Oil & Gas

Oil & Gas (Jones) Spring 2008
Ch 1 Accumulation Ownership & Conservation..........................................................................11 Accumulation.......................................................................................................................... 11 Law (Rule) of Capture and Private Ownership.......................................................................11 Rule of Capture................................................................................................................... 11 E ceptions to Rule of Capture.........................................................................................11 Champlain E ploration v. !estern "rid#e.......................................................................11 $e as American.............................................................................................................. 11 %eo &i'in#....................................................................................................................... 11 $rail Enterprise................................................................................................................ 1( )tatewide )pacin# Rule in $e as.......................................................................................1( *el +onte +inin# & +illin# v. Last Chance +inin# & +illin# (old law).................................1( ,ell- v. Ohio Oil . Rule of Capture allows /oundar- line drillin# (old law)...........................1( Radial $heor- of *raina#e .............................................................................................1( Production 0nit............................................................................................................ 11 2um/le Oil & Refinin# Co (2ORCO now 'nown as E on) v. !est (e traneous #as)........11 interstitial spaces......................................................................................................... 11 People3s %as v. $-ner (fracin# within /oundar- of own land is o'a-)..................................11 %eo &i'in# v. $e 4Lee (fracin# that crosses lease line is a trespass).................................11 !rons'i v. )un Oil (correlative ri#hts 4 #reat /lac' letter law) (1565 . +7) .........................11 Correlative Ri#hts........................................................................................................11 Correlative Ri#hts Rule................................................................................................11 Elliff v. $e on *rillin# (RoC e ception8 lia/ilit- for ne#li#ent production).............................19 $he )urface and +ineral Estates ($he "undle of )tic's in the +E)....................................19 +ineral Estate "undle of )tic's in $:..............................................................................19 $ownship......................................................................................................................... 19 Conservation.......................................................................................................................... 1; Larsen (RRC is tas'ed with protectin# correlative ri#hts)....................................................1; Pattie............................................................................................................................... 1; E on v. RRC.................................................................................................................. 1; "ottom 2ole Pressure.....................................................................................................1; Allowa/les....................................................................................................................... 1; Proration 0nits................................................................................................................ 1; Pic'ens (1<< rule)............................................................................................................... 1; *enver Producin# & Refinin# (RRC allocation of allowa/les must /e reasona/le).............1; Ch ( $he Oil & %as Lease......................................................................................................... 1= Purpose of O%L..................................................................................................................... 1= O%L................................................................................................................................ 1= Conversion *ate............................................................................................................. 1= Primar- $erm.................................................................................................................. 1= Ro-alt-............................................................................................................................ 1= "onus.............................................................................................................................. 1=
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9@6= O%L e ample.............................................................................................................. 1= %rantin# Clause.............................................................................................................. 1= )u/ro#ation Clause.........................................................................................................1= %rantin# Clause4)urface 0ses...............................................................................................1= 2unt Oil v. ,er/au#h (*ominant +ineral estate has ri#ht to use servient surface estate as reasona/l- necessar-)........................................................................................................16 %ett- Oil v. Aones (Accommodation *octrine)....................................................................16 Accommodation *octrine................................................................................................16 Limits on the use of the servient estate /- the dominant estate n. (B p11=4191.............16 Ro/inson v. Ro//ins Petroleum..................................................................................16 +aintainin# the leaseC*ela- rentals.....................................................................................1D 2a/endum Clause.............................................................................................................. 1D Anniversar- *ate............................................................................................................. 1D "onus.............................................................................................................................. 1D Primar- $erm.................................................................................................................. 1D *ela- Rental.................................................................................................................... 1D )chwartEen/er#er v. 2unt $rust Estate (technical compliance with 2C is reFuiredCri#ht amountB ri#ht timeB ri#ht personsB ri#ht manner)..............................................................1D "reau v. Apache Oil (p16D) (meanin# of operations . su/stantial preparations for drillin# in #ood faith and with due dili#ence)...............................................................................1D )econdar- $erm.......................................................................................................... 15 !hat 'ind of production......................................................................................................15 Assi#nment Clause......................................................................................................... 15 Che-enne Resources v. Criswel (repudiation /- lessor).................................................15 Clifton v. ,oontE (pa-in# Fuantities .revenue G operatin# e penses).............................15 Operatin# E penses........................................................................................................15 )tanolind Oil & %as v. "arnhill ($:4production in pa-in# Fuantities reFuires actual severance@sale)............................................................................................................... (< Pshi#oda v. $e aco (p(6 left4hand column . rewor'in# is not operations)......................(< %arcia v. ,in#.................................................................................................................. (< Clifton.............................................................................................................................. (< )'ell-.............................................................................................................................. (< !or'in# 7nterest & Assi#nment...........................................................................................(< Overridin# Ro-alt- 7nterest ORR7....................................................................................(< HR7.................................................................................................................................. (< *ivision Order $itle Opinion *O$O.................................................................................(< Poolin# Provision............................................................................................................ (< ++"$0........................................................................................................................... (1 IProducedJ Overview.............................................................................................................. (1 "undle of stic's in the mineral estate (on the e am)..............................................................(1 )avin#s Clauses and *octrines (shut inB $COPB cessation of productionB dr-4holeB continuous opsB & force maKeure)............................................................................................................. ((
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)hut4in ro-alt- clause..........................................................................................................(( >reeman p(<9 (shut in #as ro-alt- L constructive production)........................................(( 1<4=< da- clause (doctrine of temporar- cessation of production)......................................(( !atson v. Rochmill (p. (5s)............................................................................................(( Cessation of productionB dr-4hole clauseB continuous operations clause.........................(1 1<4=< *a- Clause........................................................................................................... (1 Continuous operations clause.........................................................................................(1 Ro#ers v. Os/orn (restartin# operations after $COP violated does not e tend lease).....(1 )amano (1<4=< da-s clauses strictl- construed).............................................................(1 >orce +aKeure clause......................................................................................................... (1 2a/- v. )tanolind Oil & %as Co (no force maKeure clause in the lease)..........................(1 Perlman v. Pioneer Ltd Pship (unilateral decision that production is impossi/le is insufficient to tri##er a force maKeure clause)..................................................................(1 >orce +aKeure Rules.......................................................................................................(9 2-drocar/on $rac'er...................................................................................................(9 Ro-alt- pa-ments................................................................................................................... (9 $-pes of ro-alt- interests....................................................................................................(9 Overridin# Ro-alt- ORR7.................................................................................................(9 Honparticipatin# Ro-alt- HPR7........................................................................................(9 Landowner3s Ro-alt- R7..................................................................................................(9 +ar'et value ro-alt- issue..................................................................................................(; Pine- !oods Countr- Life )chool v. )hell Oil Co. (defn? mar'et value at the well).........(; Proceeds......................................................................................................................... (; +ar'et &alue at the !ell.................................................................................................(; Comps......................................................................................................................... (; Cost Hettin#................................................................................................................. (; &ela Rule........................................................................................................................ (; 7mplied Covenant to +ar'et................................................................................................(; P-ote (li'el- no lon#er #ood law /@c of chan#es in natural #as mar'et)..........................(; $a'e or pa-......................................................................................................................... (= ,illam Oil v. "runi (s91) (ro-alt- is not due ro-altowners on ta'e or pa- pa-ments).....(= Alameda v. $ransamerica Hatural %as (R7 owner not due ro-alton dama#es for /reach of ta'e or pa- clause4a/sent a specific clause in the lease)............................................(= Costs after production.........................................................................................................(= %arman v. Conoco (CO).costs of production v costs su/seFuent to production.............(= 2erita#e Resources v. Hations/an'B Co (155=) (+&! is a term of art)...........................(6 *ivision orders.................................................................................................................... (6 %avenda v. )trata Ener#- (/eware reservation of I: ro-alt-J v. I: of ro-alt-J)................(6 *ivision Order )tatute $ Hatural Resources Code M 51.9<1..........................................(D Cannon v. Cassid- (non4pa-ment of ro-alt- is not a terminatin# condition)....................(D Remedies for failure to pa- ro-alties . Caanan (CoA for dama#eB not cancel)...................(5
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Ro-alt- paid on production after su/tractin# #as used /- LE in production (>ree %as Clause)............................................................................................................................... (5 7mplied Covenants.................................................................................................................. (5 Hature and Classification....................................................................................................(5 "rewster v. Lan-on Ninc Co (,)) (implied covenant to further develop8 not in $:).........(5 *raina#e............................................................................................................................. 1< Amoco v. Ale ander ($: 15D1) 7mplied Covenant to protect a#ainst *raina#e (local & field4wide)........................................................................................................................ 1< Oil in Place (O7P)............................................................................................................ 1< ,err4+c#ee v. 2elton ((<<9 $ )44 *raina#e....................................................................1< Het feet of pa-............................................................................................................. 1< E am . 7mplied Covenants in $e as......................................................................................1< *evelop.............................................................................................................................. 1< Protect................................................................................................................................ 11 +ana#e & Administer..........................................................................................................11 7mplied Covenants to *rill or E plore..................................................................................1( )uperior Oil v. *evon 7mplied Covenant to *evelop (step4outCnot e plore)..................1( )un E ploration & Production v. Aac'son (p;5)) 7mplied Covenant to >urther E plore (not in $e asOO)................................................................................................................ 1( E plore............................................................................................................................... 1( *evelop defn....................................................................................................................... 1( *ili#ent operation (one of the duties to mana#e & administer)............................................1( "aldwin v. ,u/etE (CA)...................................................................................................1( 2EC7 v. Heel (no 7C of notice of suit /- LR to LE /efore sue LE)....................................1( Res Audicata....................................................................................................................... 1( Collateral Estoppel.............................................................................................................. 11 >or the e amB need to 'now the #eneral contents of the two oil & #as leases .......................11 Ch 1 $itles & Conve-ances? 7nterests of Oil & %as....................................................................11 +ineral 7nterests and Ro-alt- 7nterests (*eedsB Assi#nments & the use of !ords with +a#ical Pualities)................................................................................................................................ 11 Hature of the 7nterests........................................................................................................ 11 "odcaw Lum/er v. %oode (Ar'. 15(1) (+E & )E ma- /e severed and held /- different owners in perpetuit-).......................................................................................................11 $-pe of estate in the $: /undle of stic's in the +E.........................................................19 +c)we-n v +usselshell Count-B +$((QR mineral interest (wor'in# interest) v. (QR ro-alt- interest)................................................................................................................... 19 Creation of +ineral & Ro-alt- 7nterests...............................................................................19 "ar'er v. Lev- (#rant of HPR7 or HP+7)..........................................................................19 )chlittler v. )mith (p19<) (HPR7 participates in LO ro-alt-B minimum ro-alt- and compensator- ro-alt-).....................................................................................................1; +inimum Ro-alt- Clause.............................................................................................1; Compensator- Ro-alt-................................................................................................1;
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Het Profits 7nterest.......................................................................................................1; Carried 7nterest............................................................................................................ 1; +a#ic words of #rantin# (creatin# +ineral 7nterest v Ro-alt- 7nterest)............................1; Altman v. "la'e (if use Iin and underJ it is a +7 no matter what else mi#ht /e reserved).1; >rench v. Chevron (in and under that ma- /e produced L +7)........................................1; !at'ins v. )lau#hter (p1;5)B $emple47nland v. 2enderson..........................................1; Anderson v. +a-/err- (O'l) (a +7 and other stic's ma- /e reserved separatel-)............1= Review .................................................................................................................................. 1= HPR7 *efn................................................................................................................... 1= )hared ownership.................................................................................................................. 1= Law v. 2ec' Oil (+inorit- Rule) (HO$ 7H $:)......................................................................1= Prairie Oil & %as v. Allen (non4operatin# co4tenant in the +E participates in net proceeds8 pa-s his share of development costs in proportion to +ER)...............................................1= Earp v. +id4Continent Petroleum (p. 161 n. 6) (co4tenants ma- e ecute separate O%Ls8 proportionate reduction clause ensures theonl- #et ro-alton the R of +E that each owns).................................................................................................................................. 16 Proportionate Reduction Clause......................................................................................16 +arital Propert- 7ssues w.r.t. +ineral estate.......................................................................16 +osle- v. 2earrell (co +E owners can see' to partition8 operatin# a#reements must /e in writin# /ecause the- affect an interest in the land ()o> applies)).......................................16 !el/orn v. $idewater Associated Oil (life tenant & remainderman ma- not e ecute an O%L individuall-)......................................................................................................................... 16 2-nson v. Aeffries (p1D<) (treatment of lease /enefits /etween LE and remainderman)....16 Open mine doctrine......................................................................................................... 1D 0niform Principal & 7ncome Act.......................................................................................1D +oore v. &ines (p. )461) (open mine doctrine)...................................................................1D $ermina/le 7nterest................................................................................................................ 1D Ro-alt- *eed................................................................................................................... 1D Archer Count- v. !e//...................................................................................................1D E ecutive Ri#ht...................................................................................................................... 1D +ims v. "eall (owner of e ecutive ri#hts has a pseudo4fiduciar- dut- to HPR7 holderCno self dealin# to reduce HPR73s proceeds).............................................................................1D Luec'e v !allace (e ecutive ri#ht owner cannot maneuver to reduce HPR7 owner3s /enefits).............................................................................................................................. 1D 7n re "ass (no implied covenant to develop or fiduciar- dut- to develop if no O%L8 HPR7 2older cannot force an O%L to /e e ecuted)......................................................................1D "ean v. "ean (power of attorne- to sell the propert- does not include severance and sale of the mineral estate via O%L onl-).........................................................................................15 *a- & Co v. $e land.......................................................................................................15 Other +inerals........................................................................................................................ 15 +oser v. 0) )teel Corp. (para 1 of the O%L) (meanin# of other minerals pre4 and post4 Aune DB 15D1)...................................................................................................................... 15 )u/stances deemed minerals as a matter of law............................................................15
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Amoco Production v )outhern 0te (coal does not include coal4/ed methane #as as an Iother mineralJ)................................................................................................................... 9< Amarillo Oil v. Ener#-CA#ri (phase severance . separation of oil ri#hts from #as ri#hts8 O%L to one lessee for oil@casin#head #as8 O%L to another lessee for #as)........................9< Conve-ances of >ractional 7nterests......................................................................................9< Aver-t v. %rande (/e careful to appl- the fractional interest to the Iland descri/edJ or the Iland conve-edJ as noted in the conve-ance).....................................................................9< *uhi# v. Peav-4+oore (reservations in successive warrant- deeds must account for all prior reservations plus the amount to /e reserved).....................................................................9< !arrant- *eed................................................................................................................ 9< "en#e v. )char/auer (separate clauses dealin# with "B *RB R7 are not su/Kect to *uhi# rule re#ardin# fractional interests in the +E).............................................................................91 >i in# *uhi#........................................................................................................................ 91 *uhi# E ample Pro/lem.....................................................................................................91 *uhi# E ample Pro/lem.....................................................................................................91 Acoma v. !ilson (even if #rantee 'nows a/out the prior reservation *uhi# still applies)....91 +ineral Acre.................................................................................................................... 9( %reatest Possi/le Estate.................................................................................................9( )u/ro#ation Clause.........................................................................................................9( Proportionate Reduction Clause......................................................................................9( $e as Co v. Par's (ro-alt- is for land descri/edB not whole tract if %R onl- owns a portion /ut does not descri/e the whole tract)................................................................................9( Aones v. Colle (+other 2u//ard Clause)............................................................................9( A 2iram +oore v. %reer (Catchall clause@0niversal Clause will not include lar#e tracts of land not properl- descri/ed in the conve-ance)..................................................................9( Conve-ances of 7nterests in Leased Land..............................................................................91 2offman v. +a#nolia Petroleum..........................................................................................91 *ou/le %rant $heor- (clarif- this)...........................................................................................91 Concord v PennEoil (OH $2E E:A+) (mineral deed with conflictin# #rantin# clause and su/Kect to clause conve-ed a 1@1( +7 considerin# document as a whole and not as two separate estates of differin# siEes).....................................................................................91 >uture Lease Clause.......................................................................................................91 Luc'el v. !hite (%E had R7 onl-B no e ecutive power) (#rantin# clause is a floor8 future lease clause applies is future lease provides #reater /enefits)........................................91 Ratification v. Reviver .....................................................................................................99 Honapportionment doctrine.................................................................................................99 Aaphet v +cRae (non4apportionment doctrine applies to ro-alties under an O%L that was e ecuted /efore the tract was ph-sicall- divided)............................................................99 %ilcrease v. )tanolind Oil (entireties clause? when a LE has O%L over different tracts and there are su/seFuentl- multiple tract ownersB LE pa-s ro-alt- to each in proportion that each3s interest /ears to the total leased premises).............................................................99 $op Leasin#........................................................................................................................ 9; 2amman v. "ri#ht (a top lease violates RAP if it sa-s it is effective upon termination of the /ottom lease /@c the /ottom lease ma- not e pire for G (1 -ears)............................9;
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$op Lease.................................................................................................................... 9; Phillips Petroleum v. Peterson (p5(4)) (RAP not violated /- a unitiEation clause /ecause that clause does not conve- an interest).........................................................................9; Ch 9 7nterference with 7nterests in O&%.....................................................................................9; $respass................................................................................................................................ 9; Enron O&% v. !orth (seismic permit 4 ri#ht to e plore can /e severed from ri#ht to /ore & produce8 su/Kect to )o>......................................................................................................9= )eismic Permit............................................................................................................. 9= Earp v. +idContinent@Alan v. Prairie............................................................................9= %r-n/er# v. Cit- of Horth#lenn (ri#ht to e plore is a protecta/le propert- interest).............9= 2ORCO v. ,ishi (if O%L e piresB LE commits trespass if he continues to enter the propert-) ........................................................................................................................................... 9= ,enned- v. %eneral %eoph-sical (seismic vi/rations are not trespass)..............................9= Phillips Petroleum v. Cowden (it is a #eoph-sical trespass to conduct seismic operations on the land without the a#reement of the +E owner8 a#reement of )E owner is not sufficient) ........................................................................................................................................... 96 $ail.................................................................................................................................. 96 2alo................................................................................................................................. 96 "-rom v. Pendle- (/ad faith trespassor v. #ood faith trespassor).......................................96 "ad >aith $respassor......................................................................................................96 Edwards v. Lachman (p;15 n. 1) (su/surface trespass is /ad faith trespassin#8 P #ets 1<<R of proceeds from the well8 * cannot recover an- drillin# costs)................................96 +easures of *ama#es for $respass...............................................................................9D Phillips Petroleum v. Cowden..........................................................................................9D 2unt v. 2H% Oil Co (costs for recompletion of a well are recovera/le when #ood faith trespass occurs after O%L under which well ori#inall- completed e pires /ut not costs for ori#inall- completin# the well).............................................................................................9D p;(< n. ; Continuin# $ort of $respass & Conversion..........................................................9D 2amman v "ri#ht ()lander of $itle4 failure of LE to release the lease when the O%L terminates).......................................................................................................................... 9D p;(DB n9 Adverse possession & protection lease...............................................................9D Loss of $itle (Adverse Possession)........................................................................................9D Aones v. +c>adden............................................................................................................ 95 *iederich v. !are (after severanceB AP of +E reFuires actual production and severance of the minerals for the limitations period)................................................................................95 Hatural %as Pipeline Co of America v. Pool (when O%L terminatesB O%L (wor'in# interest) on +E ma- /e e tended throu#h AP /- producer that simpl- continues production for the limitations period)................................................................................................................ 95 $erms (Eli v. "rile-)............................................................................................................ 95 Riparian........................................................................................................................... 95 Accretion......................................................................................................................... 95 Reliction.......................................................................................................................... 95 Avulsive........................................................................................................................... 95
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A/andonment (p;16).......................................................................................................... ;< Ch ; Contracts & $ransfers /- the Lessee................................................................................;< Lease Assi#nments4Ri#hts@o/li#ations of the Assi#nor .........................................................;< Re-nolds4Re win'le Oil v. Pete (wash out).......................................................................;< Coo' v. El Paso Hatural %as (since the ORR7 is carved out of the wor'in# interestB the ORR7 owner has standin# to sue for enforcement of the implied covenant to prevent draina#e)............................................................................................................................ ;< Compensator- Ro-alt-....................................................................................................;< Lessor Ri#hts a#ainst an assi#nee (some O%Ls reFuire approval /efore assi#nment)...;< $rafal#ar 2ouse O&% v. *e 2inoKosa..............................................................................;< OA% v. *esert %as E ploration (e press covenants in O%L are indivisi/le)......................;< Rid#e Oil v. %uinn 7nvestments (wash out non producin# assi#ned lessee /- terminatin# the lease on the producin# half of a metes & /ounds (ph-sicall-) divided assi#ned lease).;1 ,othe v. Aefferson (implied covenants in O%L are indivisi/le8 in $: divisi/le).....................;1 )upport A#reements.............................................................................................................. ;1 Contri/ution Letter........................................................................................................... ;1 *r- 2ole Letter................................................................................................................ ;1 >armout A#reements.............................................................................................................. ;1 Pa-out............................................................................................................................. ;1 +artin v. *arc-.................................................................................................................... ;( !estland Oil *ev. Corp. v. %ulf Oil Corp. (E:A+ ver- important) (a purchaser is /ound to follow up on ever- recital in a deed that ma- affect his chain of title)..................................;( Areas of +utual 7nterest (A7+) a#reement.......................................................................;( Operatin# A#reements (AoA)..................................................................................................;( +odel >orm Operatin# A#reement..................................................................................;( Accountin# A#reement....................................................................................................;( %as "alancin# A#reement..............................................................................................;( A/ra as v. 2orn/ur# (operator authorit- & responsi/ilit-)...................................................;1 0nit Area......................................................................................................................... ;1 Authorit- for E penditure (A>E).......................................................................................;1 Aoint 7nterest "illin# (A7").................................................................................................;1 E culpator- Clause......................................................................................................... ;1 +&$ 7nc v. >uel Resources *ev. Co (non4op lia/ilit- for costs #oes /e-ond the A>E to actual reasona/le costs incurred).......................................................................................;1 *r- 2ole Election Point...................................................................................................;1 +"an' v. !estwood Ener#- (e penditures & lia/ilities of parties44liens and pa-ments).....;1 "loc'er E ploration v. >rontier (lia/ilit- of HonOps if Op defaults8 creditor cannot reach non4 ops3 personal assets).......................................................................................................... ;1 +inin# Partnership.......................................................................................................... ;1 +ineral Propert- Lien......................................................................................................;9 $e star Horth America v. Ladd Petroleum (properl- #iven nonconsent is not a /reach of AoA).................................................................................................................................... ;9
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&alence & *orsett (meanin# of &.".1 notice provisions for consent@nonconsent)...............;9 Hon4consent penalt-.......................................................................................................;9 Aohnston v. American Cometra (Ops dut- to HonOps w.r.t. sellin# prdn)...........................;9 )ea#ull Ener#- v. Eland Ener#- (effect of assi#nment8 E:A+8 O%L assi#nor is still lia/le under its O%L contract unless the assi#nment e pressl- releases it from its o/li#ations under the contract).............................................................................................................. ;; Lon# $rusts v. %riffin.......................................................................................................... ;; Amoco Production v. Action !ell )ervice (LE lia/ilit- for ne#li#ence of drillin# contractor).;; *a- Rate......................................................................................................................... ;; >oota#e Rate.................................................................................................................. ;; $urn'e- Rate................................................................................................................... ;; Ch = Poolin# and 0nitiEation......................................................................................................;; Pro/lem of )mall $racts......................................................................................................... ;; (Ho Fuestions on Rule 16 on the e am)..........................................................................;; R-an................................................................................................................................... ;= 2al/out-............................................................................................................................. ;= Accomplishin# Poolin#........................................................................................................... ;= >rench (communitlease . multiple landowners voluntaril- si#n the same O%L8 communitlease in $e as creates a presumption that the LRs have pooled their interests).................;= Communit- Lease........................................................................................................... ;= Aones v. ,illin#sworth (improper poolin# can result in loss of lease /@c production in the invalid pool is not production on all the leases in the pool).................................................;= !hen poolin# is done properl-?.......................................................................................;6 $ittiEer v. 0nion %as (if O%L sa-s poolin# not effective until the unit desi#nation is recordedB then drill site tract #ets all ro-alties until recordation)..........................................;6 Amoco Production v. 0nderwood (#err-manderin# a unit to perpetuate leases is o'a-).....;6 Elliott v. *avis.................................................................................................................. ;D )E Pipeline v. $ichace' (poolin# can /e used to dischar#e the implied dut- to protect a#ainst draina#e)................................................................................................................ ;D "ennion (a mineral co4tenant is not su/Kect to a non4consent penalt- for not poolin# his interest8 he pa-s his fair share of the costs of production the same as another co4tenant) ........................................................................................................................................... ;D Soun#/lood v. )eewald (the current wor'in# interest owner has the responsi/ilit- of pa-in# ORR7 not the prior wor'in# interest owner).........................................................................;D Carson v. RRC (+7PA of 15=1) OH $2E E:A+ (a fair & reasona/le offer to pool must /e made /efore +7PA can /e used to force poolin#)...............................................................;D 2ladi' v. Lee (O,).............................................................................................................. ;5 Effect of Poolin#..................................................................................................................... ;5 Effect on Lessee3s Operations............................................................................................;5 "i/ler "rothers $im/er v. $oKac +inerals (Pu#h ClauseCan O%L is onl- preserved as to the leased acrea#e included in the pooled acrea#e.)......................................................;5 !ells v. Continental (implied covenant to rE/l- develop applies to pooled acrea#e and non4pooled acrea#e in a sin#le O%L)..............................................................................;5
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Effect on Propert- 7nterests................................................................................................;5 &eal v. $homason (not an important case)......................................................................;5 London v. +erriman (effect on non4operatin# interests8 non4pooled HPR7 owner on a tract in a multi4tract O%L can ratif- the O%L to ena/le him to receive ro-alties from production on other tracts)................................................................................................................ =< "rown v. %ett- Reserve Oil..........................................................................................=< +CN v. $riolo............................................................................................................... =< +ont#omer- v Ritters/acher........................................................................................=< HPR7 (E:A+).............................................................................................................. =< Edmonston v. 2ome )ta'e O&% Corp (effect on termina/le interests)...........................=< RRC v. Pend Oreille O&% Co (the fair & reasona/le offer to pool is su/Kect to the su/stantial evidence rule)................................................................................................=< Enhanced Recover- (secondar- & tertiar- recover-) 0nitiEation........................................=1 "aum#artner v. %ulf <il Corp. (encroachment across lease lines of RRC approved secondarrecover- method is not a compensa/le trespass)..........................................=1 )Fuare +ile defn and siEe in acres..............................................................................=1 0nitiEation.................................................................................................................... =1 )econdar- Recover-...................................................................................................=1 $ertiar- Recover-........................................................................................................ =1 He#ative Rule of Capture............................................................................................=1 $ide !ater Assc. Oil Co v. )tott (dr- #as (a less valua/le su/stance) pumped /ac' into a reservoir that produces wet #as (a valua/le su/stance) is a valid e ercise of the ne#ative rule of capture8 LE did not trespass)................................................................................=1 !et #as........................................................................................................................... =1 %as Rec-clin#................................................................................................................. =1 !aseco Chemical & )uppl- v. "a-ou )tate Oil Corp (no implied covenant to use enhanced recover- techniFues8 RPO standard applies)..................................................=( "rownin# Oil v. Luec'e (anti4poolin# provisions8 horiEontal drillin# creates a drill site tract in ever- tract the well /ore crosses8 measure of dama#es is the amount of oil drained from each tract horiEontall-Crule of capture does not appl-)..........................................=( >ederal and )tate Lands.....................................................................................................=( *avis & )ons v. %ulf Oil Corp (Aones Act applies for P7 actions if the , has a #enuine salt- flavor)...................................................................................................................... =( Lewis (owners of RLA lands are A#ents of the )tate and cannot self4deal in e ecutin# O%Ls8 Q of an- /enefits ne#otiated are due the )tate)...................................................=1 E am......................................................................................................................................... =1
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Oil & Gas (Jones) Spring 2008 Ch 1 Accumulation Ownership & Conservation
Accumulation
1. Oil reservoir . area of reservoir roc' literall- soa'ed with liFuid oil & #as with ceilin# cap roc' to 'eep oil in the reservoir. $his is a trapB which prevents the oil from mi#ratin# out of the reservoir roc'8 the trap forms first. E ploration is a/out findin# the traps. a. >aults (a /rea' in the formation) and anticlines (an archli'e up fold) control the movement of O&% throu#h the roc'. (. E ploration is the search for economic accumulations of oil & #as. 1. +ust esta/lish the ownership interest in the oil & #as /efore drillin# can /e#in. a. Oil & %as Lease is used to do this. /. Landowners have the ri#ht to e tract & produce O&% on their propert- /ut /ecause of costs usuall- lease these production ri#hts to a production compan-. 9. +ud . is drillin# fluid . waterB cla- and chemicals8 used to maintain pressure in the formation. ;. Pressure sin' is created /- the well /ore8 it is an area of low pressure which induces well fluids into the well /ore. >racturin# treatments can /e used to create more flow. ! A"ter O&G is severe# "rom the groun#$ it %ecomes personal propert&! 't %ecomes a (goo#) an# thus is su%*ect to the +CC an# the law o" contracts!
Law (Rule) of Capture and Private Ownership

