Oil and Gas Law and Taxation
Authors:
Anderson, Owen L. / Dzienkowski, John S. / Lowe, John S. / Peroni, Robert J. / Pierce, David E. / Smith, Ernest E.
Edition:
1st
Copyright Date:
2017
22 chapters
have results for Oil and Gas
Chapter 7 The Oil and Gas Lease—Royalty Clauses and DIvision Orders—Other LEssor Benefits 448 results (showing 5 best matches)
- Historically, gas royalties were often expressed as a fixed or flat rate, while oil royalties were due on a fraction or percent of value basis, and the earliest leases failed to refer to casinghead gas—gas produced from an oil well, which became valuable for its natural gasoline content. Thus, the question arose whether casinghead gas is “oil” or “gas” for purposes of royalty. Was casinghead gas covered by the lease and, if so, was it governed by the oil or the gas royalty clause? If it was covered, was royalty owed under the flat-rate gas royalty clause or under the fraction of value oil royalty clause?
- Casinghead gas gets its name from its tendency to accumulate in the space between the well casing and production tubing in an oil well. Casinghead gas originates as gas held in solution with the oil in a reservoir and may also consist of gas that comes out of solution and migrates into a gas cap. In the not unusual situation where one party owns the crude oil and casinghead gas rights and another party owns the remaining gas rights, determining the ownership of particular gas can be difficult. In
- Although these cases may be construed as addressing whether natural gasoline is oil or gas or neither oil nor gas, the courts seemed more concerned about the parties’ reasonable expectations regarding the payment of royalty on valuable substances and about the fact that the parties to these early oil and gas leases could not contract for every contingency owing to the anticipatory and potentially long-term nature of an oil and gas lease.
- In Oklahoma, unless expressly stated, casinghead gas is neither oil nor gas and is therefore not covered by the lease. In
- See the following commentary by Professor David E. Pierce: 2014 Survey on Oil & Gas: Recent Developments in Nonregulatory Oil and Gas Law: Beyond Theories and Rules to the Motivating Jurisprudence, 58 Institute on Oil and Gas Law and Taxation 1–1 (LexisNexis 2007); Exploring the Origins of Royalty Disputes, 23 Petroleum Accounting and Financial Management J. 72 (2004))The Renaissance of Oil and Gas: The Contract Dimension, 42 Washburn L.J. 201 (2004); Defining the Role of Industry Custom and Usage in Oil & Gas Litigation, 57 SMU L. Rev. 387 (2004); The Royalty Value Theorem and the Legal Calculus of Post-Extraction Costs, 23 Energy & Min. L. Inst. 3–1 (2003); From Extraction to End Use: The Legal Background, Private Oil & Gas Royalties (Rocky Mountain Mineral Law Foundation, Mineral Law Series 2003); Exploring the Jurisprudential Underpinnings of the Implied Covenant to Market, 48 Rocky Mtn. Min. L. Inst. 10–1 (2002); Recent Developments in Nonregulatory Oil and Gas Law: Unfinished...
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Preface 6 results (showing 5 best matches)
- This volume is a major revision of Hemingway Oil and Gas Law and Taxation (fourth edition) published in 2004. For over four decades, courts, lawyers, and commentators have turned to Hemingway for guidance on oil and gas law and taxation. We trust this revision will be a worthy contribution to the tradition of publishing a useful one-volume treatise addressing oil and gas law and taxation that is valuable to the judiciary, the practicing bar, in-house counsel, students, and oil and gas industry professionals. This volume is unique for its coverage of traditional oil and gas law and federal income taxation of oil and gas.
- As a one-volume treatise covering the substantive law of oil and gas and federal income taxation of oil and gas, this work is intended to serve as a comprehensive introduction and guide to users. Although we believe this volume contains sufficient detail to assist users in a variety of circumstances, it does not and cannot cover materials in the same depth as do multi-volume treatises.
- Collectively, we bring over two hundred years of experience in teaching and writing in oil and gas law and taxation. Each of us have authored casebooks in our respective areas and thousands of pages of scholarly work. We are also fortunate to have close connections to the practicing bar, landmen, accountants, and negotiators in the oil and gas industry. Professors Anderson, Lowe, Pierce, and Smith are responsible for Chapters One through Nine. Professors Dzienkowski and Peroni are responsible for Chapters Ten through Twelve.
