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102 Cards in this Set
- Front
- Back
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Assignment of Operating Rights
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Transfers the interest or contractual obligation created out of a Federal Oil and Gas Lease which authorizes the holder of that right to enter into the leased premises to conduct drilling and related operations, including production. Such assigned rights include a working interest and/or the interest earned under a Farmout Agreement.
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Assignment of Overriding Royalty
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Assigns an interest severed out of record title or Lessee's share of the oil and gas, and not charged with any of the cost or expense of development or operation. The interest provides no control over operations of the lease but only revenue from lease production.
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Back-In
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A provision in an agreement in which it is agreed that a specified non-operated interest, usually an overriding royalty interest, may be converted under certain circumstances into a pre-determined working interest once certain conditions have been met.
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Communitization Agreement
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The pooling of at least one Federal lease for the establishment of a proration unit.
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Continuous Development
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A provision which provides that a lease or farmout agreement may be kept alive after the expiration of the identified term of the agreement in the absence of production, by drilling operations of the type specified in the clause being continuously pursued. In the case of a farmout, such clause provides the farmee has the right to earn acreage under the farmout agreement by the drilling of additional wells under a specified time frame.
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Farmout Agreement
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A common form of agreement between two or more parties whereby the owner of a leasehold or contractual interest not wishing to drill a well agrees to farmout all or part of his interest to the Party desiring to drill one or more wells on the Farmout Premises in order to earn an interest in lands through an assignment of lands subject to certain obligations or conditions. The Farmout Agreement aids in controlling the development of the prospect area and the operation of the producing properties.
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Outer Continental Shelf
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Scientific definition is the gently sloping undersea plain between a continent and the deep ocean. Is an extension of the continent's landmass under the ocean. The waters of the continental shelf are relatively shallow compared to the open ocean which can be thousands of meters deep.
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Overriding Royalty Interest
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An interest in gross production of oil and gas carved out of the Lessee's share of the oil and gas (the working interest) and which is free and clear of all expenses for exploration, drilling, development, operating, marketing, or other costs incident to the production and sale of oil and gas produced from the source.
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Participating Area
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The part of a unit area which is considered reasonably proven to be productive of unitized substances in paying quantities or which is necessary for unit operations and to which production is allocated in the manner prescribed in the unit agreement.
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Patent
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The original conveyance granting to the recipient the legal title to public lands. The instrument reserves any minerals, rights-of-way or other interests in the land, provided by the applicable statute or law.
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Paying Quantities
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Production in such quantity as to enable the operator to realize a profit. For the purpose of keeping the Oil and Gas Lease in effect past its primary term, production in paying quantities means sufficient to yield a return in excess of operating costs, even though drilling and equipment costs may never be repaid and the undertaking considered as a whole may ultimately result in a loss.
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Relinquishment Act Lands (Mineral Classified Lands)
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Lands in which the minerals were reserved by the State of Texas and in which the right to receive a share of the bonus, rental and royalty was conveyed to the owner of the surface.
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Term Assignment
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An instrument which transfers property or contractual rights, usually leasehold, from one person or company to another for a specified period of time.
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Unit Agreement
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A written plan for the drilling of wells and the development of lands subject to the agreements as a single, consolidated lease or unit without the regards to the ownership of the parties thereto.
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Unitized Land
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Those lands and formations within a unit area which are committed to an approved agreement or plan.
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Department of Interior
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-Responsible for federal onshore and offshore leases
- 70,000 employees in 2,400 locations |
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Mineral Leasing Act of 1920
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-Established federal government's right to grant oil and gas leases and collect rentals and royalties on production of oil and gas
-Brought on by the Industrial Revolution and Spindletop land rush |
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Mineral Management Services
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-Formed in 1982
-Took over responsibilities of US Geological Survey -Formed to handle collection of mineral revenues of onshore and offshore leases and to handle leasing of offshore acreage |
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The MMS split into these 4 organizations in 2010 after BP Macondo:
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1) ONRR (Office of Natural Resources Revenue)
2) BOEMRRE (Bureau of Ocean Energy Management Regulation) 3) BOEM 4) BSEE |
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ONRR (Organization of Natural Resources Revenue)
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- forerunner was MMS
- head office located in Denver - responsible for management of revenue of federal onshore leases, federal offshore leases, and Native American leases - handles revenue from offshore renewable energy - revenues include bonuses, rentals, royalties, damages, settlements, fines, penalties, and assessments - the revenues go to the treasury |
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Why doesn't Texas have many Federal lands?
