Posted: June 28th, 2022

Oil and gas law

Research theories of mineral ownership.
Write an academic paper to discuss the Oil and Gas Law. Review the resources in Franklin Writing Site & Academic Papers. Specifically, your paper should address the following questions:

What are the majority (accepted by most states) and minority (accepted by the fewest states) theories of ownership?
What are rationale for Oil and Gas Law policy? What are implications of each theory on the Oil and Gas Law?
What are the differences between a mineral right and a royalty interest? Provide at least one example for mineral rights and one example for royalty interest. Why does difference matter under Ohio law?
What are the common duties a lessee of minerals owes to the lessor? Include sample contractual language that affirms or modifies these duties and one or two practical examples of when the duty may be breached.
Your paper should be between 4-5 pages in length EXCLUDING title page, appendices, or references.
Cite your sources using APA format.

Oil and Gas Law

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Oil and gas law
With the discovery of oil, there are legal challenges realized in the concept of ownership. In the United States, for example, the concept of ownership is divided into schools. These concepts have an origin from where they were first originated. The states include Pennsylvania, Oklahoma, and Texas. In Texas’s theory of ownership, the rights created by a petroleum lease are considered separate and absolute fee simple. In the Texas theory of ownership, a person who is a surface owner with no reservations or exceptions on his title is considered to own all the oil and gas under their land. When the same person grants a lease or conveys a transfer to another person, the purchaser holds a fee simple in the severed estate.
The Texas courts support this concept of ownership concerning Lord Coke (Colby, 1942). The industry soon found an opportunity to test this theory when suits were commenced by surface owners claiming compensation and damages from adjoining surface owners for draining away their petroleum. The argument was logical: if a landowner owns an absolute interest in the petroleum beneath his land, he ought certainly to be able to protect his interest against his neighbor’s oil well (Colby, 1942). Although the argument was logical, the judicial answer was not; the answer was, however, convenient. The courts of Texas reiterated the opinion that a simple fee exists in oil and gas in the ground, but then stated that it is a “defeasible fee.”‘ In other words, the owner is liable to lose his oil if someone draws it away, but until that happens, his ownership is absolute. It may be that the difficulty is one of terminology. Still, it would seem that the qualification of a fee simple by calling it “defeasible” indicates an estate that is something less than a fee simple.
The Pennsylvania theory has been adopted in California and the majority of oil-producing states. This theory contemplates something less than a fee; ownership is not absolute until the oil is brought to the surface and reduced to possession.’ Thus, if the oil escapes to another’s land, the ownership is lost. The Pennsylvania type lease grants an incorporeal right to explore and vests title when the oil is reduced to possession. The petroleum is regarded as a chattel real, a profit â prendre, and is, therefore, an interest in land (Colby, 1942). The ownership is qualified but is sufficient to sustain an action for ejectment and is subject to the local rules on the disposition of real property
The Oklahoma theory of ownership is the minority rule followed by Indiana, among other states. In this theory, the jurisdictions hold that there can be no ownership in oil and gas. Oil leases are there regarded merely as exclusive grants of rights to explore,’ conveying no interest inland. The migratory feature of petroleum has caused it to be compared with animals’ ferae naturae. By analogy, oil, like an animal, cannot be owned until it is captured. Until it is reduced to possess no property interest in oil or animal (Martin and Kramar, 2018). The Oklahoma lease, therefore, grants only a license or fundamental personal right. The theory draws a careful distinction between the right to the oil itself and the right to take the oil. One supporter of this theory argues that it is as logical to assert ownership of the sunbeams above the land to assert the existence of a fee simple in migrating petroleum (Martin and Kramar, 2018). To sum up, the theories of ownership in the United States are (a) Texas-absolute ownership; (b) Pennsylvania-qualified property interest; and (c) Oklahoma-no ownership, only an exclusive right to explore.
In oil and gas laws, there exist a difference between mineral rights and royalty interest. Mineral rights are the real property created in oil and gas after bringing up the minerals from the underground into the surface estate. Mineral interest owners are subjected to administrative rights, which include reasonable surface use. Consequently, the mineral rights owners have the right to bonuses, delay rental payments, and shut-in payments (Polston, 1994). On the other hand, royalty interest is the property interest created when the owner receives a share of the production. Royalty interests are created under conveyance or reservation in a deed or lease. Royalty interests differ from mineral rights as the royalty interests do not attract administrative rights. In this regard, royalty interest owners do not receive bonuses, delay rental payments, or shut-in payments.
Under Ohio law, the difference between mineral rights and royalty interests is essential, considering the Supreme Court decision of 1989. The Ohio Supreme Court held that the 1989 DMA was not self-executing. This lack of self-execution provided that dominant mineral interests should merely be deemed abandoned and vested rather than extinguished or null and void. This was considered that dominant mineral interest did not automatically pass to the surface owner under the 1989 Act (Colby, 1942). Consequently, there are commodities that a lessee owes to the lessor, and if these terms are not followed, then the contract can be breached. For example, there is a duty to market in good faith. Marketing in good faith is considered by the court to determine whether a lessee the gas contract. Additionally, there is a duty to act as fiduciary, for example, in the El Paso Natural Gas Co. Vs. American Petrofina gas company.
In conclusion, the most satisfactory theory of gas and oil ownership in place is found in Pennsylvania. The owner of a profit ‘i prendre, the person who has the right to take the oil, has a property interest in the oil. The right is something less than absolute ownership, in that it may be defeated. Still, it is nevertheless an interest in land subject to the usual conveyancing rules governing interest inland. Briefly, the oil is part of the land so long as it is there and subject to be taken.

References
Martin, P. H., & Kramer, B. M. (2018). Williams & Meyers, Oil and Gas Law Abridged. LexisNexis.
MacIntyre, J. M. (1969). The development of oil and gas ownership theory in Canada. U. Brit. Colum. L. Rev., 4, 245.
Colby, W. E. (1942). The Law of Oil and Gas. Calif. L. Rev., 31, 357.
Polston, R. W. (1994). Mineral ownership theory: Doctrine in Disarray. NDL Rev., 70, 541.

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