20Jan

Where the Use of Forms Goes Wrong

The Proliferation of Forms:

The wide-spread use of forms in the oil and gas industry has created nothing short of a revolution in allowing land professionals to expedite the process of putting complex agreements in place.  Additionally, this “forms culture” has dramatically helped to ensure excellent quality legal drafting and coverage of legal concepts in a continuously developing and complex legal regime — oil and gas law.

One example of such a widely used form is the Model Form Joint Operating Agreement published by the AAPL. Additionally, several publishers have created their own version of the ubiquitous “Producer’s 88” oil and gas lease form (which, on an unrelated note, has caused great confusion due to the same name being used for a wide variety of lease forms).  The Association of International Petroleum Negotiators have also developed several forms for use in the oilpatch.  As one last example, Kanes Forms has published a wide variety of forms, such as affidavits, mineral and surface deeds, assignments, and various agreements for use in the oil and gas industry.

But is this widespread reliance on forms purely positive?  If not, then what are some of the major landmines to be aware of?

Where Are Forms Inadequate?

One of the first lessons I learned back when I was drafting and negotiating agreements in the construction industry was this: forms are a great starting place, but they shouldn’t be used blindly.   The exact same principal applies in Oil and Gas.  Some of the reasons for this include: Read More »

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 »

1Jan

Dirty Tricks & Cheap Moves in the Oilpatch

High risk, high reward.  We in the oil and gas industry have been toughened; have been forced to learn to traverse the risk, and to reap the rewards.  Heck, oil and gas exploration and production is practically as synonymous with the “American Dream” as we can get.  The plentiful rewards that lie at the end of a successful oil and gas venture lead many into an epic journey fueled by palpable ambition and great effort.  We’ve all heard amazing tales tracing the paths of the oil and gas trailblazers, the ones who got lucky, and those who were willing to sacrifice to get there (if not, see “The Prize“).  But every possible path to high reward is guarded by a common vault-door: acceptance of high risk.

Unfortunately, as these stories show us, this risk to reward balance can and has lead many to lying, cheating, dishonesty, half-truths and otherwise misleading conversations, deals and agreements (again, see “The Prize”). However, this is all directly in conflict with the prevailing “unspoken rule” in the oil and gas business: honesty and fair dealing.  Call it what you will, “old boys club,” “gentlemen’s business,” “good ol’ boys,” etc.  The oil and gas industry is undeniably all about the relationships you have built, and the trust and rapport you have developed.

Nevertheless, in helping my clients negotiate and close all sorts of deals and resolve various disputes, I have inevitably ran across several “dirty tricks” and “cheap moves.”  The following is an explanation of some of these dirty or cheap oil and gas negotiation tactics, how to avoid them, and suggestions for responding when the tactics are spotted.
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. When dealing with property disputes it is important to know the things to do about a property boundary dispute. 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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