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Oil and Gas Law Final

Terms in this set (103)

How many sections in a township
36
How many acres in a section
640
The corrected section sections in each township
1,2,3,4,5,6,7,18,19,30,31
Why are there correction sections (3 reasons)
1) Lots of land descriptions
2) Meandering streams and rivers
3) When a section is next to gov land or reservation
The SW/4 of the SW/4 and SE/4 of section 8 describes how many tracts of land
2
The SE/4 of the NW/4 of the NE/4 of section 10 describes how many tracts of land
1
The East half, southwester quarter and the south half of the northwest quarter of section 8 describes how many tracts of land?
3
Know how to name survey land
smallest to largest EX: SW/4 of SW/4 of Sec 32, T10N, R4E
States have statues that govern the redecoration of conveyances and other transfers, name the three most common
Race Notice Statue, notice statue, race statue
Race-Notice Statute
the first to record the deed without knowledge of prior knowledge of prior sale is the owner
Notice Statute
person with the most recent and valid deed of purchase and did not have any prior notice of sale is the rightful owner
Race Statute
statute under which the first party to record the deed holds the ownership
Three types of notice
Actual
Constructive
Inquiry
Six Requirements for a valid instrument of conveyance
1) Writing
2) Words of grant
3) Proper Extinction (signature)
4) Grantor and Grantee
5) An adequate description of the property
6) Delivery and acceptance of the instrument
Two instruments of conveyance commonly used to sever the mineral estate from the surface estate
Mineral deed and Warranty Deed
(T/F) The mineral estate is considered to be the dominant estate, while the surface estate is considered to be the subservient estate
True
(T/F) When examining the Chain of Title; if a "Burden" on the property is encountered it is not a big problem; however, and "Defect" is a big issue
True
Horizontal severance of minerals; three ways to create a lesser interest in the mineral estate are
1) horizon/surfaces
2) footage/depth
3) strati graphic equivalences
(T/F) The majority position is that when a cotenancy is created in the mineral estate in a section, the separate owners have the same rights to the mineral estate
True
(T/F) Under the Rule of Capture, as long as a mineral owner stays within their vertical boundaries the are entitled to extract all oil and gas from beneath their land, however they are not entitled to any oil and gas that migrates from the property of another
False, you are entitled to the other owner's minerals
Five common conservation laws
1) Well spacing
2) Well location
3) Well density
4) well allowables
5) Unionization for enhanced recovery (flood unity
__________ Interest is an incident of mineral ownership. This is the lessor's interest and is free of all but very few costs
Royalty Interest
_________ Interest is carved from the working interest . This interest is free of drilling and completion costs, but normally pays its share of post- production costs
Overriding Royalty interest
_________ Interest is the operating interest. This is the lessee's interest and it is a cost bearing interest
Working or leasehold interest
(T/F) Regarding subsurface trespass; when the trespass is discovered a, "Good faith" trespasser will usually be allowed to recover all reasonable drilling costs, completion costs and the cost of equipment
True
(T/F) In an oil and gas lease transaction the Mineral owner (lessor) transfers the rights to explore, develop and produce oil and gas to the operator (lessee). However it is worth noting that by signing the oil and gas lease, the mineral owner has not sold their minerals
True
(T/F) The oil and gas lease known as a "Producer 88" is the standard oil and gas lease and is the only one used by the oil and gas industry
False. there is no standard
(T/F) The primary term in current leases is for a fixed term that is commonly for 2 or 3 years. A lease for a fixed term of 10 years is generally seen as being too speculative to be acceptable
True
Three questions to be asked when defining the grant from the lessor to the lessee in and Oil and Gas Lease
1) What rights and uses are covered by the grant
2) What substances are covered by the grant
3) What lands are described by the grant
Mother Hubbard Clause
"Notwithstanding any particular description, it is nevertheless the intention of lessor to include within this lease, and he does hereby lease, not only the land so described but also any and all other land owned or claimed by lessor in land adjacent or contiguous to the lands specifically described."