,ule o" Capture
1. A rule of non4lia/ilit-. As lon# as it is le#itimate production (no su/surface trespass /- slant drillin#)B -ou are not lia/le for the value of oil drained from a nei#h/orin# propert-. Hei#h/or can I#o and do li'ewise.J A landowner can drill for oil on his own propert- and le#itimateldrain oil from a nei#h/or3s land without lia/ilit-. a. -.ceptions to rule o" capture i. Champlin Exploration v. Western Bridge 4 /or oilB severed (/rou#ht to surface past the well head) and not a/andonedB is personal propert- and is not su/Kect to the rule of capture. A. 7f the oil should escape from a wellB tan'B or pipelineB the owner ma- lose possession /ut he retains title unless the oil is a/andoned. ii. Texas American A. /or gasB severed and not a/andonedB is personal propert- and is not su/Kect to the rule of capture. 7f it is reinKected into the #roundB it remains personal propert-. (Lone Star Gas v. Murchison, White v. ! State atural Gas Co) iii. 0olice powerCre#ulate moralsB healthB safet- of the pu/licCe.#.B ordinance no lar#e Fuantities of d-namite e ploded in the cit- limits to shoot a reservoir (Peoples Gas-nuisance"8 RR commission rules iv. $ ) Ct (15514155(). trespass /- drillin# under another3s land to drain o@#8 appeals court (Geo #i$ing) v. A#ministrative regulation dul- dele#ated /- the le#islature (Wrons$iB Elli%%) e.#.B RR commission implements the correlative rights rule /- limitin# the spacin# of wells Pa#e 11 (64>e/419 15?91?<< a(@p(

and num/er of producin# wells per lease. Protectin# a#ainst waste. RR commission has administrative authorit- over o@# production in $: A. $rail Enterprise (after People v. $-ner) . 2ouston implemented an e tra4 territorial ordinance to prevent drillin# near La'e 2ouston watershedC$rail Enterprise failed to sue timel- to protect their mineral ri#hts8 2ouston then anne ed the area and adopted a cit- ordinance for the same purpose. $rail Enterprise then sued. After 1< -earsB Ct App !aco found a ta'in# and awarded $rail Enterprise T(;+ in dama#es for inverse condemnation. vi. 1egligence . ne#li#ence in production activities which causes the destruction of the nei#h/or3s ownership of the o@# in place under his land. 2! 'n 2e.as$ the "ee owner owns the O3G in place (O'0) un#er his propert&! a. Rule of capture modifies this propert- ri#ht /- allowin# -ou to drill on -our own land and suc' O@% out from -our nei#h/or3s land without lia/ilit-. /. )tatewide )pacin# rule in $e as i. !ells must /e drilled no closer than 9=6 feet from an- lease line . no wells drilled within 9=6 feet from an- lease line and no two wells on the same lease producin# from the same formation can /e within 1(<< feet of each other. $husB -ou must have a minimum lease of 9< acres to drill a well. ii. Permit to drill a well from the Railroad Commission . a form !18 RRC can also #rant e ceptions.
4el 5onte 5ining & 5illing v! 6ast Chance 5ining & 5illing (ol# law)
1. 2e who owns the surface owns the s'- a/ove and ever-thin# /eneath. Owner of >) of soil owns all /elow the surface limited /- the surface /oundaries. 9. Owner owns su/surface minerals that are contained within his propert- /oundar- lines (up to the ima#inar- line that represents his propert- line). ;. E tralateral ri#hts allows the vein to e tend /e-ond -our /oundar- and still /e considered -ours (the vein starts on -our land and ends on another3s land)
7ell& v! Ohio Oil 8 ,ule o" Capture allows %oun#ar& line #rilling (ol# law)
=. Rule of capture allows construction of wells on propert- line even thou#h the radial theor- of draina#e means oil will come from nei#h/or3s land. 7t does not matter that the landowner has the e press purpose of drainin# the oil from under adKoinin# landowner3s land. A le#al activit- conducted on -our own land re#ardless of intent is not actiona/le. !hen a person has the le#al ri#ht to do a certain actB the motive with which it is done is immaterial. 6. A landowner ma- permissi/l- e tract o@# /eneath another3s land where all operations for the e traction are lawfull- conducted on his propert-.
,a#ial 2heor& o" 4rainage

D. O@% from the formation will proceed to the well /ore eFuall- from all directions /ecause the well /ore is a pressure sin9 (area of low pressure). 2i#her pressure from the surroundin# reservoir moves towards the low pressure see'in# to eFualiEe the pressure. $his causes the O@% to IflowJ towards the well /ore. A pressure wave o" reservoir "lui#s moves towar#s the pressure sin9 e:uall& "rom all #irections.
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5. Permea/ilit- . is the connectivit- /etween the pore spaces. Permea/ilit- affects the a/ilit- of the pressure sin' to cause the oil to flow. 1<. Porosit- is the pore space in the reservoir roc' in which the well fluids ma- inhere. i. Roc's #enerall- have porosit- (e cept for i#natius roc') 11. A pro#uction unit is a #roup of oil & #as wells put to#ether for the purpose of efficient e ploration and production. Poolin# unit . poolin# done to #et enou#h acrea#e to drill (limit of =9< acres U1<R)8 drillin# unit is a well8 unitiEation . unitiEin# lar#e tracts of land across multiple pooled units@non4pooled acrea#e for efficient mana#ement of a formation.
;um%le Oil & ,e"ining Co (;O,CO now 9nown as -..on) v! <est (e.traneous gas)
1. Ro-alt- is not due a landowner who owns the ro-alt- ri#hts to native #as produced from the land for e traneous #as that is reinKected into the formation for stora#e and to preserve the value of the formation for stora#e and then removed. !h-V a. $he e traneous #as is personal propert-. /. $he surface estate includes the interstitial spaces in the roc' (the matri of the underl-in# earthCe.#.B the reservoir stora#e space). . $he mineral estate is Kust the o@# that adheres in the spaces.
0eople=s Gas v! 2&ner ("racing within %oun#ar& o" own lan# is o9a&)
1. An owner ma- shoot his well (increase the num/er of fractures ) to increase its permea/ilitas lon# as he is upon his own propert- and does so within an- limitations@restrictions imposed /- law (e.#.B nuisance lawB due re#ard for ri#hts of others) or /- the )tate (under its police powers) (. 2-draulic fracture stimulation . inKection of fracin# fluid to create fractures8 propa#ation of the fluid creates pressure which causes fractures and increases the flow of o@#.
Geo >i9ing v! 2e.?6ee ("racing that crosses lease line is a trespass)

1. O@% produced from the fracture is not su/Kect to the rule of capture /ecause of the trespass. a. >racin# . inKection of propped fluid mi ture (Propit) into the casin# which has /een perforated /- /lastin# to increase the permea/ilit- of the reservoir /- creatin# a fracture in the formation. $he facture proceeds /ilaterall- from the well /ore alon# the path of least resistance. 7t creates a superhi#hwa- to the well /ore alon# the fracture. /. $he proppin# fluid 'eeps the roc' from closin# in after stoppin# the pumpin# (pressuriEed inKection of the prop fluid) of the frac fluid from the surface.
Wrons i v! "un Oil (correlative rights ? great %lac9 letter law) (1@A@ 8 5')
1. Correlative rights . the ri#ht of ever- propert- owner overl-in# a common reservoir to produce his fair share eFuivalent to the amount of o@# under his land and to prevent other propert- owners from violatin# that ri#ht). $a'in# of more than -our allotment (set /- the police power of +7) is conversion of personal propert- (not trespass /ecause the oil had /een severed). a. Correlative ri#hts rule . those individuals over a common source of suppl- have the ri#ht to produce their fair share8 proportion of each owner3s acrea#e over the field acrea#e.
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i. 7f -ou have the ri#ht to produce -our fair shareB -ou have an o/li#ation not to operate in a fashion that impairs the ri#hts of the other owners to produce their fair share. 7f -ou doB other owner has a CoA a#ainst -ou. /. An- violation of a proration order is a conversion of o@# su/Kectin# the violator to lia/ilitto all owners of interests in the pool. c. $ RoC . -ou own the O@% in place under -our land8 produce to -our heart3s content as lon# as on -our own land i. RoC leads to over development and waste A. !aste results from too man- holes /ein# drilled into the reservoir . wastes the ener#- of the reservoir8 less pressure to cause flow8 have to do secondar- & tertiar- drillin# to fi (ver- e pensive) ii. $e as re#ulates the placement of wells to protect correlative ri#hts and prevent waste8 the RR commission re#ulates the o@# industr-.
-lli"" v! 2e.on 4rilling (,oC e.ceptionB lia%ilit& "or negligent pro#uction)

"lowout consumes o&# on lease and nei#h/orin# land) . if producer is ne#li#ent in production of o@# he is lia/le to a nei#h/orin# landowner and the lessor for ne#li#ent waste@destruction of o&#.
2he Sur"ace an# 5ineral -states (2he Cun#le o" Stic9s in the 5-)
1. $wo estates in land? surface estate & mineral estate. a. 5ineral -state in 2e.as has D ( ) stic9s in its %un#le o" rights i! ,ight to e.plore$ %ore & pro#uce 8 most valua%le right ii! -.ecutive right 8 right to e.ecute written agreements w!r!t! the mineral estate (o3g leases$ seismic leases) A! 6easehol# interest is the right gaine# when e.ecute an o3g lease! iii! ,ight to %onus 8 the amount pai# when to e.ecute an o3g leaseB a #ollar "igure per acreB it is the consi#eration "or e.ecuting the lease iv! ,ight to #ela& rentals 8 pa&ments "or #ela& in #eveloping the minerals! v! ,ight to ro&alt& 8 real propert& interest that is noncorporealB cost "ree percentage or "ractional share o" the procee#s "rom pro#uction! vi! ,ight o" reverter 8 when #ischarge the e.ecutive right (e!g!$ e.ecute an o3g lease which is a "ee simple #etermina%le) the reverter goes %ac9 to the lessor! <hen OG6 terminates$ mineral estate reverts to lessor automaticall&! /. Each ri#ht is a fee interest that can /e separatel- ownedB devised and descended (. $ownship . surve-in# method for la-in# out propert- linesB each section is =9< sF acres (1 sF mi)8 )urve-s descri/e the land in )E $: /- metes & /ounds (#eo#raphical and artificial mar'ers are used to descri/e propert- /oundaries) (descri/ed in varas . unit of measurement eFual to the distance traveled /- a particular wa#on wheel in )pain . 1(.11J . close to a -ard /ut not Fuite)
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Conservation
6arsen (,,C is tas9e# with protecting correlative rights)
1. $he commission failed to respect correlative ri#hts /- failin# to esta/lish proration units for the acrea#e. $he Commission must determine the siEe of the field and of these leases in proportion to the siEe of the field to protect correlative ri#hts a. *etermine where the reservoir is and then do the proration units (stand up or la- down) to ensure each owner3s correlative ri#hts are protected. /. >ield4wide spacin# rule considers i. Amount of recovera/le oil ii. Amount of recovera/le oil under each tract iii. $he proportion that (i) /ears to (ii) iv. Amount of oil recovera/le without waste (. &attie . p D1 4 !ell location e ception ma- /e warranted to protect correlative ri#hts 1. Exxon v. '' Commn . RRC can #rant e ceptions to the spacin# reFuirements if a producer meets the criteria (economic sense$ prevents waste$ acting in goo# "aith) a. Cottom hole pressure (%hp) . measures the pressure of the well after perforation of the casin# and after the well is capped. +easure pressure for (9 hours8 allows reservoir en#ineer to calculate how much o@# is in place. /. Allowa%les . restrict production to prevent ph-sical and economic waste of the o@# resources8 restrict production to meet proKected demands8 allowa/les allocate a certain amount of production from each drillin# (proration) unit. c. 0roration units . a'a drillin# unit W one well . allowa/les are allocated to each proration unit /ased on acrea#e
0ic9ens (100 rule)

E! 2he 100 rule in calculating allowa%les protects the correlative rights o" the owners over the small part until the& get watere# outB then the owners over the "at part o" the reservoir get all the pro#uction towar#s the en# o" the suppl& "rom the reservoir a. P challen#es the allowa/les calculation . the formula for proratin# production /. P as's for a I;< percent acrea#e@;< percent acre4feetJ formula instead of a I1<< percent acrea#eJ /ased formula. $he reservoir is not sFuare8 some leases cover Ithic'erJ parts of the para/olic shaped reservoir than others.
4enver 0ro#ucing & ,e"ining (,,C allocation o" allowa%les must %e reasona%le)
;. $he RRC imposition of allowa/les is su/Kect to reasona/leness anal-sis . a Kust and reasona/le e ercise of administrative power is valid. a. An allowa/le imposed for conservation purposes and to maintain pressure in the field is reasona/le. 7f reasona/le and supported /- sufficient evidenceB the allowa/le is valid.
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Oil & Gas (Jones) Spring 2008 Ch 2 2he Oil & Gas 6ease
Purpose of OGL
1. Producers DD lease samples8 9@6= & 6@=5 a. OG6 is a #ee# granting a "ee simple #etermina%le in the mineral estate. O%L is a deed to the oil & #as in place. 2he lessor #oes not own the minerals an&more. 7t is called a lease /ecause of primar- terms and secondar- terms and dela- rentals. 7t is a warrant- deed to a fee simple determina/le in the mineral estateB which is separate and distinct from the surface estate. So/ applies to OG6 %ecause it is a conve&ance o" real propert&! /. /ee simple #etermina%le with right o" reverter means that Ias lon# asJ@ Iso lon# asJ the conditions of the deed are metB the lessee maintains his ri#hts in the minerals. '" the lessee "ails to meet the con#itions$ the estate automaticall& en#s an# reverts to the grantor. c. $he date on the lease is the conversion date. A,A Anniversar- *ate. d. OG6 is construe# against the lessee /ecause the lessee (the O@% compan-) is normallthe drafter. $his is unli'e a residential lease where normall- the lease is construed a#ainst the lessor. e. OG6 loc9s up the e.clusive right to e.plore$ %ore an# pro#uce in the lessee! O%L conve-s the ri#ht to the o@# and the ri#ht to produce it. $he lessee 'eeps this ri#ht for a num/er of -ears Ithe primar- termJ /efore he has to do an-thin# to produce. f. O%L severs the mineral estate from the surface estate. (. ,o&alt& is a ri#ht to the proceeds of production8 right to a "raction o" the gross receipts "or the sale o" pro#uction "rom the propert&. ,o&alt& is not ownership o" the o3g itsel"! 1. 6essor is pai# a %onus per acre "or e.ecuting the lease. "onus is li'e a down pa-ment and the ro-alt- is li'e installment pa-ments when the lease /ecomes productive.
E3A OG6 e.ample

9. I%rantin# ClauseJ Lease must #escri%e the lan# %eing conve&e# using its legal #escription /ecause the deed is su/Kect to the So/ (must %e in writing an# signe# %& the part& to %e %oun#). 5ust %e notariFe# and /e recor#e# /- the count- cler'. $he O%L must %e recor#e# /ecause $e as is a Irace noticeJ Kurisdiction . first one to record has the valid conve-ance. ;. Per the ne t to the last clause of para#raph 1B the lease covers all the lands the lessor claimsB includin# an- part he has acFuired /- adverse possessionB even thou#h not included in the le#al description of the land provided. (+other 2u//ard Clause) =. )u/ro#ation Clause p19= . allows O% lessee to stand in the shoes of the lessor to pa- the lessor3s /ill (e.#.B ta lien) and then stand with the ri#hts of a creditor over the lessor8 withhold mone- out of ro-alt- until paid /ac'8 $he ta lien is a superior ri#ht to the O%L
Grantin# Clause-"urface $ses

