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Description
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gas
law
o&g
oil
prop
tx
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rentals.
A NPRI would only receive royalties. Much less common to have an NPMI than an NPRI.
Weaver conveys to Barb: "Weaver grants to Barb 1/16 OF royalty on Blackacre". What does
Barb get?
1/16 OF 1/8 = 1/128
Weaver conveys to Barb: "Weaver grants to Barb 1/16 royalty on Blackacre". What does Barb
get?
1/16 of the production - Barb owns a fixed flat 1/16 NPRI
Weaver conveys to Barb: "Weaver grants to Barb 1/16 royalty on Blackacre". What does
Weaver get?
1/8 - 1/16 = 1/16 (the 1/16 NPRI comes out of the 1/8 Lessor's royalty)
Weaver conveys to Barb: "Weaver grants to Barb 1/2 of all royalties on Blackacre". What does
Barb get?
Half of everything Weaver negotiates (eg if Weaver negotiates for 1/8, then Barb gets Half of
1/8 = 1/16)
What are the 4 kinds of trespass?
1) ordinary trespass (eg lease expires but lessee stays on the tract
2) slant well drilling
3) geophysical or seismic trespass
4) damage to teh speulative lease value (eg wrongful lessee enters and drills a dry hole on
tract and lessor loses the lease value (the bonus money) that he could have received before
the world found out that his land was dry.
What are the remedies for trespass?
Ordinary trespass and slant well drilling = injunction and damages
geophysical or seismic treaspass = waive the tort and sue in assumpsit (on the contract
which would have been entered into) for the market value of the right to do seismic
exploration
damage to spec lease value = the lost bonus.
How have TX courts ruled on MERE VIBRATIONS?
Mere vibrations passing thorugh another's land do NOT constitute trespass when the explorer
never enters upon the surface (however, those cases involved facts favoring the explorer).
See pg 9 O&G barbri
Do authorized secondary recovery operations constitute a trespass?
No - not a trespass and no injunction.
TX Supreme Court has held that repressuing operations approved by the RRC do NOT
constitute a trespass and no injunction will issue b/c public policy favors recovering more oil
and gas. Court left open possibility of suing for damages.
First (line) in time is first in right. If the mortgage came first, then the Bank can foreclose and
destroy the lease. The lessee will have to repurchase the lease at the foreclosure sale if it
wants to keep the lease. However, bank will have to sell the surface assets first to try and
satisfy the loan before selling the mineral estate (eg "marshalling" of assets). A subrogation
clause could protect the Lessee.
If the O/G lease precedes the mortgage AND is recorded, lease cannot be foreclosed
against, b/c the mortgage did not include the minerals b/c lease conveyed the minerals to the
Lessee.
What is a Mother Hubbard Clause?
Purpose is to pick up small strips of land not specifically included in the granting clause b/c of
Mistakes in surveys or land descriptions, or adverse possession of a strip of land b/c of
misplaced fence.
Eg: "This lease also covers and includes all land owned by Lessor adjacent to the land
described above."
Under the Open Mines doctrine, how are payments split among the life tenant and the
remaindermen?
Whe na lease has been executed prior to creation of a life estate, the life tenant is entitled to
all bonus payments, delay rentals and royalties paid under any lease in effect prior to creation
of the life interest. Remaindermen get nothing
HOWEVER: If an O/G lease in force at the time of creation of the life estate expires and a
new lease is executed after creation of the life estate, the open mines doctrine does NOT
apply.
Under the Trust Act, how are payments split among the life tenant and the remaindermen?
For trusts BEFORE 1/1/2004:
LT gets: Delay rentals + 72.5% of bonus + royalty + interest on 27.5%
R'DER gets when LT dies: 27.5% of bonus + royalty escrowed
AFTER 1/1/2004:
LT gets: Nominal Delay Rentals + Equitable share (85% presumed equitable) of all other
proceeds (bonus, royalty, shut-in royalty, Delay rentals that are more than nominal and
production payments that bear no explicit interest factor)
R'DER gets when LT dies: Equitable share (15% presumed) of all other proceeds (bonus,
royalty, shut-in royalty, delay rentals more than nominal, etc)
Under the Common law, how are payments split among the life tenant and the remaindermen?
LT gets: Delay rentals + interest on bonus and royalty
R'DER gets: All bonus + royalty in escrow
What is a typical Habendum Clause?
"The lease shall be for __ years from this date (called the primary term) and as long as oil,
gas or other minerals are produced (secondary term)
What does "production" mean in a habendum clause?
It means "production in paying quantities" (PPQ). It does NOT include mere discovery
What are some clauses that could prevent a lease from dying as a result of not satisfying the
secondary term of a habendum clause?
1) Force majeure
2) Shut-in gas royalty clause (generally, can only be paid on wells that are capable of
producing in paying quantities)
What is the formula for "production in paying quantities" (PPQ)?
PPQ = Revenues MINUS the Lessor's royalty in the lease MINUS operating costs
NOTE: Drilling costs are NOT included in operating costs.
How are habendum clauses generally construed?
Generally, construed striclty AGAINST THE LESSEE
What is the Marginal Well Doctrine?
The test for a marginal well is "Whether a Reasonably Prudent Operator (RPO) would
continue to operate the well to make a profit, not merely for speculation"
As long as the well is still producing some oil/gas and is not completely shut-in, Lessees have
a reasonable amount of time to show that the well is capable of profitable production.
What are the key factors for the Temporary Cessation of Productoin (TCOP) Doctrine?
1) a short temporary shutdown
2) Which the lessee acts diligently to fix; and
3) which is due to a "mechanical breakdown or the like"
NOTE: Unclear whether waiting for market conditions to improve qualifies, however dictum in
TX Supr Ct stated that "foreseeability and avoidability" are not essential elements of the
TCOP doctrine.
What is the effect of a "cessation of production clause" upon the TCOP doctrine?
The express clause will control (eg if it says you have 60 days to commence operations, then
you have 60 days).
Compare the marginal well doctrine w/ the TCOP doctrine
Marginal well applies ONLY to marginal wells, but allows them to have fairly long spells of
unprofitable production as long as they are expected to return a profit in the long run
The TCOP doctrine applies to any well, but only if there is a sudden stoppage of production,
and Lessee has only a short time to restore production (not more than a few months at most).
What is the difference b/w the "paid or delivered" vs "mailed or delivered" clauses of
"mailed or delivered" = if mailed before deadline, but payment arrives late, that is ok -- lease
does NOT expire
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