July 17 Slide Show.pdf - The Oil and Gas Lease Part 1 Basics of Contract Law Contract = Enforceable agreement 1 Agreement \u201cMeeting of the Minds\u201d 2

July 17 Slide Show.pdf - The Oil and Gas Lease Part 1...

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The Oil and Gas Lease Part 1
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Basics of Contract LawContract = Enforceable agreement1. Agreement* “Meeting of the Minds”2. Consideration* Provide “value” to “seal the deal”3. Capacity4. Legality
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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 cornersof document
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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
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Oil and Gas LeaseOil and gas lease= central documentgoverning oil and gas development* Severs and conveys mineral interest- Right to develop oil and gas
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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!
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Oil and Gas LeaseWritingRequirement1. Words of grant2. Adequate descriptionof property 3. Partiesidentified4. Properly executed
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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
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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
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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)
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Mineral Interest5 “Attributes1. 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
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Mineral Interest5 “Attributes3. 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
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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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