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158 Cards in this Set
- Front
- Back
what was o/g originally compared to?
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Wild animals
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what is exploration
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finding oil and gas
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production
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what is producing oil and gas
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transportation
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what is moving the product from the well head to the refinery
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refining and processing
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what is converting oil and gas into a use able product
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what is the rule of capture
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common law rule of non-liability for draining oil and gas from beneath a neighbors land
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what is the heaven to hell doctrine
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the doctrine that state that the property owner owns from the heavens to the hells basically
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what is the heaven to hell doctrine qualified by
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the rule of capture
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what does the rule of capture encourage
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exploration
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what is a horizontal severance
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the right to convey minerals below the land without conveying title to the surface
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what are some limitations to the rule of capture
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correlative rights doctrine
trespass negligence nuisance violating the rules of a conservation agency interfering with a neighbor's correlative rights |
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what is the correlative rights doctrine
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that an owner of oil and gas has the right to a fair opportunity to produce a fair share of the oil and gas in a common reservoir
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what are enhanced recovery operations
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injecting water or other liquids into the reservoir to move oila and gas trapped in the rock formations
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what happens if captured oil and gas escapes
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once produced the rule of capture no longer applies, so unless the owner intended to abandon or handled it so recklessly that intent to abandon can be inferred, it still belongs to the one who captured it
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what is the majority rule to ownership of oil and gas
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Ownership in place- landowner owns all substances including oil and gas which underlie his land
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what nature is the estate in the reservoir in Texas
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fee simple
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what nature is the estate of the oil and gas in Texas
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Fee simple determinable
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what is the minority rule for ownership of oil and gas
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non-ownership in place theory- landowner doesnt own the oil and gas he only has the exclusive right to capture the substance, similar to a profit a prendre
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what does the bundle of sticks represent
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the rights, duties, privileges, benefits and obligations with respect to the use and enjoyment and possession of property
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what does the person owning the mineral estate own
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development
the executive right the right to economic benefits under the o/g lease |
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what is a horizontal severance
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conveying the mineral estate one way and the surface another
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what is a vertical severance
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creating 2 estates out of one
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what is the developmental right
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right to develop and the obligation to pay costs of development, includes right to ingress and egress
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what is the lease right
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right to lease for o/g
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what does the economic right cover
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bonus, delay rentals, royalty
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what is bonus
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payment for executing an o/g lease
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what are delay rentals
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paid in lieu of drilling in the primary term to keep the lease going
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what is royalty
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a portion of production that is free of the cost of production
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what 2 interests does the o/g create
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the working (operating interest and the royalty interest
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what is the working interest
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carries the exclusive right to explore, develop and produce from the property and the obligation to pay these costs
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what are the kinds or royalty interest and what is each kind
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lease royalty interest- lessor's interest in production
overriding royalty interest- non cost bearing interest carved out of the working interest non-participating royalty interest- one conveyed or preserved by present or former royalty owner |
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what do all royalty interests have in common
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hedge against uncertainty
non-cost bearing non-possessory |
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what duties does the executive owe to the non-executive
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utmost good faith and/or fiduciary standard
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what is a tenancy in common and what does it do
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it when each tenant owns an undivided interest in the whole tract of land and underlying minerals
allows any tenant to explore drill or produce without the permission of the other tenants |
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what rights do the non-participating tenant have
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carried interest to payout or he can ratify and get royalties immediately
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what are the ways to deal with a non participating tenant
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forced pooling, joint operations, partition
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what is the rule with life tenants and remainderman