After-Acquired Title Clause
"This lease covers not only such interest in the leased premises as the lessor presently owns therein but also such additional interest as he may acquire in the future by operation of the law or otherwise, and there shall be no increase in rental in order to maintain this lease in force without drilling during its primary term in the event of the acquisition by said party of such additional interest
(T/F) The granting clause is the clause in an oil and gas lease that states how many years the lessor is granting the lessee to explore for oil and gas on the mineral estate owned by the lessor
False
Three rules that describe what produced or production mean under the provisions of the secondary term of the Habendum Clause
Actual production, discovery rule, oil production or gas discovery rule
Actual production Rule
The production and marketing of oil and gas in paying quantities is required to maintain the lease in the second term
Discovery rule
the discovery in paying quantities of oil or gas is required to maintain the lease in the second term
Oil Production or Gas Discovery Rule
The production and marketing of oil or the discovery of gas in paying quantity is required to maintain the lease in the second term
Explanation of the two part test to determine whether a well is producing in paying quantities. The first test is the _____________ test and the second is the _______________ test
Objective
Subjective
Three common clauses in and Oil and Gas Lease
1) Continuous operation
2) Dry-hole
3) Continuous drilling
Continuous operation
"if lessee shall commence operations for drilling... at any time while this lease is in force, this lease shall remain in force and its term shall continue so long as such operations are prosecuted whether on the same or different wells with no cessation in said operations of more than 90 days and if production results therefrom, then as long as production continues"
Dry-Hole
"Should the first well drilled... be a dry hole, then and in that event, if a second well is not commenced.... withing months from the expiration for the last renal period for which rental has been paid, this lease shall terminate unless lessee on or before the expiration of 12 months shall resume the payment of rentals in the same manner as herein above provided."
Continuous Drilling
"If lessee shall commence to drill a well or commence reworking operations on an existing well within the primary term of this lease or any extension thereof, or on acreage pooling therewith, the lessee shall have the right to drill such well to completion or complete reworking operations with reasonable diligence and dispatch, and if oil or gas, or either of them be found in paying quantities the lease shall continue and be in force with like effect as if such well had been completed within the term of years first mentioned."
Two types of drilling - delay rentals clause
1) or
2) unless
(T/F) Regardless of whether there is a pooling clause, voluntary pooling agreement, or a state statue allowing the right to pool, the lessee always has the right to pool
False
Forced Pooling
An order issued by an administrative agency such as the OCC that sets forth the pooled lands and common source of supply and the terms and conditions under which the pooled owners can elect to participate or not participate in the drilling of the proposed well
(T/F) To comply with the requirement to commence drilling operations under the provisions in a lease, the Lessee must do more than just stake the well and move a small amount of dirt on the location
True
Before a Pooling Order can issue there are four prerequisites
1) Attempted agreement
2) Spacing order
3) notice
4) Forced Pooling hearing
(T/F) IF a lease has a Cessation of Production Clause, the "Doctrine of Temporary Cessation" does not need to be considered
False
Cessation of Production Clause
If production from the above described land or acreage pooled therewith, ceases from any cause after the expiration of the primary term, this lease hall not terminate provided lessee succeeds in (1) bringing back such production within 90 days from such cessation or (2) within such 90 day period commences drilling thereof with due diligence to completion and if such production is resorted through any such operations, the lease shall be continued"
Vertical Pugh Clause
"Notwithstanding any wording herein contained to the contrary, is is understood and agreed if any portion of the leased premises is pooled with other lands or included in a governmental unit or unit formed under this lease, production will maintain only the lands so pooled or included in a unit, and this lease shall automatically terminate as to the remainder of the lease premises not pooled or included in the unit."
Shut-in gas well royalty clause
"During any period (whether before or after expiration of the primary term) when gas is not being sold, used or taken in kind, and the well (or wells) capable of producing gas in paying quantities is such in and there is no current production of oil on the leased premises sufficient to keep this in force, Lessee may pay or tender to Lessor a royalty of Two Dollars per year per net mineral acre retained hereunder, such payment or tender to be made, on or before the anniversary date of this lease next ensuing after the expiration of the 90 days from the date such well is shut in and thereafter on the anniversary date of this lease during the period such well is shut in. When such payment or tender is made it will be considered that gas is being produced within the meaning of this lease."
