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Oil and Gas
South Texas College of Law Houston
Kulander, Christopher S.

OIL, GAS, & MINERAL LAW KULANDER SPRING 2015

I. HISTORY, ACCUMULATION, & LAND DESCRIPTIONS

A. History

1. Wild Animal Theory of Mineral Ownership = the first person to capture the oil and remove it from its natural habitat owns the oil.

a. Migratory Resource Component = since oil and gas (OG) is migratory, when you reduce OG to possession you may take OG from underneath someone else’s land.

b. OG separated at the wellhead is reduced to personal property and does not revert to being a wild resource unless it is abandoned.

B. Accumulation & Occurrence

1. Oil accumulates in subsurface reservoirs of sedimentary rock

a. Porosity = is the amount of microscopic holes in the rock in which OG accumulates.

b. Permeability = is the degree to which the microscopic holes in rocks are interconnected

i. If the holes are interconnected, then the OG may flow from the rock in sufficient quantities through an OG well and be collected at the surface.

b. Faults = are fractures in the layers of rock that produce a seal, trapping the oil and keeping it from flowing away.

2. Traditional Reservoir = is a salt or shale dome that that forces sedimentary rock closer to the surface + an impervious cap rock, keeping the oil from flowing away.

3. Shale reserves = occurs when the shale rock acts as both the source and the reservoir for the natural gas—the gas stays where it was made.

a. Shale reserves are fraced and drilling horizontally

C. Technical Background

1. Geologists and seismologists use sound waves to map the subsurface in order to identify natural OG reservoirs.

D. Land Descriptions

1. Metes & Bounds System = relied upon historic boundaries and natural and artificial landmarks to describe tracts of land in deeds, e.g., a tree or post).

2. Township / Range System = is a system that divided large sections of land into rectangles based on latitudinal (base lines) and longitudinal lines. (meridian lines).

a. Township lines = are described by counting north or south of the chosen base line.

b. Range lines = are described by counting east or west of the selected principle meridian line.

c. Township = is a six square mile grid further subdivided into 36 numbered sections of one square mile each.

i. Each one square mile section has four main quarter sections: NW corner, NE corner, SW corner, and SE corner.

II. OWNERSHIP & CAPTURE

A. Rule of Capture (ROC) & Limitations on the ROC

1. ROC Generally = it is a common law rule of non-liability which basically says that as long as your well is bottomed beneath your land there is no liability for draining OG beneath a neighbor’s land.

a. ROC qualifies the ad coelum doctrine, which says that a property owner owns everything above a beneath their land, such that the ad coelum doctrine does not apply to fugacious, migrating minerals like OG.

b. Ad Coelum still applies to non-migrating minerals such as gold, silver, and coal.

2. Limitations on the ROC

a. Correlative Rights Doctrine = basically says that an owner of OG has the right to a fair opportunity to produce their fair share of OG in a common reserve, which underlies his and his neighbor’s property.

i. Each owner has a duty not to engage in activity that might injure the common reservoir, such as drilling too many wells or overproducing.

b. CL Limitations to the ROC

i. Trespass

ii. Negligence

iii. Nuisance = says that actions which constitute a nuisance, e.g. “sh

e else’s land constitutes an actionable trespass.

c. Geophysical / Microseismic Trespass

i. “Mere vibrations” is not enough to constitute a trespass

ii. Gathering, recording, and publishing seismic data on another person’s ME w/o their consent may constitute the tort of misappropriation of confidential information.

* DAS are loss of speculative value

* Some commentators argue that this should not be a tort and that gathering seismic info on someone else’s land is protected by the ROC.

iii. Only ME owners may grant permission to conduct seismic operations on the land; consent from the surface owner is not required.

2. Slander of Title = usually arises when a landowner loses the opportunity to get an OG lease b/c of a false claim of title by a third party who does not actually have a valid title.

a. Five Elements:

i. Publishing a claim of title;

ii. Claim is false;

iii. Malicious intent;

* Must be bad faith or unreasonable mistake

iv. Pecuniary loss; and

v. P must have an actual financial interest in the property slandered.

b. DAS is loss of speculative value = is the difference b/t the value of the land before and after the tort was committed.

c. In TX, there is a duty to release a lessor from an expired lease

3. Top-Leasing = occurs when a lessor grants a lease to a new person even though his land is already leased to someone else.