- In addition to an updated discussion of the law, users will note that we have revised the organization and much of the analysis of the prior editions. We believe this new organization is more logical and will be more useful to all users. The revised analysis reflects the collective, and occasionally diverse, wisdom of the authors.
- Professor Lowe thanks Dean Jennifer Collins and the Dedman School of Law for supporting this revision, as well as Donna Gaubert, Travis Cox, and Alexander Turner for their technical and research help.
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Chapter 1 The Mineral Estate 199 results (showing 5 best matches)
- There are many other arrangements that a mineral owner can make; a mineral owner might, for example, participate in oil and gas development through a limited partnership or as a party to an operating agreement. Alternatives to oil and gas leases have become more common as oil and gas have become more valuable and mineral owners have grown more sophisticated. The relative duties and benefits for mineral owners under alternative arrangements may vary markedly from those created by an oil and gas lease. Because executing an oil and gas lease is the most common method that mineral owners use to obtain oil and gas exploration and development, we will limit the discussion in the following sections primarily to the rights and duties created by an oil and gas lease.
- Today states with commercial production of oil and gas are primarily divided into two groups: (1) those that recognize ownership of oil and gas in place beneath the surface of the ground as though they were a part of the land itself, similar to ownership of hard minerals—the so called ownership-in-place theory; and (2) those that reject ownership of oil and gas in place, but recognize that one who owns land has an exclusive right to use that land to search for and reduce oil and gas to possession—the so-called non-ownership theory.
- Both ownership-in-place states and non-ownership states recognize that landowners must reduce oil and gas to possession to gain ownership of it. This is the “rule of capture”: the owner of mineral rights in a tract of land acquires title to the oil and gas produced from wells drilled on the land, though part of the oil and gas may have migrated from adjoining lands. Whatever the theory of ownership, production converts oil and gas from real property to personal property owned by the capturer.
- Depending upon the jurisdiction, a mineral-rights owner has either a possessory corporeal estate in the minerals or the right to use and occupy the surface of the land to explore, develop, and produce oil and gas. In either case, the mineral owner has the inherent right to enter the land and conduct operations to develop the mineral estate or to enter into a variety of development arrangements with others. Because of the high cost of development, relatively few owners can exercise their rights by themselves. Thus, a mineral owner usually transfers development rights to oil and gas to another by use of an instrument with a defeasible term, which is usually referred to as an oil and gas lease. The mineral owner is referred to as the “lessor” and the oil and gas company as the “lessee.” They are both owners and share together the benefits of the enterprise.
- Under the usual oil and gas lease, the lessee bears entirely the costs of exploration, development, and production. The economic benefits enjoyed or reserved by the lessor depend upon the agreement of the parties in the lease, but benefits usually include a cash payment for the execution of the lease, payments to maintain the lessee’s exploration and development rights before oil or gas is discovered and produced, and upon production, a share in the production of oil and gas from the land. The rights of a mineral owner/lessor who grants a lease may be tabulated as follows:
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Chapter 11 Federal Income Taxation of Oil and Gas Interests and Transactions—The Oil and Gas LEase 443 results (showing 5 best matches)
- In the Tax Reduction Act of 1975, Congress enacted special limitations on the percentage depletion deduction for oil and gas production. Section 613A effectively repealed percentage depletion except with respect to certain domestic natural gas production and with respect to a limited amount of domestic oil and gas production by so-called independent producers and royalty owners. Specifically, § 613A eliminated percentage depletion for (1) oil and gas properties owned by integrated oil producers (i.e., producers that engage in significant retailing or refining operations); (2) proven oil and gas properties transferred after 1974 (with certain exceptions), although this provision was repealed in 1990; and (3) foreign oil and gas properties. In addition, Congress reduced the applicable rate of percentage depletion on oil and gas production, imposed certain quantity limitations on the amount of oil and gas production eligible for
- The question of whether a transfer of an oil and gas property would be treated as a “sale” or a “lease” for tax purposes arose quite early in the case law. In the owner of lands in Texas executed oil and gas leases in return for royalties from production and a cash payment of $57,000. He reported the cash payments as gain from the sale of capital assets in his 1924 and 1925 tax returns. The Service contended that the payments were ordinary income resulting from a lease of the oil and gas property. The Supreme Court upheld the government’s argument on this issue and concluded that the transaction was not a sale for federal tax purposes, even though Texas followed the ownership theory of oil and gas leases and treated an oil and gas lease as a present sale of the oil and gas in place. The Court looked at the legislative history underlying the capital gain preference and concluded that Congress adopted such preference to relieve taxpayers from “excessive tax burdens on gains resulting...