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We had war debt and the US didn't want to inherit our debts so they let us keep our land.
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Cheap energy is indicative of:
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a good economy
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2 Types of Federal leases
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1) Onshore
2) Offshore |
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4 types of state leases
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1) University Lands
2) Relinquishment Act Lands (Mineral Classified) 3) State School Board Lands 4) Veterans Land Board |
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Each tribe has its own:
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Lease and allotted acreage
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Bureau of Land Management
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- Provides assistance to Indian lands
- Responsible for leasing & working with companies - 10,000 employees - $1 mil budget - Primary office located in DC - 12 Western locations |
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The BLM is responsible for administering:
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- 245 mil square acres
- 700 mil mineral acres - the difference between the two numbers is due to split estates |
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The BLM is responsible for:
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-oil, gas, & coal
-wind, solar, and biomass -leasing surface for grazing -timber harvesting |
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The Mining Law of 1872
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-gave BLM the authority to lease
-did not have a formal leasing system before -created system to authorize and govern the prospecting and mining of economic minerals such as coal, silver, and gold after the gold rush in 1849 |
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Placer Mining Claim
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- allowed for free prospect on public lands to develop deposits
- caused land rush |
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KGS (Known Geologic Structure)
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- if KGS, competitive bidding
- if no KGS, no bidding - outlined in Mineral Leasing Act of 1920 |
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Federal Oil and Gas Royalty Management Act of 1982
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- focused on royalty & rental collection
- MMS also formed in 1982 to take place of USGS |
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Federal Onshore Oil and Gas Leasing Reform Act of 1987
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- addressed leasing and bidding issue
- eliminated KGS - now all land is bid on |
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CFR
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Code of Federal Regulations
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2 types of Federal Onshore Acreage
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1) Public Domain
2) Acquired Lands |
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Public Domain Lands
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- Federal onshore acreage
- those lands that have always been owned by the federal government |
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Acquired Lands
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- Federal onshore acreage
- lands acquired by the Federal government after statehood by purchase or through condemnation proceedings |
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Qualifications to Own a Federal Lease
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-must be an adult over 18
-must be a citizen -a minor can be issued a lease through a guardian -residents or aliens hold lease by stock ownership -municipalities, associations, and citizens |
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2 types of Federal onshore leasing
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-competitive
-non-competitive |
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competitive auctions
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-oral
-conducted quarterly at state office -notice of sale is listed 45 days prior |
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3 ways to get Federal land listed for competitive bidding
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1) informal expression of interest from public or BLM officer
2) filed for noncompetitive leases 3) Bureau of motion covering existing leases that have been expired, terminated, or canceled |
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Maximum competitive lease sizes in lower 48 and Alaska
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-lower 48=2700 acres
-Alaska=7,000 |
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Items that must be submitted on bid day:
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-lease bid form
-check for proportionate share of administrative cost -first year's rental -10% of bonus |
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Noncompetitive Auctions
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-tracts that went to competitive bid and no one bid on it
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Maximum noncompetitive lease size
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about 10,000 acres
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Chargeability
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-the maximum Federal leasehold ownership per state can be important if companies merge
-applies separately to public domain v. acquired lands -maximum Federal acreage per state in lower 48=286,080 -maximum Federal acreage in Alaska is 300,000 |
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Federal Lease Terms
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-non-negotiable
-royalty is 12.5% -10 year primary term -rentals are $1.50 for first 5 years, $2.00 after |
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Federal lease terms set by Mineral Leasing Act of 1920
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-1/8 royalty (unchanged)
-20 year primary term that could be renewed for 10 year periods |
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Continuation of a Federal Lease
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1) actual drilling operations at the end of the primary term as approved by the BLM
2) Held by production in paying quantities 3) extension resulting from commitment to a federal unit |
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A Federal lease can be extended from commitment to a federal unit if:
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-is committed to a unit plan of development or operation that is producing in paying quantities prior to the end of the primary term
-the unit is terminated or the lease is eliminated from a unit -is segregated and part of the lease is held in a unit and part is outside of the unit then you will get a 2 year extension providing the segregated part has geology that meets the BLM's standards -is contracted due to geology then you get a 2 year extension |
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Suspensions of Operation and Production