1! 2he mineral estate 5- is the #ominant estate! 2he sur"ace estate S- is the servient estate! 5- can use so much o" the S- as is reasona%l& necessar& to e""ectuate the grant! a! 6itigation happens most o"ten aroun# (reasona%l& necessar&) language!
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i. IReasona/l-J is a Fuestion of fact so no summar- Kud#ment . the Kur- or Kud#e (/ench trial) determines what is reasona/le %! General practice in the in#ustr& is that the pro#ucers pa& sur"ace #amages to avoi# e.pensive litigation o" (reasona%l&!) (GD0?G1009 to litigate) c! A 5- lessee cannot mine san#3gravel "or sale %ut he can ta9e the san# an# gravel as reasona%l& necessar& "or use e""ectuating the 5- on the lease# propert&! A! ;e can also ta9e sur"ace water reasona%l& necessar& to operate the #rilling unit!
;unt Oil v! 7er%augh (4ominant 5ineral estate has right to use servient sur"ace estate as reasona%l& necessar&)
(. ,ule? $he mineral estate (dominant) has the ri#ht to use so much of the surface as is reasona/l- necessar- to effectuate e ploration and production. Lessor does not have the ri#ht to prevent the lessee from reasona/le use of the )E.
Gett& Oil v! Jones (Accommo#ation 4octrine)

H! Jones was a "armer with e.isting pivot irrigation s&stems! 2he pumping *ac9 was too tall an# woul# not allow the irrigation arm to operate! Another pro#ucer sun9 his pumping *ac9 into a %asement so that the irrigation arm coul# pass over! 9. Accomo#ation 4octrine 8 a#*ust the relative rights %etween the S- an# 5-B 2his is not a %alancing test 8 the surface owner has the %ur#en to prove all the elements %elow a! -.isting +se 8 alrea#& in e.istence i! Crops or graFing is not su""icient %ut a pivot irrigation s&stem woul# %e %! O3G operations will inter"ere with the use c! 2here is a reasona%le alternative availa%le (economicall& "easi%le) (har# to prove) i! 2his means cheap as compare# to normal o3g operations #! 2he alternative is availa%le on the lease# premises! i! -!g!$ the pro#ucer #oes not have to pump water in "rom elsewhere rather than use water on the lease# premises
6imits on the use o" the servient estate %& the #ominant estate n! 2$ p1H ? 1E1
1! ,easona%l& necessar&I (so much o" the servient (sur"ace) estate as is reasona%l& necessar&!) (. $he Accommodation *octrine 1. Lessee4producer can3t /urden a nei#h/orin# estate with mineral operations when there are no mineral operations /- that same lessee on the nei#h/orin# estate. a. $he O%L is limited to the /oundaries of the land descri/ed in the lease. 'o(inson v 'o((ins &etroleum )note case%p&'(" *perations must (e limited to that premises. /. E.#.B pa- nei#h/orin# land owner T @ rod to la- a pipeline across his land to move minerals from the leased premises to the main transit pipeline. 9. )urface use must /e related to e traction of minerals. ;. Police powerB state statutesB cit- ordinances and #ov3t re#ulations ma- limit the easement ri#hts of the mineral owner or lessee.
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=. Lease clauses ma- curtail the ri#hts of use of the mineral owner or mineral lessee.
)aintainin# the lease%*ela+ rentals

;a%en#um Clause
1. A4 . Anniversar- *ate . date of si#nin# (. Conus (a stic' in the /undle) . consideration paid to lessor /- the lessee to e ecute the O%L. 7t /u-s the lessee one -ear of time in which to commence operations. 1. 0rimar& 2erm . the term startin# from the A* durin# which the lessee has to /e#in operations (e.#.B Aan 11B (<<; to Aan 11B (<<D) a. $he t-pical term is 1 -ears8 /. $he O%L will end at the end of the primar- term unless the lessee /e#ins IoperationsJ or pa-s dela- rentals. 2his (unless) clause is what creates the "ee simple #etermination! i. 4ela& rentals (a stic' in the /undle) . T paid per acre of the lease each -ear /- the A*B after the first -earB durin# the primar- term. 7f no operations are on#oin# on the A*B the dela- rentals are due (if -ou drilled a dr- holeB -ou are not in operation on the A* unless -ou have started up some other drillin# operation) ii! 2he num%er o" acres in para 1 is the num%er o" acres on which the #ela& rental is pai#! iii! '" the pro#ucer is engage# in operations on the A4$ no #ela& rental pa&ments are #ue even i" pro#ucer stops operations on the #a& a"ter the A4! iv! Operations must %e operational on the A4 each &ear or the #ela& rental is #ue "or that ne.t &ear!
SchwartFen%erger v! ;unt 2rust -state (technical compliance with ;C is re:uire#Jright amount$ right time$ right persons$ right manner)
9. A dela- rental a#reement reFuires lessee to pa- the ri#ht people the ri#ht amount at the ri#ht time or the lease automaticall+ terminates. a. Lease lan#ua#e can /e used to create Isafe har/orsJ to prevent automatic termination . e.#.B #ood faith@/ona fide attempt to ma'e the dela- rental pa-ment /. $ Rule . p (( 44 7t is well settled that with the usual IunlessJ leaseB a failure of the lessee either to /e#in a well or to pa- the dela- rentalsB ipso %acto terminates the lease on the date set out for the action and the estate reverts to the lessor without the necessit- of reentr-B declaration of forfeitureB or le#al action. i. +ust have an e press clause to create an e ception for %> effort.
Creau. v! Apache Oil (p1A8) (meaning o" operations 8 su%stantial preparations "or #rilling in goo# "aith an# with #ue #iligence)
;. IOperationsJ is not limited to actual drillin# /ut includes preparations to drill8 )ta'in# the location for a well is pro/a/l- sufficient to /e considered to have commenced IoperationsJ as lon# as further action occurs within 5< da-s and continues and does not cease for anperiod lon#er than 5< da-s. a. Courts are ver- li/eral with respect to commencement /ut ver- strict w.r.t. dela- rentals.
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/. 7rresponsi/leB flippantB less4than4serious intent to commence operations pro/a/l- is insufficient to avoid pa-ment of the dela- rental /ut courts are less strict on interpretin# commencement. =. )econdar- $erm a. $he secondar- term does not start until the primar- term ends even if production starts and is continuous until the end of the primar- term. $his means -ou can produce@conduct operations intermittentl- durin# the primar- term. As lon# as -ou pathe dela- rentalsB then can 'eep the lease. Once secondar- term /e#insB actual or constructive production must continue for the lease to remain in effect.
<hat 9in# o" pro#uction

Assignment Clause
1. Para#raph D details assi#nment ri#hts. Allows lessor to assi#n part of his ri#hts to another. a. Ho chan#e in the division of the ownership of the landB ro-altiesB dela- rental or other mone- shall increase the o/li#ations of the lessee. Lessor must #ive notice to the lessee of an- chan#e in ownership8 the chan#e in ownership /ecomes effective after 1< da-s notice.
Che&enne ,esources v! Criswel (repu#iation %& lessor)

(. repudiation of a lease /- the lessor suspends all o/li#ations of the lessee under the lease while the repudiation is pendin#B even if the operator continues operations. a. Repudiation is a form of estoppel8 Lessor is estopped to den- the lease is terminated /ecause he repudiated. All of the o/li#ations (e.#.B pa- dela- rentalsB start operationsB continue operationsB pa-ment of ro-altiesB etc.) of the lease are suspended durin# the period of repudiation (durin# pendenc- of the liti#ation).
Clifton v! ,oont- (pa&ing :uantities 8revenue K operating e.penses)

1. One well on a lar#e O%L can meet the reFuirements of the lease8 As lon# as it is a pro#ucing wellB the ha/endum clause of the secondar- term is met. a! 0ro#ucing means (pro#ucing in pa&ing :uantities!) i. !ell must pa- a profitB even smallB over operating e.penses to produce in pa-in# FuantitiesB thou#h it ma- never repa- its costs. 2est "or pa&ing :uantities! A! 's revenue L cost o" operationsM (1) $ime period for revenue to /e less than the cost of operations must /e at least one -ear. ". ,0O test (<oul# the reasona%le pru#ent operator continue to operate the well at that level o" operating costs an# level o" pro#uction) not for speculation purposes /ut for the e pectation of continuin# production in pa-in# FuantitiesV C. 7f answer is -es and noB respectivel-B the lease terminates. /. Operating e.penses inclu#es routine$ recurring e.penses %ut not drillin#B completin#B eFuippin# or depreciation of the ori#inal investment. 2hese are Cap-. and not included in the eFuation of operatin# costs. i. 7ncluded? Ro-altiesB electricit-B pumper (independent contractor who chec's the well for opera/ilit-)B ad valorem ta esB insuranceB suppliesB administrative overhead for district officeB salt water disposalB truc'in# char#es for ta'in# oil to mar'et8 la/orB
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transportationB #eneral replacement & repairB production ta esB licenses and permit feesB maintenance and repair of roadsB environmental e pensesB administrative costs. ii. !hat #ets e cludedV A. overridin# ro-alt- /ecause it is carved from the wor'in# interest ". drillin#B completin# and eFuippin# costs8 other capital costs C. production pa-ments *. *epreciation of casin#B completin# eFuipment (Christmas treeB /lowout preventer) /ut not of surface eFuipment (e.#.B compressor)
Stanolin# Oil & Gas v! Carnhill (2N?pro#uction in pa&ing :uantities re:uires actual severance3sale)
1! 2N ,ule 0a&ing :uantities means actual severance an# sales (to the #ownstream si#e o" the wellhea# an# mar9ete#$ not *ust store# in a tan9)B there are no pa&ing :uantities unless there is some revenueB #iscover& o" o3g is not enough to continue the lease! a! 2his is a con#ition not a covenantB lease terminates i" not complie# with! /. O7 rule sa-s that capa/ilit- to produce is sufficient to 'eep the lease active. i. 2N rule i" the ha%en#um clause sa&s so lon# as Io@# can %e producedJ instead of so lon# as Io@# is producedJ then that means capa/ilit-. (Anadar'o v. $hompson)
0shigo#a v! 2e.aco (p2A le"t?han# column 8 rewor9ing is not operations)

1. )ue to terminate /ecause well not producin# in pa-in# Fuantities (. 7s rewor'in# a well a CapE or a cost of operationsV HoB rewor'in# is a capital e pense and e cluded from the operatin# e pense formula 1. %arcia v. ,in# production means producin# in pa-in# Fuantities 9. Clifton . la-s out the two step profita/ilit- test (revenue G operatin# e pensesB RPO) ;. )'ell- . depreciation on salva/le eFuipment is includa/le in the operatin# e pense calculation8 depreciation on production eFuipment and rewor'in# are e cluded.
<or9ing 'nterest & Assignment

1! An OG6 is the conve&ance o" the (e.plore$ %ore$ pro#uce) stic9 w!r!t! the mineral estate! 2his is the wor9ing interest! <or9ing interest owner owns the 5-! a. !ith a conve-ance (assi#nment) of the wor'in# interest to anotherB the conve-or (ori#inal lessee) ma- reserve an overridin# ro-alt- out of that wor'in# interest. $he assi#nee can then assi#n his interest to anotherB reservin# another overridin# ro-alt-. i. Het Revenue 7nterest (HR7) is the remainin# wor'in# interest after su/traction of an ORR7 /. An assi#nment is another deedB must /e recorded and comport with )o>. (. *ivision Order $itle Opinion (*O$O) a. *etermines how the ro-alt- interests and the overridin# ro-alt- interests are to /e paid out. $hese are all real propert- interests entitlin# the holders to a percenta#e of the proceeds of production. /. Poolin# provision (para 9) allows leases to /e pooled into one drillin# unit. Ro-altowners share in proportion to their surface acrea#e over the total acrea#e of the pooled leases the ro-alt- percent
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i. E#. A. 1=< acre drillin# unit in 9 tracts with five land owners8 each tract provides a 1@; ro-alt(1) A owns 9< acres L 9<@1=< 1@; (() " & E to#ether own D< acres L (a) " L D<@1=< Q 1@; (/) E L D<@1=< Q 1@; (1) C owns (< acres L (<@1=< 1@; (9) * owns (< acres L (<@1=< 1@; c! Overri#ing ro&alt& owners share in whatever percent the& reserve# to themselves! 2he remain#er goes to the pro#ucer! 1. !hat do -ou need to 'now w.r.t. the o/li#ations under the O%LV Classif- interestsB Fuantifinterests and follow the mone-. 9. ++"$0 (million "$0) is eFuivalent to 1 mcf of natural #as.
.Produced/ Overview
1! 0ro#uce# means (pro#uce# in pa&ing :uantities) which means (severance an# sale) o" the o3gB 2wo step test "or terminating lease i" pro#uction ceases a. Revenue G operatin# costs over at least a -ear3s time (does not include initial drillin# costs or depreciation of those costs)8 if revenue X operatin# costsB first pron# for termination is met. i. Stanolind v. Barnhill ($:). production without sales is not sufficient. A. $: capa/le of production in pa-in# Fuantities is not sufficient to continue the lease durin# the secondar- term (1) Recent $: ) Ct 44 7f lease clause sa-s Ias lon# as o@# can (e producedJ capa/ilit-@potential is sufficient to maintain the lease. ". Pac' v. )anta >e +inerals . O, 4 capa/le of production in pa-in# Fuantities is sufficient to continue the lease durin# the secondar- term /. RPO test . would the RPO continue to invest in ma'in# production. c! 6essor will want to terminate the leaseB lessor %ears the %ur#en o" proving the two elements
0undle of stic s in the mineral estate (on the e1am)

1. E ploreB /oreB produce 4 $his is a correlative ri#ht of the e ecutive ri#htB the Iwor'in# interestJ (. E ecutive ri#ht 4 can conve- the e@/@p ri#ht and #et ro-alties in return 1. "onus . for e ecutin# the lease and for the first -ear of the primar- term. 9. *ela- rental . Paid -earl- on the A* to maintain the lease durin# the primar- term if no operations a. 7f a Ipaid up leaseJ . no dela- rentals8 the- are prepaid when the lease is si#ned. ;. Ro-alt- . cost free R off the top8 free of the costs drillin#B completin#B and eFuippin# the well. =. Ri#ht of reverter 4 '" the lease is cancelle# or terminates$ the estate reverts in the hol#er o" the e.ecutive right (generall& the lessor)
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"avin#s Clauses and *octrines (shut in2 3COP2 cessation of production2 dr+-hole2 continuous ops2 4 force ma5eure)
Shut?in ro&alt& clause
1. )aves the lease when severance and sale is not possi/le8 usuall- when the drillin# unit is capa/le of producin# in pa-in# Fuantities /ut there is an ina/ilit- to #et the o@# to the mar'et or there is no mar'et for the product. 0suall- happens with #as wells /@c no eas- wa- to store #as a/ove #round.
/reeman p20E (shut shut in gas ro&alt& O constructive pro#uction) pro#uction

1. Shut?in gas ro&alt& clause . provides that the pa-ment of the shut4in ro-alt- eFuals production 44 Iconstructive pro#uctionJ a. 2he well must %e capa%le o" pro#uction (it can3t /e a drhole). /. $he producer cannot Kust stop production and pa- the shut4in ro-alt- waitin# for a /etter mar'et price. Courts ma- allow a producer to do this for 14( -ears /ut the producer cannot do so indefinitel-. (. 7n $:B constructive pro#uction is e:uivalent to pro#uction in pa&ing :uantities with severance an# sale. 7t is ma'e4/elieve production and continues the lease durin# the secondar- term. a. $he shut4in #as ro-alt- clause is a conditionB not a covenant8 failure to pa- it terminates the lease. !ithout a shut4in ro-alt- clause or other savin#s clauseB the cessation of production after termination of the primar- term automaticall- terminates the lease. %! See the e.ample pro%lem i. '" pro#uction %egins again #uring the time in which the pro#ucer has %een pa&ing the shut4in ro-alt-B the producer should still pa- the ne t full shut4in ro-alt- pa-ment out of an a/undance of caution to ensure the lease is maintained. (+i'e Aones rule) ii. Shut in ro&alt& pa&ment is pa&ment "or time o3g not pro#uce# in arrears (the previous months not pro#uce#). c. E IA ro-alt- of T per -ear on each #as well from which #as onl- is produced while #as therefrom is not sold or used off the premisesB and while the ro-alt- is paidB the well shall /e held to /e a producin# well.J d. Covenants and conditions in contracts i. Conditions in contract law provide for void@termination of the contract if the condition is /reached ii. "reach of a covenant in contract law onl- #ives a cause of action for dama#es8 does not terminate the contract
H0? 0 #a& clause (#octrine o" temporar& cessation o" pro#uction)

<atson v! ,ochmill (p! 2@s)
1! 4octrine o" 2emporar& Cessation o" 0ro#uction (2CO0) a. 7f have a $COP due to a su##en stoppage of the well or some mechanical /rea'downB lessee has a reasona%le time in which to remed- the defect and resume production. $he lease does not terminate automaticall-.
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Cessation o" pro#uction$ #r&?hole clause$ continuous operations clause
1. )avin#s clauses a. *r- hole clause /. Poolin# clauses c. >orce +aKeure Clause d. Operations Clause . an- su/stantive activit- on the surface that is directl- related to securin# productionB /e#un in #ood faith and dili#entl- pursued will /e sufficient to e tend the lease past the primar- term prior to completion of production. e. $emporar- cessation of production doctrine . sudden cessation8 have reasona/le amount of time to restart operations /efore termination f. )hut4in #as ro-alt- . constructive production8 provision that allows pa-ment in lieu of actual production to maintain the >)*8 cannot /e a drhole. #. I1<4=< da- clauseJ for cessation of production in secondar- term . if conductin# drillin# operations at end of the primar- term and have clause Iso lon# as operations continueJ the lease into the secondar- term is continued i. Continuous operations clause allow for specified temporar- cessation of 1<B =< or 5< da-s t-picall-. 2hese speci"ic clauses #e"ine (reasona%l&) i" the 2CO0 #e"ault was in pla&.
,ogers v! Os%orn (restarting operations a"ter 2CO0 violate# #oes not e.ten# lease)
!ell 1 was not a drhole /ut neither was it a producer so clause 1 of para#raph ; does not appl-. !or' on !ell ( after end of primar- term and after !ell 1 shut4in not a/le to allow lease to continue. Rewor'in# of !1 e tended lease past primar- term /ut when shut in durin# secondar- termB lease terminated. !( could not revive.
Samano (H0? 0 #a&s clauses strictl& construe#)

2ad production in secondar- term and a 61 da- cessation of production. Lease provided for onl- a =< da- cessation /efore the lease terminates. An e press provision that addresses cessation of production trumps the $COP doctrine.
/orce 5a*eure clause

;a%& v! Stanolin# Oil & Gas Co (no "orce ma*eure clause in the lease)
1. A unilateral decision that production is no lon#er possi/le after RRC issues orders w.r.t. a well is ineffective to e tend the lease where there is no shut4in ro-alt- clause and no force maKeure clause in the lease. Production was economicall- infeasi/le not impossi/le. (. Courts will not impl- a force maKeure clause into a lease.
0erlman v! 0ioneer 6t# 0ship (unilateral #ecision that pro#uction is impossi%le is insu""icient to trigger a "orce ma*eure clause)
1. * pleads force maKeure /ecause the !-omin# re#ulations prevented him from cheapl+ recoverin# oil in the water drive field. (. %overnment re#ulation was in the >+ clause /ut * did not liti#ate@administrative procedure the issue with the /oard to #et a final denial of his process for the field. 2e unilateralldecided to stop tr-in# after he was initiall- told other permits would /e necessar-. 2e was
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not prevented /- the /oard /ecause he did not #et a final decision that he could not use his process. 1. An actual material hindrance must occur /efore performance will /e e cusedB not Kust the possi/ilit- of hindrance.
/orce 5a*eure ,ules

1. 7s the o/li#ation or performance covered /- the clauseV (. 7s the event of force maKeure descri/ed in the clauseV 1. *id event prevent performanceV Performance must /e impossi/le. a. Causal connection /etween event and failure of production /. Hot an event of -our own ma'in#. i. 7n ,+drocar(on Trac$erB the commission said 2$ could not produce an-more /ecause 2$ had overproduced. 2$ plead >+ /ut the fact that the- were shut4in was an event of their own ma'in# /ecause the- had intentionall- overproduced.
Ro+alt+ pa+ments
1. $hree part ro-alt- clauses a. Oil ro-alti. 7n 'ind deliver- or moneii. E.#.B lessor #ets 1@D of that oil produced and saved from the land or lessee ma- /uthe oil at mar'et price prevailin# on the date of purchase. /. %as ro-alti. Onl- moneA. )ale at the well on the lease ". )ale off the lease ii. Lessors want to pa- the same ro-alt- whether the #as is sold on or off the lease A. %as sold off the leaseB e . 1@; of the mar'et value at the well or proceeds less certain costs iii. 5ar9et value at the well . term of art 4 iv. E.#.B !hen sold /- lessee 1@D of the amount realiEed /- lessee computed at the well8 if off the lease 1@D of amount realiEed from the sale of #asoline or other /-products e tracted and 1@D of the amount realiEed from the sale of the residual #as v. )hut4in #as ro-alt- clause c. Other minerals ro-alt-
2&pes o" ro&alt& interests