(T/F) A "pugh" clause is partial terminated clause commonly associated with spacing
False
(T/F) A Shut-in Gas Well Royalty Clause found in an oil and gas lease is designed to modify the Habendum Clause. In Oklahoma the Lessee can take advantage of this clause regardless of whether the well is capable of producing in paying payments
False
Under the Royalty Clause the Lessor / royalty Interest (RI) pays almost no post production costs, but the majority position is that an overriding royalty interest (ORRI) does pay its share of post-production costs. Why would an ORRI have to pay post-production costs. Also, name some of the post-production costs to be paid by the lessor / RI
Because it is taken out of the working interest

Post production costs included: marketing, taxes and transpiration
Identify the three forms of Gas Royalty Clause
1) Gross Proceeds
2) Market Price
3) Market Value
(T/F) The covenant to reasonably develop the leased premises is implied in an oil and gas lease
True
(T/F) A "top Lease" is an oil and gas lease granted on property that is not already subject to an oil and gas lease
False. It is granted on a lease prior to termination of an existing lease
IADC drilling contains three types of drilling contract
1) turn-key contract
2) day work contract
3) Footage contract
Three common support agreements
1) dry-hole agreement
2) bottom-hole agreement
3) acreage contribution agreement
Five General Requirements for a Contract
1) offer and acceptance of the terms and condstions
2) legal subject matter
3) support by consideration
4) 2 or more parties that have capacity to contract
5) Written words for if the contract is not completed in one year or involves the transfer of real properties
(T/F) When discussing contract law it is generally accepted that the distinction between conditions and covenants lies in the appropriate remedy for their breach. Breach of a condition results in automatic termination of the leasehold estate upon the happening of stipulated events. Breach of a covenant does not automatically terminate the estate, but instead subjects the breaching party to liability for monetary damages or in extraordinary circumstances, the remedy of a conditional decree of cancellation
True
(T/F) A farmout agreement is not subject to the underlying oil and gas lease
Flase
(T/F) a farmout agreement is used where the lessee (the farmor) is unable or unwilling to drill on the lease
True
(T/F) When discussing farmout agreements it is important to note that the primary characteristic is the obligation of the Farmee to drill one or more well on the assigned acreage as a prerequisite to the completion of the transfer
True
Drill to earn
The farmout acreage is earned and the leasehold interest assigned when the test well is drilled to the target depth and test the target formation
Produce to Earn
"Farmout acreage is earned and the leasehold interest assigned when the Test Well is drilled, completed, and produces in paying quantities."
What is a Joint Operating Agreement (JOA)? Define and discuss briefly
The JOA is a contract between the working interest of the leasehold owner for joint development of or the contract area. It appoints the operator and provides conditions and directions for drilling, completions and producing oil and gas in the contract area
The AAPL Model Form Operating Agreement originated in 1956, but has been updated more than once since then. Why has there been more than one version of this document
It is due to changes in the industry, technology, business and finance schemes
(T/F) During the 3/10/20 class period a copy of the 2015 version of the AAPL Model Form
Operating Agreement was handed out. This version of the JOA is the only Operating Agreement recognized by the oil and gas industry
False. There is more than one
Prior to entering into a JOA, the parties must agree on certain items to be designated in the Operating Agreement. Four of these items are listed in the text
1) Percent interest of operators and non-operators on the contract area
2) contract area
3) operators
4) Target formation or depth of the initial well
"Extension or Extend"
Drilling of the lateral in a horizontal well in the same zone to a greater displacement
"Contract Area"
Area of interest of the JOA, the area is established
"Consenting Party"
A party that agrees to the terms and conditions of the JOA contract. The party agrees to some share of the cost and production laid out within the JOA
"Non-Consenting Party"
A party that elects not to participate in the operations
(T/F) According to Article III: Interests of Parties of the 2015 version of the Model Form
Operating Agreement if a party to the Operating Agreement contibutes a lease or interest that is burdened by an overriding royalty or other burden payable out of production attributable to its working interest, that burden shall be deemed a "Subsequently Created Interest
True
(T/F) Among other things, Article IV: Titles of the 2015 version of the Model Form Operating
Agreement covers loss or failure of title, and the title examination. While title examination is
very important, it is still appropriate for a well to be drilled prior to the title being examined
False
(T/F) According to Article IV: Titles of the 2015 version of the Model Form Operating Agreement only the Operator is responsible for providing curative.
False
The term ________________________________ is defined in Article XI of the 2015 AAPL Model Form Operating Agreement (JOA) as an act of God, strike, lockout, or other industrial
disturbance, act of the public enemy, war, blockade, public riot, lightening, fire, storm, flood or other act of nature, explosion, governmental action, governmental delay, restraint or inaction, or unavailability of equipment.
Force Majeure
Article VII Part B of the 2015 version of the AAPL Model Form Operating Agreement covers Liens and Security Interests. Each party grants to the other a lien. Where is the lien
agreement most commonly filed of record?
Country Clerks Office
(T/F) Under the 2015 version of the AAPL Model Form Operating Agreement non-operators do not have access to the contract area, but do have access to the well records.