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neither can act without the other because they do not possess enough of the bundle
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what does the remainderman and life tenant get out of a lease
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the corpus goes to the RM but the interest and current income goes to the LT
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how are delay rental/royalty/bonus characterized
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delay rentals are current income and go to LT
Royalty and Bonus go to the RM but they are invested with the LT getting the interest |
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how does the open mine doctrine apply to LT/RM
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a life tenant gets all income from a mine open prior to the formation of the LE but only so long as that lease stays in effect
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what is a lease and what does each party get
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o A conveyance of a determinable fee in the mineral estate under which the mineral owner (land owner) conveys to the lessee (oil company) the right to explore for and produce oil and gas under the property
The lessee gets a fee simple determinable in and to the oil and gas under the property; lessor retains the right to use the surface and a possibility of reverter when the lease ends |
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what is the ultimate expectation of an o/g lease
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profit
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in TX how is royalty distinguished from bonus
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an interest in production that extends over the life of the lease is royalty, regardless of what it is called
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what is the granting clause
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give the lessee the right to reasonable use of the surface for purposes of developing minerals; if severed the mineral estate is the dominant estate, or the surface is burdened with a servitude
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what is the rule of reasonable use
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Usually includes geophysical exploration, drilling, building roads, installing machinery and using water
Limited to no more than reasonably necessary |
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what is the accommodation doctrine and what standard is used to judge this
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if the proposed use of the surface by the mineral owner will substantially impair existing surface uses and the mineral owner has reasonable alternative available, the mineral owner must accommodate the surface owner
• The legal standard is negligence |
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what is the mother hubbard clause
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cover all clause, makes inadvertent omissions of small strips due to improper descriptions, adverse possession, survey errors, easements or other subject to the lease
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what is the habendum clause
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fixes the ultimate duration of the lease
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what are the drilling and delay rentals clauses
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clause that may cause early termination of the elase
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what are the primary and secondary terms
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Primary term- last for fixed number of years, lessee has the option but not the obligation to drill, but under the Delay Rental Clause must drill or pay before the anniversary of the lease
Secondary Term- created by the “thereafter” clause, lasts as long as oil and gas are produced |
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what is the rule for delay rental payments
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if they are a dollar short or a day late then the lease terminates
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what are the three types of leases
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• Most in Texas are “unless”- doesn’t promise to drill or pay, can’t be sued if he doesn’t, but if he doesn’t drill or pay the right amount within the time provided, the lease terminates
• Other type is the “or” lease- imposes an affirmative duty in the lessee to either commence drilling or pay rentals prior to the anniversary date; termination is not automatic, it requires a forfeiture clause • Third type is “paid up lease”- single payment that will maintain the lease for the entire primary terms |
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is spudding required to hold a lease
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no
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what is the meaning of production
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• Minority rule- capable of production
• Majority Rule and TX- produced and marketed |
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how are paying quantities determined
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o 1. Accounting or litmus test- do operating revenues exceed operating costs over a reasonable period of time
Looks backwards o 2. Legal or Reasonable Prudent Operator Test (RPO Test)- would a reasonable prudent operator, seeking to make a profit and not holding for mere speculation, continue to operate under the circumstances Looks forward and puts facts to jury |
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what is the rule for temporary cessation of production and what standard is used to determine this
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under the common law cessation of production doctrine the lease did not terminate unless the cessation of production was permanent rather than temporary
standard is negligence |
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what are the relevant factors for the temporary cessation of produciton
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how long, cause of the shut down, what is being done to restore production
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what does a savings clause substitute for
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production
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what are the types and what do they provide
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• Shut in Royalty Clause- only pertains to gas- when the well is capable of producing but is shut in for lack of a market, lease can be held by paying shut in royalties while the lessee diligently works to find a market
• Dry hole, operations and cessation of production Clause (The Operations Clause)- designed to save the lease from lapsing in situations where it would otherwise lapse under the Habendum clause o Cessation of Production- if the well ceases producing the lessee can nevertheless keep the lease alive provided the lessee commences with repairs within a stated time period o Operations- covers when at the end of the PT, operations have commences and are continuing but there is not yet actual production, provides that the lease won’t expire while the lessee is engaged in drilling or reworking operations o Dry Hole- covers situations where, while the lease is in effect, the lessee drills a dry hole but gets info that he may be able to drill a producing well • Force Majeure Clause- excuses performance (or extends the time for performance) because of unforeseeable factors beyond the lessors control. Typically: o Acts of god; weather; labor shortages; government interference o Not in use every time something happens, must be identified in the lease and there must be a nexus between the event and the non-performance |