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-when something happens due to the force of nature
-the Federal version of a force majeure clause -must send an application prior to expiration of the lease the term is extended as long as suspension of operations is in place -during suspension, rentals and the minimum royalty are suspended |
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CFR
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Code of Federal Regulations
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Assignment of a Federal Oil and Gas lease
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must be filed within 90 days or it's ineffective (especially important with acquisitions)
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Proclamation issued by President Truman in 1947
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-said that the US regarded natural resources of the subsoil and the seabed as owned by the US and not the states
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Submerged Lands Act of 1953
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-in the election of 1952, TX Dems backed Republican candidate Eisenhower because he pushed through the bill that allowed TX to have its offshore acreage
-Eisenhower was elected and passed the Submerged Lands Act of 1953 which granted coastal states natural resources out to about 3 miles -TX was granted land to 10 miles - reaffirmed the Fed's right to all offshore land past 3 miles |
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10 miles of Texas lands include land in the:
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Arctic
Pacific Atlantic Gulf of Mexico |
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1 mile = __________ ft
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5,280
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Outer Continental Shelf Act of 1953
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-created framework to lease and regulate offshore lands
-Fed authority goes from 3 miles to 200 miles out |
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US Economic Exclusion Zone of 1983
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-Regan was president
-established to protect US offshore interests -extends to 200 nautical miles -provides sovereign rights to US for purpose of exploring, exploiting, and conserving living and nonliving resources |
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1 nautical mile = __________ feet
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6,076
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Federal Agencies in charge of offshore acreage
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-prior to 1952 USGS was in charge of all Fed offshore leasing
-in 1952 MMS was formed and they are now responsible for leasing 1.76 billion offshore acres -also responsible for onshore and offshore revenue collections |
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BP Macondo
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-April 2010
-11 workers killed -lead to reorganization of MMS |
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BOEM
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-Bureau of Ocean Management
-ensures the balanced and responsible development of energy resources on the outer continental shelf -5 year planning process for lease sales (timing, size, location of lease sales) -environmental reviews -process and approve leases -handle renewables |
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BSEE
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-Bureau of Safety and Environmental Enforcement
- ensures the safe and environmentally responsible exploration and production of oil and gas and the enforcement of applicable rules and regulations -create and enforce drilling, production, and safety standards -oversee all field operations including permitting |
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qualifications to own an offshore lease
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same as onshore leases
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offshore bidding process
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sealed bid
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offshore lease terms are based on
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water depth
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offshore leases define deepwater as:
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anything over 800 meters in depth
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1 meter is about
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3 feet
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offshore lease block size
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-size of actual lease
-most are 5,000-5,760 acres -TX is 5,760 acres |
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Offshore primary lease terms
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-less than 400 meters is 5 years
-400 to 800 meters is 8 years -greater than 800 meters is 10 years (deepwater) |
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offshore lease royalties
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-less than 400 meters is 1/6th (16.6667%)
-greater than 400 meters is 1/8th (12.5%) -encourages deepwater drilling |
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offshore lease rentals
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-less than 200 meters=$5
-greater than 200 meters=$7.50 |
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perpetuation of offshore lease rentals
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-HBP
-actual drilling operations with a capable rig -suspension of operations -suspension of production -commitment to a unit |
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transfers of interest for offshore leases
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-assignment of record title (transfers primary ownership and obligation to pay rentals)
-assignment of operating rights (transfers working interest) |
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General Land Office
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-HQ in Austin
-established 1836 -3 major responsibilities were to: 1) collect and keep records of Spanish and Mexican landtitles; 2) provide and keep surveys and maps; 3) issue land titles -Responsibilities today: earning and managing funds for Permanent School Fund, oversees Veterans Land Board leases, act as steward of coastline, manage land records |
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Permanent School Fund
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-Constitution of 1876 set aside half of TX public lands to finance public education
-has earned more funds for public education that any other source of income |
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Relinquishment Act Lands
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-Set out in Relinquishment Act of 1919
-wanted to encourage development by selling lands -under patent, owner of surface acts as agent for State of TX when leasing O&G |
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Relinquishment Act Leases
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-also called Mineral Classified