1. Overridin# ro-alt- (ORR7) . carved out of the wor'in# interest (the interest the lessee #ets to e ploreB /ore and produce the minerals on the land8 t-picall- created when the lessee assi#ns his interest to another) (. Honparticipatin# ro-alt- interest (HPR7) is carved out of the landowner3s ro-alt- (standard ro-alt-) interest (reserved when the landowner sells the surface to another8 reserves a ri#ht to a certain R of the ro-alties /ut loses the e ecutorri#ht) 1. Landowner3s ro-alt- interest . standard ro-alt-
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5ar9et value ro&alt& issue
0ine& <oo#s Countr& 6i"e School v! Shell Oil Co! (#e"nI mar9et value at the well)
1. %as sold on the lease #ave lessors proceeds at the well8 #as sold off the lease #ave lessors mar'et value at the well. a. Proceeds is actual amount realiEed /- the lessee (in this caseB proceeds were #overned /- the price in the lon# term ') i. Proceeds L amount received for sales of the #as on the lease (/asicall- the #as with impurities) /. 5ar9et value at the well 8 (mar9et value at pro#uction$ not the 7 price) 4etermine %& i. Compara%le sales 8 similar time$ :uantit&$ :ualit&$ an# availa%ilit& o" mar9eting outlets (har# to #etermine %ecause #ata not rea#il& availa%le) ii. Cost netting 8 5ar9et value less certain costs su%tracte# %ac9 to the well A! ;u%s create a mar9et clearinghouse "or gas tra#es (e!g!$ ;ouston Ship Channel$ 7at& ;u%$ ;enr&$ 6A ;u%)B %asicall& creates a spot mar9et "or gas C! Su%tract the costs o" #eveloping3a#ministration o" 06$ gathering$ transporting$ compressing$ #eh&#rating$ an# processing "rom the spot price to arrive at the (mar9et value at the well) 8 this #etermines what a willing %u&er woul# pa& &ou at the lease well hea#! (1) 2he value o" pipeline :ualit& gas less the costs to get it to pipeline :ualit&! (2) <hat woul# a reasona%le %u&er$ reasona%le seller in an arms length transaction agree to pa& "or the gas at the wellM (a) Consi#er location$ :ualit&$ :uantit& & time (1) Cost nettin# . Ipipeline Fualit- #asJ less costs to ma'e #as pipeline Fualit(remove impurities) /ac' to well head (>+& . costs to #et to mar'et from the well) C! 2here can %e #isagreement %etween the 6, & 6- on what the actual costs an# amounts are that shoul# %e su%tracte# "rom the mar9et price! c. $o pa-? (1) 1@; of the mar9et value at the well for gas sol# off lease (() 1@; of the procee#s for gas sol# on the lease. $heoreticall- these are the same (. #ela 'ule ($:) . mar'et value at the well means monthl- determined fair mar'et value of the #asB not the lon# term , price a. -sagar+ v. .CS T/ applies the #ela rule even i% the mar$et value is lo0er than the contract price. Lessor gets ro+alt+ on the lesser mar$et value not on the amount received at the higher contract price.
'mplie# Covenant to 5ar9et

0&ote (li9el& no longer goo# law %3c o" changes in natural gas mar9et)
1. 7mplied Covenant to +ar'et . Lessee is not a fiduciar- . /ut must see' to mar'et production fairl- and in #ood faith to #et hi#hest possi/le price reasona/l- o/taina/le for the #as. i! Good faith dut+ implied hi#hest price o6taina6le 6+ e1ercise of reasona6le effort /. 2here is no implie# covenant to mar9et in a (mar9et value at the well sol# o"" the lease) lease in 2N ('sagar& v! 7CS)! $here is onl- one value for the mar'et value at the Pa#e (; (64>e/419 15?91?<< a(@p(

well (willin# /u-erB willin# sellerB no compulsionB price the- would a#ree to pa-8 the value is e pressed in the lease as Imar'et value at the wellJ) i. 7n O,B ,)B ARB COB the implied covenant .does appl-
2a9e or pa&
7illam Oil v! Cruni (sE1) (ro&alt& is not #ue ro&alt& owners on ta9e or pa& pa&ments)
1. $a'e or Pa- clauses assure an income stream to the producer re#ardless of actual severance and sale. Producer must dedicate its total production from those wells to the /u-er and the /u-er must /u- a Fuantit- that represents a certain percenta#e of the total production or pa- for the amount not ta'en. 7f the /u-er has to pa- /ecause he fails to ta'e the minimumB he can reduce the /ill owed in the future when he ta'es more than the minimum to ma'e up for the amount he alread- paid. (. 2e.asI pa&ments ma#e un#er a ta9e or pa& clause are not constructive pro#uction an# so no ro&alt& is #ue the ro&alt& interest owners! A%sent an actual severance an# sale o" the minerals$ there is no pro#uction! A ta9e or pa& pa&ment is a pa&ment "or not pro#ucing so a ro&alt& is not #ue! A shut4in ro-alt- clause ma- appl- /ut the ta'e or pa- pa-ment is not a /asis for the amount of the shut in ro-alt-Cthe shut4in ro-alt- pa-ment is usuall- a fi ed pa-ment /ased on the dela- rentals.
Alame#a v! 2ransamerica 1atural Gas (,' owner not #ue ro&alt& on #amages "or %reach o" ta9e or pa& clause?a%sent a speci"ic clause in the lease)
1. Court cites to ,illamCta'e or pa- a#reements are pa-ment for non4production so R7 is not entitled to an- part of the settlement of the /reach of that a#reement. R7 #et paid onl- on actual severance and sale. 2a9e or pa& agreements are consi#eration "or #e#ication o" suppl&$ not "or pro#uctionCan a#reement /etween the producer and the pipeline compan-B not the producer and the lessor@R7 owner. a. 7n LA under the $ara ruleB ro-alties are due on ta'e or pa- pa-ments %! 6essors now inclu#e a ro&alt& clause that sa&s (6essors are entitle# to their percentage o" ro&alt& on ta9e or pa& pa&ments or settlements!)
Costs a"ter pro#uction

1. +ar'et value at the well spea's to the location of value. +ust #et it from the well to the mar'et. Costs to #et it to mar'et are su/tracted from value at the mar'et to #et to mar'et value at the well.
Garman v! Conoco (CO)8costs o" pro#uction v costs su%se:uent to pro#uction

(. 7ssue? whether or not post4production costs can /e deducted from the overridin# ro-altwhen the assi#nment that creates the ORR7 (carved out of the wor'in# interest) is silent as to post4production costsV H! ;ol#ingI Court sa&s lessee has an implie# covenant to mar9et! 2his implie# covenant re:uires the lessee to a%sor% all the costs to get the pro#uct in mar9eta%le con#ition! '" "urther processing is re:uire# at mar9et$ those costs might %e #e#ucte#! '" the lessee
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nee#s to process the pro#uct %e"ore the pro#uct can %e put into the mar9et$ the lessee must a%sor% those costs! Same "or O7 an# 7S! a. ORR7 is an interest in O&% produced at the surfaceB free of e pense of productionB #enerall- assessed in addition to the usual mineral owner3s ro-alt-. %! 'n 2e.as i. P+ote ?? 2here is no implie# covenant to mar9et in a (mar9et value at the well) lease in 2N ('sagar& v! 7CS)! $here is onl- one value for the mar'et value at the well (willin# /u-erB willin# sellerB no compulsionB price the- would a#ree to pa-8 the value is e pressed in the lease as Imar'et value at the wellJ)8 /est price is not a factor ii. Production is complete at severance! Ro-alt- is due on the mar'et value at severance. $husB post production costs for #as sales are /orn /- ever-one. >or oil salesB no post production costs are reFuired so ro-alt- is paid without consideration for post4production costs.
;eritage ,esources v! 1ations%an9$ Co (1@@ ) (5>< is a term o" art)

1. $ ) Ct sa-s Imar'et value at the wellJ is a term of art that means mar'et value as the #as comes out of the #round so the clause that attempts to remove the costs of processin#B transportin#B etc. to #et the #as into mar'eta/le condition is not valid (surplusa#e as a matter of law). (. $o #et around this term of artB specif- percenta#e of mar'et value at the mar'et (e.#.B 1@; of the price at the 2ouston )hip ChannelB first of the monthB lar#e pac'a#esB inside >ERC)8 ma- allow costs for transportationB compression and fi ed costs to /e deducted from the mar'et price /efore ro-alt- is paid (e.#.B 1@; (51.;R 2)C) 4 .1;) a. )ta- awa- from the term Imar'et value at the wellJ
4ivision or#ers
1. A *ivision Order is /indin# until revo'ed. A division order is an e ecutor- accordB not a contract. 7t is a statement to the lessor /- the pa-or (producer) of what lessor will /e paid. a. 7t is an a#reement while -ou are in e ecution of a contract that is /indin# on /oth sides. 7f -ou si#n the *OB -ou #et paid what is listed in the *O until revo'e it. OtherwiseB -ou are /ound /- the pa-ments made until revocation. /. ) Ct sa-s *O are an e ecutor- accord and /indin# until revo'ed unless unKust enrichment results to the lessee. Lessee here was unKustl- enriched /- 6@1=.
Gaven#a v! Strata -nerg& (%eware reservation o" (N ro&alt&) v! (N o" ro&alt&))

1. %avenda3s had a Q HPR7 not Q of the 1@D ro-alt- ne#otiated /- the lessor to the lessee. a. Lease said Iundivided Q non4participatin# ro-alt- of all the oil & #as inB to and underJ 1O2 Iundivided Q o" the ro-alt- ne#otiated /- the lessorJ8 %avenda has a CoA a#ainst the ro-altowners that #ot part of their ro-alt- (that were overpaid ro-alties /ased on miscalculation) /. !hat was reall- reserved was a Q ro-alt- interestB non4participatin#
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4ivision Or#er Statute 2. 1atural ,esources Co#e P @1!E01
1. Pa-or . part- who underta'es to distri/ute O&% proceeds to the pa-ee8 Pa-or is usuall'nown as the I>irst purchaserJ or the I>irst sellerJ (. *ivision order is an a#reement si#ned /- the pa-ee directin# the distri/ution of proceeds from the sale of oilB #asB casin#head #asB or other related h-drocar/ons. a. $ransfer order is an a#reement si#ned /- a pa-ee and his transferee (new pa-ee) directin# the pa-or under the division order to pa- another person a share of the O@% produced (reall- a t-pe of *O) 1. $ime for pa-ment . proceeds from the sale of o@# production from an o@# well must /e paid to each pa-ee /- pa-or on or /efore 1(< da-s after the end of the month of the first sale of production. (M 51.9<() a. E.#.B 1(< da-s after (@(5@<D of the first sale of o@# is on (@1D@<D. (Iturn the well to sales on (@1D@<DJ) i. On oilB after the first pa-mentB =< da-s from the date of sale ii. On #asB after the first pa-mentB 5< da-s from the date of sale /. >ailure to pa- /- the deadline causes the pa-or to incur interest on the late pa-ment (M 51.9<1)8 (R over the rate char#ed to /an's /- the HS /ranch of federal reserve /an' c. Pa-ments ma- /e withheld without interest /e-ond the time limits when there is some 'ind of Fuestion as to title i. A dispute concernin# title ii. Reasona/le dou/t that pa-ee has sold its share of the o@# to the purchaser of the o@# iii. A reFuirement in a title opinion that places in issue the titleB identit-B or wherea/outs of the pa-ee A. *ivision order title opinion *O$O. iv. Pa-ment can /e suspendedB interest freeB until resolution /ut pa-or must tell the pa-ee a/out the suspension. 9. Pa-or can condition pa-ment of proceeds on the e ecution of a division order as lon# as the *O contains onl- the specified provisions M 51.9<((c)(1) a. As a condition for the pa-ment of proceeds from the sale of o@# to pa-eeB a pa-or shall /e entitled to receive a si#ned division order from the pa-ee containin# the listed information. i. One provision is that the division order does not amend an- lease (the *O must /e in harmon- with the lease) /. $his part of the statute is a default provision and can /e contracted around such that the lessor does not have to si#n a division order. ;. $he sample *O in (d) cannot /e used for natural #as production. 7t sa-s Iof all the oil and related h-drocar/onsJ and Ifor all the oilJ a. 7f the *O is not completel- in line with the statuteB pa-or cannot ma'e si#nin# the *O a condition of pa-ment.
Cannon v! Cassi#& (non?pa&ment o" ro&alt& is not a terminating con#ition)

1. 0nder the division order statuteB non4pa-ment causes the pa-or to incur interest /ut it does not allow the pa-ee to terminate the lease. Hon4pa-ment creates a CoA in the pa-ee for dama#es (/reach of the covenant to pa- ro-alties).
Pa#e (D
(64>e/419 15?91?<< a(@p(

(. On rare occasionsB lessors will ma'e pa-ment of ro-alton time a condition of the lease continuin#.
,eme#ies "or "ailure to pa& ro&alties 8 Caanan (CoA "or #amage$ not cancel)
>ailure to pa- ro-alties is not #rounds to cancel an oil & #as lease unless pa-ment is e presslmade a condition of continuin# the lease. >ailure to pa- ro-alties creates a cause of action for dama#es in the lessor.
,o&alt& pai# on pro#uction a"ter su%tracting gas use# %& 6- in pro#uction (/ree Gas Clause)
1. Pro/lem a. 5<B<<< mcf n#@month T5 L TD1<B<<< /. %as is at ;<< l/@sF in8 must /e /oosted to Y 1<<< l/@sF in to enter the pipeline. $hus he must compress the #as8 he compresses at 6;< l/@sF in i. $he compressor uses 1<< mcf@da-8 5<<< mcf@month c. 5<B<<< . 5<<< L D1B<<< net mcf@month d. Ro-alties paid on the D1B<<< /ecause para 1 of the O%L is a standard provision Iro-alton oilB #as and coal shall /e computed after deductin# an- ZoilB #asB coal[ used /- the lesseeJ i. $he ro-alt- is paid after the amount of o@# used /- the producer on the lease is deducted from the #ross production so on the D;B<<<. (. I>ree #asJ clauses . let the lessor have free use of #as
7mplied Covenants
1. 7mplied covenants a. Are not in writin# (address terms and conditions the parties did not a#ree on) /. Are implied /- necessit-8 court will impl- a covenant if it finds that the parties would have addressed the issue with such a covenant if the- had thou#ht in detail a/out it or could have foreseen the issue. c. Are not implied into leases that have e pressl- addressed the issue in the O%L. (. 7mplied covenants are implied in fact in $e as (so issues of implied covenants are a Kur-@factfinder Fuestion). $he- are implied in law in other states. 1. 7mplied covenants a. $o develop the premises . initiall- drill and further develop as an RPO /. $o protect the leasehold . act to protect as an RPO c. $o mana#e and administer the lease
1ature an# Classi"ication

Crewster v! 6an&on Qinc Co (7S) (implie# covenant to "urther #evelopB not in 2N)
1. 7mplied covenant to continue to e ploreB develop and produce after oil has /een found
Pa#e (5
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2! An implie# covenant #oes e.ist to continue to e.plore$ #evelop an# pro#uce a"ter o3g has %een pro#uce# in pa&ing :uantitiesB otherwise the lease terminates! H! 2e.as Stan#ar#I <hat woul# the ,easona%le pru#ent operator #o un#er the circumstances consi#ering his own interests an# those o" the lessorM
4rainage
Amoco v! Ale.an#er (2N 1@81) 'mplie# Covenant to protect against 4rainage (local & "iel#?wi#e)
1! 6essee has a #ut& to its lessor to protect against "iel#?wi#e #rainage as a ,0O! a! 2here is no #ut& unless such an amount o" oil can %e recovere# to e:ual the cost o" a#ministrative e.penses$ #rilling or rewor9ing an# e:uipping a protection well$ pro#ucing an# mar9eting the oil an# &iel# to the lessee a reasona%le e.pectation o" pro"it! %! P+ote case in 1@80 8 implie# a covenant to mar9et in goo# "aith an# "air #ealing i! A"ter Ale1ander$ the stan#ar# is not G/3/4$ it is ,0O 8 no #ut& to act unless operator can ma9e a reasona%le pro"it! (. Ori#inal oil in place (O7P) . the amount of oil in place under a leased premises /efore a well is drilled8 important to 'now for a unitiEed field /ecause that allows a determination of percenta#e of production due each ro-alt- owner.
7err?5cgee v! ;elton (200E 2.)?? 4rainage

1! -lements o" CoA "or #rainageB 6essor has %ur#en to show a. Hotice not reFuired /ecause ,+ was the common lessee8 otherwise notice reFuired /. )u/stantial draina#e c. Common reservoir d. $hat an RPO would have acted to prevent@correct the draina#e (whether RPO could ma'e a profit considerin# administrationB drillin#B rewor'in#B eFuippin#B producin# and mar'etin# e penses) i. $his reFuires e pert testimone. *ama#es . ro-alton the production from the h-pothetical lease or ro-alton amount drained i. Het feet of pa- (productive feet within a formation that will produce o@#8 'ind of li'e O7P) determines the production from the well. ii. $raditional measure of dama#es is to h-pothesiEe production from an offset well that is developed and completed without complication A. *etermine how much o@# has /een drained and calculate ro-alton the amount of o@# that has /een drained.
81am 9 7mplied Covenants in 3e1as

1! 'n 2e.as$ there are three %roa# categories o" implie#?in?"act covenants in ever& OG6 e.cept where 6,36- e.pressl& a##resses the issue in writing! 2he stan#ar# is ,0O! (e.ampleI E3A leaseI last sentence o" para ) (. 4evelop (Superior Oil v! 4evon$ pH10) a. 6essor must prove Pa#e 1< (64>e/419 15?91?<< a(@p(

Production on the leased premises An RPO could drillB complete and operate wells profita/l-. Common reservoir (formation) Hotice & demand (=<d for chance to cure) Remedies A. *ama#es (1) Lost ro-alt- . the amount of ro-alt- that would have /een paid (() 7f the lessee then drills and produces o@#B does the lessee owe the ro-alt- if it has alread- /een paidV HoB T for T credit #iven (future credit a#ainst ro-alties to /e paid once production has /e#un after cure). (a) O%L lessee #ets a credit a#ainst future ro-alt- owed for ro-alties paid as dama#es (1) 7nterest paid on what the ro-alties would have /een (compensation for delain drillin# which dela-ed pa-ment of the ro-alt-)8 #ets around the pro/lem of future credit a#ainst ro-alt- owed. ". Conditional cancellation . reFuires drillin# of wells /- the /reachin# operator8 =<d to cure or cancel part of lease 1. 0rotect (most important 7C) . protect "rom local (,err4+c%ee v. 2elton) an# "iel#?wi#e #rainage (Amoco . ma- implicate the 7C to +ana#e & Administer to Koin all other operators on the field into the efforts or to #et e ceptions from RRC) a. Pa-ment of dela- rentals will not e cuse a lessee from protectin# the leasehold from draina#e after a well is producin# on a nei#h/orin# parcel. i. $he implied covenant trumps the use of dela- rentals as a su/stitute for production. %! 6essor has %ur#en o" proo" to show i! su%stantial #rainage o" lessor=s lan# an# ii! that a ,0O woul# have acte# to prevent su%stantial #rainage "rom lessor=s lan#! 6, #oes not have to give notice to a common lessee that #rainage is occurring ("tans6ur+ case)! 2he common lessee (who has more than one lease in the same "iel#) is presume# to have notice that it is #raining a "iel#! ,0O must act i" A! Same geological "ormation an# it will support pro#uction C! 4rilling$ completing an# operations will %e pro"ita%le! iii! 4amages 9. +ana#e & administer a. $o produce & mar'et /. $o operate with reasona/le care . dili#ent operation (Bald0in) c. $o use successful modern methods of production and development d. $o see' favora/le administration action (from RRC) . compl- with all #overnment rules i. ii. iii. iv. v.
Pa#e 11
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'mplie# Covenants to 4rill or -.plore
Superior Oil v! 4evon 'mplie# Covenant to 4evelop (step?outJnot e.plore)
1. 7C to *evelop arises after production is o/tained. Operator reFuired to act with reasona/le dili#ence in developin# the lease as an RPO would (su/Kect to the profita/ilit- constraints noted a/ove). (the 7C sprin#s full /lown li'e Athena from the head of Neus) (. 7C to develop sa-s that continuous production into the secondar- term is not enou#h to maintain the lease if an RPO would have /een reasona/l- dili#ent a/out continuin# development. 1. Lessor must #ive the lessee notice and demand for a remed- /efore the lease can /e terminated. a. +ncon#itional cancellation is not a reme#& in 2N! After lessor proves at trial that the operator /reached the 7C to developB the operator must /e #iven a period of time to correct the /reach. %! <aiver o" notice is possi%le i" the operator #oes some a""irmative act to show no intent to #evelop!
Sun -.ploration & 0ro#uction v! Jac9son (pD@S) 'mplie# Covenant to /urther -.plore (not in 2e.asRR)
1. E plore L wild cat (e plorator- drillin#Cli'e a /o of chocolatesCnever 'now what -ou3re #oin# to #et) (. *evelop L step out (a well drilled near a well that produces profita/l-)8 use Icloseolo#-J to drill another well near/H! 2here is no implie# covenant to "urther e.plore in 2N! ,0O Stan#ar# "or #evelopment applies! a. Cli%ton v. .unt1 . production in $: is severance & sales in pa-in# Fuantities8 implied covenant to develop and drillin# additional wells. /. $here is no 7C to Iroll the diceJ. 7f an RPO would do seismic studies elsewhere on the lease to determine if o@# in pa-in# Fuantities mi#ht e ist thereB then operator has that dut-.
4iligent operation (one o" the #uties to manage & a#minister)

Cal#win v! 7u%etF (CA)
1. Operator is in violation of cit- ordinances. $he cit- cancels his lease. (. Operators have to compl- with all rules & re#ulations that #overn their operations.
;-C' v! 1eel (no 'C o" notice o" suit %& 6, to 6- %e"ore sue 6-)
1! 'n 2N$ there is no 'C re:uiring a lessee to give notice to the lessor o" its intent to sue or actual commencement o" a suit against an a#*oining lessee! a! 6essors must e.ercise reasona%le #iligence in protecting their interests! %! 'ssue preclusion i. ,es *u#icata 8 litigation that has alrea#& #eci#e# an issue preclu#es %ringing that same issue up again in another litigation!
Pa#e 1(
(64>e/419 15?91?<< a(@p(

ii. Collateral estoppel is (part& preclusion on the same issue)B i" a matter was or coul# have %een #eci#e# in litigation an# &ou are in privit& with one o" the parties$ then &ou are collaterall& estoppe# "rom %ringing a claim against either o" the parties! 2! 'n 2N$ there is no "i#uciar& relationship %etween a lessee an# ro&alt& owners! 1. Common reservoir under 2EC7 & AOP. AOP over4produced from their wells. 2EC7 properlapproached RRC for resolution. AOP a#ain over4produced causin# a permanent loss of o@# in the reservoir. 2EC7 sues AOP and #ets T1.6+ Kud#ment in 1238D 9. Heels learn of the settlement in D3@H and sue for a portion of the settlement in 123@H. a. Heels ar#ue that the discover- rule should #overn the )oL. *iscover- rule? i. 7nherentl- undiscovera/le condition@situation A. Ct sa-s the Kud#ment is not inherentl- undiscovera/le8 ro-altowners have an o/li#ation to 'eep informed a/out such issues. ii. Condition@situation is o/Kectivel- verifia/le A. Over4production was o/Kectivel- verifia/le
:or the e1am2 need to now the #eneral contents of the two oil 4 #as leases
1. (. 1. 9. ;. !hat does the ro-alt- clause provideV +ar'et value at the well\what does that meanV !hat are dela- rentalsV !hat are shut in #as ro-alties (constructive production)V !hat are operationsV !hat is force maKeureV 7mplied covenants8 implied in factB not li#htl- impliedCmust /e o/vious the parties intended to include themCimplied out of necessit- to effectuate the intent of the a#reement. =. Covenant to develop 6. Covenant to protect8 e ceptionsCe press provision overrides an implied covenantCe cept for an e press offset provision not in compliance with law and #ela& rental will not trump #ut& to #evelop! D. *ili#ent operation reFuired.
Ch H 2itles & Conve&ancesI 'nterests o" Oil & Gas

