Oil and Gas Outline
I. Introduction
a. Petroleum: U.S. Energy needs and Energy Future
i. The history of shortages and responses in oil and gas will continue throughout the future. The percentage of imported oil is increasing and demand is going up.
ii. There’s also going to be increasing demand from developing parts of the world.
iii. The oil is in the Middle East – not politically stable. To decrease reliance on ME oil:
1. domestic production increased by opening new areas to oil and gas production
2. increase reliance on other energy sources – coal, nuclear
3. get more oil from Canada and Mexico
iv. Oil comes out as a liquid and can be stored whereas gas comes out as a gas and has to be immediately put into pipelines; can’t be stored.
v. Gas is a regional commodity; it can’t be shipped globally, while oil can. So there’s a global price for oil. A gas producer wants an assured market, which has resulted in contracts and monopolies.
vi. Natural gas is used for electricity, heating, and cooking and is not as much of a problem for the future.
b. Source of Petroleum: Basic Petroleum Geology
i. According to the organic theory, gas is created when plant and animal life died and organic debris settles like silt to the bottom, covered by harder rock, it is transformed into oil or gas from pressure and then migrates into a reservoir.
ii. A second, discounted theory is that oil and natural gas are inorganic in origin – methane is transformed into more complex hydrocarbons, sped up by bacteria.
iii. To be produced, the oil and gas must be in porous and permeable rock – spaces between the strata where oil can accumulate and spaces are connected so oil can flow. The strata is something like limestone or sandstone.
iv. You also need a structural feature to keep the oil from migrating upward and a layer of water or structure below to prevent the oil from being pushed downward.
v. Two types of traps:
1. Stratographic – some sort of permeable and porous rock overlain by an impervious rock
2. Structural traps – more common – reservoirs formed by the bending or breaking of strata – the anticline – like an inverted champagne glass
vi. There are also fault traps – areas shift up with the result that layers of limestone are shifted up against impervious rock – traditionally less desirable because oil is located in different places – not one big pool.
vii. Two other types of traps in TX:
1. Salt dome – layer of salt begins sinking below other layers of salt, pressure force it to burst through the middle and come up – bends top strata and breaks side.
2. Austin Chalk: small pockets of oil in almost entirely impermeable matter. It’s very hard to find.
viii. How do you get the oil out?
1. Natural gas – could be a gas cap (domed reservoir) or solution gas, where the oil has absorbed the gas.
2. There’s also oil in the reservoir.
3. Finally there’s water; connate water – adheres to sand that makes up strata, and underlying layer of water below the oil.
4. Primary stage of production, you utilize as much as possible the natural internal pressure of the reservoir; create a low pressure area within the reservoir by connecting it to surface, oil flows to that area. But you don’t want to release pressure too quickly, resulting in oil coming spurting up, and making oil more viscous and harder to produce, and you don’t want to drill into the gas cap – you’d be using your energy source for production. Also, if you’re not producing the gas, you’d just have to burn it off. People still do it sometimes because they don’t know any better or because they only own land over the gas cap.
5. Ideally there is unitization to prevent waste, but it’s hard to get everyone to agree.
6. A second source of energy is water, which is also under pressure. You ideally drill up structure away from the water into the oil; but it’s not as bad to remove water as it is to remove gas. Still problems: (1) Causes coning off – water starts flowing up towards well and cones off pockets of oil that become unrecoverable.
7. In secondary recovery, there’s no longer enough internal pressure to produce – try to artificially restore reservoir pressure. For this to be economically prac
orrelative rights are an amorphous doctrine; people who overly the reservoir have a common interest in the reservoir, so they have an obligation to protect it; they can’t take an action that is detrimental to the entire reservoir and of no benefit to the actor. So you can’t use an obsolete method of production that wastes oil when there are other widely used methods that are more efficient.
1. So you can’t be negligent. Leading negligence case in TX is Ealith – defendant was using too thin of drilling mud, had a huge blow-out, reservoir burned for 10 years and cratered. Defendant was negligent for oil that that had been drained from neighbor’s land.
II. Regulation of Drilling & Production
a. Regulation and the Rule of Capture
i. First types of regulating were for spacing and amount of production.
ii. Wronski v. Sun Oil
1. If you violate a regulatory policy, in many cases you would have to do more than pay a fine; you are liable to a neighbor whose oil you may have drained in overproducing,etc.
2. This is necessary because pleading the defense of rule of capture would mean that the neighbor would have to violate the regulation as well to avoid drainage.
iii. Regulation is done for 2 stated reasons:
1. to prevent waste, protecting natural resources and conserving oil and gas
2. protect correlative rights – correlative rights are defined as affording each landowner a fair and reasonable opportunity to produce the recoverable reserves beneath his land. This is different from the common law definition, which dealt with waste.
a. correlative rights take into account reservoir mechanics – that you might not be able to recover oil underneath your land – hard to determine fair share.
iv. Some statutes have a 3rd goal: environmental protections
