Source: http://www.theoilandgasreport.com/tag/title-owner/
Timestamp: 2017-12-17 09:45:56
Document Index: 241555321

Matched Legal Cases: ['§ 604', '§ 604', '§ 604', '§ 82', '§ 82', '§ 82']

title owner | The Oil and Gas Report
Utilizing Online Resources to Save Time: A Primer for Landmen and Title Examiners
November 18, 2015 Joe StarkDue Diligence, Title Issues/CurativeCorporate Succession, curative, Division Orders, due diligence, Helpful Tools, Land Records, mineral ownership, title issues, title owner
Advances in technology save everyone time. We all look to technology to organize and inform our daily lives in both professional and personal settings. How can technology be used to save time when dealing with common title issues? Something as simple as knowing where to obtain a patent or how to determine potential heirs can save a landman time and avoid unnecessary questions and research.
December 8, 2014 Mark BurghardtFee Lease 101 Series, Lease Provisions, Title Issues/Curativemineral ownership, title owner
The granting clause of a lease contains the required words of grant that create an interest in the lessee.1 This clause is typically found at the beginning of the lease and is often overlooked when drafting a lease, to the detriment of the lessee. The granting clause generally covers three main topics: (i) the leased substances; (ii) the associated easement rights; and (iii) the property description.
The granting clause should include a careful description of the substances covered by the lease. Typical granting clauses include language such as “oil, gas, and other minerals,”2 “oil and all gas of whatsoever nature or kind,”3 or some variation of these simplistic descriptions. Even though this language may, at first glance, seem uncontroversial, the failure to adequately list the substances covered by the lease has led to a multitude of lawsuits.
For example, the failure to adequately define the leased substances can lead to questions whether the lease covers coalbed methane, which depending on the state, may not be included in a general grant of gas. Another problem is encountered when interpreting what is included in the “other minerals” under a lease. The parties to a lease should not rely on a court to dictate what substances are covered by that lease.
As a practical matter, the goal in drafting the leased substances portion of the granting clause is to ensure that the lease covers all substances that are necessary to produce the oil and gas from the leasehold. Any special substances that may be encountered, such as coalbed methane, helium, carbon dioxide, hydrogen, or sulfur, should be individually listed in the lease. By including a list of known or expected substances, together with catch-all language to cover substances that may not yet be known or expected in the field, the lessee can avoid unfavorable interpretations by a court that could render the lease unprofitable or unusable.
Associated Easement Rights
The second part of the granting clause is the description of the easement granted to the lessee. Historically, the grant of an easement and the right to conduct surface operations has been broadly, if not vaguely, described in the lease. The lessee has, instead, relied on the implied right of access to the surface estate arising from the mineral estate’s dominance. Reliance on this implied right of access can be problematic when the surface owner engages in activities that prevent or inhibit oil and gas development or when the surface owner disagrees with and challenges the lessee’s use of the surface estate.
As for split estate lands, the lessee should be careful to ensure that the lease does not grant and that the lessee does not rely on a right of access that was not reserved or conveyed in the deed creating the split estate. Keep in mind that the lessor can only grant the rights that the lessor owns.
To avoid these issues, I recommend that this portion of the granting clause describe the specific activities that the lessee will be conducting on the leased premises, such as construction and location of the various production facilities, powerlines, roads, pipelines, and any other activity that may foreseeably be required to produce the oil and gas. By describing the specific activities, the surface owner is put on notice of the types of activities that the lessee is planning to conduct on the surface estate. If a lawsuit ensues, it will be very difficult if not impossible for the surface owner to argue that they were unaware that the surface would be used for these activities.
I note also that, even though the lessee, through careful drafting of the lease, may be able to secure surface access for gathering facilities and other surface disturbance activities not related to production of oil and gas from the leasehold, this grant of access could be terminated upon expiration of the lease term. For such activities, I recommend that the lessor obtain a separate surface use agreement specifically granting the right to conduct these activities to ensure that they survive termination of the lease.