)ineral 7nterests and Ro+alt+ 7nterests (*eeds2 Assi#nments 4 the use of Words with )a#ical ;ualities)
1ature o" the 'nterests
Co#caw 6um%er v! Goo#e (Ar9! 1@2H) (5- & S- ma& %e severe# an# hel# %& #i""erent owners in perpetuit&)
1. )everance of the two estates? $he mineral estate and the surface estate can /e severed and held /- different owners. E ist independentl- from one another in different owners perpetuall-. )everance effectuated /a. *eed reservation /. *eed #rant Pa#e 11 (64>e/419 15?91?<< a(@p(

c. Partition d. O%L with ri#ht of reverter to #rantor . creates a >)* in the mineral estate. e. *ivorce decree . propert- settlement f. )urface lease . I#raEin# leaseJ #. Eminent domain h. *evise or /eFuest in a will i. Adverse possession of the minerals. K. Civil Kud#ment@settlement (. AR ) Ct follows the $: rule? a reservation vests the grantor imme#iatel& in the mineral estate an# it is not voi# as against the ,A0. %rantees ar#s are null /ecause the interest vested immediatel-. a! 'n 2N &ou cannot a%an#on a real propert& interest %ecause it vests imme#iatel&!
2&pe o" estate in the 2N %un#le o" stic9s in the 51. >ee interest in the +ineral estate in $: includes these = ri#hts (stic's in the /undle) a. E ploreB produceB in#ressB e#ress . use of surface as reasona/l- necessar- to effectuate the #rant. i. $his is a correlative right o" the e.ecutive right. !hen the e ecutive ri#ht is e ercisedB the e@p@i@e ri#ht is correlative to that e ercise. /. E ecutive ri#ht . separate feeB non4possessor- interest c. "onus . separate feeB non4possessor- interest d. *ela- rentals . separate feeB non4possessor- interest e. Ro-alt- . separate feeB non4possessor- interest f. Ri#ht of reverterCnon4possessor- until the O%L determinate condition occurs (. All of the stic's in the mineral estate can also /e separatel- severed (conve-ed)
5cSwe&n v 5usselshell Count&$ 52(2ST mineral interest (wor9ing interest) v! 2ST ro&alt& interest)
1. (QR mineral interest /ears (QR of operatin# costs /efore he can #et an- return from the minerals8 (QR ro-alt- interest #ets (QR of the proceeds free of the costs of production (drillin#B completin#B eFuippin# & operatin#). (. $husB a mineral interest can /e worth less than a ro-alt- interest /ecause a +E does not #et real profit until the costs of operatin# are recouped.
Creation o" 5ineral & ,o&alt& 'nterests

Car9er v! 6ev& (grant o" 10,' or 105')
1. As pa-ment for servicesB attorne- has client #rant him 1@1=<th ? issue? HPR7 or HP+7V a. 1onparticipating means no e.ecutor& right8 -our interest is su/Kect to the e ecutorri#ht holder3s action. /. HP+7 has all the stic's /ut the e ecutive ri#ht8 ro-alt- is R+7 ] R7 (hereB 1@1=< ] 1@D L 1@1(D<th) c. HPR7 p19<4191 . the ro-alt- is the fraction e pressed (here 1@1=<th)
Pa#e 19
(64>e/419 15?91?<< a(@p(

Schlittler v! Smith (pHE0) (10,' participates in 6O ro&alt&$ minimum ro&alt& an# compensator& ro&alt&)
1. Pro/lem (p19() a. An HPR7 participates in landowner ro-alt-B minimum ro-alt-B compensator- ro-alt- /ut not ORR7B shut4in #as ro-alt/. E.#.B 2 1<<< acres C&A) reservin# Q o" all the ro-alt- (HPR7) i. +inimum ro-alt- clauseV...-es (this clause onl- applies if the operator is producin# and sellin#8 it is not constructive production) ii. Compensator- ro-alt- (a ro-alt- paid in e chan#e for a waiver of a /reach of the implied covenant to protectCe.#.B Amoco v. Ale ander) iii. Het profits interest . an interest after profit (recover the costs of drillin#B completin#B eFuippin# and incremental amounts of operatin# costsB then -ou #et -our interest) (ORR7B +7@!or'in# 7nterestB HP+7) iv. Carried interest . (;R carried interest to the tan's . -our ;R of the drillin#B completin#B and eFuippin# costs are paid until operations /e#un then -ou start pa-in# -our portion of the incremental costs /efore -ou #et -our ro-alt-)
5agic wor#s o" granting (creating 5ineral 'nterest v ,o&alt& 'nterest)

1. IProduced and savedJ ro-alt- interest (. I7n and underJ mineral interest (+7) 1. I7n and under that ma- /e produced and savedJ mineral interest
Altman v! Cla9e (i" use (in an# un#er) it is a 5' no matter what else might %e reserve#)
1. 1@1=th in and under (+7) 2! 2his was #etermine# to %e a mineral interest %ecause o" the (in an# un#er) languageB once a mineral interest$ alwa&s a mineral interest$ even though other inci#ents o" the 5were also conve&e#!
/rench v! Chevron (in an# un#er that ma& %e pro#uce# O 5')

1. 1@=;= interest of 1(B<<< acres\R7 or +7V (. Iin and to all the o@#@om in and under and that ma- /e producedJ and Iit3s a ro-alt- interest onl-J and Ino participatin# in dela- rentals or /onus and no e ecutorri#htJ8 ro-altlan#ua#e was superfluous. 1. Chevron sa-s +7 /ecause of the #rantin# lan#ua#e so 1@=;=th ] 1@D ] D@D (D@Dth is the #ross proceeds) 9. >rench sa-s R7 onl- /ecause the #rantin# lan#ua#e sa-s ro-alt- so 1@=;=th ] D@Dth Wat ins v! "lau#hter (p'<()2 3emple-7nland v! =enderson A ro-alt- interest was found when the #rantin# clause said I#rant an undivided 1;@1=th in the oil@#as in and under the land and provided that the 1@1=th retained /- the #rantor is and shall alwa-s /e a ro-alt- interestB and shall not /e char#ed with an- of the costs which the #rantee ma- incur in e plorin#B drillin#B minin#B developin# and operatin#.
th
Pa#e 1;
(64>e/419 15?91?<< a(@p(

An#erson v! 5a&%err& (O9l) (a 5' an# other stic9s ma& %e reserve# separatel&)
1. %R reserved Q +7 of all o@#@om in and under and that ma- /e produced and a non4 participatin# interest in /onus & rental ri#hts (p1=<). (O, law) 'n 2e.as$ %& #e"ault$ a reservation o" an& or all o" the 5' provi#es the reservation hol#er all o" the stic9s in the %un#le! '" the reservation hol#er #oes not want some o" the stic9s (e!g!$ the e.ecutive right)$ he must speci"icall& conve& them to the grantee!
Review
1. 10,' 8 a ro&alt& interest without the e.ecutor& right$ the #ela& rental right or the %onus right a. $he ri#ht to develop is a correlative ri#ht and passes with the e ecutive ri#hts. (p1;6 fn. 9) $he e ecutive ri#ht is reall- a fee interest (*a- & Co v. $e an).
"hared ownership
1. $enants in Common or Co4tenants a. !a-s of formin# co4tenanci. *ecedent dies without a will8 interest in land passes /- intestac- to each heir8 the heirs are co4tenants . the- hold undivided eFual interests in the land /. *oes a co4tenant have the ri#ht to e ecute an O%L without the Koinder of his other co4 tenantsV
6aw v! ;ec9 Oil (5inorit& ,ule) (1O2 '1 2N)

1. A co4tenant cannot drill without the consent of the other co4tenants or unless development is to prevent draina#e.
0rairie Oil & Gas v! Allen (non?operating co?tenant in the 5participates in net procee#sB pa&s his share o" #evelopment costs in proportion to 5-T)
1. *oes a co4tenant in the +E have a ri#ht to an- of the revenue on the oil produced from the lease e ecuted /- another co4tenantV a. All co4tenants have eFual ri#hts to develop the minerals. (. $he operating co?tenantB must provide an accounting to the non?operating co?tenants for the net proceeds. a. net? Hon4operatin# co4tenant3s R of the +E is used to calculate his share of the development costs and his share of the net proceeds per month of production. 1onOp gets no procee#s until his share o" #evelopment costs is pai# o""! 1. 7f operatin# co4tenant drills a dr- holeB he /ears the entire sun' costs. $he operatin# co4 tenant develops at his own ris'B cost and e pense8 cannot demand a share of the e penses from the non4operatin# co4tenants. a. $he operatin# co4tenant can /e a 1R +E owner. (2e ta'es 1<<R of the ris' for a mere 1R of the proceedsCpro/a/l- not a #ood /et) 9. An operatin# co4tenant cannot prevent another co4tenant from also e ecutin# an O%L. a. Ro-alt- paid /- an operatin# co4tenant is not shared /- a non4operatin# co4tenant so the non4operatin# co tenant3s share is calculated off the gross procee#s less net operating Pa#e 1= (64>e/419 15?91?<< a(@p(

costs$ e.clusive o" ro&alt& pa&ments. $husB the ro&alt& cost is %orn %& the operating co?tenant alone. ;. 7f operatin# co4tenant drills another well Kust /efore non4operatin# co4tenant3s share of development costs of the first well is e haustedB the non4operatin# co4tenant will #et no share of production proceeds from either well1 or well( until the development costs of well( are also e hausted. $he wells are treated as one /i# unit8 non4operatin# co4tenant has to /ear his share of the development costs over all wells until the- are paid off /efore he can #et his share of the proceeds. $his can /e chan#ed /- a#reement.
-arp v! 5i#?Continent 0etroleum (p! HA1 n! A) (co?tenants ma& e.ecute separate OG6sB proportionate re#uction clause ensures the& onl& get ro&alt& on the T o" 5- that each owns)
1. Proportionate reduction clause. (n. 1B p. 1=D) . reduce a purported full owner3s lease /enefits to the R he actuall- owns. Avoids pa-in# full lease /enefits to a fractional owner. a. $he O%L lessee pa-s the mone- for the fractional interests to the state. After 1 -earsB the mone- escheats to the state. $he state pu/lishes a list8 if -our name is on itB -ou can #et -our mone-.
5arital 0ropert& 'ssues w!r!t! 5ineral estate

1. "onus is not income8 it is part of the purchase price of the propert- and will remain )P (. *ela- rentals are income and will /e CP 1. Ro-alt- is not income8 it is part of the purchase price of the propert- and will remain )P
5osle& v! ;earrell (co 5- owners can see9 to partitionB operating agreements must %e in writing %ecause the& a""ect an interest in the lan# (So/ applies))
1. $: rule? can force a partition if have eFual di#nit- of titles and co4e tensive ri#hts throu#hout the land to /e partitioned (possessor- interestB Koint ownership) (. P see's to partition the interests8 P had an a/solute ri#ht to partition /ecause his estate was eFual to *3s estate.
<el%orn v! 2i#ewater Associate# Oil (li"e tenant & remain#erman ma& not e.ecute an OG6 in#ivi#uall&)
1. Rule? $he lease /- a life tenant alone is waste of the remainder estate and is invalid. (. Rule? A lease /- the remainderman alone is a trespass. 1. Life tenant and remainderman must e ecute O%L to#ether. 7f L$ & R e ecute O%L to#etherB the L$ #ets the interest on the ro-alt- and R #ets ro-altwhen L$ ends. )ame #oes for the /onus.
;&nson v! Je""ries (pH80) (treatment o" lease %ene"its %etween 6- an# remain#erman)
1. CL Rule a. Ro-alt- represents principal so it is not income8 it is deposited on an account and #oes to the remainderman on the death of the life tenant /. 7nterest on the ro-alt- is income to the life estate
Pa#e 16
(64>e/419 15?91?<< a(@p(

c. "onus treated same as ro-altd. *ela- rental is income so it #oes to the life tenant (it is essentiall- rent which is #enerallincome) (. Open mine #octrine 4 >aries the C6 rule 1. 0niform Principal and 7ncome Act a. (6 Q R of the #ross proceeds (ro-alt-) (not to e ceed ;<R of the net proceeds) #oes to the remainderman /. 6( Q R of the #ross proceeds (ro-alt-) #oes to the life tenant
5oore v! >ines (p! S?A1) (open mine #octrine)

1. Open mine #octrine applies where wells were producin# under a lease e ecuted /- the testator at the time the life tenant came into /ein#B and where producin# wells were drilled after the vestin# of the life estate /ut under an O%L in force and effect at the time. a! 't #oes not appl& to a new OG6 e.ecute# %& the li"e tenant a"ter the li"e tenant=s interest vests! %! 2he open mines #octrine is not applica%le %e&on# the lease in e.istence at the time o" the vesting o" the li"e estate! 6i"e tenant gets all procee#s "rom e.isting lease$ not *ust interest! '" (mine) is alrea#& pro#ucing or in process o" %eing #evelope# when 6vests$ 62 gets the ro&alt&!
3ermina6le 7nterest
1. $ermina/le interests a. Ro-alt- deed (HPR7Cno e ecutive ri#htB dela- rental or /onus) Conve-ance reservin# R of minerals for S -ears or as lon# as oil and #as is produced. 7f no o&# produced with S -earsB the interest /ecomes void. (. Archer Count- v. !e// (shut4in #as ro-alt- will not continue a HPR7 unless the O%L deals with shut4in #as ro-alt- for HPR7). >or an HPR7 to continueB there must /e actual production.
81ecutive Ri#ht
5ims v! Ceall (owner o" e.ecutive rights has a pseu#o?"i#uciar& #ut& to 10,' hol#erJno sel" #ealing to re#uce 10,'=s procee#s)
1. 2older of e ecutive ri#ht has a sort of fiduciar- dut- to the holder of HPR7. +ust acFuire for the non4e ecutive ever- /enefit that he e acts for himself. E ecutor cannot self4deal to reduce the HPR7 holder3s proceeds. HPR7 holder can #et e emplar- dama#es for /reach of this dut-. 2! 2he 10,' is not entitle# to %onus or #ela& rental!
6uec9e v <allace (e.ecutive right owner cannot maneuver to re#uce 10,' owner=s %ene"its) 'n re Cass (no implie# covenant to #evelop or "i#uciar& #ut& to #evelop i" no OG6B 10,' ;ol#er cannot "orce an OG6 to %e e.ecute#)
1. 2older of e ecutive ri#ht (who purchased the +E from the HPR7 owners) refuses to e ecute an O%L8 HPR7 owners3 interest are thus valueless.
Pa#e 1D
(64>e/419 15?91?<< a(@p(

(. A/sent an O%LB there is no implied covenant to develop or an- fiduciar- dut-. a. 7s seismic information a trade secretV Ses. 7t can /e protected and not disclosed in discover- unless there is a showin# that it is a/solutel- essential that the other part- has it to prevent fraud or inKustice.
Cean v! Cean (power o" attorne& to sell the propert& #oes not inclu#e severance an# sale o" the mineral estate via OG6 onl&)
1. *a- & Co v. $e land . the e ecutive ri#ht is a fee interest in real estate
Other )inerals
5oser v! +S Steel Corp! (para 1 o" the OG6) (meaning o" other minerals pre? an# post?June 8$ 1@8H)
1. 7s uranium an Iother mineralJV +osers sa- no8 %efferts sa- -es. a. Court found minin# the uranium did not destro- the surface so it was part of the mineral estate. /. ,ee# ' . if su/stantial Fuantities of the mineral lie so near the surface that e tractionB as of the date of severance of the surface and mineral estatesB would necessaril- have destro-ed the surfaceB the surface owner has title to the mineral (it is not part of the mineral estate)8. c. ,ee# '' near surface means within (<< ft of the surface (. 2N ,ule IOther mineralsJ shall /e defined usin# its Iplain and ordinar- meanin#J8 court finds uranium is a mineral a. A severance of minerals in oilB #as and other minerals clause includes all su/stances within the ordinar- and natural meanin# of that wordB whether their presence or value is 'nown at the time of severance. 7ncludes coal. /. 2hings part o" the sur"ace estate as a matter o" law that are not conve&e# in the term (oil$ gas an# other minerals) i. Hear surface li#niteB iron ore and coal (not coal #reater than (<< feet down8 coal at this level is consi#ere# part o" oil$ gas an# other minerals) ii. )and iii. %ravel iv. Caliche v. !aterB salt water vi. )urface shale vii.Limestone & /uildin# stone c. $he holder of the O%L can use these su/stances in producin# O&% without havin# to pa- the surface owner for their use /ut he cannot sell these su/stances. 1. 2his hol#ing is onl& e""ective prospectivel& "or OG6 e.ecute# a"ter June 8$ 1@8H! >or this caseB the Reed 7 & 77 definitions still appl-. a. $he limitation on the dominant mineral owner3s lia/ilit- for ne#li#entl- inflicted dama#es does not control in a #eneral conve-ance of other minerals. <hen #ealing with the rights o" a mineral owner who has ta9en title %& grant or reservation o" an unname# su%stance$ lia%ilit& o" the mineral owner must inclu#e compensation to the sur"ace owner "or sur"ace #estruction! Pa#e 15 (64>e/419 15?91?<< a(@p(

%! 2he mineral estate owner #oes have to pa& the sur"ace owner "or #estruction o" the sur"ace when pro#ucing unname# minerals even though his use o" the sur"ace is reasona%le in pro#ucing the unname# minerals! a. 7n O,B IO@%@other mineralsJ does not include coal. 7n $:B it does
Amoco 0ro#uction v Southern +te (coal #oes not inclu#e coal?%e# methane gas as an (other mineral))
(. (coal does not include coal4/ed4methane under Coal Lands Acts of 15<5B 151<) (Amoco v. )outhern 0teB 0) 1551) (holdin# that Con#ress^ intent in 15<5 prevailsB not scientific 'nowled#e)
Amarillo Oil v! -nerg&JAgri (phase severance 8 separation o" oil rights "rom gas rightsB OG6 to one lessee "or oil3casinghea# gasB OG6 to another lessee "or gas)
1. Casin#head #as is #as produced from an oil4producin# well (1 //l oil /efore produce 1<< mcf of #as) (. %as is #as produced from a #as4producin# well (produce less than 1 //l oil per 1<< mcf of #as)8 if have at least 1 //l of oil for ever- 1<<B<<< cu ft of #asB it is an oil well. 1. Casin#head #as is produced from an oil stratumB not a #as stratum. 7f -ou perforate the casin# of an oil well into a #as stratumB that perforation /ecomes #as well at that stratum. 9. RRC has no authorit- to decide title (ownership of #as) or land disputes or contractual ri#hts /etween parties.
Conve+ances of :ractional 7nterests

Aver&t v! Gran#e (%e care"ul to appl& the "ractional interest to the (lan# #escri%e#) or the (lan# conve&e#) as note# in the conve&ance)
1. Iland descri/edJ v. Iland conve-edJ is the ma#ic phrasin#. a. Court sa-s it is _ of D@D /ecause the lan#ua#e used is the Iland descri/edJ which was the whole parcel. $he- also #et _ of an- ro-alt- from an O%L. /. 7f the lan#ua#e had /een Iland conve-edJB then it would have /een _ of Q /ecause theonl- owned Q +E and that is all that could /e conve-ed.
4uhig v! 0eav&?5oore (reservations in successive warrant& #ee#s must account "or all prior reservations plus the amount to %e reserve#)
1. Greatest possi%le estate ruleI A deed conve-s the #reatest possi/le estate unless limited. *uhi# had Q to conve-8 P+ thou#ht it was #ettin# Q so that is what P4+ is due. (. +ust ta'e the prior reservation into account when conve-in# fractional interests. +ust e plicitl- state in the deed what the /u-er is #ettin#. 1. Caveat vendor . Iseller /ewareJ . a warrant- deed warrants that the /u-er is #ettin# what the deed sa-s he is /ein# conve-ed. E! -NA5I A *uhi# issue arises when there is a series o" warrant& #ee#s conve&ing "ractional interests! <arningI *uhi# #oes not appl& to oil & gas leases %ecause o" the proportionate re#uction clause inclu#e# in the leases!
Pa#e 9<
(64>e/419 15?91?<< a(@p(

Cenge v! Schar%auer (separate clauses #ealing with C$ 4,$ ,' are not su%*ect to 4uhig rule regar#ing "ractional interests in the 5-)
1. $he 1@D +E reservation resulted in a 1@D +E for ) onl- /ecause the 1P #rantor had (@D (1@9) +E. "3s have ;@D. )3s reservation was inclusive of the ori#inal 1P3s (. "ut the separate clause dealin# with "B *RB R was #iven effect such that the "3s onl- #ot 1@D an- wa-.
/i.ing 4uhig
1. *uhi# could have conve-ed the surface estate onl- to 'eep Q +E. (. )char/auer could have reserved ;@D of the minerals to #et his 1@D +E. 1. Even if the parties 'now a/out the prior reservationB the 2uhig rule applies the same. A reservation includes the prior reservation8 it is not e clusive of it.
4uhig -.ample 0ro%lem

9. %rantor !* Reservin# (R)41@=9 Aac'son (#rantor has 1@=9) ;. Aac'son !* R 1@=9 )mith (Aac'son did not reserve an-thin#8 he has nothin#) =. )mith !* R 1@1( for Aac'son & %rantor3s portions +c,innea. +c,inne- has =(@=9 (#reatest possi/le estate rule applies)B %rantor has 1@=98 )mith cannot cure Aac'son3s pro/lem of reservin# nothin# for himself. )mith is a stran#er to the %rantor@Aac'son deed and he cannot ma'e a reservation in a stran#er to his deed with +c,inne-. %! '" Smith ha# <4 , 13H2 "or himsel" without re" to Jac9son & Grantor$ Grantor has 13 E$ Smith has 13 E$ 5c7inne& woul# have H13H2!
*uhi# -.ample 0ro%lem