- The election for conversion of the depletable oil quantity from crude oil production to natural gas production is illustrated by the following example. Suppose that during the current year, a taxpayer owns two properties: one property that has produced 100,000 barrels of oil and a second property that has produced 1,200,000,000 cubic feet of natural gas. If a taxpayer makes the election, § 613A(c)(4) converts the 1,200,000,000 cubic feet of gas to an oil equivalent of 200,000 barrels. Therefore, the taxpayer’s total production of oil and gas for the taxable year is equivalent to 300,000 barrels of oil. The taxpayer’s average daily production is 821.92 barrels (i.e., 300,000 barrels divided by 365 days), which is less than the depletable oil quantity (1,000 barrels). Therefore, the taxpayer may elect to convert the entire gas production under § 613A(c)(4) and thereby be entitled to percentage depletion with respect to her entire income from the production of oil and gas for the year.
- The taxpayer bid competitively for federal oil and gas leases, filed entries under the simultaneous filing procedure for noncompetitive leasing of federal oil and gas lands, and leased oil and gas properties from private individuals.
- the amount for which the taxpayer sells the oil and gas in the immediate vicinity of the well. If the oil and gas are not sold on the property but are manufactured or converted into a refined product prior to sale, the gross income from the property shall be assumed to be equivalent to the representative market or field price (as of the date of sale) of the oil and gas before conversion or transportation.
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Chapter 6 The Oil and Gas Lease 602 results (showing 5 best matches)
- It is axiomatic that there is no standard form of oil and gas lease. Seemingly similar form documents often vary in significant substantive ways. Although individual lease language varies widely, oil and gas leases are uniform in structure. For example, all oil and gas leases will have a granting clause, habendum clause, and royalty clause. Traditionally most oil and gas leases have had a delay rental clause, which today is often eliminated in favor of a “paid up” lease clause. All oil and gas leases have clauses designed to excuse, under defined circumstances, the production requirement of the habendum clause.
- Granting clause provisions are spread throughout the typical form of oil and gas leases. The clause that identifies what is being granted is found in the first paragraph of most form documents. Although the granting language should dictate the nature of the interest granted, most courts instead rely upon general classification rules to declare that the oil and gas lease either creates a conveyance of a mineral interest, a license, or a Absent an overriding classification rule, the following language creates a right to use the land to obtain oil and gas: “[Lessor] does hereby grant, lease and let unto Lessee exploring, prospecting, drilling and mining for and producing oil and gas . . . .” In addition to the various easements to enter the leased land to do things, it includes the right to produce and take oil and gas from the leased land. This is a but under Texas classification law it is deemed a conveyance of the oil and gas in place.
- Oil and gas in the United States are developed using a document called an oil and gas “lease.” Courts, however, generally avoid applying landlord/tenant law to the oil and gas lease. As discussed in § 6.1(B), the interest granted will be either a conveyance of the minerals or conveyance of a
- The shut-in royalty clause evolved to maintain an oil and gas lease when a gas well had been drilled but could not be produced due to lack of a market or a pipeline connection. Typically, shut-in royalty clauses apply only to gas, because it is almost always possible to market oil. The clause is especially important in jurisdictions, like Kansas and Texas, that require actual production and marketing to satisfy the habendum clause of the oil and gas lease. In those states having a well merely capable of producing gas will not maintain the lease. Therefore, a pipeline connection will normally be required to produce and market gas because gas flows in a continuous process from wellbore to end user.
- The problem of securing actual production from the lease prior to the end of the primary term is much greater with gas than oil. Oil may be produced immediately and stored above ground; a market for oil is usually readily available. Oil may be transported to market by truck if pipeline facilities are not available. This is not true for gas. If a gas well is a discovery well, pipeline facilities may not be available. The physical qualities of gas make it unsuitable to be produced and stored above the ground. If no pipeline facilities are already available for gas, a gathering line will not be constructed until a sufficient number of wells have been developed in the field to economically justify building a pipeline to serve the area. Therefore, unless the lease is being maintained by other provisions, a considerable time gap may exist between the discovery of the gas and actual production.
