Select Page

Oil and Gas
West Virginia University School of Law
Lane, J. Thomas

CHAPTER ONE: GEOLOGY AND INTRODUCTION
            Coal
                        Older than oil and gas
                                    No oil and gas till 1860s
                        Here, it goes back centuries
                                    Typical operation is a huge investment                                                                                   Different varieties of mine
                                    “Pittsburgh Coal Seem”
                                                long wall mining is the most efficient, but very expensive
                                                slope mining: comes into side of hill
                                                strip mining (surface mining)
                                    coal has to go to a prep plant to separate impurities from coal
                                                most coal operations are capital and labor intensive
                                                            demand for power has gone up 30% over the last 10 years
                                    “room and pillar” mining
                                                don’t take 100% of coal
                                                            you leave enough to make pillars to keep the roof up
                                                at some point, it will come down
                                                            but it will come down in a predictable manner
                        Oil and Gas Operations
                                    Its either liquid or gaseous, and found in open rock formations
                                                Sandstone, lime, shale, et c.
                                                            Usually deeper than coal
                                    Wells are usually drilled at 4000 feet
                                                Costs about $250,000
                                                            Can last 50 to 60 years
                                                If you invest, you want to get money back in about 4 years
                                    Surface casing
                                                12 inch pipe for safety reasons
                                                            goes through water bearing formations
                                                                        and if you don’t seal the well, it can get in the coal
seems
                                                                                    statutes require companies to set surface
casing
            then it was to be cemented in
                                                frac- ing
                                                            helps facilitate long term production
                                                gathering line to transmission line
                                                            sale prices is measured at transmission line
 
CHAPTER TWO: OWNERSHIP
            Concepts of Private Ownership
Most everything goes back to a basic principle:
                                    COG has the same ownership rights as property
                                                But certain limitations do apply
1.      no owner of land can use their property in way to injure another’s use of their property
2.      ownership is subject to eminent domain
3.      ownership is subject to regulation
a.       like environmental regulations
4.      protections afforded owners
a.       protections against damages
b.      injunctive relief
 
            Ownership Theories
                        Surface and Hard Minerals
Where severed mineral title exists, the question presented in most cases is
whether there exists sufficient rights to conduct such mining since this method takes complete enjoyment of the surface during the mining operations and even with reclamation thee will be significant alteration of the affected land
            Mineral
                        Includes just about anything that can be taken out for profit
 
Waugh v. Thompson Land and Coal
                        One party granted land EXCEPT all veins of coal and minerals
                                    Other party granted all mineral, iron, coal, etc.
                        Question is who owns the oil and gas
                                    The deeds were executed in 1859, the year the first oil well was
drilled
                                                Court held (in 1927) oil and gas as something as couldn’t
have been contemplated at the time of the deeds
                        Court held the word “minerals” as including sand and rock under the land
                                    This is when its used at its broadest sense
                                                Couldn’t have possibly been thinking about OG in 1859
                                    When there’s ambiguity, court will look at the context involved
                        PA
                                    Still followed the Bundy Rule
                                                Minerals does NOT include oil and gas
                                                            And it can depend on who drew up the agreement
                                                                        Lawyers should know better
                        Rock House Fork Land Co.
                                    Deed granted all coal (including mining rights) and other minerals
EXCEPT OG
                                                Issue is who owns the CLAY
                                    NEED TO LOOK AT WHOLE INSTRUMENT
                                                To interpret what’s going on
                                                            Parties will often specify what rights go with stuff
                                                                        And that will serve to clarify what they meant
 
                        Oil and Gas
                                    Absolute Theory of Ownership (WV)
its real estate, and can be distributed like all other real estate
                                    Qualified Theory of Ownership
have to be in the property
                                    Non- ownership Theory
cannot own minerals that are capable of escaping till you produce them for possession
right to develop them
 
            Significance of Different Ownership Theories
                        Corporeal v. Incorporeal Distinction
                        Real Property or Personal Property
 
            Rule of Capture
Any landowner can drill on his own property
And has no liability to adjoining property for pulling oil and gas from it
                                    So long as you operate on your own property
                        Your remedy to keep this from happening is to drill your own well
 
                        Barnard v. Monongahela Natural Gas Co.
There is NO LIABILITY to an adjoining land owner where a well is drilled and the gas was drained (where gas migrated across the property line)
                                                Assertion was that fraud existed because lessee was controlling P
he didn’t own
                                                            But court said no
                                                                        Because they had tried to drill on the other tract
                                    This law has been adopted in nearly every state
                                                Gain v. South Penn Oil (WV)
                                                            Adjoining owner has NO liability
People can drill as much as they want, even if it over the boundary
Off- setting wells occur, and there is NO liability if drainage occurs
 
