Overview of Oil & Gas in Texas: the Intersection of Technology, Law & Economics
Overview of Oil & Gas in Texas: the Intersection of Technology, Law & Economics Doug Paul, JD, MBA Board Certified, Estate Planning & Probate Law The ...
Overview of Oil & Gas in Texas: the Intersection of Technology, Law & Economics Doug Paul, JD, MBA Board Certified, Estate Planning & Probate Law The Wiewel Law Firm, PLLC
(512) 480-8828
Overview Basic
Discussion of Oil & Gas law in Texas Understanding Technological Advances Problem Areas and Concerns for Mineral Owners Planning for Clients with Mineral Interests
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Basic Principles of Oil & Gas Law Surface
vs. Mineral Estate Historical Rules for Mineral Owners Different Types of Mineral Interests Basic Discussion of Leasing
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Surface vs. Mineral “Ad
Coelum Doctrine” – Before severance a Landowner owns from the center of the earth “to the Heavens”. The Surface and Mineral Estates may be severed at any time (split into different ownership)
The Owner of Each Estate has “Absolute Ownership”
Surface
is the subservient estate
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Important Rules for Mineral Owners Rule
of Capture:
Rule of Nonliability for drainage of neighbor’s oil. Neighbor’s remedy is to drill their own well. Referred to as the “Biggest Pump Wins” rule.
Does
not apply to oil or gas that is brought to the surface.
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Rule of Capture
A B
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Rule of Correlative Rights Limitation
on Rule of Capture
Owners of common reservoir have a duty to the other owners not to injure the supply.
Right to be protected from negligent operations.
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Modern Day Application Leases Texas
to Operators reduce this issue
Railroad Commission
Regulates the spacing, drilling and density of wells Fixes production quotas
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Types of Mineral Interests Executive
Right – right to grant a lease
Receives bonus upon signing the lease. May receive delay rentals to extend lease Right to explore
Royalty
Interest – cost-free right to a share of the gross production
No right to explore or lease
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Types of Royalty Interests Landowner’s
Royalty – fractional share of production payable per lease
Non-participating
Royalty – no right to lease or participate in bonus or rentals.
Overriding
Royalty – carved out of the Lessee’s interest. Normally retained in a farmout.
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Basics of Leases
Fixed term of years and so long after as minerals are produced. Lessee gets:
Right to develop the land Right to maintain production as long as profitable
Lessor:
Wants production Gets delay rentals during term when no drilling
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Basics of Leases Primary
Term – stated number of years
Delay rentals paid if no production No obligation to conduct drilling operations
Secondary
Term – “as long thereafter as oil, gas, or other minerals are produced”
Indefinite term Produced – must be profitable after “operating” costs.
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Basics of Leases Pooling
clause – allows lessee to combine with other tracts. Production on any part of pool maintains lease.
Delay
Rentals – paid for not drilling
Shut-in
Royalty – paid in lieu of production for capable well
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Leases continued Lease
may be limited as to depth of exploration
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Understanding Technological Advances Horizontal
Drilling – drilling parallel to strata level with the oil and gas.
Developed as far back as 1920s. The technological advancement to extend the length of the drill.
Hydraulic
Fracturing (“Fracking”) – injection of water, sand, chemicals into rock (shale) to release oil or gas.
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Horizontal Drilling
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Fracking
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Current Shale Formations/Developments
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Impact of Technology
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Concerns for Mineral Owners Understanding\identifying Technology
what they own
has led to the possibility of overproduction
Declining No
Oil prices
royalties\Shut-ins
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Oil Prices
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How big is the concern? Fed:
Oil price drops bring pain to Texas, North Dakota - Reuters
Will
Texas reel under oil price drop? | The Star Telegram
Fitch:
The oil price decline will likely hit local Texas economies – Washington Post
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Concerns for Mineral Owners Be
careful signing leases
Be
careful signing leases!
Be
careful signing leases!!
Be
careful signing leases!!!
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Concerns for Mineral Owners Delay
Rentals
Shut-In Effect
Royalties
of Pooling on Secondary Term
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Planning for Mineral Owners Severance Use
of Surface\Mineral Estates
of Entities – LLCs, LPs, Trusts
Planning
with low Oil Prices
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Planning for Mineral Owners LLC for surface
LP for Minerals
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Planning for Mineral Owners Control
of future distribution
Management Creditor Ease
of family mineral interests
Protection for mineral interests
of gifting
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Low Oil Prices Opportunities Transfer
mineral interests now when oil prices are low.
Use
of traditional planning structures with mineral interests:
