Rule of Capture

-Rule of Capture Exceptions: 

1) Negligently drained oil – i.e. a blowout.              

2) Illegally drained oil or gas (taking too much from a field             in violation of a commission order);

3) Stored Gas – i.e., gas placed back into an empty well for storage purposes.

-Accommodation Doctrine:  

Requires the mineral estate to accommodate the surface owner if: 

1) The S-owner has a pre-existing use;

2) The M-estate or lessee has a reasonable alternative method of developing O&G;

3) the reasonable alternative is available on the leased tract (EX:  M-estate cannot be forced to bring in water from another source).

Deeds vs. Leases

-A deed conveys a fee simple.  An O&G lease conveys a deed             to a fee simple determinable – i.e., so long as O&G are             produced on the premises (or delay rentals are paid).

- lessor retains a possibility of reverter.

-NOTE if the property conveyed is the homestead of a H &             W then it takes both of them to convey a proper mineral             lease.

Nature of NPRI – Nonparticipating Royalty Interest

-This is just the right to receive a royalty.  No rights to:               minerals, to lease, to bonus, to delay rentals – just the right to receive a royalty.

-EX:  O owns Blackacre.  H conveys B-acre to X, reserving             “1/2 of all oil and gas royalties.”  O holds an NPRI; X owns             fees simple in B-acre burdened by an NPRI.

-EX:  X leases land to Bigg Oil in exchange for a 1/8 royalty             and 1/16 of all the oil and gas produced until X has received             $48,000.  O gets ½*1/8 = 1/16.  He gets nothing of the             second grant b/c it is a production pmt (evidenced by a sum             certain).

-Nonparticipating Mineral Interest Owner:  

NPMI is when O grants X ½ mineral interest but O reserves the executive right to lease the mineral interest.

-EX’s:  O grants to X ½ of all royalties on B-acre (then X get             ½* the royalty); O grants to X a 1/16 royalty on B-acre (then             X get 1/16 of O royalty, so if O’s royalty is 1/16 X takes the             whole thing);  Generally, “of” means multiply, “out of”             means subtract.

Trespass – Four Kinds

-Ordinary trespass:  

the FSD has expired an lessee stays on property anyway.  (Remedy is injunction and damages)

Tresspass: 4 kinds-

Slant Well Drilling:  

Geophysical or Seismic Trespass:  

testing w/o M-estate’s  permission.  (Remedy = Damages in the amount it costs for  permission to do seismic testing).

-Damage to Speculative Lease Value:  

Wrongful lessee             enters and drills a dry hold.  Damages are loss bonus lessor             could have received prior to world finding out there is no             oil.

Authorized Secondary Recovery is not a trespass:  

 If A gets             permission (from TRCC) to re-inject water into a well to re-            pressure it and get secondary recovery, it the water drowns             out his neighbors well then it is not a trespass.

Trespass Damages

EX:  Surface and mineral rights have been severed.              Squatter gets on land and acquires surface via adverse             possession.  He then leases minerals to Bigg Oil.  They             produce $700k of oil which cost $100,000 to drill and             expenses of $10,000/year.  Rightful M-estate owner show             up.  His damages depend upon GF or BF:  If Bigg is in BF             then no costs deducted and M gets $700k.  If Bigg is in GF             then M gets $700k less $100k less $10k.

Slander of Title:  

Say, Bigg goes on to M’s property and             says it has a valid lease on the land when it does not.  Now,             no one will lease from M b/c they don’t want to screw             around w/ Bigg.  M can file a slander of title case and must             prove:  1) Publication of false claim; 2) Malice; 3) M lost             specific sale or lease b/c of Bigg.

Adverse Possession

-If surface and mineral are unsevered and AP moves in (and             meets the statutory requirements) then AP gets both surface             and minerals.

-If surface and minerals are severed and AP move in (and             meets statutory requirements) then AP only gets the surface.              To get the minerals he would have to drill for the stat. time.

-If AP enters property while surface and mineral are together,             then later rightful owner conveys M-estate to A – it does not             matter to AP.  He can still get both (unless someone kicks             him off prior to statutory period running).

-Key is to look for whether surface and minerals have been             severed b/4 AP begins occupying land.

-If a lessee, who has FSD, occupies land after the fee has             terminated, then he could acquire by AP if he stays on for             the statutory period.

