Author: Austin Brister

Austin represents oil and gas exploration and production companies and landowners in a wide variety of complex commercial litigation matters, including contract and property disputes, royalty disputes, breach of lease cases, lease termination/perpetuation disputes, and an array of other issues in the upstream oil and gas sector. Austin has prosecuted and defended claims in state courts and federal courts. Austin strives to find practical business solutions to complex issues, but if necessary, he works hard to implement effective strategies in the courthouse.
29May

Farmout Agreements: Key Decisions and Negotiation Points

Introduction

As I stated in my Part One of my Farmout Agreement Series, farmout agreements can be somewhat less “straight-forward” than other common oil and gas agreements.  Contracts, Leases, JOA’s, for example, are each highly standardized and have one or more publishers of highly-adopted forms.  Farmout Agreements, on the other hand, range from mere one-page letter agreements to highly formalized and lengthy contracts, prepared and negotiated over several rounds of back and forth red-lining.  An attorney cannot simply turn to his form books (or form folder for the tech savvy), and is unlikely to find any comprehensive checklists for drafting the agreement.

While there is no standardized form, a standard set of terminology has certainly developed that will guide most decisions, negotiations, and drafting exercises.  Below, we’ll consider several of the most crucial provisions of a farmout agreement, including:

  1. The Duty Imposed;
  2. The Earning Barrier;
  3. The Interest to be Earned;
  4. Number of Wells to be Committed to the Agreement; and
  5. Timing of Issuance of Farmout Acreage.

Read More »

27Feb

Non-Participating Royalty Interests – A Simple Concept with Complex Rules

I had an excellent time this week presenting to the Houston Association of Lease and Title Analysts on February 25, 2014, at the Houston Petroleum Club.  It was a great turnout, as I believe we had almost 250 attendees.  We covered the basics of NPRI’s, before diving into some of the more complex resulting rules, such as ratification, community leasing, and some complications created by Horizontal Drilling.

I’ve included a copy of my powerpoint presentation below please contact me if you’d like a copy of this presentation.  Thank you very much to HALTA for having me, and thank you to everyone that attended.  Please don’t hesitate to shoot me an email with any questions or comments.

Also, note that I’ll be publishing a follow-up article in the ALTA Magazine soon, and will also be presenting at the 29th Annual NALTA Conference in Nashville.

Photo some rights reserved by djonesphoto

6Jan

Mineral Liens: Collecting Unpaid Debt for Oilfield Service Companies

Purpose and Application of Mineral Liens

Everyone in the construction industry is intimately familiar with the “Mechanic’s Lien,” which gives a security interest in the title to real property (and sometimes personal property) to those who have supplied materials or labor to improve the property.  In some jurisdictions, the liens are broken down further into sub-groups, such as the the “Materialman’s Lien,” “Construction Lien,” “Supplier’s Lien,” or “Laborer’s Lien.”  But one lesser known type of lien can be crucial to oilfield service companies in collecting on debts owed to them: the Mineral Lien.

Liens are similar to a sort of mortgage or deed of trust on the property, acting like a cloud on title, and having the effect of hooking the owner into paying you for your services or labor before selling, financing, or refinancing the property.  Mineral Liens were designed specifically for companies like oilfield service companies, to give them an easier route to collecting their debts, and receiving money rightfully owed to them. Read More »

26Dec

Farmout Agreements: The Basics, Negotiations and Motivations

Farmout Agreements are one of the most widely used agreements in the oil and gas industry.[1]Special thanks to Professor Lowe for his excellent article on this subject, Analyzing Oil and Gas Farmout Agreements, Sw. L.J. 759 (1987). However, there is no largely adopted model form.  As such, they vary a great deal.  Kanes Forms has provided several Farmout Agreement Forms, but these have not been adopted as an industry standard, and so every farmout agreement approached must be fully analyzed and every term must be understood. This multi-part article will summarize the common ground, and provide a framework for analyzing the various options for certain provisions. Read More »

Footnotes   [ + ]

22Dec

Misconception: Farmouts vs. JOA’s

I think we can all agree that one challenge facing every oil and gas attorney and landman is navigating the high degree of complexity involved in almost everything we do.   However, I truly believe that everything can be broken down into much simpler concepts.  We can and must be able to see the forest for the trees.  But why aren’t more people doing this?  The days of lawyers impressing people with overdone legalese and selling their services by convincing people the law is too complex to understand is gone!  As Allison Shields over at Legal Ease said “if you can’t express what you do for your clients in simple terms – without legalese or other jargon – maybe you’re not so sure yourself how you can help them.”

That being said, I wanted to briefly touch on a serious misconception I have heard a few times recently and was recently discussed with a friend at NAPE Rockies. One thing I strive to do is break down the complexities of the theories and frameworks into no-nonsense explanations.  The misconception pertains to Farmout Agreements and Joint Operating Agreements.  When do you find each?  What scenarios?  What are the cost, risk, and profit sharing mechanisms found under each?