1. %R _ of 1@D R7 Lindse(. %R ` +E +a/ee (` R7B ` *RB ` "B ` E ecutive ri#ht) 1. +a/ee e ecutes O%L which provides for 1@1= (1(@=9) ro-alt-. a. +a/ee #ets ` of 1@1= L 5@=9 /. Lindse- #ets 1@1( L (@=9 c. !here does the other 1@=9 #oV i. 7s Lindse- restricted to 1@1( interest or _ of the actual ro-alt- (1@1=)V ii. 2ereB the court held Lindse- restricted to 1@1( and +a/ee3s heirs #ot the other 1@=9th.
Acoma v! <ilson (even i" grantee 9nows a%out the prior reservation 4uhig still applies)
1. %R reserves =.;R R7 !ilson who #ets all e pB e ecB /onusB *R and 51.;R of ro-alt(. !ilson mineral #ee# for 1@D portion Leach 1. 7ssue? does Leach have 1@D of 51.;R or 1@D of D@D of ro-alt-V a. Leach 'new a/out the prior reservation in %R /. )ince !ilson could conve- a 1@D interest in all of the ri#htsB that is what he warranted. 7t does not matter what the /u-er (Leach) 'new a/out the prior reservation8 2uhig applies
Pa#e 91
(64>e/419 15?91?<< a(@p(

9. A mineral acre is the mineral interest in one acre of land8 it contains the full spectrum of oil & #as ri#hts reco#niEed in the law and instruments #rantin# interests in oilB #as and other minerals. ;. %reatest possi/le estate rule? a conve-ance of land without an- e ception or reservation of the minerals constitutes a conve-ance of 1<<R of the minerals as well as the surface. =. *uhi# applies to a series of mineral deeds involvin# some sort of warrant- deeds (not Fuit claim deeds) a. A prior incorrect conve-ance in a stran#er to the deed cannot /e corrected in a su/seFuent deed when that person is not a part- to that deed. 6. )u/ro#ation clause (clause 1< in 9@6= lease) . a lessee ma- pa- mort#a#e or ta liens of the lessor and then su/tract those amounts from *Rs@ro-alties due to prevent its lease from /ein# terminated D. Proportionate reduction clause (clause 1<B (nd part in 9@6= lease) a. Leases t-picall- descri/e the whole propert- even if the lessor owns onl- a portion as an undivided interest. $his clause reduces the percenta#e of R@*R@"onus due to the lessor to the proportion of the +E he actuall- owns. /. $his clause causes 2uhig not to appl- in O%Ls.
2e.as Co v! 0ar9s (ro&alt& is "or lan# #escri%e#$ not whole tract i" G, onl& owns a portion %ut #oes not #escri%e the whole tract)
1. $he land descri/ed was not the whole 1(< acre section8 it was the %R3s undivided Q interest in the west half of the whole tract. $he O%L was for the Q +E the lessor had in his undivided interest in the Q section (1=< acres). (. T1=<@-ear *R was for the %R3s undivided Q interest in the half section.
Jones v! Colle (5other ;u%%ar# Clause)

1. +other 2u//ard clause does not allow the incorporation of lar#e tracts of adKacent land owned /- the lessor in an O%L on the ori#inal tract. (. A +other 2u//ard Clause covers other propert- Zowned /- the lessor[ not descri/ed in the deed when that other propert- consists of small unleased pieces or strips of land which mae ist without the 'nowled#e of one or /oth of the parties. (e.#.B land owners in a su/division own not onl- their lot /ut out to the middle of the street /ecause the street is Kust an easement not a fee) a. )trips & %ores
J ;iram 5oore v! Greer (Catchall clause3+niversal Clause will not inclu#e large tracts o" lan# not properl& #escri%e# in the conve&ance)
1. Catchall clause? 7n addition to the a/ove descri/ed landsB it is the intent of this instrument to conve-B and this conve-ance does so includeB all of %R3s R7 & ORR7 in all o@#@other minerals in the a/ove named count- or countiesB whether actuall- or properl- descri/ed herein or notB and all of said lands are covered and included herein as full-B in all respectsB as if the same had /een actuall- and properl- descri/ed herein. (. $e as Rule? such a phrase can onl- conve- small interests that are clearl& contemplate# within the more particularl& #escri%e# conve&ance and the- are not effective to conve- a si#nificant propert- interest not adeFuatel- descri/ed in the deed or clearl- contemplated /-
Pa#e 9(
(64>e/419 15?91?<< a(@p(

the lan#ua#e of the conve-ance. ) Ct e pressed no opinion on this rule in remandin# the case. 1. )uch a clause should /e stric'en from an O%L in toda-3s environment. 9. %eneral deeds such as I7 /eFueath -ou all m- propert- in !aller Count-J can /e effective even under the )o> to conve- an interest in land even thou#h not adeFuatel- descri/ed.
Conve+ances of 7nterests in Leased Land

;o""man v! 5agnolia 0etroleum
1. *eed conve-s Q +E (1@( of all of the o@#@om in and under and that ma- /e produced from the followin# descri/ed land . 5< acres) and Q of all of the oil ro-alt- due to /e paid under the terms of the O%L (/elow). $he portion of ro-alt- #ranted was w.r.t. entire leaseB not the land interest conve-ed. a. $he O%L conve-ed 1(< mineral acres for a 1@D R7B *R of T11< ever- = mosB perpetual duration after production. $he deed a/ove was made after the O%L was si#ned.
*ou6le Grant 3heor+ (clarif+ this)

(. *iscussed in 2offman
Concor# v 0ennFoil (O1 2;- -NA5) (mineral #ee# with con"licting granting clause an# su%*ect to clause conve&e# a 1312 5' consi#ering #ocument as a whole an# not as two separate estates o" #i""ering siFes)
1. %rantin# Clause . a 1 of O%L (e.#.B Q mineral interest) (. 2a/endum Clause . allows lease to continue durin# the primar- term on pa-ment of *R 1. )u/Kect to Clause . if made conve-ance and had an O%L that preceded the conve-anceB the %E would have no interest in the /enefits of the O%LB onl- an interest in the ri#ht to reverter a. $his conve-ance is su/Kect to (dependent to or part of) the O%L. 9. 0nder a t-pical lease providin# for a 1@D ro-alt-B the LR ma- thin' the interest retained is 1@D of the minerals includin# 1@D of the ro-alties. $his is a misconception. A lease conve-s a >)4 determina/le with the possi/ilit- of reverter. !hen the LR owns all the mineral estate (D@D) and e ecutes an O%LB the LR has conve-ed all the mineral estate (D@D) /ut has retained a possi/ilit- of reverter in the entire mineral estate (D@D). i. E.#.B a _ ro-alt- O%L still conve-s all of the minerals to the LE /ut LR retains a _ ro-alt- (cost free share of the proceeds of production) ;. /uture 6ease Clause 8
6uc9el v! <hite (G- ha# ,' onl&$ no e.ecutive power) (granting clause is a "loorB "uture lease clause applies is "uture lease provi#es greater %ene"its)
=. %rantin# clause 1@1(nd R7 6. 2a/endum Clause 1@1(nd dela- rentals D. Su%*ect to O%L & _ of the /enefits under the e istin# O%L @! /uture lease clause 8 U o" the %ene"its o" an& "uture OG6! a. A new OG6 has ,o&alt& o" 13 B #oes granting clause control to onl& allow G- 13H2 n# ,' or #oes the "uture lease clause control to allow 132Eth ,'M 2he 2. S Ct sa&s the Pa#e 91 (64>e/419 15?91?<< a(@p(

granting clause is not preeminent %ut acts as a "loor "or an& "uture leases (will at least get 13H2n#)B i" the ,' is greater in "uture leases$ the "uture lease clause controls . 1<. An OG6 conve-s all the +E owned /- the %R who retains a possi/ilit- of reverter in all of the +E. 11! 0rior to 6uc9el$ the court hel# that the granting clause controlle#! 1ow$ primar& o%*ective is to #iscern the intent o" the parties "rom the language in the instrumentB su%*ective intent is not controllingB loo9 at the clauses in toto (#ocument as a whole)
,ati"ication v! ,eviver
1. Ratification . can occur onl- with respect to a lease whichB althou#h intended to /e /indin#B contains some defect in draftin# or e ecution8 (were not a part- ori#inall- /ut are now approvin# it) (. Revived . a lease which has alread- terminated can onl- /e revived8 it cannot /e ratified. 7n a senseB it is e ecutin# a new lease with same terms.
1onapportionment #octrine
Japhet v 5c,ae (non?apportionment #octrine applies to ro&alties un#er an OG6 that was e.ecute# %e"ore the tract was ph&sicall& #ivi#e#)
&! 3he non-apportionment doctrine applies to divided interests in a parcel under an e1istin# OGL! When +ou su6divide land after a lease2 ro+alties are not apportioned> the+ 6elon# to the owner of the parcel of the su6divided tract on which the well ph+sicall+ e1ists! (. $he non4apportionment doctrine does not appl- to un#ivi#e# interests in a parcel under an e istin# O%L. 1. C;,O1O6OGV 'S '50O,2A12I 7f land is divided into and sold in ph-sicall- separate tracts after an O%L has alread- /een e ecuted on the whole parcelB the tract owner that can #et the O%L lessee to drill on his tract #ets all of the ro-alt-. a! A##ress this issue %& inclu#ing some sort o" clause in the #ee# #ealing with the ro&alties3 rentals an#3or the mineral interest! (e!g!$ entireties clause) %! 4rill site tract gets all the ro&alties a%sent an entireties clause!
Gilcrease v! Stanolin# Oil (entireties clauseI when a 6- has OG6 over #i""erent tracts an# there are su%se:uentl& multiple tract owners$ 6pa&s ro&alt& to each in proportion that each=s interest %ears to the total lease# premises)
1. "an' owns Q +E in H! _ and D@Din the HE _ (. "an' conve-s Q of its 5- in H! _ to % and ` of its 5- in the HE _ a. % has _ and ` respectivel1. )tanolind had an O%L with 1@D ro-alt- over /oth H! _ and HE _ parcels (the whole H() prior to division. 9. )tanolind drills /oth parcels. $he H! _ is a /etter producer than the HE _. ;. 7ssue? *oes % have Q of 1@D ro-alton the whole Horth 1@( O, ` of 1@D on HE _ and _ of 1@D on H! _V Answer? $he former8 ro-alt- is paid on the production from the whole leased tractB irrespective of the num/er & location of wellsB in proportion to +7 ownership.
Pa#e 99
(64>e/419 15?91?<< a(@p(

=. !hat effect does the entireties clause haveV A lease clause inserted primaril- for the /enefit of the LE to ma'e it clear to LRs tor su/seFuent transferees that inside the propert- linesB later divisions of the fee ownership or ro-alt- conve-ances shall not affect the LE3s duties of development and operation. 7f the leased premises are hereafter owned in severalt- or in separate tractsB the premisesB neverthelessB shall /e developed and operated as an entiret-B and ro-alties shall /e paid to each separate owner in the proportion that the acrea#e owned /- him /ears to the entire leased acrea#e. a. $he LE cannot mana#e the wells on the tract separatel- either.
2op 6easing
;amman v! Cright (a top lease violates ,A0 i" it sa&s it is e""ective upon termination o" the %ottom lease %3c the %ottom lease ma& not e.pire "or K 21 &ears)
1. A top lease is a lease e ecuted while there is an e istin# O%L. 7t ta'es effect when the /ottom (e istin#) lease e pires. (. *oes a top lease violate the RAPV a. 7t does if the lease does not presentl- conve- the possi/ilit- of reverter to the new LE. $he #rant is void a/ initio (from the /e#innin#)Cthe #rant has no effect. i. *on3t sa- Ithe top lease /ecomes effective upon termination of the /ottom lease.J ii. )a- Iis #ranted for a primar- term of 1 -ears and /ecomes effective within (< -ears 5 months from now.J I$his lease shall /ecome effectiveB if at allB on or /efore Z(1 -ears from now[8 upon /ecomin# effectiveB it shall have a primar- term of 1 -earsB etc.J /. $he possi/ilit- of reverter is a vested interest that is Kust not currentl- possessor-. 7t is the ri#ht to a mineral estate upon the termination of the O%L (when the >)4* determines). PoR is a vested ri#ht under the law8 the LR owns it as soon as the O%L is e ecuted. i. )prin#in# e ecutor- future interest can violate the RAP.
0hillips 0etroleum v! 0eterson (p@2?S) (,A0 not violate# %& a unitiFation clause %ecause that clause #oes not conve& an interest)
Ch E 'nter"erence with 'nterests in O&G

3respass
1. $-pes a. %eoph-sical trespass /. $respass c. )lander of title d. Adverse possession
Pa#e 9;
(64>e/419 15?91?<< a(@p(

-nron O&G v! <orth (seismic permit ? right to e.plore can %e severe# "rom right to %ore & pro#uceB su%*ect to So/
1. (the ri#ht to e plore can /e severed separatel- from the ri#ht to produce to allow one 1P to do seismic operations and a different 1P to /ore & produce) (. $he owner of an unleasedB undivided +7 ma- authoriEe a 1P to enter onto the surface of land owned /- another to conduct seismic operations. a. $he e ecution of the seismic permit is su/Kect to the )o> and is t-picall- e ecuted /efore an O%L. /. $he Koinder of the other interest owners is not reFuired to effectivel- transfer the ri#hts of an individual owner of an undivided interest in a +E (e.#.B ri#ht to e plore). c. $he +E owner can use so much of the surface as is reasona/l- necessar- to effectuate the mineral #rant. 2e owes the )E owner nothin# for reasona/le use of the surface. i. $he +E owner ma- offer compensation for dama#es to the surface Kust to avoid future liti#ation on the issue of Ireasona/le use.J d. $he owner of the e ecutive ri#ht can e ecute a lease with a 1P to conduct seismic operations /ecause the ri#ht to e ploreB which is an incident of the +EB includes the ri#ht to conduct seismic operations. $he ri#ht to e@/@p is a correlative ri#ht of the e ecutive ri#ht. 1. Earp v. MidContinent3Alan v. &rairie . one tenant4in4common can develop the +E without consent or veto /- the other co4tenants8 the operatin# co4tenant /ears all the ris' (of a drhole) /ut must proportionatel- share all the proceeds after apportionin# the e penses of development amon# the other co4tenants.
Gr&n%erg v! Cit& o" 1orthglenn (right to e.plore is a protecta%le propert& interest)

1! 2he right to e.plore is a protecta%le propert& interest even i" the result o" the trespass shows that the lan# is worthless "or mineral pro#uction! 4AS amount is the mar9et value o" the right to e.plore (what the 5- owner coul# have sol# that right "or in the open mar9et)! (. P is upset /@c * disclosed the results of seismic tests on his land which revealed no commercial Fuantities of coalB there/- destro-in# the potential value of his land for commercial coal minin#. P sues for the speculative value of the coal lease that is now worth nothin#. P is denied the a/ilit- to sell the valua/le ri#ht to e plore to a producer (someone would have paid him to do the e ploration that * did).
;O,CO v! 7ishi (i" OG6 e.pires$ 6- commits trespass i" he continues to enter the propert&)
1. <hen OG6 e.pires$ continue# entrance on the propert& %& the "ormer lessee is trespassB #amages amount is the mar9et value o" the right to e.plore that the 5- owner coul# have gotten "rom a new lessee ha# the trespass not occurre# .
7enne#& v! General Geoph&sical (seismic vi%rations are not trespass)

1. )eismic operations were conducted ne t to P3s land /ut not on his land. P sues for securin# information a/out the presence of minerals on his propert-. (. )eismic vi/rations that * caused to enter onto P3s propert- do not constitute a trespass for which *A) are owed.
Pa#e 9=
(64>e/419 15?91?<< a(@p(

a. Polic- reasons i. +ere vi/rations do not create a trespass ii. 7f the vi/rations create apprecia/le ph-sical inKur-B then the actor has lia/ilit-. iii. 7f let ever- non4consentin# landowner near the seismic testin# sueB then have flood#ate of liti#ation. 1. $he mere o/tainin# of information /- e trapolation of data relatin# to one site does not constitute an invasion of other sites.
0hillips 0etroleum v! Cow#en (it is a geoph&sical trespass to con#uct seismic operations on the lan# without the agreement o" the 5- ownerB agreement o" S- owner is not su""icient)
1! 't is a geoph&sical trespass to con#uct seismic operations upon the lan# in which the 5owner owns the minerals without the agreement o" the 5- owner! a. (seminal case8 in this caseB the operator actuall- went onto P3s land) (. $ail . the far ends of a (* seismic ima#e a. +ust #et at least three #eophones into the arra- /efore the data is #ood 1. 2alo . the outer rin# of a 1* seismic #rid a. +ust #et out a/out a mile /efore -ou #et ro/ust seismic data E! 0 ma& waive the tort an# sue in assumpsit a! Assumpsit means (#amages "or use an# occupanc& o" the real propert& or a right o" wa& that coul# %e measure# %& a mar9et rental value!
C&rom v! 0en#le& (%a# "aith trespassor v! goo# "aith trespassor)

;. A mineral co4tenant cannot /e a /ad faith trespassor. a. 2e ma- recover costs of drillin# a productive well from other co4tenants /efore theshare in production. /. 7f -ou enter upon propert- while it is in liti#ationB -ou are a /ad faith trespasser (Wrons$+). i. A /ad faith trespasser cannot recover the costs of drillin#B completin# or operatin#. (p;16 . this is li'e punitive *A) for the operator8 additional punitive *A) cannot /e awarded in a /ad faith trespassin# case). ii. A #ood faith trespasser is treate# as a mineral co4tenant and can recover those costs. c. P was alread- a mineral cotenant (he owned 11@(9 of the +E outri#ht) /ut he was after (1@(9th interest. P could recover the costs out of the proceeds of production.
-#war#s v! 6achman (pD1@ n! 1) (su%sur"ace trespass is %a# "aith trespassingB 0 gets 100T o" procee#s "rom the wellB 4 cannot recover an& #rilling costs)
1. !ith directional drillin# that causes trespassB who owns the productionV 't is a su%sur"ace trespass$ so the owner o" the minerals su%*ect to trespass gets 4AS measure# un#er the rule o" %a# "aith trespassingJall o" the procee#s (100T) "rom the well are #ue the plainti""! 4 cannot recover an& o" the costs o" #rilling$ e:uipping an# operating the well .
Pa#e 96
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5easures o" 4amages "or 2respass
1. 7f a trespasser acted in #ood faith (honest & reasona/le /elief that he had a ri#ht to /e there)B then he can recover the costs of drillin#B eFuippin# and completin# /efore turnin# proceeds from a productive well over to P. 7f he acted in /ad faithB he cannot recover the costs of drillin#B eFuippin# and completin# and must #ive over 1<<R of the proceeds to P. (. 7f trespasser drills a dr- holeB the measure of dama#es is the speculative value (/onus value) of an O%L that could have /een e ecuted. 1. 4amages ma& also %e the "air value "or the use o" the lan# 0hillips 0etroleum v! Cow#en!
;unt v! ;1G Oil Co (costs "or recompletion o" a well are recovera%le when goo# "aith trespass occurs a"ter OG6 un#er which well originall& complete# e.pires %ut not costs "or originall& completing the well)
1. 2H% continues operation in #ood faith after its O%L ends8 it recompletes the drhole well into a producer after the term ends. 2H% can recover the costs of recompletion onl-8 not costs of ori#inal completion /ecause it was a valid lessee at that time.
pD20 n! D Continuing 2ort o" 2respass & Conversion

1. $respass and conversion of O&% are continuin# torts. (. Pan American v. Orr . slant well drillin# trespass8 as lon# as the trespass continues (that isB the well is producin#)B P is owed dama#es within the )oL (two -ears for torts)
;amman v Cright (Slan#er o" 2itle? "ailure o" 6- to release the lease when the OG6 terminates)
1. Lease terminates if well is not producin# at end of primar- term. Lease cannot /e sustained /- pa-in# shut4in #as ro-alton a well that is not capa/le of producin# #as in pa-in# Fuantities. Once lease endsB the lessee has a dut- to file a release of lease. (. 7f release not filedB lessor ma- have an action for slander of title if the lease is not released. = elements to slan#er o" title actionI a. 7nterest in the propert/. *ispara#ement of title (cloud on the title . the e pired O%LB in this case) c. Pu/lished (recordation of the lease) d. +alice . in the sense of deli/erate conduct without reasona/le cause (not ill will or evil intent) (no malice if have reasona/le /elief title ma- /e not #oodCSante 4e Energ+). e. *ama#es@special dama#es . (will #et consideration promised in the loss of sale and -ou still #et the propert- free of clouded title8 this is the punitive aspect of this CoA) f. Loss of sale . provides the /asis for dama#es (an actual loss of new lease) H! 4i# not pursue trespass action %ecause there was no pro#uction "rom the well!
pD28$ nE A#verse possession & protection lease

9. Santa 4e Energ+ Hot a slander of title action8 )> had a reasona/le /asis for /elievin# that LR did not have #ood title throu#h AP so )> could e ecute leases with the record title holders.
Loss of 3itle (Adverse Possession)

1. AP of )urface? OpenB continuousB e clusiveB adverseB notorious (OCEAH) Pa#e 9D (64>e/419 15?91?<< a(@p(

a. A person must claim within 1< -ears his propert- a#ainst the Adverse Possessor. 2! '" entr+ on the sur"ace occurs 6efore severance o" the mineral estate$ a#verse possession o" the sur"ace estate also possesses the mineral estate in the a#verse possessor! 1. 7f severance is /efore entr- /- the APB onl- AP of the surface estate results. AP of the minerals can /e had if the O%L ends /ut the AP of the mineral estate matures later than it does for the surface. 9. 5ones v. Mc4adden . $: Case . the estates mer#e once the O%L ends /ut the AP )oL on the minerals matures later than it does for the surface. $he owner must assert his ri#hts within the limitations period to restart the AP cloc'.
4ie#erich v! <are (a"ter severance$ A0 o" 5- re:uires actual pro#uction an# severance o" the minerals "or the limitations perio#)
1. $he +E ma- /e possessed /- AP if the AP actuall- produces the minerals. +ust penetrateB occup- and produce the mineral estate for the reFuisite limitations period. $he AP #ets possession of all the minerals in the +E covered /- the O%L (constructive possession) 2! A"ter the 5- is severe#$ to A0 the 5-$ must actuall& pro#uce an# sever the minerals!
1atural Gas 0ipeline Co o" America v! 0ool (when OG6 terminates$ OG6 (wor9ing interest) on 5- ma& %e e.ten#e# through A0 %& pro#ucer that simpl& continues pro#uction "or the limitations perio#)
1. Ho evidence of a sudden mechanical /rea'down which is normall- reFuired to tri##er $COP. Hon4production occurred for some other reason durin# intermittent periods. (. Court said assumin# lease has terminatedB the lessee #ained a/ilit- to e tend the O%L (the wor'in# interest) throu#h AP /- continuin# production for the limitations period after the O%L terminates. H! 2he lessee=s intent was to A0 the wor9ing interest given %& the OG6 (a leasehol# interest)$ not the whole 5- even though the 5- is what the lessee was a#verse to once the lease terminate#!
2erms (-li v! Crile&)