Finally, the granting clause should include a description of the land covered by the lease. This should, of course, include a legal description of the property together with the acreage covered by the leasehold. For small or irregular tracts of land, the lease should include a Mother Hubbard clause4 to ensure that inadequately described property that is adjacent to and contiguous with the leasehold will be covered by the lease.
In the event that the lease is limited in depth, the property description should include language that identifies the specific interval covered by the lease, making sure that the depth description is tied to a measured depth in a specific well. A carefully crafted depth description will avoid confusion as to the actual depth covered by the lease.
A common, but surprising, issue is that some granting clauses fail to include present words of grant. That is, the granting clause describes the activities that can be undertaken on the leasehold but does not expressly grant the rights to the underlying oil and gas.5
Another issue that you should be aware of is that, with horizontal drilling resulting in ever increasingly long laterals, the easement in the granting clause should include language granting the lessee a subsurface easement to accommodate horizontal development. Again, if this subsurface easement will be used for the benefit of lands located outside the leasehold, the subsurface easement should be created by a separate agreement between the parties, thereby preventing the easement from terminating with the underlying lease. Also, for a lease limited by depth, the granting language should include a subsurface easement for all depths that must be traversed in order to access the leased interval.
In summary, through careful drafting of the various components of the granting clause, the lessee can protect itself from unexpected complications and ensure that it is allowed to fully develop and produce the oil and gas resource.
1Patrick H. Martin & Bruce M. Kramer, Williams & Myers, Manual of Oil and Gas Terms 497 (12th ed. 2003).
2David E. Pierce, Incorporating a Century of Oil and Gas Jurisprudence Into the “Modern” Oil and Gas Lease, 33 Washburn L. J. 786 (1994).
3Martin & Kramer.
4A clause commonly included in contemporary leases to meet the problem of adequately describing strips of land owned by a lessor contiguous to the land specifically described by the lease and intended to be covered by the lease. Id. at 246. Also known as a cover-all clause or an all-inclusive clause.
5Pierce.
April 10, 2014 David HatchFee Lease 101 Series, Lease Provisionsmineral ownership, title owner
A common but often overlooked oil and gas lease provision is the “continuous drilling” or “continuous operations” provision. Generally, a continuous drilling provision allows a temporary cessation of production without automatically resulting in the termination of an oil and gas lease that has been extended by production. In order to qualify for the temporary cessation, certain operations (as defined in the lease or by case law) must be commenced on the leased premises or lands pooled or unitized therewith within a specified time period (typically from 30 to 120 days). Two examples are as follows:
If, at the expiration of the primary term of this lease, oil or gas is not being produced on the leased premises or on acreage pooled therewith but Lessee is then engaged in drilling or reworking operations thereon, then this lease shall continue in force so long as operations are being continually prosecuted on the leased premises or on acreage pooled therewith; and operations shall be considered to be continuously prosecuted if not more than ninety (90) days shall elapse between the completion or abandonment of one well and the beginning of operations for the drilling of a subsequent well.
If, at the expiration of the primary term, oil or gas is not being produced on said land, but lessee is then engaged in drilling or reworking operations thereon, the lease shall remain in force so long as operations are prosecuted with no cessation of more than 30 consecutive days.
Continuous drilling provisions are of particular importance when analyzing older, HBP leases. Specifically, a number of situations should be considered. Has your lease produced each and every month since the expiration of the primary term? Have you or your predecessor ceased production to rework the well or recomplete in a new formation? Have severe weather conditions caused a temporary cessation of production? Each of these situations could potentially lead to a finding that your lease has expired.
