How Do I Examine Title to a Federal Oil & Gas Lease?

For federal oil and gas leases, examination of the title documents is vital for the operator to understand the ownership and identify any title defects or other potential business risks prior to commencing drilling operations.  For a recently issued federal oil and gas lease, examining title is likely to be a straightforward and quick process.  On the other hand, examining title to a federal oil and gas lease issued several decades ago, covering multiple sections, and previously developed, is likely to be a complex and time-consuming process.  In either event, a title examiner must look at several different sources to

Can a Terminated Lease Be Reinstated?

Federal leases can be terminated for a number of different reasons.  The question answered here is whether or not they can be reinstated.  The simple answer to that question is the same as all other legal questions: it depends. It depends on the reason the lease was terminated, how long the lease has been terminated, and what steps the lessee has taken to rectify the termination. Three common ways that a federal lease will terminate are: (1) the expiration of the primary term, (2) the cessation of production in the extended term, or (3) the lessee’s failure to make proper

What Are Sliding-Scale Royalties?

Most leases on federal lands administered by the Bureau of Land Management (“BLM”) have flat royalties of 12.5% (evidenced by the use of the standard Schedule A to the BLM oil and gas lease form).[1]  However, certain leases issued by the BLM have “sliding-scale” or “step-scale” royalties for average daily production of oil or gas per well on the leased lands.  The most common sliding-scale royalty is evidenced by the use of Schedule B.  It is applicable to all leases issued between May 3, 1945 and August 8, 1946, as well as, all competitive leases issued after August 8, 1946

What is a Federal Right-of-Way Lease for Oil and Gas?

As mentioned in the first article published in “The FAQs of Federal Oil and Gas Leases” series,[1] the oil and gas under certain federal rights-of-way can only be leased under the Right-of-Way Leasing Act. Unbeknownst to some lessees, their federal oil and gas lease[2] may not cover all the lands described in the lease if there is a right-of-way on the lands that was issued prior to the lease. Sometimes the federal oil and gas lease will specifically exclude the right-of-way lands, leaving the lessee wondering how to lease the excluded lands. The only way to lease the oil and

What Are the Types of Federal Oil and Gas Leases?

An Introduction to Federal Oil and Gas Leasing The federal government is responsible for oil and gas leasing under three different types of land: onshore public lands, offshore public lands, and tribal lands.  For purposes of this series, we will focus on onshore public lands and, more specifically, those under the jurisdiction of the Bureau of Land Management (“BLM”).  Below is a brief history of federal oil and gas leasing, a summary of the most common types of oil and gas leases administered by the BLM (renewal / exchange leases, public domain leases, and right-of-way leases), and a basic outline

Utah Supreme Court Invalidates Tax Title as to Severed Minerals on Due Process Grounds

Can Utah’s four-year statute of limitations for challenging a tax sale prevent a property owner who never received notice of the sale from contesting it?  In prior years, the answer may have been “yes.”  In Jordan v. Jensen, 2017 UT 1, 2017 WL 104642, however, the Utah Supreme Court held that the answer is an unequivocal “no.” In Jordan, the owners of the surface and mineral estates conveyed the surface and reserved the minerals in a deed recorded in early 1995, prior to levy and assessment of the property taxes by Uintah County.  The new surface owner failed to fully

Saving the Best for Last – What Is All That Stuff at the End of My Lease?

On this blog, we have posted our complete Fee Lease 101 Series covering many of the standard fee oil and gas lease provisions from the granting clause to the pooling clause. However, there is typically a group of clauses towards the end of the lease form that appear to be the left-over clauses. These clauses include the assignment clause, proportionate reduction clause, warranty clause, surrender or release clause, and preferential right to purchase or option clause. They can have important ramifications on the relationship of the lessor and lessee and status of the lease and, accordingly, are discussed below. I.     