Co-tenancy  

-Every cotenant can drill and produce or lease his undivided             share w/o the consent of the other cotenants; but must             account to the others for their rightful share of the profits             from production.

-This is same as MBE rule of no accting unless LOAD.

-EX:  A owns ¾ of B-acre; B owns ¼ of B-acre.  A leases B-acre to Bigg Oil in exchange for 1/8 royalty.  Bigg drills dry hole ($600k), then drills a good well (cost of $500k) that produces $400k this year and operating cost of $50k. 

            +A gets 1/8 * $400k.

            +B gets ¼ * (400k – 500K – 50k) = less than 0.  B/c he only gets profits, not the royalty.  If B does not want to wait for well to become profitable, he can ratify and get ¼*1/8 royalty.

            +Dry hole costs not charged to cotenant.

            +If B owned ¾ and A owned ¼ and B did not want to lease then Bigg would probably not lease b/c ¾ of profits would go to B.  Answer is to partition the land.

Life Tenants – Life Estate

Dividing Bonus, Delay Rentals, Royalty

            +Common Law:  L/E gets all delay rentals; not Bonus or                         Royalty (L/E does get interest on these).

            +Open Mine Doctrine:  L/E gets all benefits under the existing lease.  Applies to lease in place when L/E was                         created.  L/E cannot create a new lease.

            +Trust Act:  Obviously just like trust law.  Income (Delay Rentals) go to L/E;  New Trust Act (1/1/04):  85% bonus,  royalty to L/E; 15% bonus, royalty to Remainder.  Old  Trust Act: 72.5% of bonus and royalty to L/E; 27.5% of                         bonus and income to Remainder.

Mother Hubbard Clause

-EX:  “This lese also covers and includes all land owned by             Lessor adjacent to the land described above.”

-This does not mean all land adjacent to the land described in             the lease.  Just small strips of land than may not have been             included b/c of mistake in surveying, improperly placed             fence, etc…

Habendum Clause – Production in Paying Quantities (PPQ)

-EX:  Lease reads:  This lease shall remain in force for 3 years from this date and as long thereafter as oil and gas is             produced from said land.

-Say, lease start date is 1/1/05.  On 1/1/08 there must be PPQ or FSD terminates.  Production means production and             discovery won’t save the lease; neither will delay rental.              What saves the lease is shut-in royalty (say pipeline             isn’t complete or market demand has tanked) then if well is             capable of PPQ shut-in royalty will save it.

-PPQ:  Sales – Royalty – Operating Costs – Taxes = Positive             Number; then you’ve got PPQ.  Do not include a drilling             costs.

Marginal Well Doctrine:  

Even if a well is not operating at             PPQ (i.e., there are some months when it is profitable and             some when it isn’t), it can be saved if a reasonable prudent            operator would continue to operate the well to make a            profit – not mere speculation.

Temporary Cessation Clause:  

PPQ is not lost if there is just a             short stoppage for a breakdown and lessee fixes it in a short             time.

            +Will not work if they just decide to stop b/c of market                         conditions.

(Drilling) Delay Rentals

-If lease says:  If operations for drilling are not commenced o             said land on or b/4 one year from the date of this lease, the             lease shall terminate unless on or before such anniversary             date, Lessee shall pay to Lessor the sum or $X in rentals,             which shall cover the privilege of delaying drilling by X             years.

-Watch for “paid or delivered” vs. “mailed or delivered.”  If             it says paid or delivered then delay rental must be there or             lease terminates.  If mailed or delivered then in the mail is             fine.

-Failure to pay delay rentals just terminates the lease – no             damages are available.

-Failure to pay a royalty does not terminate a lease.  

If Lessor Accepts Late Delay Rentals

then the lease comes             alive again under an estoppel theory.

-EX:  Delay rentals are paid on time, but O has conveyed ½             interest to M.  Lease does not end b/c of the Notice of             Assignment Clause in lease.  However, if delay rentals are             paid late, and O accepts (reviving the lease) the lease is not             revived as to M b/c she did not receive delay rentals.  Now,             M and Bigg are co-tenants.  (see p. 22).

-“Commenced Drilling” (

(or else pay delay rentals) means:              In GF, Preparing to drill (cutting trees, building a road to             bring in a rig, drilling water well).

Defenses Clauses

EX:  “If Lessee drills a dry hole, the lease shall not             terminate if Lessee commences another well w/in 60 days             or resumes paying delay rental.”

            +These are fine, and can be tacked together (various                         clauses) but must be strictly complied with.

-Strictly construed against the lessee.

Pooling Clauses

-EX:  “Lessee has the right to pool all or part of the acreage .             . . operations on any part of pooled unit shall constitute             production from the land covered by this lease.

-EX:  A owns 600 acres and leases to Bigg Oil.  B owns 40             acres next to A and leases to Bigg Oil.  A and B each have             1/8 royalty.  Bigg pools, so 1 well holds all 640 acres.  A             gets [(600/640) * 1/8]  and B gets [(40/640) * 1/8)].  If, say,             Bigg only pooled 15 of B’s acres then B would get             [(15/615) * 1/8].  And is other 25 acres would be held by             the 1 well.

-Pooling must be done in GF.

-EX:  Say, A owns 600 acres and B owns 40 next to the 600.              They both lease to Bigg Oil.  Later, B conveys “1/2 of all             royalties” to C.  Then Bigg Pools.  What does C’s NPRI             receive?  Nothing unless she ratifies.  Then, assuming all             40 acres are pooled, she gets [1/2 * 1/8 * (40/640)].  (See p.             26).

-Which is the bigger royalty?

Royalty Clauses

            + 1/2 of the royalty from production; or

            + 1/2 of the production as a royalty

            +The second is larger; the first is just ½ * 1/8.

Royalty Clause & Market Value Issue

-A lease could pay a lessor a royalty based on the market value at the well or  the amount realized.

-Market value at the well:  means the value of other similar gas being sold at approximately the same time and place.

            +This is true even if the purchaser is bound to sell the gas at                         some fixed prices (that is much less than the “market price.”

            +”Off the premises or Off the lease means market value.

-Amount Realized:  means the contract price; or in other             words, it’s based on what the buyer received for the gas.

Division Orders

-General Rule:  a division order is binding until revoked and it can clarify methods of paying a royalty, but it is not binding to the extent it changes or contradicts the lease.

-Division orders are basically for housekeeping, telling all             royalty interests, NPRI’s, working interests, ect… who gets a             fraction of what.

EX:  A owns 60% of B-acre; B owns 40% of B-acre.  Both             lease to Exxon.  For 7 years, Exxon mistakenly sends them             division orders stating a 50/50 split.  A and B both sign and             go along, until year 7 A notices he’s getting screwed.  He can             revoke the division order and prevent any future             mispayments, but he cannot sue Exxon for the previous 7             years – D/O are binding until revoked.   BUT

EX:  Lessor is owed a 1/6 royalty under lease to Bigg Oil.              Bigg sends lessor D/O stating only 1/8 royalty.  Here a D/O             cannot contradict Lease so Lessor can revoke and recover             past incorrect payments.  (Above, they paid the correct             royalty, in amount, just the wrong person)

-Lessee can only w/hold royalty payments

w/o having to pay interest only if 1) there is a title dispute; or 2) Payee refuses to sign a standard D/O that contains standard terms.

­            +Standard D/O:  1) effective date of D/O; 2) description of  property; 3) fraction of interest and type of interest paid by payee; 4) authority to suspend pmts for title disputes; 5) clarify the way royalties are to be paid.

-Implied Covenant to Protect Against Drainage:  

If Lessor thinks the tract next to him is getting drained then he must prove:  1) Substantial Drainage; and 2) His Lessee could drill a profitable well (here, profits must exceed operating and drilling costs).

            +EX:  A and B own adjoining tracts and lease to the same lessee.  Lessee only drills on A’s land, but close to B.  B             thinks he is getting drained.  B/c it’s a common lessee he             may have a cause against lessee for not pooling.

-Implied Covenant to Market:  

Lessee must market oil and gas             at best price realizable by a reasonably prudent operator.

            +Self-Dealing – i.e., selling to an affiliate company at a lower price than market violates the covenant to market.

-Implied Duty to Develop

but NOT an implied duty to             explore.  Never say there is a duty to explore.  If Lessor             thinks field is not being developed enough then still must             prove a reasonable expectation of profit.

Surface Owners v. Mineral Owners:  The Meaning of Minerals

-Step 1:  

Is it one of 9 minerals that always belongs to             Surface Estate?

            +1) Building Stone; 2) Limestone; 3) Clay; 4) Sand; 5) Shale; 6) Water; 7) Gravel; 8) Lignite; 9) Iron Ore.  [Big                         Long Cock Sucking (with 2 L’s and 2 S’s)].

Surface Owners v. Mineral Owners:  The Meaning of Minerals

-Step 2

+Is the grant pre – 6/8/83 if so use the surface destruction                         test.

            +Is the grant post – 6/8/83 if so use the natural meaning test.

-Surface destruction test:  If the surface has to be destroyed to get to the mineral then it belongs to surface estate holder.

-Natural Meaning:  Just means that if it is a mineral then it             belongs to M-estate.

-If a lease grants a royalty on all minerals, the royalty interest owner does not get a royalty if the “mineral” belongs to the surface estate.

            +EX:  O grants A a 1/16 royalty on all oil and gas and other minerals produced on B-acre.  Later, in 1990, O leases to Big Coal Co. to mine lignite.  A wants his royalty.  HE DOES NOT get a royalty b/c lignite belongs to the surface             owner.

This is TX compulsory pooling act.  BUT, 2 conditions:

1) Only applies to fields discovered after Mar. 8, 1961;

2) A must make a fair and reasonable offer to pool                                     voluntarily.

Community Lease

EX:  O owns 30 acres, A owns 10 acres.  They both lease to Bigg under the same lease for a 1/8 royalty.  Now it is 10/40 * 1/8 to A; and 30/40 * 1/8 to O.

Fractional Interest Problems

-General Rules:  1) Leases construed against the lessee b/c the lessee usually rights the lease; 2) Read w/in the 4 corners of the page and read the lease very literally.

-Duhig Doctrine  [July 2004]

-EX:  A deeds B-acre to B, reserving a ½ mineral interest             (NPMI ?).  B deeds B-acre to C, reserving a ½ mineral             interest.  What happens?  B/c deeds are construed against the grantor C gets the ½ mineral interest in B-acre.  So, at the end of the day, it’s A = 1/2; B = 0; C = 1/2.

-EX:  This does not apply to royalty interests, as on the 7/04             exam.  A and B each have 1/16 royalty interest.  B conveys             1/32 back to A.  So A now has 3/32 and B has 1/32.  Then B             conveys to 1/16 to C.  B did not have 1/16 to grant, plus A             was timely recorded.  So C gets only 1/32 and B has nothing.

requires a minimum of 40 acres to drill a well; but, Rule 37 exceptions allow a small tract (under 40 acres) if:  1) drainage; and 2) tract was divided b/4 oil and gas was discovered in the area or b/4 land was leased.   Also allowed if oil/gas reserves are on different horizons or reservoirs (Benz-Stoddard v. Alcoa)

-Relinquishment Act:  

Ranchers in west TX bought land from             Gov’t b/w 1895 – 1931 only own ½ ofthe mineral rights.              They have the executive right to lease the land but must             share ½ of all benefits of the lease w/ the state.

“1/2 of all the oil and gas royalties” on B-acre.

-Y gets ½ * 1/8  à Remember, “of” means multiply.

X to Y “1/2 of all oil and gas produced, marketed, and saved” from B-acre.    

- Y gets ½ royalty in all oil and gas produced on B-acre (not ½ * 1/8, but ½ on all production – this huge NPRI makes land unleaseable).

X to Y “1/2 of all the oil and gas in, on, or under B acre.

- Y gets ½ mineral interest.  

- Y gets ½ mineral interest in B-acre but does not have the                         executive right.  X retains the right to lease the land.

- Y gets ½ mineral interest in B-acre but does not have the                         executive right.  X retains the right to lease the land.

EX:  X to Y “1/65^th interest in and to all of the oil and gas in, under, and that may be produced” from B-acre.  But, the next paragraph says “this conveyance is of a royalty interest only and Y has no right to bonus, delay rentals, or profits.”

- Where the provisions conflict the granting clause is                                     controlling.  So, here Y gets a 1/65^th mineral interest.

Century doctrine

The century doctrine provides that a well permit should be granted or denied on the basis of whether a well could have been drilled on the original pre-subdivided tract. 

Can eliminate a Rule 37 exception that would have otherwise existed had properties not been merged

For example, if A owns a tract, and buys out B on an adjacent tract (so A and B would have been able to have 1 well each), A is entitled to only 1 well

a.     Merger Doctrine Applies:

                                                   i.         If two properties are owned by A and B, w/ A and B each having 50/50 interest on his and the other’s property, and they merge, merger doctrine applies

1.     You are not preventing confiscation here

b.     Merger Doctrine Inapplicable

                                                   i.         If A has 1/3 and B has 2/3 interest on Tract 1, and merges with A’s 2/3 and B’s 1/3 interest on Tract 2, merger doctrine does not apply and can get 2 wells

MIPA 102.052 – 

                   i.         any owner has the right to ride a well for free. IF well is a dry hole, then party doesn’t owe anything

1.     However, if well produces, parties must pay their fair share of well drilling costs. Additionally, they may have to pay up to an additional $500k as a risk charge (the total additional charge may not exceed the proportionate share of the well costs)

Limitations on Voluntary Subdivision Rule

Exceptions always granted to prevent waste

Does not apply to subdivisions that occured whn area was known to contain oil (but does apply to land in or in proximity of proven oil and gas area.  Nash v. Shell

Exception on limitations:

If subdivision was done in contemplation of oil and gas production via lease, ten VSR applies even if no oil and gas yet discovered Shell v. RR Commission

R37(g)(7) – 

date of attachment in voluntary subdivision rule may have an exception for innocent parties in order to protect their rights, such as where oil was discovered close to the area, but subsequent dry holes made it appear that oil was not actually in the areaR37(g)(7) –

Benz-Stoddard v. Alcoa

If oil/gas is in different horizons or reservoirs

Rule 37 does not apply

  Ohio Oil v. State of Indiana

the legislature has the power to regulate production of oil and gas to protect, co-equal or correlative rights

March 8, 1961 

If discovery AND production are before 1961

Use: RR Commission v. ALCOA

parties must attack prorationing formulas early otherwise you will be viewed as having acquiesced to the formula    

Commission’s power to regulate production is a continuing one and its orders are subject to change where conditions have changed materially, new and unforeseen problems arise, or mistakes are discovered    

Pooled areas cannot exceed 

160 acres + 10% for oil

640 acres + 10% for gas

Owners Authorized to Apply for Pooling

                   i.         For existing pro-ration unit: owner of any interest in oil and gas (everyone) [e.g.  possibility of revertor interest, an npri interest]

                 ii.         For proposed unit: only owner of any working interest (lessee) or owner of an unleased tract (unleased mineral owner) other than a royalty owner

1.     à royalty owners cannot pool for a proposed tract

A fair and reasonable offer to pool:

is generally the market rate, which is generally the amount offered initially by the party with well when saying that you can come on board if we find oil

 Carson v. RR Commission

1.     Fair and reasonable offer – takes into consideration all relevant facts existing at the time of the offer from the perspective of a reasonable person in entering into a voluntary agreement (person receiving the offer to be pooled)

a.     Look at:

                                                   i.         1) whether there was a good faith attempt made to negotiate and reach an agreement on both sides

                                                  ii.         2) The timing of the offer

Mechanics of MIPA

                   i.         (1) applicant [small tract owner] must make a fair and reasonable offer to try voluntary pooling [§102.013(b)] [“muscle-in” provision]

1.     If a fair and reasonable offer is not made, then RRC does not have jurisdiction to make a compulsory pooling order (will simply dismiss the applicant)

                 ii.         §102.014(a) – Commission will not force a large tract owner to pool if he has made a reasonable offer voluntarily

1.     §102.014(b) – small tract owner can “muscle in” if the large tract owner has not voluntarily made a reasonable offer

1.     Unlike pooling, unitization is for management of large fields. Basically what happens is lease line are erased allowing a single operator to develop the field efficiently across many tracts of land. Drilling wells without regard to leaseline, usually will receive royalty on per acreage basis

a.     May be 100 different landowners, but all will be unitized into 1 unit of collective efforts in the production of oil and gas 

