Oil and gas law in the United States
From Wikipedia, the free encyclopedia
Oil and gas law in the United States is the branch of law that pertains to the acquisition and ownership rights in oil and gas both under the soil before discovery and after its capture, and adjudication regarding those rights.
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[edit] Overview
In the United States oil and gas law is generally regulated by the individual states through statutes and common law. Some federal law and constitutional law applies, such as the doctrine of correlative rights. The law governing oil and gas ownership in the United States differ vastly from many European laws because oil and gas on land are commonly owned privately in America as opposed to being owned by the government in many European countries.
Oil and gas rights offshore are owned by either the state or Federal government and leased to oil exploration corporations. The limits of state ownership was the subject of the Tidelands controversy.
[edit] Ownership of oil and gas
Although oil and gas laws vary by state, the laws regarding ownership prior to, at, and after extraction are nearly universal. An owner of real estate also owns the minerals underneath the surface unless the minerals are severed under a previous deed or agreement.
[edit] Prior to and at extraction
Whoever owns the fee of the soil owns everything below the surface, limited by the extent of the surface rights (Del Monte Mining & Milling Co. v. Last Chance Mining & Milling Co.). A landowner may permissibly extract oil and gas from beneath the land of another, where all operations for the extraction are lawfully conducted on his property (Kelly v. Ohio Oil Co.), but may not drill at an angle to reach oil deposits under other property. This rule was made before the properties of oil fields were known and gives land owners an incentive to pump out oil as quickly as possible in order to capture the oil of their neighhors. This depletes the gas pressure available force oil out of the ground. As a result, the right to extract oil is often limited by state regulation through agencies such as the Texas Railroad Commission.
[edit] Ownership of extracted oil and gas
Refined hydrocarbons that escape into the ground are not subject to the law of capture unless it is shown by competent evidence that the refiner has abandoned them (Champlin Exploration, Inc. v. Western Bridge & Steel Col, Inc.). When previously extracted oil or gas is subsequently stored in underground reservoirs with confinement integrity, it remains personal property, rather than reverting to an interest in real estate (Texas American Energy Corporation v. Citizens Fidelity Bank & Trust Company).
[edit] Oil and gas leases
Drilling companies do not always exclusively own the land they seek to drill on. In many agreements, the companies own the mineral rights while another party owns the other rights in the real property. Mineral rights lessees have a right of reasonable access to leased land to explore, develop, and transport minerals (Hunt Oil Co. v. Kerbaugh). The drilling company in this situation owns what is known as the mineral estate. In an "unless-delay rental" lease, a lessee agrees to pay delay rentals so long as the lessee is not drilling on the property. An "unless" oil and gas lease terminates automatically if the lessee fails to drill within the specified time or pay the delay rentals as called for in the lease (Schwartemnerger v. Hunt Trust Estate). To trigger the clause in the oil and gas release to show that the lessee no longer has to make delay rental payments, the lessee must commence drilling. To commence drilling a well under the habendum clause means that substantial preparations for such drilling has to be undertaken, as long as such measures have been commenced in good faith and with due diligence (Breaux v. Apache Oil Corp.). The habendum clause sets out these terms, as well as most significantly, identifying the parties to the transaction and their interests in the conveyed real property.
Besides the habendum clause, an oil and gas lease contains a force majeure clause. This clause relieves the lessee from liability for breach of the lease if the party's performance is impeded as the result of a natural cause that could not have been anticipated or prevented. The Act of God must completely prevent performance and must be unanticipated. Courts construe this clause very strictly and rarely enforce it. For example, a tornado preventing performance in Oklahoma would not trigger the force majeure clause since tornadoes in Oklahoma can be anticipated.
[edit] Oil and gas contracts
Oil and gas contracts have nuances which differ from standard contracts. For example, when an assignment of an oil and gas lease expressly provides that any extension or renewal of the lease is subject to an overriding royalty, a new lease that is substantially similar to the first lease and that is procured by the assignee during the term of the first lease, is regarded, as a matter of law, as an extension of renewal of the first lease (Reynolds-Rexwinkle Oil, Inc. v. Petex, Inc.).
Statutory regulation can also change the nature of clauses in contracts surrounding oil and gas. For instance, a statute that voids an indemnification agreement pertaining to oil and gas well construction for loss or liability for death or bodily injury to a worker on the site, regardless of the indemnitee's negligence, but that states that it does not affect the validity of any insurance contract, affirms the right of an individual party to obtain insurance against the potential of its own negligence, not to protect the interests of the indemnitee (Amoco Production Co. v. Action Well Service, Inc.). These suits for negligence are typically brought by drilling site workers known as roustabouts.
[edit] In education and practice
Law schools that teach oil and gas law generally require that students have first satisfactorily completed a basic course in property. Sometimes a contracts course is required as well. In Texas and Wyoming, oil and gas law is covered on the bar exam.
Oil and gas law practitioners usually fall into three broad categories. First, oil and gas companies usually have in-house attorneys that inform the company of its rights and the legal issues surrounding properties in question. These attorneys are usually assisted by landmen, who examine property titles and oil and gas rights and acquire property for the company. These landmen may also be lawyers. Secondly, practitioners may represent private parties. When an oil company attempts to obtain land from a private party, a party may retain counsel in an effort to be better informed of his or her rights and to potentially receive a more favorable bargain from the oil company. Lastly, oil and gas attorneys work for federal and state governments in departments that oversee energy, environmental policy, and land acquisitions.