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Chapter 9 Transfers by the Lessor and by the Lessee 268 results (showing 5 best matches)
- Compliance with the Statute of Frauds is a basic formality imposed on a contract to assign an oil and gas lease. The Statute of Frauds in most states is worded broadly enough to encompass all oil and gas lease transactions, including an agreement to grant an oil and gas lease, to assign an oil and gas lease, and the creation of various interests out of the oil and gas lease, such as an overriding royalty
- The conveyed interest covers a portion of the area currently burdened by an oil and gas lease covering all of § 30 [legal description of leased area] (“the Oil and Gas Lease”). While the Oil and Gas Lease is effective, and continues to burden the leased area, royalties, rentals, and any other accruing lease benefits will be apportioned among owners of oil and gas interests within the leased area based upon their acreage ownership interest compared to the total acreage then comprising the leased area. There will be no apportionment of lease benefits when the division is made by depth except that multiple owners within the same depth area will apportion lease benefits based upon their acreage ownership within the particular depth. The obligation to apportion will cease as and to the extent the Oil and Gas Lease ceases to burden the leased area.
- ‘[A]n undivided one-half interest in and to all oil and gas royalty that may be produced under oil and gas leases outstanding or to be hereinafter outstanding on the aforesaid lands, or any part thereof, for the full term of fifteen (15) years from this date, or so long as oil or gas shall be produced from said premises, or any part thereof in commercially paying quantities. . . .’
- Said land being now under an oil and gas lease, executed in favor of Pure Oil Company, it is understood and agreed that this sale is made subject to the terms of said lease, but covers and includes one-half of all of the oil royalty, and gas rental or royalty due and to be paid under the terms of said lease.
- One-half (½) interest in and to all of the oil, gas and other minerals in and under and that may be produced from the following described lands . . . : [a 90-acre tract that was part of a larger 320-acre tract owned by the grantors and leased nine months prior to the conveyance for oil and gas development].
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Chapter 10 Federal Income Taxation of Oil and Gas Interests and Transactions—Acquisition of Properties, Geological, Geophysical, and Development Costs 372 results (showing 5 best matches)
- Oil Company A, which was sold by O’Donnell to Oil Company B in return for a one-third net profits interest in all oil and gas properties owned by Oil Company A and which Oil Company B agreed to acquire from Oil Company A. O’Donnell claimed depletion with respect to the income from the net profits interest. The Court held that O’Donnell had no economic interest in the oil and gas properties for two reasons. First, O’Donnell had acquired only a contract right and not an interest in the oil and gas properties. Second, O’Donnell was a stranger to the title in the oil and gas properties because O’Donnell merely owned stock in the corporation and it was the corporation that had the ownership interest in the oil and gas properties.
- For convenience, costs and expenses incident to the acquisition of oil and gas leases and the drilling, development, and production of oil and gas, were divided into three rather general classifications: (1) acquisition costs of oil and gas leases and mineral interests; (2) well drilling and development costs; and (3) production costs. Acquisition costs are those that are incurred up to the point that the lessee begins to determine a location for the drilling of a well. Drilling and well development costs are those incurred from the point of determination of the location for a well up to the point of completion of a well. Production costs are those costs incurred for production of oil and gas after the well is completed.
- Of course, the courts have clearly recognized that lessors and lessees in an oil and gas transaction possess an economic interest in the minerals in place. Thus, a landowner that leases his land to an oil company in a standard oil and gas transaction is considered to have an economic interest because of the retained royalty interest. In addition, the lessee oil company that holds the working interest in the oil and gas property also has The lessor and lessee have an ownership interest in the minerals in place and they must look to production to recover their investments.
- Chapters 10, 11, and 12 address the topic of the federal income taxation of oil and gas interests and transactions. These chapters discuss the application of federal income taxation law to the acquisition, development, and disposition of oil and gas interests and to production from oil and gas properties. In other words, the discussion is presented in a transaction sequence beginning with the search for oil and gas and the development of oil and gas properties. These chapters start with the concept of what constitutes an economic interest and then cover the acquisition and leasing of lands and mineral interests, the treatment of development expenditures, the financing of development, and joint development. These chapters have little or no coverage of tax matters that are of general application or that are beyond the scope of this work, including the corporate tax provisions of Subchapter C of the Internal Revenue Code (the “Code”), the partnership tax provisions of Subchapter K of...
- This book addresses the federal income taxation of oil and gas development because this area of taxation has very specialized rules that largely apply only to mineral development. Some of these specialized rules arise because of the peculiarities of how the oil and gas industry discovers, develops, and produces minerals. Others of these specialized rules were purportedly developed to support the energy policy goals of national security and encouraging domestic exploration, development, and production of oil and gas.