-surface owner has right to lease -State of TX owns minerals -surface owner entitled to receive 1/2 royalties, 1/2 bonus, 1/2 rentals -have to pay delay rental -no set royalty -state can reject any offer accepted by surface owner -minimum royalty -minimum rental of at least $1 -state has option to take royalty in kind -all royalties are free of deductions -must supply commissioner with copies of all contracts, agreements, permits, and drilling records -surface owner owes fiduciary duty to state |
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University Lands Office
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-manages Permanent University Fund
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Permanent University Fund
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-state endowment which contributes to University of Texas and Texas A&M school funds
-established in 1876 -2.5 million acres -only allowed to spend interest -primarily west tx |
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Advantages of operating on University Lands
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-large, continuous blocks of acreage
-single owner -well & production data is available -competitive lease terms -permitting procedures are already in place -highly trained staff |
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University Lands office location
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Midland
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University Lands lease terms
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-25% royalty
-3 yr term, no option -rentals are $25/acre and are paid-up -sealed bid for bonus -right to explore is non-exclusive, right to drill and produce is exclusive -deduction-free royalty -lessor has option to take in kind -minimum royalty of $5/acre each year -lessee required to make sue all payments/documents are sent/received on time or they will be fined -shut-in for maximum of 4 years -continuous drilling obligation -must preserve cultural and historical resources -insurance provisions guard University Lands from getting sued |
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university lands rate and damage schedule
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-damages based on depth of well
-need an easement to use a road to access lease -must renew pipeline easement every 10 years -fees to assign lease |
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why might a party want to farmout? (13)
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-budgetary restrictions
-unwilling to take the risk -expiring acreage -want to see acreage tested -spread the risk due to high costs -well information -lack of rig availability -allows evaluation of offsetting acreage -secures an acreage position in an area where you presently don't have one -better opportunities elsewhere -prior development is not of sufficient economic potential to justify spending company funds -small acreage position -far removed from the company's operations |
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key considerations in a farmout (10)
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1- what acreage are you going to farmout
2- location and depth of wells, especially the initial test well 3- what's going to be your retained interest 4- the interest earned by the farmoutee 5- continuous development 6- logs (information is money) 7- call on production (taking in kind) 8- financial information about farmoutee 9- JOA if necessary 10- terms of farmout agreement |
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are farmouts recorded to the public
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no
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an optimal farmout for a farmoutee
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no requirement to drill
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retained interests by farmor
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1- ORRI
2- Back-in (convert ORRI to WI) 3- retain deep rights if a company doesn't want to drill deep 4- checkerboard acreage 5- earn outside acreage |
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options to retained acreage for farmor
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1- option to increase ORRI either upon payout of each individual well or upon payout of drilling program
2- option to either increase ORRI or back-in on each well or drilling program 3- option to back-in or participate in future wells after drilling the initial test well 4- promoted deals (ex. 1/3 for a 1/4) |
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inclusive royalty
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covers all existing burdens
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Advantages to a Farmout (8)
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1) terms are kept secret
2) contains stronger provisions 3) Performance is required to earn an assignment 4) More control under possible bankruptcy proceedings 5) Allows more complex trades 6) More control with the ability to acquire well data 7) Shorter time period due to continuous development 8) Earned assignments specifically outline the acreage and depths assigned |
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Disadvantages to a Farmout
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1) Generally a shorter time frame
2) The historic preference 3) Public notice 4) Usually no bonus 5) Greater administrative burden |
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Term Assignment
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-An instrument which transfers property or contractual rights, usually leasehold, from one person or company to another for a specified period of time.
-A type of farmout agreement where you are given an assignment upfront |
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Advantages of a Term Assignment (5)
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1) Provides public notice (Recorded at time of agreement)
2) Normally receive bonus money 3) it's a single agreement because interest is assigned up front 4) usually shorter and less complicated 5) There is no potential advantage to assignee having Title if a spill, blowout, fatality or other accident occurs. |
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Disadvantages of a Term Assignment (4)
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1) Can cloud title if a release is not secured
2) May require additional title work if a release is secured 3) Less control to ensure receipt of data or other information 4) Less control over all |
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Communitization Agreement
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the pooling of at least one federal lease for the establishment of a proration unit
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unit agreement
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turning multiple leases into one lease
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Participating Area
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proration unit or state spacing unit
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unitized land
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-covers land and specific formations
-unit agreement is based on geology |
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3 types of Federal units
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1) federal exploratory (away from existing production)
2) secondary/tertiary (secondary - waterflood; tertiary- CO2/steam flood) 3) Working Interest Unit |