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what is the obstruction doctrine
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wrongfully delaying operations, the lessor can incur liability
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what are the implied covenants
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unwritten promises that impose duties on the lessees and protect lessors
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what are the implied covenants
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Covenant to test
Covenant to protect against drainage Covenant to reasonably develop Covenant to further explore Covenant to market Covenant to operate properly |
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what are the principle areas of implied covenants cover
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drainage, reasonable development and further exploration, marketing and proper operation
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how can you increase the amount of your royalty
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increase volume or increase production
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what is the difference between market value and amount realized in terms of gas
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market value- off premises sale
amount realized- gas sold at the well |
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what is the Vela Rule
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under the wording of the bifurcated gas royalty clause, royalty on sales of gas made off the premises will be calculated on the basis of market value (what a buyer would pay a seller at the time and place of sale) even though the gas is being sold pursuant to a long term contract at either a higher or lower price
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what is the tara rule
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royalty is calculated on the basis of the actual proceeds received from the sale
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what is a take or pay provision
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obligated buyers to either take a certain quantity of gas from the producer’s wells or wells or pay for a certain minimum quantity of gas at a defined minimum price, as stated in the K, even if the buyer did not take delivery of gas
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are royalties paid under a take or pay provision
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no royalty owners are not entitled to share in the payments made pursuant to take or pay settlements
Claim did not comport with the plain meaning of the words in the lease royalties are not due on value in the abstract but only on the value of production saved, removed or sold from the leased property. Consequently, royalties are not owed unless and until actual production, the severance of minerals from the formation occurs |
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who pays what when it comes to the costs
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• Lessee pays production but the lessor must pay proportionate shares of cost subsequent to production
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what is the market value at the well rule
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production for purposes of royalty calculation is complete when the oil or gas is captured
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what is the marketable product rule
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production is not complete until the lessee has both captured the oil or gas and made it into a marketable product
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what is a division order
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statement executed by all owners of production, stipulating how the proceeds or production are to be distributed
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what is the remedy for failure to pay royalties
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action for damages but not an action for forfeiture
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what are federal lands
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unpatented land which remains under the ownership of the federal government
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what is the Texas Relinquishment Act
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gives owners of land patented in 1895-1919 the right to share in the economic benefit of the minerals under the land
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what is a conveyance
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is a presently operative instrument pursuant to which the grantor transfers land or an interest in land to the grantee
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what is the process of judicial interpretation
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The court will attempt to ascertain the intent by examining the language in dispute. If clear and unambiguous the intent must be effectuated, if ambiguous then the court will attempt to install apparent intent. If this cannot be done court will move to further steps.
Cannons of construction- provides courts with objective inferences for the arties intent Last if the court may consider parole evidence |
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what are the 2 ways to determine the meaning of minerals in texas and what is the operative date for their use
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• Surface Destruction Test (SDT)- Acker v. Guinn- courts would not attempt to ascertain what the parties presumably intended in an other minerals dispute, so they decided to apply a rule of law- unless the intent of the parties is clearly otherwise- the term mineral does not include substances which cause substantial destruction to the surface estate when removed
o Objective test • Ordinary and Natural Meaning Test (ONMT)- substance will be construed as a mineral if it is generally regarded as a mineral in the community at the time and in the place where the severance took place operative date- 1983 |
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T/F produced and saved means a MI
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False
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True/False- in and under means a MI
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True
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what factors are to be considered
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Does the instrument convey an in place (MI) or a can of oil (RI)?
Who bears cost- The party bearing the cost of production has a MI What is the size of the instrument- large fractions point toward a mineral interest Was there a right to develop conveyed- if yes then by definition it is a MI |
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T/F using the word royalty will alway make the interest a RI
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false, relevant but not dispositive
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what is the linchpin of the MI
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the right to development
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what is the difference between "of" and "out of"
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• Of- same meaning as the times in a multiplication formula
• Out of- merely designates the source of the interest but does not affect the size of the interest |
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what is the subject to clause
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states that the interest conveyed in a mineral deed is subject to an existing lease
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what are rules of law