Dobson v. Arkansas Oil and Gas Commission

                   i.         Dobson is holdout. The one well is an output well – usually produces 250 barrels of oil per day. When gas is injected, increasing pressure, 312 barrels produced per day

                 ii.         Dobson – claims he never signed agreement unitizing the field. Thus, he says he should get ¼ of the production (312 barrels) of the one well on his land, since he didn’t join the unit and owns 40/160 and is not part of the 5000 acre unitization. Everyone else, he claims, should get ¾ of the 160/5000 unit. In the short term, Dobson will be hurt by unitization.

                iii.         Holding – since Dobson voluntarily refused to take part in the unit, he could not benefit from the greater production

Manziel Case

“Carrot and the stick” Unitization 

                   i.         Essentially, although RRC can’t force unitization, b/c it can lower your well’s allowance and give legitimacy to the unit’s actions that may hurt your wells, in most cases you will be better off joining the unit

private nuisance....can get compensatory damages Tidewater & Manziel

Can't made 2nd recovery unprofitable.

Bottom line: incourage secondary recovery

Stradley v. Magnolia Petroleum Co

deed conveyed the right to use amount of water from land that was reasonably necessary to enable operator to develop mineral rights

Limitations to the Dominant estate’s reasonable use of the surface estate

reasonably necessary

accommodation doctrine

reasonableness inquiry

means exercising the dominant estate’s rights with due regard for the rights of the surface owner, but is decided irrespective of the inconvenience to the surface owner 

dominant estate must accommodate surface owner if there’s another way of developing the minerals that can be reasonably accomplished by the mineral estate owner 

 Brown v. Lundell

                                        Though ME is dominant, operator cannot use surface negligently

Warren Petroleum Corp. v. Monzingo

a lessee has the right to use the premises as is reasonably necessary to effectuate the lease and has no implied obligation to restore surface to its original condition after ceasing operations

reasonable alternative does not have to be on the premises if FRESH WATER is the substance in question.     Sun Oil v. Whitaker

  Hunt Oil Co. v. Kerbaugh

Upheld use by mineral estate owner where M.E. used seismics that damaged water wells of S.E. owner in the exploration of minerals

Reed v. Wylie

if w/i 200 ft, then near surface

if surface destruction and near surface, then owned by S

Can sue and recover your lost bonus if someone actually enters the land and finds no oil etc

for geological trespass, must have PHYSICAL ENTRY.  no wrongfully secured benefit which would be unconscionable to retain

blacked out information.  

Good faith trespasser.

can deduct proper expenditures.

essentially treated like a cotenant

Dry hole- NO

Income Tax- No

Overhead- Yes (must prove proportions. allocations to trespassed land)

attorney fees for title work - NO

Risk capital- No

Bonus/royalties paid to 3rd party- NO

acted upon advice of reputable counsel

court rendered favorable judgment on identical issues

whether delay would resut in drainage thus requiring haste

(1) false claim

(2) publication/utterance of false claim

(3) with malice

(4) special damages

actual: deliberate conduct without reasonable cause

Punitive: must how malice as traditionall viewed illwill or bad or evil motive; reckless disregard

loss of SPECIFIC sale.

can't just sue because someone clouded your title

Law v. Heck Oil Co. 

w. va

a non-leasing, non-developing cotenant can hold out to prevent oil and gas production

MINORITY RULE

Texas Pacific Coal and Oil v. Kirtley

(1) cotenants who own a significant fraction of the minerals refuse to lease

(2) title examination is difficult bc of many ownders (NPRI, RIOs, MIOs)

(3)large outstanding NPRIs burden teh land and make it uneconomic to develop

(1)Joint ownership

(2) possessory interest

(3) estates must be equal qualtity (leasehold owner can't sue FS owner)

(4)throughout the land

(1) productive acreage? --> sale (unless uniform distirbution)

(2) potentially productive acreage: generally by sheriff's sale, partition-in-kind, or checkerboard parition

(3) wildcat acreage: sheriff's sale

(4) undeveloped- unlike partition in kind

Open and notorious

continuous

hostile

adverse

Before and after severance matters

ONLY ouster or suit can 

Conveying a lease to Oil Co doesn't cut it

lessee can acquire FSD mineral estate by Ap if:

(1) lessee continues operating leasehold, producing and selling O&G AND

(2) pays ONLY a royalty interest to lessor

holdover = tenant who's paying rents

if suspect either, sue immediate bc courts could start running AP

Revenue - 1/8 royalty - operating costs (labor, electricity, repairs)

NOT DRILLING COSTS

Garcia v. King

RPO would for purposes of making a profit, continue to operate the well

totality of circumstances!

long period of time

a temporary, sudden complete cessation of production due to mechanical breakdown or the like will not terminate a lease if lessee dilignetly fixes the problem w/in a reasonable time (3-6 months)

lessee has burden to prove TCPD

lease expired bc of great depression (market problem) and was not a "mechanical breakdown."

