Primer on the Texas Law of Oil and Gas

Preface

Preface

I. INTRODUCTION
A. Energy
B. Oil and Gas—The Product and the Business
C. The Impact of Property and Contract Law on Oil and Gas Law
D. The Impact of Scientific Advances, Global Energy Markets, Horizontal Development and Environmental Regulations on the Law of Oil and Gas
E. Bottom Line

II. OWNERSHIP OF OIL AND GAS
A. Ownership Prior to Extraction
     1. Rule of Capture—Basic Definition and Application
     2. Limitations to Rule of Capture—Correlative Rights Doctrine
     3. Bottom Line: Rule of Capture—Prior to Extraction
B. Ownership After Extraction
C. Theories of Ownership
     1. Ownership in Place Theory
     2. Non-ownership Theory
D. Types of Interests Commonly Owned in Oil Gas
     1. Introduction—A "Bundle of Sticks"
     2. Fee Ownership
     3. Surface Estate
     4. Mineral Estate—Incidents of Mineral Ownership
     5. Interests Created by an Oil and Gas Lease
       a. Working Interest
       b. Royalty Interest
E. Conservation Laws: A Preliminary Overview

III. THE OIL AND GAS LEASE
A. Nature and Purpose of the Oil and Gas Lease
     1. Expectations of the Lessor and Lessee
     2. Distinguishing Royalty from Bonus
B. Surface Use Problems
     1. The Rule of Reasonable Use
     2. Description of Property Leased
     3. Other Issues Under the Granting Clause
C. Lease Termination Problems
     1. Timeline—the Primary and Secondary Terms
     2. Primary Term
       a. Payment of Delay Rentals
       b. Commencement of Operations for Drilling
     3. Secondary Term
       a. Meaning of Production
       b. Paying Quantities
       c. Temporary Cessation of Production
       d. Savings Clauses
     4. The Obstruction Doctrine
     5. Bottom Line: Summary of Lease Termination Issues
D. Implied Covenants
     1. The Nature of the Implied Covenants
     2. Classifying the Implied Covenants
     3. The Reasonable Prudent Operator
     4. Principal Areas of Implied Covenant Litigation
       a. Drainage
       b. Reasonable Development and Further Exploration
       c. Marketing
       d. Proper Operation
     5. Limiting Application of the Implied Covenants by Express Lease Clause
     6. Application of Implied Covenants to Horizontal Development
E. Royalty Disputes
     1. General Considerations
     2. The Lease Royalty Clause
       a. Market Value Royalty Litigation
       b. Take or Pay Litigation
     3. The Implied Covenant to Market in Royalty Disputes
       a. Within Reasonable Time
       b. At a Reasonable Price
       c. Post-Production Costs
       d. Limiting Application of Implied Covenants by Express Lease Clauses
     4. The Effect of Division Orders on Royalty Payments
     5. Remedy for Nonpayment of Royalty
F. Modification of Traditional Lease Form to Facilitate Horizontal Development
G. Acquiring Drilling Rights in Foreign, Federal, or State Lands
     1. Foreign Governments
     2. The Federal Government
     3. State of Texas Lands

IV. TITLE AND CONVEYANCES
A. Introduction
B. Distinguishing Mineral Interests from Royalty Interests
     1. Nature of the Interests
     2. Creation of Mineral Interests and Royalty Interests
       a. Legal Consequences of Distinction
       b. Relative Interpretative Factors—In General
       c. Using the Word "Royalty" in the Grant or Reservation
       d. Stripping Away the Attributes of Mineral Ownership
       e. Parol Evidence in Oil and Gas Cases
     3. The Bottom Line
C. The Meaning of Minerals
     1. Introduction
     2. The Texas Meaning of "Other Minerals"
       a. History
       b. Definitions
       c. Applications
       d. Bottom Line
     3. Ownership of Coalbed Methane Gas
D. Divided Ownership of Minerals
     1. Concurrent Ownership—Co-tenants
       a. Developing and Non-consenting Co-tenants
       b. Applications
     2. Successive Ownership—Life Tenant and Remainderman
       a. The Leasing Issue
       b. Accounting Issues
E. The Executive Right
     1. Meaning of the Executive Right
     2. The Executive's Duty to Holders of Non-Executive Interests
F. Term Interests
G. Size of the Mineral or Royalty Interest Conveyed
     1. The Double Fraction Ambiguity
     2. The Land Described/Land Conveyed Ambiguity
     3. Distinguishing Grants "of" and "out of" a Fractional Interest
     4. Conveyances Subject to Existing Leases
     5. Over Conveyances—The Duhig Rule
     6. The Non-apportionment Rule
H. The Process of Judicial Interpretation—Canons of Construction
     1. Judicial Interpretation
     2. Canons of Construction
I. Resolving Title Issues
     1. The Title Examination Process in Oil and Gas
     2. Title Opinions
     3. Malpractice Liability
     4. Curing Defects in Title

V. TRESPASS AND ADVERSE POSSESSION
A. Trespass
     1. Trespasses Resulting from Drilling
       a. Surface Trespass
       b. Drilling Resulting in a Dry Hole
       c. Drilling Results in Production
       d. Trespass Resulting from Slant Drilling
       e. Trespass Resulting from Operations for Horizontal Wells
          (1) Drilling Horizontal Wells Under Unleased Tracts
          (2) Hydraulic Fracturing Operations for Horizontal Wells
     2. Geophysical Trespass
     3. Suits Based on Legal Theories Other than Trespass
     4. Considerations Relative to Choice of Remedy
B. Adverse Possession
     1. In General
     2. Adversely Possessing the Mineral Estate
       a. The Unsevered Rule
       b. The Severed Rule
     3. The Scope of Possession

VI. CONSERVATION, POOLING, AND UNITIZATION
A. Conservation
     1. In General
     2. Statewide Spacing Rules and Production Allowables
       a. Statewide Spacing Rules
       b. Statewide Density Rules
       c. Exception to Spacing and Density Rules
       d. Production Allowable (Prorationing)
     3. The Small Tract Problem
       a. Constitutional Issue—the Exception to Prevent Confiscation
       b. The Voluntary Subdivision Rule
       c. The Allowable Issue
     4. Environmental Regulation
       a. In General
       b. The Well Plugging Rule
     5. Environmental Regulations—The Well Plugging Rule
B. Pooling and Unitization
     1. Pooling
       a. Compulsory Pooling
          (1) Forced Pooling in Oklahoma and Most Other States
          (2) Forced Pooling in Texas (the Mineral Interest Pooling Act)
       b. Voluntary Pooling
          (1) Why Would the Lessor and the Lessee Agree to Pool?
          (2) How to Accomplish Voluntary Pooling?
          (3) Effect of Pooling
     2. Unitization

Appendix A—Glossary of Oil and Gas Terms
Appendix B-1—Form of Oil, Gas and Mineral Lease
Appendix B-2—Traditional Lease Form with Modifications to Accommodate Horizontal Development
Appendix C—Technical Supplement
Index