Oil and gas wells generally do not have perfect production histories. Williams & Meyers states: “Since repairs, breakdowns, and reworking operations are incidental to the normal operation of a lease, the parties must have contemplated that the temporary cessation of production caused by such events would not result in automatic termination of the lease.”1 Based upon this implied understanding, if an oil and gas lease does not contain a continuous drilling provision, the lessee may extend the lease by exercising reasonable diligence in the continuance of its operations on the leased premises. In other words, courts have held that a temporary cessation of production is allowed where no specific deadline is provided.2 What is temporary? There is no hard and fast rule. An Arkansas court found a temporary cessation where a fire destroyed a producing well and production was not resumed for four years.3 However, whether a cessation of production is temporary is a question of fact that will depend on the individual circumstances.4 Although the individual facts may vary, courts typically weigh the following factors: failure of the lessor for a substantial period of time to claim forfeiture during which time the lessee was engaged in activities on the lease, absence of drainage, intent of lessee to hold the lease, and diligence of the lessee in seeking to find a market or to resume production.5 Due to the fact-intensive nature of the analysis, each circumstance must be carefully reviewed under the applicable case law in that state.
The continuous drilling provision was created in order to provide more certainty in the face of inconsistent court rulings. While providing the parties with a more reliable test, a continuous drilling provision could prove fatal to an HBP lease. According to Williams & Meyers: “Where there are express savings provisions in a lease that specify dates [i.e., 30-120 days] by which the lessee must take certain action or the lease will terminate, the temporary cessation of production doctrine will not apply so as to extend the lease beyond those specified time limits.”6 Unlike the analysis above, the specific time periods by which a lessee must recommence operations are hard and fast.7 Absent some other lease provision, mechanical issues with the well, lack of a market, or any other delay in production could cause a lease to be deemed expired in as few as 30 days without production. Therefore, careful attention should be made to the production (and operations) history on the leased premises to ensure any continuous drilling provision has been strictly observed.
Despite a constant push for greater efficiencies in acquisition due diligence and title opinions, a thorough HBP analysis should not be forgotten. Such analysis may require obtaining well records back to the date of first production, reviewing the complete well file, and investigating the cause of any delays in production.
Phone: 801-799-5834
Email: dbhatch@hollandhart.com
1Williams & Meyers, “Oil and Gas Law” § 604.4.
3Saulsberry v. Siegel, 252 S.W.2d 834 (Ark. 1952).
4See Watson v. Rochmill, 155 S.W.2d 783 (Tex. 1941).
5Williams & Meyers, § 604.4 at fn. 11; see, e.g., Somont Oil Co. v. A & G Drilling, Inc., 49 P.3d 598 (Mont. 2002) (finding the intent and diligence of the operator in restoring production is a factor in determining with a cessation of production is temporary).
6Williams & Meyers, § 604.4.
7See, e.g., Greer v. Salmon, 479 P.2d 294 (N.M. 1970) (finding that where the lessee didn’t strictly comply with the 90-day cessation clause the lease terminated).
The Implied Covenant to Drill and Develop in Montana
April 10, 2014 Adrian MillerRoyalty Issueslease, mineral ownership, production, title owner
In Montana, there are many older oil and gas leases held by production, particularly in eastern Montana. These leases often times cover several tracts of land and do not contain a Pugh Clause. Although one or more of the tracts of the lease may be part of a producing unit, other tracts are not. Because there is no Pugh Clause in the lease, there is no explicit contractual right to a release of the nonproducing tracts. Given the recent development of the Bakken, the fact that a mineral owner may have nonproducing tracts of land held by an older lease with unfavorable royalty provisions is an undesirable situation for the owner. Mineral owners are, therefore, turning towards common law and unique mechanisms under Montana law to gain releases of these lands.