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statements of judicial preference
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what are the common cannons of construction
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• Instruments construed against the party preparing the instrument
• Type written or hand written prevails over printed • Specific provisions prevail over general and the general words that follow specific will be determined by ejudem generis |
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what are the common cannons to o/g and what are they
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• The Four Corners Cannon- primary- look to the four corners of the instrument to ascertain the intent of the parties, attempt to harmonize the various clauses of the instrument by seeking to ascertain objective evidence of the parties intent
• The Greatest Estate Cannon- s deed that does not specifically limit the size or nature of the interest conveyed will be interpreted as conveying everything that the grantor own • The In Sequence Cannon- courts interpret the language describing what was granted before they interpret the language describing what was reserved, effect of each portion determined in sequence without reference to other portions • The Literal Interpretation Cannon- the words of a conveyance are given their literal meaning |
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when does the Duhig rule apply
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when there is an overconveyance
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what is the Duhig rule
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o Duhig Rule- where full effect cannot be given to both the interest granted and the interest reserved, priority will be given to the interest granted until the granted interest has been fully satisfied
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T/F the Duhig rules apply to quitclaim deeds
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False
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T/F the Duhig rule applies to MI and leases but not royalty interests
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False, applies only to MI and RI but not leases
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T/F royalties are apportioned
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false
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what are the 3 types of title opinions lessors will commonly get
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• Lease purchase title opinion- before the payment is made by the lessee to the lessor of a bonus for executing an oil and gas lease
• Drilling title opinions- before drilling begins • Division Order title opinions- before payments are made by purchasers of production to the owners of such production |
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a contract of idemnity under which the title insurance company agrees to protect the purchaser of real estate against loss of damage by reason of a defect in title
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what is title insurance
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what are the 2 types of title examinations
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“Sit down” title examination- examine an abstract of title- collection of verbatim copies of instruments and proceedings affecting title
“Stand up” title examination- examining the public records at the court house |
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attorney’s conclusions concerning the ownership of the land and the minerals underlying the land, based on his examination
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what is a title opinion
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3 main ways to cure title defects
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• Voluntary Curative Action- preparing, executing and recording various types of instruments that may address various kinds of title problems raised by the title opinion
o Curative conveyances- surest and least expensive but need the other party o Affidavits- weight and usefulness depends on the detail, reliability and factual accuracy of the affidavit and the affiant’s knowledge of the material and relevant facts • Compliance with Curative Statutes o Curative statutes- grounded on the policy against unreasonably burdening the transfer of land and are a practical necessity fro quieting title Statute of limitations- Specific curative statutes- specific and usually only cure minor problems Marketable Title Acts- bar ancient title defects, not in TX • Suits to Clear Title- judicial action o Quiet title- procedural vehicle used to resolve ambiguous instruments in the chain of title, remove clouds on title and set the record straight o Trespass to try title- statutory procedure, unique to TX, determines title to the land, P must establish title cannot rely on the D lack of o Suits for trespass- forward |
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what are the 4 main types of trespass
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Surface trespass- usually happens when the oil company prepares to drill before getting valid title
Drilling resulting in a dry hole- if no title had then there is trespass to the mineral estate Drilling resulting in production- when no good title but a producing well is drilled, the true owner will have a cause of action in trespass and conversion Slant hole drilling- hole started on one property but bottomed on another |
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what is fracing and how does it relate to trespass
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Fracing- technique or creating cracks in a relatively impermeable rock formation that contain oil and gas
depends on court but CC says its subsurface trespass |
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what is seismic testing
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most common and effective method used to explore for oil and gas prospects prior to drilling, aka geophysical operations
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there is a direct COA for seismic blasts that cross property lines
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no, only if actual damages of if information misappropriated
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who can give permission for seismic operations
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owner of the mineral estate of the lessor
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what is slander of title and what are the elements
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Slander of Title- arises when a landowner loses the opportunity to get an oil and gas lease because of a false claim of title by a third party who does not have title to the minerals
- publishing a false claim to title - with malicious intent - which causes the P a specific pecuniary loss |
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an equitable action to enforce an implied contract
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what is assumpsit
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the measure of damages is loss of bonus under a lease which was frustrated by tort
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what is loss of speculative value
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when someone conducts a geophysical survey on a landowner’s land without the landowners permission and without physical entry on to the land
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wrongful appropriation of information
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if the well drilled is a producing well then consider what for damages
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trespass and conversion
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if the well drilled is a dry hole then consider what for damages
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loss of speculative value, assumpsit,