1. Riparian . alon# the water (. *escription of Ifrom this point on the riverJ is su/Kect to laws dealin# with riparian interestsB accretion and deliction. 1. Accretion is addition to landowner3s land /- the chan#in# course of the river awa- from his land. 9. Reliction is the su/traction from landowner3s land /- the chan#in# course of the river towards his land. ;. Avulsive (sudden violent action e.#.B floodin# of land /- creation of a dam) chan#e results in ownership of the minerals under the water (which normall- are owned /- the )tate of $ ) /the adKoinin# landowners. =. A reservation of a portion of the +E su/Kect to the meanders of a river -ields ownership in onl- that portion of the minerals under the accreted land. $he $7C in the +E owns the remainin# portion. $he landowner whose land was relicted loses ownership of /oth the surface and the minerals.
Pa#e 95
(64>e/419 15?91?<< a(@p(

A%an#onment (pDHA)
1! 1o a%an#onment o" real propert& in the State o" 2e.as a. Ownership of a +E is ownership of real propert-. /. $: has receiverships to deal with Ia/andonedJ real propert-. 7f can3t find the ownerB pu/lish in a paper to tr- to find the ownerB put proceeds into receivership with district cler'B after 1 -earsB it escheats to the state and the missin# owner3s name #oes in the newspaper.
Ch D Contracts & 2rans"ers %& the 6essee

Lease Assi#nments-Ri#hts?o6li#ations of the Assi#nor
,e&nol#s?,e.win9le Oil v! 0ete. (wash out)
1. An assi#nment of an interest in an O%L is su/Kect to the )o>. (. An ORR7 lasts onl- as lon# as the O%L is valid. !hen O%L terminatesB ORR7 terminates. 1. O%L assi#nee owes no dut- to ORR7 owner to maintain the ORR7. a. ORR7 owner ma- preserve an ORR7 with renewal and e tension lan#ua#e in the lease and a time deadline on when renewal@e tension occurs.
Coo9 v! -l 0aso 1atural Gas (since the O,,' is carve# out o" the wor9ing interest$ the O,,' owner has stan#ing to sue "or en"orcement o" the implie# covenant to prevent #rainage)
1! Can Coo9$ the O,,'$ sue to have the implie# covenant to protect against #rainage en"orce#M Ves! a. $he ORR7 is carved out of the wor'in# interest /. El Paso ar#ues force maKeure (impossi/ilit- /@c 0)%) sa-s can3t drill on ! Q) i. Court reKects & sa-s compensator& ro&alties are an alternative to #rilling an o""set well. ii. Compensator& ro&alt& pai# on the percentage o" pro#uction coming "rom the < S. (. A common lessee has a dut- to protect all lessors and assi#nors. 1. 7n $e asB the RPO standard applies (no dut- to drill offset unless RPO would and could ma'e mone- doin# so)8 no notice /- the wron#ed part- to the common lessee is necessarthat draina#e is occurrin#.
6essor ,ights against an assignee (some OG6s re:uire approval %e"ore assignment)
1. $rafal#ar 2ouse Oil & %as v. *e 2inoKosa . lessee did not #et approval for an assi#nment8 dama#es were assessed for the lessor a#ainst the lessee
OAG v! 4esert Gas -.ploration (e.press covenants in OG6 are in#ivisi%le)

1. Are e press covenantsB includin# the ha/endum clauseB divisi/le or indivisi/leV 7ndivisi/le
Pa#e ;<
(64>e/419 15?91?<< a(@p(

2! 'n#ivisi%ilit&I '" an OG6 is su%se:uentl& assigne# to multiple assignees$ a well #rille# as a pro#ucer on one o" the assigne# parcels is su""icient to preserve the lease as to the other assignees= parcels! ;owever$ the procee#s "rom the pro#ucing well #o not have to %e share# with the other assignees! 'n 2N$ the implie# covenant to protect or #evelop ma& 9ic9 in against the other assignees! (See ,othe v! @efferson %elow)
,i#ge Oil v! Guinn 'nvestments (wash out non pro#ucing assigne# lessee %& terminating the lease on the pro#ucing hal" o" a metes & %oun#s (ph&sicall&) #ivi#e# assigne# lease)
1. *oes $COP appl- to situations other than Inecessaril- unforeseen and unavoida/leJ stoppa#e events such as when a lessee intentionall- shuts off production for 5< da-s and does not pa- a shut4in ro-alt-V Court #oes not answer this :uestion. 2! 2erminating the lease (%& 6, & 6- entering into a new lease on the same propert&) on the pro#ucing hal" o" a metes & %oun#s #ivi#e# assignment e""ectivel& terminates the lease on the non?pro#ucing hal"$ unless the other hal" starts operations within the @0 #a&s! a! A renewal an# e.tension clause might have save# Guinn=s interest "rom washout!
7othe v! Je""erson (implie# covenants in OG6 are in#ivisi%leB in 2N #ivisi%le)

1. *o wells drilled on some of the acres hold the lease as to all the acres (is the lease 2"P Zheld /- production[ /- the wells on part of the acrea#e)V Ses $he implied covenant to develop is indivisi/le. 2! ;owever$ the implie# covenant to #evelop is still applica%le to the remaining acreage$ su%*ect to the ,0O stan#ar#! H! 'n 2N$ implie# covenants are #ivisi%le! a! -ach assignee has to secure his own pro#uction to continue his assignment (not "or the lease to continue)! 'mplie# covenant to #evelop attaches separatel& to each assignee!
"upport A#reements
1. Contri/ution letter . other O%L lessees a#ree to Ifinanciall- supportJ another lessee in drillin# a well to a specified depth (a'a /ottom hole contri/ution a#reement) (. *r- hole letter . an a#reement with O%L lessees where/- the lessees a#ree to pa- T: if the well is a dr- hole8 if it is not a dr- holeB the a#reement ma- reFuire the driller to share information /ut the other lessees ma- not have to ma'e an- contri/ution.
:armout A#reements
1. >armor assi#ns interest in an O%L to a farmee in e chan#e for testin# and drillin# on the lease. (. A common form of a#reement /etween operators where/- the owner of a lease (the farmor) not desirous of drillin# at the time a#rees to assi#n the leaseB or some portion of it (in common or in severalt-) to another operator (the farmee) who is desirous of drillin# the tract. $he essence of the farmout is earnin# the lease /- drillin#. >armor a#rees to #ive somethin# to farmee in e chan#e for the farmee3s drillin# a well. a. IPa-outJ L the costs of drillin#B completin# and operatin# the well. $he farmor can then trade his override for a ;<R /ac'4in interest and e termination of the ORR7. $he ;<R Pa#e ;1 (64>e/419 15?91?<< a(@p(

/ac'4in entitles them to ;<R of the revenue from the 9@;th wor'in# interest /ut the- also have to /ear ;<R of all (;@;th) the costs of production. (e.#.B the- #et 9<R of the profit /ut ;<R of the costs) 1. !h- do a farmoutV to maintain an O%L that -ou mi#ht not otherwise have capacit- to maintain.
5artin v! 4arc&
1. Construction of a contri/ution letter or drhole letter case where the lessor was ro//ed of an a/ilit- to #et an override
<estlan# Oil 4ev! Corp! v! Gul" Oil Corp! (-NA5 ver& important) (a purchaser is %oun# to "ollow up on ever& recital in a #ee# that ma& a""ect his chain o" title)
1. Areas of mutual interest a#reement . producers a#ree that if an- one of them acFuire an O%L in the A+7 the- will offer the other producers the percenta#e that the producers own in the A+7. (. $wo issues a. Hotice . did reference to the farmout a#reement indirectl- in the operatin# a#reement #ive notice to C&,B )uperior & %ulf a/out the ri#hts of !estland. i. A purchaser is /ound /- ever- recitalB referenceB and reservation contained in or fairl- disclosed /- an- instrument which forms an essential lin' in the chain of title under which he claims. %! So/ ? An A5' agreement must satis"& the So/!
Operatin# A#reements (@oA)

1. +odel >orm Operatin# A#reement /- AAPL (American Association of Petroleum Landmen) a. *eals with the issue of co4tenants in the mineral estate (multiple owners of the mineral estate in the minimum acrea#e on which a well can /e drilled)8 controls and #overns the ri#hts and o/li#ations of the parties8 chan#es the concepts of co4tenanc- for operations. /. A AoA ma- prevent a co4tenant who /ecame a co4tenant after the O%L was e ecuted from /ein# washed out when a lease terminates. c. Provides for one operator who ta'es all of the production actions in the unit@contract area. d. Can limit lia/ilit- for ne#li#ence. e. Co4+E owners a#ree to drill a well and to share the costs of drillin# a well. f. 2as an Accountin# A#reement attached for how revenues and e penses will /e allocated across the si#nator- parties. i. 2ow le#al e penses are paid for (allow for /ill /ac' to HonOpsV) #. 7nsurance A#reement attachment (wor'er3s compB #eneral lia/ilit-B um/rellaB automotiveB etc.) h. %as "alancin# A#reement when Operator enters into an a#reement to sell all of the #as (similar to a division order /ut division order sa-s who the pa-or has to pa- and what to pa-).
Pa#e ;(
(64>e/419 15?91?<< a(@p(

A%ra.as v! ;orn%urg (operator authorit& & responsi%ilit&)
1. AoA covers a unit area (the unit area does not consider the internal lease linesB onl- the outer /oundar- of the unit area) (. A/ra as sends an A>E (authorit- for e penditure) an estimate of costs for the specified action. )endin# of A>E to Hon4ops for consent@non4consent when an A>E is not reFuired for such an e pense is /reach of the AoA. )uch e penses such /e passed alon# under Koint interest /illin# (A7"). H! '" 1on?Op goes non?consent on the A/-$ he cannot ta9e the %ene"its when the pro#uction comes in until certain con#itions are met (the non?consent penalt&)! 9. E culpator- clause? $he Op won3t /e lia/le to the Hon4Ops e cept for #ross4ne#li#ence or willful misconduct (/reach of contract (/reach of AoA here) is not #ross4ne#li#ence or willful misconduct so here e culpator- clause is n@a). ;. Op can /reach the AoA /- sendin# A>E3s for an non4Fualif-in# e penditure which causes the non4ops who #o nonconsent to lose the /enefits of production. =. 7f Op sells his interestB he ceases to /e the Op. 7f HonOps don3t o/Kect to the new OpB thewaive their ri#hts to selection.
5&2 'nc v! /uel ,esources 4ev! Co (non?op lia%ilit& "or costs goes %e&on# the A/- to actual reasona%le costs incurre#)
1. An A>E is onl- an estimate of costs. 7f costs #o overB the consentin# non4ops are still lia/le for the overa#e as lon# as the additional e penses are reasona/le. a. 7t is no e cuse if the non4op can3t afford the additional e penditure. 7f another Ielection pointJ comes upB the non4op can #o nonconsent at that point and participate no further. i. I*r- hole election pointJ is the initial election point and is eFuivalent to Idrillin# to total depth ($*)J . this is what the A>E is t-picall- forCdrillin# to total depth8 this does not include election points coverin# completion costs such as well lo#B casin#B complete. 2! 1oteI '" Op #rills a #r& hole a"ter all non?ops go non?consent$ the Op %ears all the ris9 an# e.pense o" the #r& hole!
5Can9 v! <estwoo# -nerg& (e.pen#itures & lia%ilities o" parties??liens an# pa&ments)
1. A AoA lien is superior to /an' lien if the AoA shows up in the /an'3s chain of title. $he /an' is on notice to investi#ate further. (. $he AoA Op #ets a securit- interest in the non4ops share of the o@# production & eFuipment to satisf- an- de/ts the HonOp owes the Op.
Cloc9er -.ploration v! /rontier (lia%ilit& o" 1onOps i" Op #e"aultsB cre#itor cannot reach non?ops= personal assets)
1. $here was no AOA /ut a potential +inin# Partnership a. Elements of a +inin# Partnership (if +P foundB all partners are Kointl- and severall- lia/le for all partnership o/li#ations) i. Aoint Ownership ii. )hare in profits & losses iii. Aoint Operation
Pa#e ;1
(64>e/419 15?91?<< a(@p(

A. 0nder a partnershipB each #eneral partner in a partnership has eFual ri#hts to mana#ement and control (authorit- to /ind the partnership) ". +eans all partners are Koint & severall- lia/le 9. 0nder a AoA . onl- the Op operates (onl- the Op can /ind the AoA) a. 0nder a AoAB the parties are onl- lia/le severall- (lia/le in -our proportion of the AoA so onl- to the e tent of -our le#al o/li#ation8 creditor cannot reach personal assets) ;. $he contracted driller cannot sue the non4ops /ecause his contract is with the Op onl- (she onl- has privit- with the Op). a. 0nder $ Ppt- Code howeverB driller can #et a +ineral Propert- Lien a#ainst the mineral estate under contract (the lease area and the well8 driller can then foreclose on the well and the lease)8 allows the #riller to get at the 1on?Ops= mineral interests %ut cannot get to the 1on?Ops personal assets.
2e.star 1orth America v! 6a## 0etroleum (properl& given nonconsent is not a %reach o" JoA)
1. !ithholdin# consent when L had a le#al ri#ht to does not /reach the AoA or another le#al dut-. a. *oes not matter if L withholds consent /ecause it does not want oil to /e drained from L3s other wells in which it owns a lar#er percenta#e. (. $here is no implied covenant of mutual cooperation /ecause there is an e press provision in the contract that #overns the situation (rewor'in# of a producin# well e pressl- reFuires consent of all the parties)
>alence > 4orsett (meaning o" >!C!1 notice provisions "or consent3nonconsent)
1. $he time period for decidin# consent@non4consent does not impose a development moratorium on the operator. 2e can commence operations whenever he wants to. $he consent time period is a constraint on the non4operator for choosin# whether to consent or not. Automatic non4consent if no decision within the time period and non4consent penaltwill appl-. (. Hon4consent penalt-Op #ets to recover its investment and then 1 times more /efore it has to pa- the nonconsentin# Hon4Op. 1. $he nonconsent penalt- is not a liFuidated dama#es clause.
Johnston v! American Cometra (Ops #ut& to 1onOps w!r!t! selling pr#n)

1. A contract operator with no wor'in# interest has a dut- to pursue a ta'e or pa- claim /ecause he is actin# as an a#ent for the non4ops in the sale of the production. 2! 2he Op is an agent o" the non?ops when he sells pro#uction on their %ehal" so the Op owes all the #ut& o" an agent to the principal! ;e owe# a #ut& to ma9e the 230 claim! H! Stan#ar#I <oul# a rF%l& pru#ent agent (operator) have pursue# the 230 claimM Ves$ this is e:uivalent to operating in a (goo# an# wor9manli9e manner)! ('C to manage an# a#minister) a. Court does not sa- Op owes a fiduciar- dut- to the Hon4Ops. E! 2he 1onOps have stan#ing to #eman# suit %ecause the& share in the ris93rewar# o" the well #evelopment!
Pa#e ;9
(64>e/419 15?91?<< a(@p(

Seagull -nerg& v! -lan# -nerg& (e""ect o" assignmentB -NA5B OG6 assignor is still lia%le un#er its OG6 contract unless the assignment e.pressl& releases it "rom its o%ligations un#er the contract)
1. Court holds? "ecause no provision in the AOA address assumption of o/li#ations@/enefits or ri#hts under the contract when it is assi#nedB normal contract law applies. A part& cannot escape its o%ligations un#er a contract simpl& %& assigning the contract! 5ust a##ress the rights3o%ligations speci"icall& in the assignment (a novation)!
6ong 2rusts v! Gri""in

2! So/ applies to JoA an# Areas o" 5utual 'nterest agreements$ same as it #oes to OG6s!
Amoco 0ro#uction v! Action <ell Service (6- lia%ilit& "or negligence o" #rilling contractor)
1. Overview of Rates a. On a Ida- rateJ the O%L lessee ta'es the ris' that the drillin# contractor will encounter pro/lems. /. On a Ifoota#e rateJ the drillin# contractor ta'es the ris' that he won3t /e a/le to advance the drillin#. c. $he Iturn'e- rateJ (fi ed fee /id) . usuall- in an area the driller is intimatel- familiar with ('nows the ris's and the costs for that formation) (. $ Civ Prac & Remedies Code M 1(6.<<1 . $e as Oilfield Anti4indemnit- Act . if en#a#ed in a mineral propert- contractB -ou cannot have indemnit- unless it is supported /- insurance. 1. $ Civ Prac & Remedies Code M 5;.<<1 . owner (an owner of a propert- with a ri#ht to controlB can /e held lia/le for inKur- to person on that propert-)8 an owner of O%L is an owner. '" owner 9nows o" a haFar# an# "ails to warn o" it an# e.ercises control over the contractor$ the person can sue the owner. 9. Amoco pa-s the decedent3s famil-3s claim and then see's indemnit- from Action per its contract of indemnification. Action was to carr- insurance to cover this ris'. 7n H+ this sort of contract is a#ainst pu/lic polic- (no insurance provision in their statute). a! 'n 2e.as$ this contract woul# have %een vali#! A mutual in#emnit& o%ligation is vali# to the limits o" the insurance or :uali"ie# sel"?insurance each part& agrees to provi#e$ so long as amounts are e:ual! ;. E press ne#li#ence . indemnit- /- a person a#ainst -our own ne#li#ence must /e conspicuous.
Ch
0ooling an# +nitiFation
Pro6lem of "mall 3racts

1. Rule of capture promoted inefficienc- and waste. Poolin# was imposed to com/at this pro/lem.
(Ho Fuestions on Rule 16 on the e am)

(. Rule 16 spacin#B if landowner acFuires his acrea#e after the poolin# was doneB no well. 7f /eforeB then can #et spacin#.
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(64>e/419 15?91?<< a(@p(

1. Landowner must have reFuired num/er of acres to #et a well8 Rule 16 attaches when oil@#as is found in the area. 9. Rule 16 attaches when o@# is found. 7f then sell X9< acre parcelsB the /u-er is not entitled to an e ception. 7f the X9< acre parcels are sold /efore o@# is foundB the /u-er ma- /e entitled to an e ception.
,&an
1. $he producer is entitled to allowa/les that allow him to ma'e a profit. (. After rule 16 attachesB onl- one owner of the X9< acre parcels can #et an e ception to drill a well.
;al%out&
1. After rule 16 attachesB Kust can3t #et a permit. 9. $he previous cases are all historical and no lon#er applica/le. ;. +ineral 7nterest Poolin# Act #overns small tract pro/lems toda-.
Accomplishin# Poolin#
/rench (communit& lease 8 multiple lan#owners voluntaril& sign the same OG6B communit& lease in 2e.as creates a presumption that the 6,s have poole# their interests)
1. Lease covers (9< acres (. Communit& lease #ets multiple landowners to si#n the same O%L. $his creates a Ipooled leaseJ. All parties were in para 1 as lessors and the properties were properl- descri/ed and conve-ed under one O%L. $husB pro#uction an&where on the poole# acreage is pro#uction un#er the lease an# the lessors share in the pro#uction in the proportion o" their acreage to the total. 1. Poolin# situations a. 0nit . small part of O%L is contained in the unitB the well is off the O%L i. 7f the O%L contains an unitiEin# clause and if complete the well 9@1@<6 and the O%L e pires on 9@1;@<DB that well will sustain the lease (the operations in the unitiEed area are considered operations on the O%L even if the well is not actuall- on the O%L) /. 0nit . the O%L is wholl- contained in the unit /ut the well is off the O%L c. 0nit . the O%L is partiall- contained in the unit and the well is on the O%L d. Para 9 of the =5 O%L covers poolin#@unitiEation
Jones v! 7illingsworth (improper pooling can result in loss o" lease %3c pro#uction in the invali# pool is not pro#uction on all the leases in the pool)
1. )alutar- effect of poolin# from lessee3s standpoint is that the lessor3s lease ma- /e terminated if poolin# done improperl-. (. RRC permitted certain siEed units /ut did not prescri/e specificall- siEed units e cept for a minimum of D<. E press provision in the lease allowed poolin# of acrea#e up to the amount
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(64>e/419 15?91?<< a(@p(

prescri/ed /- the RRC (D< acres onl-) so the entire 16< acres could not /e pooled per this e press provision of the lease. $he poolin# provision was /reached. 1. 7f the poolin# provision is /reachedB then operations an-where on the pooled land are not operations an-where on the lease. 9. A clause in an O%L permittin# poolin# to e tent of #overnment re#ulation onl- applies to e tent such re#ulation is prescri/ed.
<hen pooling is #one properl&I

1. $he 9=63 limit evaporates w.r.t. to the pooled leases. $he wells can /e an-where on the pooled tracts. 2! 5inimum o" E0 acres to create a pool "or an oil well! H! 5inimum o" E0 acres "or a pool "or a gas well! 9. Poolin# leases creates a protective I/u//leJ around the productive tract8 no one else can come in and drill another well. AlsoB allows producer to #et to =9< acre unit and 'eeps him from havin# to drill offsets on all the other tracts in the pooled unit to prevent draina#e. 7t secures the other leases /e-ond the primar- term and 'eeps the leases in the producer3s inventor-. a. 7f more than one lesseeB then a AOA and a pooled unit can /e created to protect all the lessees.
2ittiFer v! +nion Gas (i" OG6 sa&s pooling not e""ective until the unit #esignation is recor#e#$ then #rill site tract gets all ro&alties until recor#ation)
1. *rill site tract had a well on the pooled leases turned to sales on +arch (6B (<<<. (. Au#ust 6B (<<<B unit desi#nation of pooled units was filed in the count1. 7ssue? in the unit #esignation$ language trie# to ma9e the poole# unit e""ective with "irst salesB not on recordin# date (si#ned under oath and then recorded in the count-). E! <ho gets the ro&alt& %etween 5arch 2A & Aug A when the #esignation was "ile#M a. $he #rill site tract owner gets 100T o" ro&alties from the sales durin# this period /ecause the pooling provision in the lease states that the unit desi#nation is not effective until recorded. Parties intended that poolin# was not effective until recorded. /. After the desi#nation is recordedB pooled lessors@ro-altowners #et prorata ((acreage in their lease# tract3total acreage in unit) . ro&alt& "raction) share.
Amoco 0ro#uction v! +n#erwoo# (gerr&man#ering a unit to perpetuate leases is o9a&)

