Black Gold

There is no liability for draining oil and gas beneath a neighbors land
-Common law rule of non-liability

Ex: owner of B/A owns all of the O&G produced from a well on his land, even if it shown that some of the O&G was drained from under his neighbor's tract

The fee owner has the right to convey the minerals below his land without relinquishing title to the surface, resulting in separate ownership of the surface and mineral estates

All owners have the right to reduce the minerals in that reservoir to possession and each has the right to a fair chance to recover his fair share of the minerals in the common reservoir.

Each owner has the corresponding duty not to engage in activity that would injure the common reservoir such as drilling too many wells or producing too high a rate.

Minority View

The owner of the soil does not own the minerals but has the exclusive right to produce and explore the minerals and execute the O&G lease

When a fee owner transfers less than the whole bundle of sticks

All rights to use and enjoy the surface except for the surface rights which belong to the mineral owner

The exclusive right to develop the property and the assumption of all costs of exploration and productions

Typically a right to 7/8 of production

Lessors interest in production created under the O&G lease.

Typically reads "Royalties to be paid by lessee are as follows: 1/8 of that produced and saved from said land."

An interest conveyed or reserved by a present or former mineral or royalty owner.

This interest is carved out of the lessor's interest.

Is not subject to the particular lease and therefor extends beyond the end of the lease

The non-executive is dependent upon the Executive to lease the interest on favorable terms

Duty of Utmost Good Faith

Fiduciary Standard

Requires the executive to act with due regard for the interest of the non-executive and be willing to execute a lease on the same terms and conditions as a reasonable and prudent landowner would do if there was not a non-executive interest

Requires the executive to subordinate his interest to that of the non-executive

grant a valid O&G lease without the joinder of the other

If the mine was open prior to the creation of the life estate, the life tenant is entitled to all production from the mine.

If the lease was executed prior to the creation of the life estate, the life tenant is entitled to all of the economic benefit under the lease.

If the lease is in force when the life estate was created and subsequently expires without production, then the open mine doctrine does not apply to a new lease or extensions of the existing lease

To make inadvertent omissions of small strips due to improper descriptions, adverse possession, survey errors, easements, etc., subject to the lease

Allows the lessee to extend from year to year without drilling a well as long as it is paid prior to the anniversary date of the lease.

If the payment is a day late or a dollar short then the lease terminates

Fee Simple Determinable

Automatically terminates

At the creation of the lease there is a present possessory estate in the lessee and a future interest in the lessor which is a possibility of reverter

Fee Simple on Condition Subsequent

Does not automatically terminate, there must be an action to terminate

Mere discovery is not sufficient

The lessee has to actually extract some oil and gas from the ground and sell it

Do operating revenues exceed operating costs over a reasonable period of time?

This test looks backwards.

If the lessor cannot meet the burden of proof then the case is over and there is a summary judgment for the lessee

If the lessor meets this burden then it can probably get past a motion for summary judgment but does not necessarily win the case

When a well capable of producing gas is shut-in for a lack of market, the lessee can hold the lease by paying shut-in royalties while the lessee diligently works to finds a market for the gas

Excuses performance because of unforeseeable factors beyond the lessee's control.

The act of force majeure has to be identified and that event has to prevent performance

Requires that the lessee drill as many wells to develop the property as would a reasonable and prudent operator

Under the wording of the topically gas royalty clause, royalty on sales made "off the premises" will be calculated on the basis of market value even though the gas is being sold pursuant to a long-term K at a lower price

What a willing buyer would pay a willing seller at the time and place of the sale

Action for Damages

Not an action for forfeiture

The bringing together of small tracts or fractional mineral interests of sufficient number to be eligible for a permit under the applicable statewide rules

A K between co-tenants or separate owners of O&G properties which are being operated jointly

It defines rights and duties and establishes the sharing of costs and expenses.

TEXAS

Recognizes that the landowner owns all substances, including oil and gas, which underlie his land.

The ownership of oil and gas is qualified by the operation of the rule of capture

Good Faith + Production = Trespasser is allowed to offset the drilling costs

Bad Faith + Production = no offset