slander of title, wrongful appropriation of information |
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what is rule for adverse possession and MI
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• Where the possession begins prior to severance, adverse possession of the surface will give the adverse possessor title to both the surface and the minerals
o A mere paper transaction will not toll the running of the statute of limitations Paper transaction- delivery and recordation of a deed but if not then • Where possession begins after severance, possession of the surface estate will not give the adverse possessor title to the mineral (or to any previously severed mineral interest or royalty interest). The adverse possessor must separately establish her title to the surface and mineral interests by separate acts of possession as to each of the separate estates |
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according to the Pool case how can one adversely possess a MI
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drilling and producing continuously and in an open and notorious manner
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T/F a MI can be abandoned in TX
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False
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who regulates conservation in the state of TX
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RRC
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what are the purposes of conservation
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prevent waste and/or protect correlative rights
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T/F Spindle Top is an example of the good that can come from conservation
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False
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What do Rule 37 and 38 regulate
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the spacing and density requirements in TX
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what are some reasons for a Rule 37 exception
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• Geological reasons- enable the operator to locate his well above the reservoir
• To prevent drainage- if possible calls for an exception • Small tracts- for tracts that cannot comply with spacing rules |
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what special problems to small tracts impose
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o Constitutional Issue- The Exception to Prevent Confiscation
If minimums are followed to strictly it allows an unconstitutional taking of property without due process of law because it does not allow small tract owners to get their share of the reservoir Most states deal with this through compulsory pooling • Compulsory pooling- locating a well in the middle of the tract and entitle the small tract owner to his share of the production |
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how does TX handle the exception to prevent confiscation
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TX handles the small tract problem by granting the small tract owner a Rule 37 exception rather than pooling
• Note- TX has compulsory pooling statute but it is weak and TX has history of being opposed to compulsory pooling Allows the use of the two rules in tandem- in TX the owner of every tract which had a separate existence prior to discovery of petrol in the area is entitled to one well on his land as a matter of right |
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T/F you can still get an exception if you subdivide your land after o/g has been found
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False- the voluntary subdivision rule precludes this
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what are the 2 exceptions to the Voluntary Subdivision Rule
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Special Waste Exception- states Rule 37 exception may be granted, in spite of the voluntary subdivision rule, on the basis of geological factors, makes the voluntary subdivision rule a limitation only in cases involving the small tract exception; seldom limited for geological or drainage reasons
The Century Doctrine- states that if a tract has been subdivided so that none of the subdivided tracts are eligible for Rule 37 exceptions, the parent tract as a whole may nevertheless be eligible for an exception tract drilling permit if it is shown that waste or drainage will occur absent a permit |
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what is the rule for allowables for a small tract of land and what cases changed these rules
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Proration Rule (Fair Share Rule)- the production allowable of the small tract owner is set to a rate that enables her to recover her fair share of the oil in the reservoir, whether or not production will be profitable
Normanna Cases and the Port Arthur Cases |
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what is the well plugging rule
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a depleted well entails placing a cement plug in the well bore of the depleted well at the level of the once-producing formation to prevent migration of the oil and gas remaining in the reservoir
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who plugs the well if the operator doesnt
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• Non-operators are secondarily responsible and may be required to plug the well if the operator does not do so
o Royalty owners and lessors are not liable for plugging the well • If no one has sufficient assets to plug the well, the RRC can using funds set aside by the State for that reason, the RRC can then seek indemnity form or impose penalties on those legally required to plug the well |
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what is pooling
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bringing together of small tracts or fractional mineral interests in one or more tracts to form a drilling and production unit for a well under applicable rules
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what is the difference b/w pooling and unitization
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pooling- one well
unitization- usually big projects and more than one well |
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T/F if parties cannot work out a deal to pool then the state will work out a deal for them
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True but usually not an important issue in TX
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what are the consensual ways to acquire mineral rights
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• Farmout- agreement under which one who owns an oil and gas lease agrees to assign the lease or a portion of it to another person in exchange for testing and drilling operations on the acreage covers by the farmout agreement; commonly used when the owner does not want to drill and finds another who does
• Joint Operating Agreement - contract between co-tenants or separate owners of oil and gas properties that are being operated jointly; often used when operating interests in a prospective drillsite or larger are co=owned and where more than one party wishes to participate in the development o Both are contractual arrangements commonly used by oil companies in assembling blocks of acreage for exploration, production, and development |
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what are the options for foced pooling in TX
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participate
lease take a carried interest with penalty |
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MIPA does what
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encourages voluntary pooling rather than a true compulsory pooling act
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whats is the effective date of the MIPA