1. Even if LE strate#icall- pools leases to e tend them /e-ond the primar- termB that is o'aas lon# as the poolin# is done in #ood faith. (. Poolin# that includes unproductive acrea#e is invalid and ma'es the poolin# void a/ initio. $he onl- lessor with a claim to ro-alt- is the drill site tract lessor. (the other lessors #et to 'eep their ro-alties /ut producer still owes the drill site tract lessor for underpa-ment . this is the punitive aspect for poolin# in /ad faith). $he non4drill site tract leases also e pire. H! Gerr&man#ering an# pooling *ust %e"ore the en# o" the primar& term is not inherentl& wrong! ;ave a #ut& o" goo# "aith in e.ercising pooling option!
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(64>e/419 15?91?<< a(@p(

a! 4ut& o" goo# "aith (not a "i#uciar& #ut&) 8 ta9e interests o" lessor & lessee into account an# act honestl& in "act! 'n goo# "aith$ must inclu#e onl& pro#uctive acreage in a unit! 9. Elliott v. *avis . e ercise poolin# in fairness & #ood faith ta'in# into account the interests of /oth parties.
S- 0ipeline v! 2ichace9 (pooling can %e use# to #ischarge the implie# #ut& to protect against #rainage)
1. Poolin# dischar#es his implied dut- to protect a#ainst draina#e as to these O%L tractsB (. $hree optionsB to dischar#e implied dut- to protect a. Release the acrea#e /. *rill c. Pool 1. 7f the driller pools in #ood faithB the lessee is relieved of the o/li#ation to reasona/l- develop each tract separatel-B or to drill off4set wells on other tracts included in the unit to prevent draina#e /- a well on one or more such tracts. 9. 7f the unit is drainin# non4pooled leased acrea#eB still have an implied covenant to develop as an RPO. (further development must economicall- via/le . lessee can ma'e a profit) a. 7n order to recover for a /reach of the dut- to protectB a LR must present proof (1) of su/stantial draina#e of LR3s land and (() that the RPO would have acted to prevent the draina#e.
Cennion (a mineral co?tenant is not su%*ect to a non?consent penalt& "or not pooling his interestB he pa&s his "air share o" the costs o" pro#uction the same as an& other co?tenant)
1. 0$ allows imposition of a non4consent penalt- (1;<R 4 (<<R) on mineral co4tenants who refuse to voluntaril- pool. LE had a lease for all the tracts in a production unit /ut not for the "ennion tract. (. $e as does not have such a statute. 7n $e asB "ennion would have Kust /een a mineral co4 tenant and would not have /een penaliEed for non4consent.
Voung%loo# v! Seewal# (the current wor9ing interest owner has the responsi%ilit& o" pa&ing O,,' not the prior wor9ing interest owner)
1. !ho had responsi/ilit- to pa- the overridin# ro-alt- interestV $he person(s) who currentlowns the wor'in# interest is responsi/le for pa-in# the ORR7B not the person who previouslowned it.
Carson v! ,,C (5'0A o" 1@ 1) O1 2;- -NA5 (a "air & reasona%le o""er to pool must %e ma#e %e"ore 5'0A can %e use# to "orce pooling)
1! ,e:uirements "or when &ou can invo9e 5'0A
a. )eparatel- owned mineral tracts part of a common reservoir. /. +ineral tract owners do not a#ree to pool. c. )uch action /- the RRC would avoid the drillin# of unnecessar- wellsB protect correlative ri#hts or prevent waste. d. $he reservoir was discovered su%se:uent to 5arch 8$ 1@ 1. Pa#e ;D (64>e/419 15?91?<< a(@p(

e. $he unit formed will not /e G =9< acres for #as well or G1=< acres for an oil well (with 1<R tolerance). "! A "air an# reasona%le o""er "or voluntar& pooling must have %een ma#eB a simple o""er to pool is not per se "air & reasona%leJmust loo9 at how the o""er was ma#e! (. Purpose of +7PA . entice parties to voluntaril- pool rather than forcin# poolin#. 7t is an incentive for operators to ma'e fair & reasona/le offers so that there is voluntar- poolin#. $e as does not reall- want to implement forced poolin#. 1. Loo' at the notes after the case.
;la#i9 v! 6ee (O7)

1. &arious leases pooled into a 9D< acre voluntar- Ipoolin# unit.J Ho drillin#@production has occurred. O, sa-s onl- one 1=< acre Iproduction unitJ 7H $2A$ >OR+A$7OH is allowed. 2ladi' ar#ues that the well su/seFuentl- drilled on his tract which is 1=< acres is IhisJ well /ecause 9D< acre poolin# unit violates the limit on statutor- poolin#. (. $he court sa-s that the 1=< acre statutor- limit on unit siEe 7H $2A$ >OR+A$7OH OHLS ta'es precedence. $he parties did not contract around the statutor- limit8 the- could have and the other LR could have then shared in the proceeds.
8ffect of Poolin#
-""ect on 6essee=s Operations
Ci%ler Crothers 2im%er v! 2o*ac 5inerals (0ugh ClauseJan OG6 is onl& preserve# as to the lease# acreage inclu#e# in the poole# acreage!)
1. 7f have production an-where on the lease after primar- termB it e tends the lease. 7f the lease is pooled and the well is on another tractB lar#e amounts of land can /e held captive to the lease. $he &ugh clause is an e press contractual provision that encoura#es the operator to further develop the non4pooled acrea#e or to release the acrea#e. (. A clause calculated to prevent the holdin# of non4pooled acrea#e with other portions that are /ein# held under poolin# a#reement8 it severs the acrea#e not included in the pool from the rest of the pooled acrea#e. 1. Pu#h clauses that provide for horiEontal@vertical severance must /e e press in the lease.
<ells v! Continental (implie# covenant to rF%l& #evelop applies to poole# acreage an# non?poole# acreage in a single OG6)
1. Ho &ugh clause8 LR tries to #et the non4pooled acrea#e released to another LE. Hot validC production an-where on the lease is production. $he implied covenant to further develop does still appl- to the non4pooled acrea#e.
-""ect on 0ropert& 'nterests

>eal v! 2homason (not an important case)
(. $he R7 in the pooled acrea#e is a propert- interest8 in a CoAB all of the pooled interest owners are necessar- parties (the poolin# provision is seen as a cross4conve-ance of interests in each of the pooled interest owners3 tracts).
Pa#e ;5
(64>e/419 15?91?<< a(@p(

6on#on v! 5erriman (e""ect on non?operating interestsB non?poole# 10,' owner on a tract in a multi?tract OG6 can rati"& the OG6 to ena%le him to receive ro&alties "rom pro#uction on other tracts)
1. E ecutive has no authorit- to pool for the non4e ecutive. $he two tracts are under one lease. $he drill site well #ets the ro-alt- a/sent other considerations. $he HPR7 sued to ratif(. "rown v. %ett- Reserve Oil (p661B n1) . a R7 owner ma- not want to pool his tract /ecause it dilutes his ro-alt- interest. 1. +CNB 7nc. v. $riolo 4 the HPR7 can ratif- the O%L as to the portion of his tract that has /een included in the unit. 7f a well is su/seFuentl- drilled on his tract /ut not on the pooled acrea#eB he receives the full /enefits of /ein# the drill site tract and ma- refuse to pool with other lessors so he would not /e diluted. $he HPR7 has the opportunit- to ratif- an unauthoriEed poolin# action (as when his tract is not the drill site tract) or not (as when the drill site tract is the tract on which he holds his HPR7). 9. +ont#omer- v. Ritters/acher . a tract is split after an O%L is e ecuted. A drhole is drilled on one tract /ut the other tract is included in a pooled unit with another drilled tract. $he Owner of the drhole tract can force pool his tract with the pooled unit even thou#h he 'nows there is no oil under his tract. ;. 10,'? 2he 10,' is pai# out o" the ro&alt& negotiate# %& the 6, in the OG6! '" 10,' is 131 th an# 6, negotiates a H31 lan#owner ro&alt&$ the pro#ucer pa&s H31 th ro&alt&$ 131 th o" which goes to 10,' owner an# 231 th goes to 6,! 2his is similar to 4uhig an# warrant& #ee#s! Clause 10 o" the OG6 covers this provision!
-#monston v! ;ome Sta9e O&G Corp (e""ect on termina%le interests)

1. !hen a unit contains onl- part of the term interest acrea#eB does production in the unit preserve the lease as to the entire descri/ed acrea#e or Kust the part included in the unitV 7n ,)B onl- the part that is in the unit. (. 'n 2N the whole #escri%e# acreage in the lease that is partiall& poole# is maintaine#! (pro#uction an&where in the unit is pro#uction on the lease so all the lease is maintaine# as to all #escri%e# acreage in the lease).
,,C v! 0en# Oreille O&G Co (the "air & reasona%le o""er to pool is su%*ect to the su%stantial evi#ence rule)
1. Landowners over a common source of suppl- are protected /- correlative ri#hts ruleCri#ht to produce their fair share. >orne-B owner of 1= acres does not have enou#h to #et a permit to drill a well8 he ma'es an offer to pool his acrea#e with the other interests in the PO4 "ennett unit pool. RRC finds this to /e a fair & reasona/le offer to pool. 2he ,,C=s #ecision is reviewe# un#er the su%stantial evi#ence rule! >actors the court considered in determinin# whether there was su/stantial evidence include a. )hare production on acrea#e or productive acre foot /asis as RRC orders. /. A#ree Pend Oreille to /e operator. c. Proposed that production and operation costs /e allocated /ased on each tract3s share of productive acrea#e. /ear costs to drill & operate well d. A#ree 1<<R ris' factor e. )hare costs #oin# forward. f. Pa- /ased on the current /illin# method used
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(64>e/419 15?91?<< a(@p(

2! 0O=s "ailure to respon# to the reasona%le o""er to pool is a %a# "aith act that will not %e loo9e# "avora%l& upon %& the ,,C! 5'0A is meant to encourage voluntar& pooling! 1. RRC orders force poolin# of >orne-3s interest with PO interest. 9. $he RRC can commin#le downhole.
-nhance# ,ecover& (secon#ar& & tertiar& recover&) +nitiFation

Caumgartner v! Gul" 0il Corp! (encroachment across lease lines o" ,,C approve# secon#ar& recover& metho# is not a compensa%le trespass)
1. A sFuare mile is =9< acres. +a imum siEed pooled unit is =9< acres U 1<R variance (6<9 acres) (. 7f have 1= sFuare milesB unitiEation is used to #o lar#er than 6<9 acre pooled units. 1. $he LR must #ive permission to form a unit for unit operations. A clause for this is usuallnot in the lease. 9. Enhanced recover- reFuires input of ener#- into the reservoir to increase production. $his costs mone-. a. )econdar- Recover- 44 a water flood of the reservoir8 inKect water into the reservoir via inKection wells to sweep oil clin#in# to the roc' to flow towards the producin# wells. /. $ertiar- Recover- 44 surfactant (deter#ent)B thermal (e.#.B steam inKection to increase viscosit- of oil to ma'e it flowB fire flood)B misci/le (CO( inKection) recover- methods ;. " ar#ues that the water inKection creates a trespass on his propert- /ecause it is drivin# oil off his land and towards the well or another parcel. =. 1egative ,ule o" Capture 'n*ection o" less valua%le su%stances #isplacing more valua%le su%stances o"" the propert& is not a compensa%le trespass! a! 5anFiel (2N) 't is a trespass (water has %een "orce# across lease lines) %ut where the water "loo# has %een approve# %& the State agenc& (,,C)$ the trespass is not compensa%le! /. Pu/lic polic- is in favor of more efficient recover- of oil & #as. c. 7f in the valid e ercise of its authorit- to prevent wasteB protect correlative ri#htsB or in the e ercise of other powers within its KurisdictionB the Commission authoriEes secondarrecover- proKectsB a trespass does not occur when the inKectedB secondar- recoverforces move across lease lines and the operations are not su/Kect to an inKunction on that /asis.
2i#e <ater Assc! Oil Co v! Stott (#r& gas (a less valua%le su%stance) pumpe# %ac9 into a reservoir that pro#uces wet gas (a valua%le su%stance) is a vali# e.ercise o" the negative rule o" captureB 6- #i# not trespass)
1. %as inKection into the reservoir to maintain pressure. (. !et #as (#as mi ed with liFuid h-drocar/ons) is produced from the reservoir. $he wet parts drop out when the pressure is reduced. At this timeB the wet su/stances were valua/le. 1. $here was no mar'et for natural #as at the time /ut there was a mar'et for the liFuid h-drocar/ons. $ide !ater reinKects the dr- #as /ac' into the reservoir to maintain field pressure and production level. $his is #as rec-clin#. $wo other operators are doin# the same thin#. $ide !ater must do this (inKect less valua/le su/stance into the reservoir to induce more valua/le su/stance to the well /ore) too to preserve its investment and protect the LR.
Pa#e =1
(64>e/419 15?91?<< a(@p(

9. Ho trespass here /ecause a reasona/le offer to pool was made /- $ide !ater to )tott.
<aseco Chemical & Suppl& v! Ca&ou State Oil Corp (no implie# covenant to use enhance# recover& techni:uesB ,0O stan#ar# applies)
1. Hormal remed- for /reach of implied covenant is conditional cancellation (LE has a chance to correct the pro/lem) not simpl- cancellation. (. $he court cancels this lease8 "a-ou ar#ues that it should have a chance to fi the pro/lem. 1. $his is a fire flood field. 9. 7s there an implied covenant to use enhanced recover- techniFuesV a. 7n $:B the operator must act as a RPOCif the RPO would use enhanced recovertechniFuesB then the operator has a dut- to do so.
Crowning Oil v! 6uec9e (anti?pooling provisionsB horiFontal #rilling creates a #rill site tract in ever& tract the well %ore crossesB measure o" #amages is the amount o" oil #raine# "rom each tract horiFontall&Jrule o" capture #oes not appl&)
1. (. 1. 9. Luec'es have 1 tracts of land? $1 1<<RB $( ;<RB $1 1<<R O%L to 2um/le E ploration8 Assi#nment to "rownin# Para 9 poolin# provision 0ara 1E anti?#ilution provision 8 i" 6- "orms a poole# unit$ 0T o" it will comprise 6,=s lease# acreage or 6- cannot poolB "rownin# did not compl-. D! ,,C sa&s that "or horiFontal #rilling$ must ma9e a turn o" at least 100 "eet into the "ormation! a! ,,C sa&s that ever& tract that a horiFontal well %ore per"orates is a #rill site tract! 5a9es it attractive "or these tract owners not to pool! %! Cottom ;ole 6ocation must %e HH0= "rom the lease line per rule H!8 ! =. $he Luec'es wanted full ro-alt- from /oth of its tracts that were drill site tracts due to "rownin#3s horiEontal well /ore and the fact that the- were pooled improperl-. a. 7f the- weren3t pooled properl-B the- were entitled to production from their tracts. A! Court sa&s ,ule o" Capture #oes not "it horiFontal well situations! 4rainage is not ra#ial in horiFontal #rilling situations so #o not appl& it! a! 2he right measure o" #amages is the amount o" oil #raine# "rom the 6uec9e=s tracts!
/e#eral an# State 6an#s

4avis & Sons v! Gul" Oil Corp (Jones Act applies "or 0' actions i" the 7 has a genuine salt& "lavor)
1. $e as state waters are 1 lea#ues L 1( miles out from the coast (1 miles in LA). All the O&% platforms in this area are considered $e as )tate Leases (ro-alt- #oes to the state). a. "e-ond three lea#ues@1 miles out to (<< miles OC)LA (outer continental shelf land act8 administered /- ++) (out of +etarieB LA)) (. Aones Act (maritime suits affectin# seamen) 4 +aintenance and cure . li'e wor'ers comp act for maritime pursuits8 Wstrict lia/ilit- a#ainst vessel owner (hurt on the /oatB /oat owner pa-s)
Pa#e =(
(64>e/419 15?91?<< a(@p(

1. 7f hurt on a fi ed platform in the %ulfB that is considered part of the land and -ou fall under L2!CA (lon#shoreman and har/or4wor'ers compensation act)B which is harder to prove. E! ;ol#ingI i" the 7 has a (genuine salt& "lavor)$ then the Jones Act applies$ not 6;<CA 8 0 was on a %arge moving "rom plat"orm to plat"orm so he was li9e a sailor!
6ewis (owners o" ,6A lan#s are Agents o" the State an# cannot sel"?#eal in e.ecuting OG6sB S o" an& %ene"its negotiate# are #ue the State)
1. %LO . %eneral Land Office . has a prescri/ed form for O%Ls dealin# with RLA lands. (. Owner of the )oil . the surface owner 1. RLA $: RelinFuishment Lands Act lands (minerals are owned /- the )tate of $e as for land patented to surface owners /etween 1D5;41511) a. Act passed to address the issue of surface dama#e created /- drillin# /. Landowner (owner of the soil . surface owner) #ets Q the /enefits of the lease in e chan#e for /ein# the a#ent of the state in e ecutin# O%Ls. 2he lan#owner cannot get an&more than S o" the %ene"its un#er the lease$ even i" a provision "or such is inclu#e# in the OG6! c. Permanent 0niversit- >und is funded /- )tate3s proceeds. 9. 2urham case . caused modification of the statute a. *urham3s dad found a vacanc- in the Sates field and applied for it. *ad /ecame owner of the soil. 2e leased to > who assi#ned to "in#o Oil Co8 *ad owned 11R of "in#o Oil. Q of the ro-alt- went to *ad and he #ot revenue throu#h "in#o Oil as well. )tate thou#ht dou/le4dippin#B so sued to #et /ac' some. /. Court said *ad was a#ent and did not act in /est interest of state /- self4dealin# the O%L to a compan- he owned a si#nificant portion of. 2he Agent has a "i#uciar& #ut& to the State 8 can=t e.ecute OG6=s when sel"?#eal (secure a %ene"it that the State #oes not get hal" o" as well ?? e!g!$ i" get sur"ace #amage pa&ments$ woul# have to sen# hal" o" those to the state).
-.am
c. 1<=441<D +C (1 point each) d. ( essa- Fuestions ((; points total) i. 1 short (1< points) ii. 1 lon#er (1; points . li'e the e amples) e. Onl- $e as law applies on the e am E ample? Conve-ancesB Koint tenantsB co4tenantsB +7PAB RoC 1=< acres total A ;< acresB 1@; O%L " 1< acresB _ O%L C (< acresB 1@= O%L * 6< acresB 1@= O%L 2 1< acresB unleased Part7nterest in Ro-alt- or !7 $ract@unit Het revenue interest or (64>e/419 15?91?<< a(@p(
Pa#e =1

A 1@; ;<@1=< (;@1=) 7%) 9@; ;<@1=< (;@1=) " _ 1<@1=< (1@1=) *u'e ` 1<@1=< (1@1=) C 1@= (<@1=< (1@D) "e ar ;@= (<@1=< (1@D) * 1@= 6<@1=< (6@1=) )terlin# ;@= 6<@1=< (6@1=) (operator Cthe-3re the lar#est owner) 2 All 1 1<@1=< (1@1=) 2 is a mineral cotenant with all of the LEs. 2e does not have to pa- the costs of drhole /ut he shares in the production onl- after accountin# for his share of the drillin#B completin#B eFuippin# & operatin# costs (1@1=th). tract All All All All All All all All percent
Pa#e =9
(64>e/419 15?91?<< a(@p(

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Oil & Gas (Jones) Spring 2008

(64>e/419 15?91?<< a(@p(

Oil & Gas (Jones) Spring 2008

(64>e/419 15?91?<< a(@p(

Oil & Gas (Jones) Spring 2008

(64>e/419 15?91?<< a(@p(

Oil & Gas (Jones) Spring 2008

(64>e/419 15?91?<< a(@p(

Oil & Gas (Jones) Spring 2008

(64>e/419 15?91?<< a(@p(

Oil & Gas (Jones) Spring 2008

(64>e/419 15?91?<< a(@p(

Oil & Gas (Jones) Spring 2008

(64>e/419 15?91?<< a(@p(

Oil & Gas (Jones) Spring 2008

(64>e/419 15?91?<< a(@p(

Oil & Gas (Jones) Spring 2008

(64>e/419 15?91?<< a(@p(

Oil & Gas (Jones) Spring 2008

(64>e/419 15?91?<< a(@p(

Law (Rule) of Capture and Private Ownership

Oil & Gas (Jones) Spring 2008

,a#ial 2heor& o" 4rainage

(64>e/419 15?91?<< a(@p(

Oil & Gas (Jones) Spring 2008

Geo >i9ing v! 2e.?6ee ("racing that crosses lease line is a trespass)

(64>e/419 15?91?<< a(@p(

Oil & Gas (Jones) Spring 2008

-lli"" v! 2e.on 4rilling (,oC e.ceptionB lia%ilit& "or negligent pro#uction)

(64>e/419 15?91?<< a(@p(

Oil & Gas (Jones) Spring 2008

0ic9ens (100 rule)

(64>e/419 15?91?<< a(@p(

E3A OG6 e.ample

Grantin# Clause-"urface $ses

(64>e/419 15?91?<< a(@p(

Oil & Gas (Jones) Spring 2008

Gett& Oil v! Jones (Accommo#ation 4octrine)

(64>e/419 15?91?<< a(@p(

Oil & Gas (Jones) Spring 2008

)aintainin# the lease%*ela+ rentals

(64>e/419 15?91?<< a(@p(

Oil & Gas (Jones) Spring 2008

<hat 9in# o" pro#uction

Che&enne ,esources v! Criswel (repu#iation %& lessor)

Clifton v! ,oont- (pa&ing :uantities 8revenue K operating e.penses)

(64>e/419 15?91?<< a(@p(

Oil & Gas (Jones) Spring 2008

0shigo#a v! 2e.aco (p2A le"t?han# column 8 rewor9ing is not operations)

<or9ing 'nterest & Assignment

(64>e/419 15?91?<< a(@p(

Oil & Gas (Jones) Spring 2008

0undle of stic s in the mineral estate (on the e1am)

(64>e/419 15?91?<< a(@p(

Oil & Gas (Jones) Spring 2008

/reeman p20E (shut shut in gas ro&alt& O constructive pro#uction) pro#uction

H0? 0 #a& clause (#octrine o" temporar& cessation o" pro#uction)

(64>e/419 15?91?<< a(@p(

Oil & Gas (Jones) Spring 2008

Samano (H0? 0 #a&s clauses strictl& construe#)

/orce 5a*eure clause

(64>e/419 15?91?<< a(@p(

Oil & Gas (Jones) Spring 2008

/orce 5a*eure ,ules

Oil & Gas

Oil & Gas