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Chapter 2 Conveyances of Interests in the Mineral Estate 372 results (showing 5 best matches)
- a one eighth (being all the Royalty retained by us) undivided interest of, in and to all the oil, gas and minerals on, in and under the . . . lands . . . granting to the said J. M. Talley, his heirs and assigns, the right of ingress to and upon said lands for the purposes of securing, storing and removing oil and gas, and the right of occupancy of said lands for and only for the purposes of storing, securing and removing oil and gas.
- The grantors herein reserve unto themselves all oil, gas and minerals in and upon the hereinabove described lands, together with rights-of-way over, through and across the said lands for the purpose of developing and removing the same, less and except an undivided one-half interest in an undivided one-sixteenth interest in and to said oil, gas, and minerals that may hereafter be produced from the said lands.
- in determining whether the phrase “all of the oil and gas and all of the constituents of either in and under the land hereinafter described in all possible productive formations therein and thereunder . . .” included coalbed methane. According to the court, the question “is not whether coalbed methane, for all purposes and in all cases, ‘gas’ ”; but whether “a gas lease executed in 1986, before the widespread commercial production of coalbed methane in West Virginia, signed by a lessor who owned the land, coal, oil and gas, conveyed to the oil and gas lessee the right to develop the coalbed methane, absent any specific language on the issue.” The court noted with approval the lower court’s conclusion that a lease should be construed as of its date of execution; that it may contain a “latent ambiguity,” and that a court can look to extrinsic evidence, including common industry practices and the absence of any coalbed methane development in the area at that date in determining if...and
- Jurisdictions not following the Pennsylvania rule are divided into two groups: (1) those that treat “minerals” to include oil and gas, and (2) those that treat the term “mineral” as uncertain in meaning. The latter allow consideration of evidence of the facts and circumstances existing at the time of the transaction to determine if usage included oil and gas.
- It has been argued that coal is not similar to oil and gas because while it is a “hard” mineral, fixed and confined to one place, oil and gas are liquid and migratory in nature. However, if we are to accept these distinctions, we must also acknowledge similarities which exist with respect to origin, hydrocarbon composition and use. To what characteristics of oil and gas were the parties to the deed referring when they said “other minerals”?
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Chapter 3 TRespass: Surface and Sub-Surface, and Third Party CLaims 155 results (showing 5 best matches)
- If A, as the oil and gas mineral owner, or O, as owner of both the surface and the oil and gas rights, enters into an oil and gas lease with Acme Oil Company, an issue arises whether Acme then owns the exclusive right to explore the leased land. If non-exclusive, it would allow anyone desiring to conduct seismic surveys on the leased land to obtain permission from either the mineral owner (lessor here) or the oil and gas lessee. This issue has been resolved by examining the oil and gas lease to determine whether it expressly confer on the lessee, Acme, the exclusive right to explore. As a matter of contract interpretation courts have held the right to authorize seismic surveys is not exclusive to the oil and gas lessee because they can be conducted without undue interference with the lessee’s drilling and development of the oil and gas, which are
- a tract of land, the typical problem is identifying the relative rights of the surface owner, mineral owner, and oil and gas lessee. For example, assume landowner O conveys the oil and gas in Section 30 to A. Who “owns” the right to explore the oil and gas in Section 30? A, as the owner of the oil and gas in Section 30 also owns the right to explore for these substances. also “owns” the implied right to make reasonable use of the surface to conduct exploration of its oil and gas mineral interest. The North Dakota Supreme Court describes the “reasonable use” concept as follows:
- The West Virginia federal court took essentially and overtly the position of the dissent in The court pointed out that the rule of capture was developed in the situation where high pressure oil and gas seeped to a lower pressure area where a well had been drilled and that the rationale for the rule of capture is that the drained landowner can protect himself by drilling his own well. The court pointed out that the production resulting from fracking is not the same as production moving from a high pressure to a low-pressure area. Moreover, most property owners lack the resources to drill their own well. So the court in opinion effectively allows oil and gas companies to steal from the owners of small tracts. The court hypothesizes that the oil and gas company can tell the owner of a small tract to either sign the company’s lease or the company will hydraulically fracture beneath the tract and take the oil and gas without compensation. Or the company may choose to hydraulically...