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3-8-1961 prospective only
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T/F RRc can dismiss offers under MIPA unless they are fair and reasonable
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True
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Muscle in provision of MIPA does what
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enables a small tract owner, who has no other small tracts with which he can pool, to force himself into a unit
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what is voluntary pooling and why do it
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consensual transaction, without the lessor’s consent the lessee cannot pool the lessor’s interest
3 Reasons to voluntarily pool- • Small tract- if the acreage is too small to comply with spacing rules • Geological Reasons- pool to locate over the reservoir • Business Flexibility- catchall term that covers a variety of situations where it makes good business sense for the reasonable prudent operator to pool, may be to increase his allowable, or hold a number of lease with one well |
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T/F you can be forced into voluntary pooling
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False, always need consent
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what are some ways to voluntarily pool
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community lease
separate pooling agreement lease pooling clause |
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what does the lease pooling clause primary effect
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o Primary effect is that it gives the lessee power to pool the lessors interest, the option of pooling, gives flexibility and enables him to hold additional leases and acreage, notifies both the Habendum and royalty clause
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under what circumstance will the entire tract not be held by pooling
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if there is a pugh clause
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what is a pugh clause
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a negotiated compromise, often between the lessee who wants a pooling clause and a lessor who doesn’t; modifies the pooling clause
• Provides that operations or production from the pooled unit will not preserve the whole lease but rather only preserve that portion of the lease which covers land in the pooled unit |
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T/F to have a valid pooling clause you need good faith but it does not have to be strictly adhered to
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False, need strict compliance and good faith
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what are the effects of pooling
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• Effect on Lease Operations- clause amends both the Habendum and royalty clause
• Effect on Non-operating Interests- NPRI- in TX for pooling purposes, an NPRI is an independent interest which is not bound by a pooling clause in a lease which the holder of the NPRI did not execute |
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if a NPRI doesnt pool what happens
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Drillsite tract- gets full royalty on 100% of the production because of the non-apportionment rule, imposes penalty if he pools and is drill site tract
Non-drillsite tract- no royalty due to the non-apportionment rule, but has right to ratify and receive proportionate share |
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what is a farmout agreement
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an agreement under which a person who owns an oil and gas lease agrees to assign the lease or a portion of the lease to another person in exchange for the farmee’s agreement to drill on the acreage covered by the agreement
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is drilling required under a farmout agreement
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no, but usually the only way to earn the acreage
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what are the minimum requirements for a farmout agreement
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Indentify of lease and lands
Obligation of the farmee • Drilling initial well • Conditions to drilling • Tests to be performed • Information and reports Obligations of the farmor • Interest retained • Interest assigned • Conditions of the assignment Provisions for subsequent wells, further development of the area, etc.- “Acres of Mutual Interest Clause) |
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how are farmout agreement usually established
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letter form agreement
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what is a JOA
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a K between co-tenant or separate owners of oil and gas properties that are being operated jointly; defines the rights and duties of the co-owners of the oil and gas properties as sets out the parties agreement with respect to initial drilling, further development and operations on the jointly owned properties; establishes the sharing of costs and accounting with respect to the joint operations
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T/F All interested parties are parties to a JOA
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false, only the parties with operating interests
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T/F there is no standard form agreement for JOA
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False, the standard form is AAPL-610
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what is an AFE
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proposal of the operating agreement
Prepared by the party who will be in charge (operator), usually States where the well will be located, contains geological information, estimated depth, estimated cost and similar information Even though costs may exceed the estimates parties are still liable for their share but the AFE will usually contain caps |
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what is the fundamental purpose of a JOW
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provide a legal structure in which several parties can participate in drilling an initial well, receive proportionate benefits from production and make informed decisions about future development within the are covered y the JOA
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what does it set out
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rights and obligations with respect to drilling both test well and any subsequent wells, sharing costs and revenues, operations and accounting
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what is the COPUS Form of Accounting
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provides that operator will pay to drill initial well but shall charge each of the parties to the JOA their proportionate share of the expenses
JOA contain provision allowing parties to opt in to additional wells and bear the costs of those wells |
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T/F a JOA creates a partnership
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False
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T/F a JOA creates a Joint Venture
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False
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what duties do the owners in a JOA owe the non-owners
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RPO
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who makes up the JOA and what does the JOA shield from
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• Operator- the one in charge, duties and authority spelled out in JOA
• Non-operator- all the other interests involved • JOA shields from vicarious liability due to operators conduct |