Trott_OilGasLaw_Fall_2014
Introduction
· 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