- In accounting to the owner for converted products, the amount of oil or gas wrongfully produced must be accounted for, not merely the oil and gas that was produced from the reserves within the owner’s property. Where the market value has fallen since the time of the conversion, the trespasser may not replace the oil converted but must account for the value of the oil at the time it was converted. In some cases the trespasser can be required to account for the value of the converted oil or gas applying the highest intermediate value between the time of conversion and the verdict.
- Barquin v. Hall Oil Co.
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Chapter 5 The Oil and Gas Lease—Acquiring and Developing LEases from Owners of Less than the Fee Simple Absolute 337 results (showing 5 best matches)
- In the oil and gas industry, a landman is a gender neutral term used to describe a man or woman who reviews recorded title instruments and other evidence of ownership, performs title curative work, and negotiates and acquires oil and gas leases and other contracts relating to oil and gas exploration, development, and production.
- Where minerals are severed from the surface either by deed or by oil and gas lease before the execution of a non-mineral landlord-tenant lease, the tenant’s lease is subject to the rights of the owners of the mineral estate to use so much of the land as is reasonably necessary for the development and production of oil and gas. The non-mineral tenant with actual, inquiry, or constructive notice of the oil and gas lease will have acquired interests subject to the right of the owners of the severed minerals to enter and develop the land for oil and gas.
- The leasing of state-owned lands or mineral rights for oil and gas exploration and development is generally governed by state statutory law and perhaps by provisions in the state’s constitution; Commonly, states issue oil and gas leases through an oral or sealed bid auction. The bidding parameters may vary from state to state or auction to auction. Louisiana negotiates oil and gas exploration and exploitation contracts with interested parties. Securing an oil and gas lease to state park, recreation, and wildlife lands, if possible, may not be governed by the same leasing statutes and regulations applicable to state grant lands; however, acquired lands resulting from foreclosures may be governed similarly to state grant lands. Leasing of sovereign lands—the beds of navigable lakes and streams and of state territorial sea—is likely to be addressed by special For all types of state lands, the key issues are that an oil and gas lease or other exploitation agreement be obtained from an...
- Where an oil and gas lease is acquired subsequent to a mortgage, without a waiver or subordination, the lease is “subject to” the lien of the prior mortgage. The lessee is not personally liable for payment, but if the debtor/lessor defaults and the mortgage is foreclosed, normally all of the property—including the mineral rights—will be sold, and the later oil and gas lease will be extinguished.
- The basic question of the law of co-tenants as it relates to oil and gas is whether a co-tenant has the right to remove petroleum products without the agreement of co-owners. Oil and gas, unlike solid minerals, are capable of moving to places of lower pressure. Production on adjacent tracts may drain oil or gas from under the neighboring tract. Because of the possibility of drainage and the rule of capture, nearly all jurisdictions allow a co-tenant to drill for and to remove oil and gas without the permission of other co-tenants. several jurisdictions, including Illinois, Louisiana, Michigan, and West Virginia, permit one co-tenant to enjoin production of oil and gas by another co-tenant.
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Chapter 8 The Oil and Gas Lease—Implied Covenants 310 results (showing 5 best matches)
- [T]here is an implied obligation on the part of an oil and gas lessee to refrain from taking any affirmative course of action which will result in draining a substantial quantity of the oil and gas from the lessor’s property and producing the same through the lessee’s well on adjacent premises belonging to a different lessor.
- The broadest issue often addressed in an implied covenant context is the degree of competence the lessee must employ in its lease activities. The lessee must exercise reasonable care in exploration, development, and production operations. Although some early cases held that the judgment of the lessee could not be reviewed as to the manner and method of exploration, development, and production,and prudent person standard familiar in tort law because an oil and gas lessee is presumed to have special skills and expertise regarding oil and gas operations. Moreover, the standard changes with improvements in oil and gas technology and scientific knowledge.
- It was important for Professor Merrill to adopt an implied covenant analysis divorced from the express terms of the oil and gas lease. Because the lessee typically selects the form lease, it will contain express terms favorable to the lessee. Under Professor Merrill’s view implied covenants are a useful tool employed to fashion a new and often different contract from that reasonably contemplated applying the terms of the oil and gas lease. He describes this as his “radical departure” from standard interpretive rules that is necessary to protect the lessor’s interests under the oil and gas lease.
- Hartman Ranch Co. v. Associated Oil Co., 73 P.2d 1163 (Cal.1937)
- The implied covenant to market was fashioned to respond to the situation where oil and gas have been discovered on the leased land but the lessee elects not to fully produce and market the oil and gas. This conflicts with the lessor’s interests in maximizing production and marketing to maximize its royalty revenue under the lease. Immediate and maximum production is also required to secure for the lessor the positive aspects of the rule of capture by causing drainage instead of suffering drainage.
