The Oil and Gas Lease Part 1
Basics of Contract LawContract = Enforceable agreement1. Agreement* “Meeting of the Minds”2. Consideration* Provide “value” to “seal the deal”3. Capacity4. Legality
Basics of Contract LawTransfer interestin real estate* Must be in writing(statute of frauds) Interpretationof contract terms* Carry out intentions of partiesas reflected within “four corners” of document
Basics of Contract LawRelevanceto oil & gas development?* Development of oil and gas typically occurs pursuant to terms of written agreement known as oil and gas lease
Oil and Gas LeaseOil and gas lease= central documentgoverning oil and gas development* Severs and conveys mineral interest- Right to develop oil and gas
Oil and Gas LeaseConveyance must be in writing* Minerals are part of the land * Therefore, conveyance of minerals= transfer of interest in real estate= get it in writing!
Oil and Gas LeaseWritingRequirement1. Words of grant2. Adequate descriptionof property 3. Partiesidentified4. Properly executed
Oil and Gas InterestsOil and gas interests are generally created and conveyed like real-property interests, but names given to interests may be unfamiliarCommonly created oil and gas interests and characteristics are summarized on next few slides
Fee InterestComplete Ownership* Landowner has full bundle of legal rights(surface interest and mineral interest)* Landowner typically lacks money and expertise to developoil and gas -Mineral interest “severed” from surface and conveyedto energy company, which has funds and experience for oil and gas development
Mineral InterestProperty Interest in Oil and Gas* Created by severance document (oil & gas leaseor mineral deed)* Recipient of mineral interest generally acquires rights of predecessor in title(fee simple owner before severance), except asseverance document creates obligations (express, implied)
Mineral Interest5 “Attributes”1. DevelopmentRights * Enterland as reasonably necessaryto explore, develop, and produceoil & gas under surfaceof land - Disputes between mineral interest and surface owner2. Leasingrights * Execute oil and gas lease-aka: “Executive right”
Mineral Interest5 “Attributes”3. Bonus* Pay lessor for signing lease 4. Drilling-Delay Rentals* Pay lessor in lieu of drilling 5. Royalty* Share with lessor benefits (not costs) of production -aka: “Expense-free” share of production
Leasehold InterestThe mineral interest conveyedto lessee under terms of oil and gas leaseTexas: Oil and gas lease conveys fee simple determinableto oil and gas in place under leased land
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- Spring '14