False
Article V Part B of the 2015 AAPL Model Form Operating Agreement discusses the
Resignation of Operator. Under this part of the JOA the Operator is deemed to have resigned without any action by the Non-operators if one of four criterion is met. Name the four criterion mentioned in the JOA.
1) Becomes insolvent, bankrupt
2) Termination of legal existance
3) No longer capable of serving as an operator
4) No longer owns interest in the contractor area
Article V Part B of the 2015 AAPL Model Form Operating Agreement discusses the Removal
of the Operator. Under this part of the JOA the Operator can be removed for good cause if
one (or more) of four transgressions is committed by the Operator. Name all four of the transgressions mentioned in the lecture
1) willful misconduct
2) gross negligence
3) materials breach
4) materials failure
(T/F) Article VI Part A of the 2015 AAPL Model Form Operating Agreement addresses the drilling
and development of the initial well. Under Article VI Part A of the JOA a party to the JOA
can go non-consent and elect not to participate in the drilling of the initial well
False
(T/F) Under Article V of the 2015 version of the AAPL Model Form Operating Agreement, the
Operator shares control of all operations in the Contract Area with the Non-Operators as
delineated in the JOA.
False
Under Article VI Part B of the 2015 version of the Model Form Operating Agreement,
Subsequent Operations, how long is the election period given to a party deciding whether to participate in subsequent operations on a well?
After 30 days of proper notice; 48 hours for a certain situation such as a region site
(T/F) The Gas Balancing Agreement (like the AAPL Form 610E Gas Balancing Agreement) is never part of the Operating Agreement (JOA), but rather is always a separate agreement
between the parties to the Operating Agreement (JOA).
False
In a Gas Balancing Agreement a "Non-selling [Non-marketing] Owner" is defined as a
Working Interest owner which is not taking [or selling] gas. The text mentions three (3)
reasons why a Non-selling / Non-marketing Owner might not be taking its share of gas.
Name those three reasons.
1) no purchase contract
2) owner elects not to sell
3) owner is subject to a gas purchase contract, but the purchaser can't take gas due to technical difficulties
There are three alternative Common Law methods for Gas Balancing without a Gas
Balancing Agreement. Name these three alternative methods
1) Balancing in kind
2) periodic/ interim cash balancing
3) cash balancing upon depletion
The text mentions three ways to calculate the price used for a cash payment in two of the
alternative Common Law methods of Gas Balancing without a Gas Balancing Agreement.
Name the three ways to calculate the price used for cash payments.
1) Fair Market Value
2) Weighted average price
3) Actual price revised by over-produced owner
Balancing Area
The acreage and depth under the operating agreement
Make-up Gas
any gas that is taken by an under producing party in excess or its current gas production interest
MMBTU
Million British Thermal Units
Underproduction
party that does not take its allocated amount of production
Name the two purposes of the Resource Conservation and Recovery Act (RCRA) as stated in the text.
1) creates a management plan that allows for disposal and containment of solid and hazardous waist
2) Prevent the release of hazardous and solid waist
(T/F) RCRA Subtitle C addresses the handling and disposal of Hazardous Waste, while RCRA
Subtitle D addresses Solid Non-Hazardous Waste
True
Hazardous waste
. . . a solid waste . . ., which because of its quantity, concentration, or physical,
chemical or infectious characteristics may - (A) cause or significantly contirbute to
an increase in mortality, or in an increase in serious irreversible, or incapacitating
reversible, illness, OR (B) pose a substantial present or potential hazard to human
health or the environment when improperly treated, stored, transported, or
disposed of or otherwise managed.
(T/F) The Clean Water Act (CWA) gives the Federal government enforcement powers to protect the "Waters of the US", which includes both ground water and surface water.
False
The purpose of the Safe Drinking Water Act (SWDA) is to protect what type of water?
ground water
The SWDA created the Class II Underground Injection Control (UIC) Program? What
does the Class II UIC Program regulate.
Injector and disposal wells
The Permit Program of the Clean Air Act (CAA) issues permits that allow for what
certain low level emissions
(T/F) The Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA) requires the clean-up or remediation of sites where there has been a release of hazardous substances
True
(T/F) The Oil and Gas Industry benefits from the Exploration and Production Exemption found in RCRA and also benefits from the Petroleum Exclusion found in CERCLA.
True
Regarding their use in federal law and in environmental law, what is the difference between the terms "exclusion" and "exemption"?
Exclusion- an object or material is not included in a low that it is excluded
Exemption- An object is part of a law, but certain industries are exempt
Two parts of environmental due diligence
Environmental Audit
Environmental Property assesment
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