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Table of Contents 90 results (showing 5 best matches)
- Federal Income Taxation of Oil and Gas Interests and Transactions—The Oil and Gas LEase
- Federal Income Taxation of Oil and Gas Interests and Transactions—Acquisition of Properties, Geological, Geophysical, and Development Costs
- (A)Royalty on Casinghead Gas: Is It Covered by the Lease? If So, Is It Oil or Gas?
- (B)“Oil and Gas in, Under, and That May Be Produced from . . . .”
- (D)“Oil and Gas Produced and Saved”
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Chapter 12 Federal Income Taxation of Oil and Gas Interests and Transactions—The Pool of Capital Doctrine—Sharing Arrangements 170 results (showing 5 best matches)
- In Situation 2, a corporation retained an attorney to work on a corporation’s acquisition of oil and gas properties. The attorney conducted title examinations for the mineral properties and drafted lease agreements to enable the client to acquire some mineral interests. In exchange for the work, the attorney received an overriding royalty interest in the oil and gas to be produced under each lease.
- In Situation 3, an employee of a closely held corporation was given managerial responsibility to arrange financing for the acquisition and development of oil and gas properties located by the corporation’s technical staff as well as to oversee the corporation’s operations. In exchange for this work, the corporation paid the employee a salary plus an overriding royalty interest in the production from the acquired oil and gas properties.
- In Situation 1, the taxpayer-corporation syndicated partnerships that acquired interests in oil and gas properties. The taxpayer entered into an agreement with one such partnership, providing that the taxpayer would receive an overriding royalty interest in exchange for its services in locating available oil and gas properties for the partnership.
- The difficulty in applying Abercrombie to sharing arrangements generally is that, however correct the decision may have been on the facts before the Court, the statements in the opinion emphasizing the common law concept of ownership tend to weaken the tax concept of economic interest, so important in oil and gas taxation—to the Government as well as to taxpayers. If Abercrombie is interpreted too broadly, it will discourage sharing arrangements created out of the exigencies of the oil and gas business and necessary, in many cases, to development of oil and gas property. We interpret Abercrombie narrowly, as indeed, the Service—prior to the instant case—has consistently interpreted it.
- Id. at 79. For commentary on Rev. Rul. 77–176, see John S. Dzienkowski & Robert J. Peroni, Natural Resource Taxation—Policies and Principles 528–30 (1988); Patricia Hendrix Chicoine, Comment, New Tax Treatment of Oil and Gas Farm-Outs: A Threat to Domestic Production, 15 Hous. L. Rev. 387 (1987); Karyn A. Friske, Revenue Ruling 77–176 Revisited, 28 Oil & Gas Tax Q. 147 (1979); William M. Linden & L. Price Manford, How to Avoid the New Ruling Which May Currently Tax Oil and Gas “Farmout” Deals, 47 J. Tax’n 76 (1977); Emily A. Parker, Contribution of Services to the Pool of Capital: General Counsel Memorandum 22730 to Revenue Ruling 83–46, 35 Inst. on Oil & Gas L. & Tax’n 313 (1984); Gary A. Vogt, New Approach to Obligation Well Farm-Out Arrangements: 26 Oil & Gas Tax Q. 1 (1977);
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Title Page 7 results (showing 5 best matches)
- Distinguished Oil and Gas Scholarand Professor of Law Eugene Kuntz Chair in Oil, Gas and Natural Resources Emeritus
- OIL AND GAS LAW AND TAXATION
- Dean John F. Sutton, Jr. Chair in Lawyering and the Legal Processand Professor of Law
- Norman R. Pozez Chair in Business and Transactional Lawand Professor of Law
- and Professor of Law
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Summary of Contents 34 results (showing 5 best matches)
- Federal Income Taxation of Oil and Gas Interests and Transactions—The Oil and Gas LEase
- Federal Income Taxation of Oil and Gas Interests and Transactions—Acquisition of Properties, Geological, Geophysical, and Development Costs
- The Oil and Gas Lease—Royalty Clauses and DIvision Orders—Other LEssor Benefits
- Federal Income Taxation of Oil and Gas Interests and Transactions—The Pool of Capital Doctrine—Sharing Arrangements
- § 2.2“Minerals” as Including Oil and Gas
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Chapter 4 Adverse Possession and Statutory Termination of Mineral Interests 61 results (showing 5 best matches)
- In states classifying the mineral estate as a corporeal interest in real property, the granting of an oil and gas lease prior to the AP’s entry onto the surface has the same effect as a prior conveyance of a mineral interest. The same result should be reached in non-ownership jurisdictions that classify the oil and gas lease as creating an incorporeal interest in real property.