                        Ellif v. Texon Drilling Co.
Producing well drilled
                                                Neighboring owner came onto their property and drilled an off-
setting well
                                                            Drilled to take advantage of their wells
                                                                        But it blew out in the course of drilling
                                                                                    Ended up making P well quit producing
                                                Rule of capture exists
                                                            But immunity can’t extend to NEGLIGENT WASTE OR
DESTRUCTION of the oil and gas
                                                                        Can’t injure your neighbor when you drill
                                                                                    This is just one way to limit rule of capture
                                                Conservation statutes
                                                            Require spacing and unitization
                                                                        State regulates how many, and where wells can be
located
                                                                                    but state will divide money up by drainage
area acres
 
            Estates in Land and the Concept of Severance
            Methods of Severance
            The Mineral Deed
            The Mineral Lease
            Distinction: Deed, Lease, or License
 
CHAPTER THREE: OWNERSHIP DETERMINATION AND SEVERANCE PROBLEM
            Surface cases
                        Williams v. South Penn Oil
Grantor grants surface of land to grantee
                                                Grantor reserves coal mining rights
                                                            Now the oil and gas is valuable, and we don’t know who
owns it
                                    “surface”
                                                has a definite certain meaning                                   
                                                            portion of the land which may be used for agricultural
purposes
                                                                        it is severed from strata beneath it
 
                        Dolan v. Dolan
Who owns the oil and gas?
                                                Coal was devised individually
                                                            But not OG
                                                Surface is equal to tract
                                                            Which means all the land except for the coal
                                    SURFACE WILL NOT MEAN THE SAME THING EVERY TIME!
                                                Must be interpreted in the context of how it is used
 
                    

around the country is that courts sought to interpret the INTENT of the parties
                                    Dissent suggested:
If not EXPRESSLY mentioned, it should remain with the landowner
 
            Container Spaces
Cavities underground
                                    Who has the right to use those spaces, and who owns them?
 
                        Robinson v. Wheeling Steel and Iron
Land was subdivided
                                                They had the “Cement Rock” formation
                                                            Ownership was split up
Basic principal
                                    who ever owns the land owns the vacant space created when they
removed the land
                                                            So they have the right to use it
Only limitation is that they don’t injure their neighbor
 
                        Fisher v. WV Coal and Transp.
3 questions:
1. does D have the right to use the surface of the 1 acre tract for ingress/ egress of coal mining?
2. does D have right to use subterranean passageways underlying 16 acre tract for coal mining?
                                                3. are the Ps estopped from maintaining this suit?
                                    Land Owner:
                                                We own everything left from the vacant space left from mining
And they wouldn’t have the right to use our land to aid in the development of other lands
Coal does NOT have the right to use land for other mining purposes (GENERAL RULE)
                                    Coal Owner
                                                Will at least have rights to the cavity for MINING COAL
                                                            COURT MADE LAW
                                                                        Rule if peculiar to mining operations
                                                            Can use the cavity for the adjoining tract as well
1.      coal can’t be exhausted
2.      have to be mining diligently
and on the 16 acres, there was NO mining
                                                Dissent questions whether these qualifications are legitimate
Just because mining stops, does that mean you should lose your ability to go back in the mine?
International Salt Co.
                                    Involved largest salt mine in the world
                                                Co. has the absolute right to use the cavity to get back to salt
                                                            Land owner has no right to use the cavity
                                                                        Mineral owner has the right to get to the mineral
 
                        Tate v. United Fuel Gas
Can space underground be used for gas storage purposes?
                                                Can you re- inject gas back into it for gas storage purposes?
                                    Exception:
                                                Does NOT include sand, stone, clay, or surface minerals
                                                            Clearly excepted and reserved OG and right to produce it
                                                                        But did not include SANDSTONE where it existed
                                    D wanted to turn limestone formation into storage facility
                                                Can they do it?
                                                            Language CLEARLY did not include sandstone
                                                                        And limited to production rights
                                                They have NO RIGHT for other purposes
                                                            Like storage rights
 
            Misdescription of Interest Conveyed
Royalty
                        Rent
                        Bonus
                        Executive
                        Development
 
                        Toothman v. Courtney
Problem was that the owner failed to pay taxes and was sold
Question was whether sale was valid, and whether OGM was real estate
                                                            P leased property in 1889