Top Leases: Assessing (and Avoiding) the Risks of Novation

You only have three more months on the primary term of an oil and gas lease that was issued nearly five years ago with a 1/6th royalty.  A drilling permit should be issued any day now, and you anticipate commencing operations to drill a well in sufficient time to hold the lease.  You instruct your landman to obtain a top lease from the mineral owner just in case there is a hiccup and you can’t start operations in time to hold the existing lease. Your landman negotiates a new lease from the mineral owner covering the same lands but has to

Force Majeure – May the Force Be With You and Save Your Oil and Gas Lease

In Star Wars, the force means an “energy field created by all living things… It binds the galaxy together.”1 In French, force majeure means superior force. In a fee oil and gas lease, the force majeure clause is designed to protect the lessee from being liable for damages or the lease from terminating for causes beyond the lessee’s control. The lease typically contains numerous clauses designed to protect the lessee and save the lease when particular events occur. Such clauses include the shut-in royalty, dry hole, cessation of production, continuous drilling, and entirety clauses. We have addressed most of these

Utah Oil & Gas Update

UTAH COURT OF APPEALS APPLIES THE OPEN MINES DOCTRINE, REJECTS PETITION TO CONSTRUE WILL IN FAVOR OF LIFE TENANTS In re Estate of Womack, 2016 UT App 83, 2016 WL 1729528, involved a decedent whose formally probated Will devised a 160-acre parcel to his three children, in equal shares. See id. ¶ 2. In his Will, the decedent specified that “the oil, gas and mineral rights under the said property . . . are devised to each of my children, share and share alike, for life,” remainder to the decedent’s grandchildren. Id. In 1990, the district court entered an estate

Unitizing the Lessor’s Interest: No, It’s Not the Same as Pooling

The terms “pooling” and “unitization” are often used interchangeably, but they have different meanings. Pooling is “the bringing together of small tracts sufficient for the granting of a well permit under applicable spacing rules,” while unitization is “the joint operation of all or some portion of a producing reservoir.”[1] While pooling and unitization are both

White House Announces Regulation of Methane Emissions from Existing Oil and Gas Sources

The White House announced yesterday that the Environmental Protection Agency (EPA) will begin to “immediately” develop “regulations for methane emissions from existing oil and gas sources.” Although no set timeline was provided, the White House stated the EPA “will move as expeditiously as possible to complete this process.” Moreover, next month the EPA “will start a formal process to require companies operating existing sources to provide information to assist in development of comprehensive standards to decrease methane emissions.” The statement was made in connection with Canadian Prime Minister Justin Trudeau’s visit to the White House on Thursday and was included in a

Practical Advice Regarding Pooling Clauses

Pooling is a fundamental concept within oil and gas law, but one that is often misunderstood. Pooling is most commonly defined as “the combining of two or more tracts of land into one unit for drilling purposes … accomplished voluntarily, or through compulsion.”1 In other words, it is how a lessee is able to extend a lease without physically drilling on the lease. For private (fee) oil and gas leases, the ability of the lessee to pool the lease is typically addressed in the lease provisions. These provisions are known as the pooling clause. This article provides some practical tips in

Pugh(eee)…Get Those Lands Outta Here: A Look at the Pugh Clause

For the unwary, Pugh clauses (pronounced “Pew”) can sometimes stink.  Although it is a fairly common provision in many fee oil and gas leases today, there is no industry standard Pugh clause.[1] As a result, the many variations of the Pugh clause can provide unpleasant surprises to both lessors and lessees who assume that all

No JOA, That’s OK: Practical Solutions For Operators in A Cotenancy Relationship

“The panic appears to be over. Now is the time to get worried.” William Keegan (1938–), British author and journalist A signed and recorded joint operating agreement (JOA) is often the first line of defense for an operator dealing with distressed partners.  For example, a JOA generally grants an operator a lien upon the oil and gas rights of a non-operator in default and may establish certain penalties that can be assessed against a party who does not pay their share of development.  But what happens when there is no JOA? In short, the rules of cotenancy govern.  Cotenants have