texas, a cotenant has an absolute right to PARTITION property, which is a judicial proceeding and may be done either IN KIND or by FORCED SALE, but IN KIND is favored.
__ a life tenant __ a remainder man may grant a valid oil & gas lease without __ __ __ __.
NEITHER a life tenant NOR a remainder man may grant a valid oil & gas lease without JOINDER OF THE OTHER.
Unless otherwise agreed, life tenant in a valid mineral lease gets …
(1) CURRENT INCOME & INTEREST—including 100% of delay rentals plus INTEREST only on bonus and royalty;
and
(2) ALL BENEFITS OF PREEXISTING USE AND LEASES—per the OPEN MINES doctrine, the life tenant takes the benefits of the property as used when she received the life estate.
When accounting for life tenants by trusts existing before 2004 and the trust is silent as to grantor’s intent regarding distribution, …
(1) life tenant gets delay rentals plus 72.5% of bonus & royalty plus interest on remaining bonus & royalty;
and
(2) remaining 27.5% of bonus and royalty is reserved for remaindermen to take upon life tenant’s death.
When accounting for life tenants by trusts existing after 2004 and the trust is silent as to grantor’s intent regarding distribution, …
(1) life tenant gets nominal delay rentals plus an equitable share (85% presumed equitable) of all other proceeds;
and
(2) remaining equitable share of all other proceeds is reserved for remaindermen to take upon life tenant’s death.
If a mortgagee executes and records before a mineral lease is executed, …
… any subsequent mineral lessor’s interest will be subject (junior) to the mortgage lien.
If a mineral lease is executed and recorded before a mortgage is executed, …
… any subsequent mortgage will be will be junior to the mineral lease and the lease cannot be foreclosed upon because the mortgagee-lender is presumed to have knowledge of the lease.
According to the doctrine of marshalling the assets, …
… a foreclosing mortgagee must sell surface interests and assets of mortgaged property to satisfy a debt before selling the mineral interests of the mortgaged property.
The fourt basic types of oil & gas trespass are …
(1) ordinary trespass—e.g., the lease expires, but the lessee holds-over;
(2) slant-well drilling;
(3) wrongful dry well—e.g., when trespassing lessee enters and drills a dry hole, the trespasser is liable to the mineral interest holder for the value (bonus money) he would have received before the world found out the field was dry;
(4) geophysical or seismic trespass—e.g., the trespasser PHYSICALLY ENTERS and explores on the land.
Respectively, remedies for the following are:
(1) ordinary trespass:__;
(2) slant-well drilling:__;
(3) wrongful dry well:__;
(4) geophysical or seismic trespass:__.
(1) ordinary trespass: INJUNCTION & DAMAGES (INCLUDING POSSIBLE PUNITIVES);
(2) slant-well drilling: INJUNCTION & DAMAGES (INCLUDING POSSIBLE PUNITIVES);
(3) wrongful dry well: DAMAGES FOR LOST BONUS ONLY;
(4) geophysical or seismic trespass: TORT IS WAIVED AND SUIT IS ON ASSUMPSIT FOR THE CONTRACT THAT WOULD HAVE BEEN ENTERED INTO FOR THE MARKET VALUE OF RIGHT TO EXPLORE.
Drainage caused from fractures formed by siesmic exploration performed on the surface of an adjoining tract or repressuring beneath an adjoinging tract is __ __ because …
NOT ACTIONABLE because DRAINAGE FROM MERE FRACTURING IS PROTECTED UNDER THE RULE OF CAPTURE.
A __ __ trespasser has an __ & __ belief in the superiority of his title and damages against him will be reduced by …
A GOOD FAITH trespasser has an HONEST & REASONABLE belief in the superiority of his title and damages against him will be reduced by HIS COSTS INCURRED IN ANY PRODUCTIONS BENEFITING THE RIGHTFUL OWNER.
A bad faith producing trespasser is liable for …
… the gross value of production from the well (all revenues without subtracting costs).
In Texas, a trespasser drilling during the pendency of a lawsuit over the land is a __ __ __, unless …
BAD FAITH TRESPASSER, unless he is also a COTENANT TO AN UNDISPUTED FRACTIONAL INTEREST OF THE MINERAL ESTATE.
Slander of title is …
… a cause of action in tort resulting from:
(1) publication of a false claim of title ot the property;
(2) done with malice;
and
(3) causing the rightful owner to lose a specific conveyance opportunity about the land.