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Oil and Gas
South Texas College of Law Houston
Brownman, Chuck

Brownman | Oil, Gas, and Mineral Law | Spring 2018

Introduction

Oil

measured in barrels (“bbl”)
1 bbl= 42 gallons
production in bbl/day
reserves are in bbl

Gas

measured either for its heating content OR volume
heating content: British Thermal Units (“BTUs”)
Volume: cubic feet or cf
1 cf = 1,000 Btu
1,000 cf (1Mcf) = 1,000,000 Btu (1 MMBtu)
types

casinghead gas:
sour gas: has hydrogen sulfide, which corrides

Phases of the industry

upstream: producing
midstream: refining, processing
downstream: sales

Land descriptions

surface boundaries

Public Land Survey System

a rectangular system of surveys, stating from the intersections of principal meridians (N-S) and base lines (E-W)

real property concepts: townships/ranges/sections

sections

each section is theoretically 1 square mile
each section is further broken down into half sections and quarter sections
correction lines, lots, and irregular sections
start descriptions with the smallest unit

Ownership Theories

Public vs. private ownership of minerals

U.S. is rare that it allows private ownership of minerals; other governments have public ownership

Ad coelum doctrine (“heaven and hell” doctrine): the owner of the surface owned all beneath

doctrine of extralateral rights (applies to mining lode claims on federal land): the owner of a lode claim may exclusively mine all veins, lodes, and ledges throughout their entire depth, the top or apex of which lies inside
limitations

how far up?: phone lines, drones, birds, etc.
how far down?: fiber-optic cables, storing re-captured carbon, caves, subways, sewers, etc.

Rule of Capture: the landowner who extracts oil or gas from beneath his or her land acquires ownership of the extracted substances even though evidence discloses that a portion of the produced oil and gas was originally in place beneath the land of another

Ownership after extraction

generally, a producer is entitled to all of the production from a well or wells drilled within the producer’s land even if some of that production is drained from beneath the land of a neighboring landowner
an owner of refined hydrocarbons does not lose title to escaped hydrocarbons unless it is shown by competent evidence that he has abandoned them
stored oil and gas: if the reservoir is capable of being defined with certainty and integrity, capable of being maintained, then title is not lost
nature: becomes personal property when it comes out of the ground; is real property when it’s in the ground

rule of capture stops when it becomes personal property

theories

ownership-in place

landowner owns all substances, including oil and gas, which underlie his land
If the oil and gas depart from beneath the owned land, ownership in such substances is lost

exclusive-right-to-take

landowner does not own the oil and gas which underlie his land. He merely has the exclusive right to capture such substances by operations on his land
once reduced to dominion and control, the substances become the object of absolute ownership

Limits

Non-regulatory limits

correlative rights: limits mineral interest owners to a reasonable share of a common source of supply

recognition that owners in a common source operate in a “special community” and they cannot inflict un

es a maximum field-wide allowable, then distributed to the wells based on various formulas
allowable: the amount of oil or gas an operator is allowed to produce from a well under RRC rules

market demand prorationing: looks at market demand and attempts to provide price stability
fair share principle: each owner of the surface is entitled only to his equitable and ratable share of the recoverable oil and gas energy in the common pool in the proportion which the recoverable reserves underlying his land bears to the recoverable reserves in the pool

any violation of a proration order constitutes conversion of oil from the pool and subjects the violator to liability to all the owners of interests in the pool for conversion of the illegally-obtained oil

pooling and small tracts

one of purposes of spacing and density rules is to prevent confiscation of land

confiscation equated with landowner not having a fair chance to recover oil and gas under his land

voluntary subdivision rule

when a subdivision of property creates a tract that has a size and shape that would require an exception to the spacing requirement
not entitled to a permit when

it was divided in contemplation of oil and gas development or
segregated from larger tract after the spacing rule was in effect, and the voluntary subdivision rule attached