- See Owen L. Anderson and Ernest E. Smith, The Use of Law to Promote Exploration and Production, 50th Oil & Gas Methods for Facilitating the Development of Oil and Gas Lands Burdened With Outstanding Mineral Interests, 43 Tex.L.Rev. 129 (1964).
- The acts necessary for adverse possession of the mineral estate all relate to whether they are sufficient to put the mineral owner on notice that someone is asserting rights to the mineral estate, as opposed to the surface estate. Execution of an oil and gas lease, without accompanying acts to reduce the minerals to possession, is insufficient, the AP took gas from an abandoned well on adjacent land to use in connection with a minnow pond, brooder, and dwelling house on the land being claimed. The court held that these acts did not constitute possession of the severed mineral estate because: (1) the gas was not produced from a well located on the claimed land; and (2) no operations were conducted on existing well sites located on the claimed land. The same sort of notice problems exist when oil or gas is drained from the claimed land by wells located on adjacent or nearby tracts, even when part of the same pooled unit.
- However, if no intent is found to the contrary, merger will occur where the TO has reserved a lesser interest in the minerals, such as a reversionary interest. For example, the TO, the owner of Section 30 in fee, executes an oil and gas lease to Acme Oil Company for a five-year primary term. At the end of the primary term the lease terminates for lack of production. The AP later enters and does acts on the surface sufficient to gain ownership. In this situation, the AP will acquire the surface and the minerals. Upon execution of the oil and gas lease either a determinable fee or a profit-à-prendre is created in the lessee. In the first instance the lessor retains a possibility of reverter, and in the latter the fee subject to the profit. Upon the termination of the lease, merger will occur, and the TO will own the fee simple in an unsegregated estate. A later adverse possessor will acquire both the surface and the minerals.
- Adverse possession of the mineral estate can be accomplished by actually producing oil and gas for the required statutory period of time. The drilling and production must be continuous for the required period and accompanied by any other acts required by any applicable statute, such as paying taxes.
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Table of Cases 714 results (showing 5 best matches)
- Manufacturers’ Gas & Oil Co. v. Indiana Natural Gas & Oil Co., 1, 2, 3
- Frank Oil Co. v. Belleview Gas and Oil Co., 240
- Edwin M. Jones Oil Co. v. Pend Oreille Oil & Gas, 282
- Right of Way Oil Co. v. Gladys City Oil, Gas & Mfg. Co., 40, 42
- Simpson-Fell Oil Co v. Stanolind Oil & Gas Co., 160, 161
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Index 113 results (showing 5 best matches)
Copyright Page 3 results
- The publisher is not engaged in rendering legal or other professional advice, and this publication is not a substitute for the advice of an attorney. If you require legal or other expert advice, you should seek the services of a competent attorney or other professional.
- is a trademark registered in the U.S. Patent and Trademark Office.
- West, West Academic Publishing, and West Academic are trademarks of West Publishing Corporation, used under license.
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- Publication Date: June 30th, 2017
- ISBN: 9781634599337
- Subject: Oil and Gas Law
- Series: Hornbooks
- Type: Hornbook Treatises
- Description: This Hornbook, a revision of the Hemingway Hornbook, is the most comprehensive one-volume work on oil and gas law and taxation available today. For over three decades, Professor Richard Hemingway’s prior editions of this seminal work provided guidance to courts, lawyers, commentators, and students. Six distinguished scholars, Professors Anderson, Dzienkowski, Lowe, Peroni, Pierce, and Smith, have joined together to co-author a new version of this classic treatise. As a one-volume treatise, this work covers the substantive law of oil and gas and federal income taxation of oil and gas transactions. The first two chapters examine the mineral interest/estate and related transactions. The third chapter covers trespass and related issues. The fourth chapter covers adverse possession and dormant minerals. Chapters five through eight examine in detail the oil and gas lease. Chapter nine addresses transfers by the lessor and the lessee. Chapters ten through twelve are devoted to oil and gas taxation.