Shut-in royalties will only be valid if well is producing PPQ before being shut-in

as longa s you are drilling and continuously working the well by the end of the lease term, the lease will stay alive.  pay shut-in royalty and then cap the well.

well capped due to lack of market facilities.  

(1) temporary cessation of production

(2) marginal well doctrine

(3) express savings clause of 60 days (note: this negates TCP Doctrine)

(4) paying shut-in royalties qhile there is PPQ going on and before lease expires (Gulf Oil v. Reid)

another clause modifying the habendum clause; savings clause

lessor wrongfully interferes with lessee's operation by repudiating the lease, cts will extend the lease temrs for the period of wrongful repudiation

no promise lessee will drill a well.

beneficial to lessee because doesn't have to renegotiate K every year but hold the land

proportionate reduction calsue only applies if  you grant more than you own.  

DOESN'T apply to delay rentals, but WILL to royalties

road/turnaround finished before crucial date, continuous operations until well was produced.  

Operations in good faith and done with dilligence

fairer to lessor

production form unit claus hsall hold the lease in effect only as to land included in pooled unit

RPO and consider bother interest of lessee and lessor

damages for breach of lease (not termination)

must show reasonable expectation of profit to the lessee

Waggoner Estate v. Sigler

remedy?--> specific performance

no implied duty to explore under these circumstances because lease not one (1) covering several thousand acres by a small development area or (2) a lease where a long period of time had lapsed since last development of premises.  

ONLY IMPLIED COVENANT TO DEVELOP!  NOT EXPLORE!

Amco v. Alexander

implied covenant to protect against local and field wide drainage

(1)drilling repacement wells

(2) re-working existing wells

(3) drilling additional wells

(4) seeking R.37 exceptions from RRC

(5) seeking voluntary unitization

(6) seeking other available administrative relief

(1) substantial drainage

(2) RPO would have prevented the drainage

Burden of proof: reasonable probability of profit

HECI v. Neel

because lessee didn't notify Neel of lawsuit, no failure to adminster bc not clearly w.i the contention of parties

oil adn gas sold at the well (on the lease) shall be 1/8th amount realized from such sale.  easy, what the purchaser paid

ex: sold at well for $1-> lessor gets 1/8 * 1

oil and gas "sold or used off the premises is the market value at the well of 1/8th gas sold 

hard

lessor take toyalty from "waht lessee sells the gas for, minus his actual and reasonable costs" in transporting and refining the gas

ex:  sold for 1.20 and costs .20 to produce, then new revenues at the well will be 1 and lessor gets 1.8 of this

                                      i.     … on gas … produced and sold off the premises …, the market value at the well of one-eighth of the gas so sold, provided that on gas sold at the well the royalty shall be one-eighth of the amount realized from such sale…

(1) sweet and sour gas are NOT similar in quality

(2) High BTU v. low BTU are not comparable

(3) wet and dry

(4) interstate v. intrastate

(1) gas actually sold at well head as it is produced in a K negotiated only at the time of sale - MV unless sale is not at arms length or unless lessee acted unreasonably

(2) comparable sales

(3) work-back method

reverse-Vela problem

K price was higher than the market price

implied covenant to get the K price

sale was "inherently suspect" bc the lessee's interests wer enot aligned with the lessor's

Did not violate implied covenant to market because the alnd was being drained so TXO needed to quickly produce the gas

Deeds-- conflicted w/ DO, no past underpayments

Leases--- can get past underpayments

DO prepared erroneously; consequently, teh lessee was unjustly enriched at expense of lessor

Pre 8/26/91- DOs binding until revoked except when unjust enrichement at expense of lessor

Post 8-26-91- misreading deed alone is not enough to make DO not binding