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Oil and Gas
South Texas College of Law Houston
Reed, Harry L.

Oil and Gas Law
Spring 2001
Professor Reed
This Course deals with the
1.      Landowner (lessor) who will lease land to lessee who will drill for oil.
2.      Or sell off the land with rights to royalty from oil and gas found.
What is a property right:
1.      An American traveling in a third world country, man on donkey woman walking barefooted, pregnant, holding two children. The American is outraged and confronts man. He states, unfortunately my wife does not own a donkey.
2.      The lesson of the story, you have right to use your land the way you want (if it’s legal). Or not allow someone to use your land.
Mechanical pumping- at the max you will have 50% of the oil molecules. 
I. Accumulation, Ownership & Conservation:
            A. Accumulation:
1.      Oil is found inside sedimentary rock, this rock is porous (has small holes within it holding the oil). It is soft rock and easily crushed. 
2.      Porosity-How much oil can be there, if there is actually oil in there.
                                    a. Permeability: the degree to the amount of pores within the                                                 rock
                                    b. Oil shale: porous rock holding oil that can’t be drilled, it is                                      mined, (strip mined or shaft mined). Then it is crushed, and boiled                             to extract the oil. It is not an economical system at this time.
                        2. The 3 stages of development of an oil field:
                                    a. Primary production: uses the natural pressure in the reservoir                                             to bring up the oil and pumping. (cheapest method)
                                    b. Secondary production: injecting inert fluids, usually salt                                          water, into the rock to push out the oil and to wash the rock.(a little                                    higher in cost    than primary)
                                    c. tertiary: inject surfactants (detergents) to push and wash the                                               formation out (the most expensive method of drilling). This                                            method is too expensive to use at this time.
                        3. Other types of Oil removal:
                                    a. thermal production: apply heat to the reservoir using steam or                               set on end of the reservoir on fire, to push the oil out and the heat                                       makes the oil thinner and it flows easier. 
                                    b. horizontal drilling: use one well to reach multiple pockets of                                              oil. Example:
Few wells are actual vertical, because the bit follows the path of                                                least resistance. So it may end up on someone else’s property.
                        4. The purpose of drilling mud: it consists of a gelatin mixed with                             berate (sort of like ground seashells) and water. It is pumped downward                           through the drilling stem and out of the bit (lubricates the bit) and out and                               up the well, it washes the cuttings from the drilling out, it also contains                            any gases that come into contact with the drill bit until the casing can be                          applied.
            B. Law of Capture and Private Ownership:
                        1. Law of capture: Oil doesn’t belong to anyone while it is underground.                   Once the oil comes to the surface, no matter where it came from (seeps                               from under someone else’s land), it belongs to the owner of the well. A                            landowner owns all of the production from the well no matter where the                                    oil seeps from. 
                                    a. Private ownership: The landowner owns as far down                                                        vertically from his land as you can drill. The landholder has a                                         property right to everything within his boundaries, including                                      vertically down.
                                    b. Oil and Gas can move: it does not necessarily stay in one                                                 place. 
                                                i. early courts: no property interest in oil & gas.
                                                ii. current law: land holder does have a property interest                                                          in the oil and gas, and it is a protected right.
                                    c. Later there were regulations made on how close a well could be                                           placed to a border.
                                    d. Self Help: if a neighbor is drilling, and oil beneath your                                            property is coming up their well (migration when pressure put on                                         the oil), the remedy is self help. Put up your own well and drill as                                         much as you can. 
                        2. Ownership of extracted oil and gas: once extracted the oil and gas                                  are personal property. Title to personal property is not lost, while it                          leaked, unless it is abandoned. The owner may lose possession, but he                                 retains title to it unless it is abandoned. 
                                    a. abandonment: (elements)
                                                i. intention to abandon
                                                ii. an overt act that corroborates the intention to abandon.
1) the longer the owner waits to retrieve the      property, the less the intent to return.
                        b. intention to keep:
                                    i. quick action to recover what they could

l. If they can’t prove this it is all                                                                  treated as native gas. 
                                                            4) eminent domain: a pipeline company may                                                                         acquire storage facilities in underground reservoirs                                                                     through eminent domain.
                                    b. must not injure the reservoir: a limitation on the rule of                                        capture, if you injure the reservoir, you aren’t protected by the rule                                                of capture, because the damage results in waste
                                                i. upon injuring a reservoir the party is liable to the                                                                    adjoining landowners for any damage to their real or                                                      personal property as well as any oil drained or lost as a                                                         result of the negligence/ damage. 
                                                ii. A well owner has a right to artificially improve the flow                                                         of production without damage to the reservoir (nitro-                                                     glycerin charges)
1)      could argue nuisance if the charges are disruptive to the landowners enjoyment that goes with the ownership of land.
C. Conservation: (limitation of rule of capture) there is a limit to the number of          oil and gas wells produced on a specified amount of land. The rule of capture is modified by the correlative power of the state.
                        1. preventing waste: 
                                    a. limiting the location of wells
                                                i. density (one well per 40 acres)
                                                ii. distance (wells so far between each other)
                                    b. limit production from a well: protects against waste and                                                   the adjacent landowners rights.
                                                i. assign to each well “an allowable” a straight surface                                                  acreage allocation is the most common unless uni