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Oil and Gas
University of Illinois School of Law
Trott, Thomas George



· Oil is always found in rock

o Lime stones, sandstones, shale

o Must be porous = area between grains of rock where oil can be stored

o Must be permeable

§ Oil is under pressure and will seep to areas of least resistance

· Main byproduct of oil = saltwater

o Saltwater disposal wells, regulated by EPA (class III designation)

· Trapping oil and gas

o Domes

§ Natural rock (granite, slate) that acts as a trap

o Anticlines

§ Angular formations

o Faults

o Salt domes

§ Doubles usage after drilling as storage

o Lenses

o Reefs

· Finding these reservoirs

o Exploration wells (“wildcat” wells)

§ Sometimes

§ Risky endeavors as well as costly

o Development wells

o Offset wells

o Relief wells

· Capturing oil and gas

o Three layers (gas, oil, water)

§ Oil is pulled slowly enough to not pull out water as well

§ Once oil is pulled, then gas dome is formed

o Typical well schematic

§ Conductor pipe

§ Surface casing

ú Protects water from contamination

§ Intermediate casing

§ Production casing

o Horizontal wells

§ Become the predominant methodology

· After captured…

o Sent to refineries

o Processing plants

§ “wet gasoline”

ú butane, methane, etc.

· Ownership theories

o Ownership-in-place

o Exclusive-right-to-take

o Between the two theories, essentially has the same effect

Case studies

· Amarillo Oil v. Energy-Agri Products

o If you produce oil, can produce casinghead gas

o To be an oil well, cannot have more than 1K cubic feet of gas per gallon of oil

§ If more than 1K cubic feet of gas, then becomes classified as a gas well

o White oil = gas that is heated to condense into gas

o Oil stratum

§ Single layer

o Field = large areas of oil and gas production

o Reservoir = must be self-contained; cannot mix with other reservoirs

o Horizon = stratification that dictates what level to drill to

o Amarillo Oil

**Railroad Commission = the regulator of oil and gas production in Texas**

Merriman v. XTO as case

· Del Monte Mining v. Last Chance Mining

o Ad coelom doctrine

§ Domain of everything on, above, and below the land

§ How to delineate land:

ú Who owns?

ú What does person own?

· Ensure that the legal description correlates to the land boundaries

o If not, may violate State of Conveyances

· Kelly v. Ohio Oil Co.

o Rule of capture

§ Right to produce is defined to owning the well itself

ú Rewards and encourages production

§ Right to capture is not unlimited

ú Correlative rights (“fair” does not = “equal”)

· People’s Gas Co. v. Tyner

o Landowner’s right to capture is not unlimited

§ Subject to common law limitations (nuisance, negligence, waste, malice, etc.)


9/5/14 Self-Notes, Ownership & Capture

Ownership after extraction…

· Champlin Exploration v. Western Bridge

o ∆ = Western Bridge

ú No abandonment; recovery was confined to ∆’s own premises

· There was no intent to abandon (immediate action taken by ∆)

§ Once oil and gas extracted/seeped from earth, becomes tangible, personal property = absolute ownership

ú Traceable AND nature

· Is it native oil/gas?

· Texas American Energy v. Citizens Fidelity

o Movant = Texas American

o Respondent = Citizens

o Issue

§ Whether injected stored gas is “personal property” OR whether it reverts to an “interest in real estate”

ú Personal property = susceptible to encumbrance to a security interest agreement

· Distinction of mineral rights

ú Interest in real estate = encumbrance ONLY by real estate mortgage

· Distinction of surface rights

· If mortgage is attached to the fee, future mineral owner may seek for subordination to push mortgage behind the mineral rights

o Background

§ Hammond case law

ú If foreign gas injected back into earth (of an uncontrolled gas storage formation) then ceased to become property of gas company

· No longer personal property UNTIL extracted and possessed a second time

§ ∆ and ∏ agreed for security interest to be conveyed in Texas American’s gas in storage fields of Western

ú storage fields are secure formations