Read More »

5Mar

Terminology Behind Federal Leasing

“Common” Oil and Gas Law

As time passes, the “academic minds” have recognized more and more that Oil and Gas Law is not simply a mixture of advanced property law and advanced contract law.  To the contrary, the advent and progression of the energy era as well as continued advancement into non-conventional plays has seen the formation of a robust energy culture, so sophisticated and business savvy that its typical negotiations have become forms, those forms became largely standardized, and has allowed a body of case law to envelope its every detail to the point that a new body of law has emerged: oil and gas law. [1]See Bruce M. Kramer, “Property and Oil and Gas Don’t Mix: The Mangling of Common Law Property Concepts,” 33 Washburn LJ 540 (1993). Read More »

Footnotes   [ + ]

25Feb

Types of Title Opinions

One question I believe everyone should clearly define is “what is the scope and purpose of the opinion I’m requesting / preparing / reviewing?”  Opinions can be long or short, detailed or brief, can be written to deliver pristine title or marketable title, or can be long or short, limited in scope or quite thorough, and the requirements can be written comprehensively or in a way that will allow curative strategies to be wholly developed in-house. There is practically no end to the number of variations that can be developed.  However, what follows is a description of the main categories of oil and gas title opinions that are typically encountered:

Read More »

6Dec

Texas: Failure to Offer a Will for Probate

The Issue:

Probate is the process of validating a will and thereafter administering the estate of a deceased person according to the will’s terms. There are different probate law attorneys all over the world, for example, there are Texas Probate Law firms as well as this probate attorney Tampa too! As title attorneys and landmen often see, people frequently fail to offer Wills for probate. Perhaps the existence of a Will is discovered in an affidavit of heirship, or a recital in a later instrument. Perhaps the reason the parties failed to offer the Will was they didn’t realize they needed to do so, or perhaps it was because the will could not be found. As we’ll discuss in this article, the discovery of an unprobated will requires landmen and title attorneys to perform a certain level of due diligence, and the reason the parties failed to offer the Will for probate will have a substantial effect. Read More »

27Nov

Texas: Church Ownership of Real Property

 

Landmen and attorneys frequently find churches and other religious institutions within their chains of title, either as current or past holders of record title.  These religious institutions are often conveyed valuable mineral or royalty interests, either through an unsevered estate, or more directly through a severed mineral or royalty interest.  Therefore, it is crucial that landmen and attorneys understand the legal frameworks regarding church ownership of real property when engaging in leasing, conveyancing, or otherwise examining title. It’s important for them also, to Compare Conveyancing Quotes to obide with the legal framework.

Unfortunately, the applicable legal frameworks can be somewhat complex and confusing.  This is likely due to the inherent conflict between constitutional law and property law.  On one hand, the constitution requires that courts defer to the religious institutions, so as to refrain from becoming too entangled with the establishment or free exercise of religion.  This means that courts must exercise certain levels of deference to religious institutions regarding their internal beliefs or rulings as to which branches, levels, parish or other type of sub-entity has the rights of ownership and authority over church property. However, on the other hand, courts must also rule on property disputes.  This jurisprudencial battle is outside the scope of this article, but it should provide some direction in understanding goal behind the various frameworks that have developed for analyzing church property ownership and conveyancing disputes.

Generally, the topic can be divided into two subissues: (1) whether the status of the entity is such that, in the relevant time period, it could legally hold title to real property in its own name rather than a trustee, and (2) which persons or entities within the church organizational structure technically hold title to the real property.  Understanding these issues, and the applicable legal frameworks, are crucial to effectively handling oil and gas title, leasing, and royalty payout.

Read More »

6Nov

Life Tenants and the the Open Mines Doctrine

I’ve had a few landmen ask me about the proper way to handle payments of bonus and royalties under oil and gas leases involving a life tenant.  Judging by the guesses people have given, it may not be entirely common sense.  The entire analysis changes even further if the Open Mines Doctrine applies.  I suppose that’s one reason it’s always good to make sure you have an excellent title attorney preparing your title opinions and division orders!

The answer:  Once a lease is granted by both the life tenant and the remaindermen, courts generally allocate funds between them as follows:

However, the Open Mines Doctrine is of key importance when dealing with an active lease, because the entire division of proceeds changes when this doctrine applies.  The Cornell School of Law defines the Open Mines Doctrine as follows:

In property law, a doctrine that permits a tenant to commit voluntary waste on a piece of land by depleting it of natural resources when mining was previously done on the land and mines were currently open at the time the tenant took possession of the land. In this situation, a tenant is allowed to continue mining on the land, but can only continue to mine in the open mines already in existence and cannot open any new mines on the land.

The Open Mines Doctrine, while borrowed from the law of hard minerals, has been adopted in most oil-producing states.  Under this doctrine, where it applies, courts generally allocate funds between the life tenant and remaindermen as follows:

  • Life Tenant: Delay Rentals, all Bonus Payments and Royalty Payments.

So when does the Open Mines Doctrine apply?  Generally, a “mine” (oil and gas lease) is “open” when the oil and gas lease exists when the life tenancy is created.  Perhaps counter-intuitively, this may also include additional wells drilled under that lease.  One important limitation is that the Open Mines Doctrine generally does not apply to future leases or top leases.

 

© Copyright 2012-2018, McGinnis Lochridge LLP. All Rights Reserved. DISCLAIMER: The information in this article is for general information purposes only. This article should not be substituted for legal advice and should not be taken as legal advice for any individual case or situation. This information is not intended to create, and receipt or reading this article does not constitute, an attorney-client relationship. You are encouraged to contact an attorney for legal advice concerning the information provided in this article.
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