According to Montana Code Annotated Section 82-1-201, when an executed and recorded oil or gas lease is forfeited, cancelled, or expires, the lessee is required to have the lease released from record in the county where the leased land is situated within 60 days from the forfeiture. If the lessor sends a written notice requesting a release and the lessee fails to record the release within 30 days of the notice, then the lessee is guilty of a misdemeanor punishable by a fine of up to $250.1 Additionally, if, “by its terms,” an oil or gas lease has expired and is subject to forfeiture for nonperformance andmore than 3 years have elapsed since expiration, the mineral owner may serve written notice on the lessee pursuant to Section 82-1-202(2) demanding a release. The notice must inform the lessee that unless it files an affidavit stating that the lease is in effect within 60 days of the date of service of the notice, the lease must be terminated and is of no effect.2 After this 60-day period has expired, the mineral owner may file an affidavit of service of the notice in the county clerk’s office and from the filing of this notice the lands are released from the lien of the lease.3
Mineral rights owners have been increasingly using these statutes to demand partial releases of oil and gas leases pursuant to the implied covenant to drill and develop in Montana. Many times, the owners will send notice pursuant to Section 82-1-202(2) asserting that a lease has been expired for more than three years as to a tract or tracts of land because the lessee has failed to develop these tracts. The mineral owners cannot demand a release under an express provision of the lease because another tract in the lease is part of a producing unit and there is no Pugh Clause. Thus, the lease is technically held by production. Mineral owners, therefore, have turned to the implied covenant to drill and develop in order to gain releases of nonproducing tracts. If a lessee fails to respond to this notice because it believes the mineral owner had no right to send it, then the mineral owner proceeds to record an affidavit of service pursuant to Section 82-1-202(4) asserting that the lands are released. Whether the affidavit actually does release the lands may hinge on whether the owner had the right to demand a release as to certain tracts of land pursuant to the implied covenant to drill and develop.
Forfeitures of oil and gas leases are favored by the law and will be strictly enforced in Montana.4 In Sundheim v. Reef Oil Corp., mineral owners brought an action based partially upon a breach of an implied covenant to reasonably and prudently develop the leasehold.5 The Montana Supreme Court analyzed this covenant, but refused to consider it beyond the terms of the lease.6 The Court specifically found that pursuant to two express provisions in the lease, the operator had a duty to explore for or produce oil and gas from the leasehold.7 If the producer failed, the terms of the lease allowed the lessors to terminate the lease.8 The operator also had the option to make delay rentals, which it did.9 The acceptance of these delay rentals excused the lessee from fulfilling the duty to develop the leasehold.10 The Court specifically stated that it “will not look beyond these express provisions in order to impose a duty upon [the lessee] which is in contravention of their terms.”11
In Berthelote v. Loy Oil Co., the Court considered the implied covenant to produce and market gas and noted that “if a lease is terminated by the breach of implied covenants, it is forfeited.”12 Although neither Sundheim nor Bertheloteanalyzed whether an oil and gas lease should be partially released based upon the implied covenant to drill and develop the leasehold, both cases appear to lay the groundwork for such a claim. However, when analyzing a Pugh Clause in a lease, the Court has noted that absent a Pugh Clause “the lease would remain in effect as to the entire leased premises.”13 Given this statement by the Court and the Court’s reluctance in Sundheim to look beyond the express provisions of a lease to impose a duty which is in contravention of the lease terms, there is a good argument that a court will not impose an implied duty to develop a lease which is already held by production, even if certain tracts are not part of a producing unit. Unless there is an express provision (Pugh Clause) in the lease requiring the lessee to develop every tract or risk forfeiture, it is unlikely that a Montana court will afford a remedy based upon this implied covenant.
However, it is still important that a lessee not ignore a demand sent pursuant to Section 82-1-202. According to the statute, if a lessee fails to respond to this notice, then the mineral owner can record an affidavit of service pursuant to Section 82-1-202(4) and the lands are released. If a lessee does not timely response and the lessor files an affidavit of service, the lessee may be left trying to figure out how to make it clear in the county records that the lease has not in fact been released. Thus, it is best to consult with an attorney immediately upon receipt of such a notice if the lessee believes that the tracts are not subject to forfeiture.
1Mont. Code Ann. § 82-1-201(3).
2Mont. Code Ann. § 82-1-202(2).
3Mont. Code Ann. § 82-1-202(4).
4Stanolind Oil & Gas Co. v. Guertzgen, 100 F.2d 299, 300–01 (Mont. 1938).
5Sundheim v. Reef Oil Corp., 806 P.2d 503 (1991).
6Id. at 509–10.
7Id. at 509.
9Id. at 509–10.
11Id. at 510.
12Berthelote v. Loy Oil Co., 28 P.2d 187, 190 (Mont. 1933).
13Fed. Land Bank of Spokane v. Texaco Inc., 820 P.2d 1269, 1272 (Mont. 1991).