When drilling without consent, dry hole costs are not assessed against the profits.

In other words, if two holes are drilled and only one is productive, normally the costs of both wells are assessed in determining royalty, but if drilling is without permission of a co-tenant, the costs of the dry well are not assessed against the profits of the co-tenant.

Revenues from drilling, minus Costs for reasonable drilling and operating costs on productive wells

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If a life tenant and a remainderman consent to a valid OG lease, how are the lease benefits distributed?

*3 ways*

1) according to the terms of the grant

2) if the grant is silent:

     - life tenant: current income and interest, including delay rentals

     - remainderman: principal of the bonus and the royalty

3) If there was a lease in place prior to the granting of the life estate, life tenant gets all of the benefits under the existing lease.

Is the OG lessee subject to the mortgage?

1) Mortgage recorded before lease executed?

2) OG lease recorded before mortgage?

depends:

1) If mortgage recorded before lease executed- lessee's interests are subject to the mortgage lien

2) If OG lease is recorded before the mortgage- OG lease cannot be foreclosed against (because the mortgage did not include the minerals as an asset belonging to the morgagor, and the mortagee was on notice of the lease).

1)ordinary trespass

2) slant well drilling

3) drilling dry well

4) geophysical or seismic trespass

Oridnary trespass is when the lease expires but the lesee stays on the tract.

Remedy= injunction and damages, including punitive damages

bottoming a well underneath someone else's tract.

remedy: injunction and damages, including punitive

when a wrongful lessee enters and drills a dry hole, that is drilling dry well trespass, and it harms the mineral rights holder because it robs them of the value of a speculative lease which he could have had before the world learned of the dryness of the land.

remedy= the value of the lost bonus.

geophyscial or seismic trespass is when someone on a nearby land uses seismic vibrations to determine the presence or absence of oil on that land (i.e. to gain information of the lessor's mineral potential).

Remedy: the market value of a contract for the right to do seismic exploration

When damages are awarded, he will get credit for the costs incurred in production if the costs benefited the rightful owner.

Costs that benefit the rightful owner do not include costs incurred drilling a dry hole, only a producing well.

1) publication of a false claim

2) with malice

3) loss of a specific sale or leasing opportunity

1) if the mineral rights were severed prior to the beginning of the period of adverse possession- NO

2) if the mineral rights were not severed, or were severed after the beginning of the period of adverse possession- YES.

How does an adverse possessor of a surface estate adversely possess the mineral estate?

(2 ways)

by

1) beginning adverse possession prior to severance of the mineral estate

2) invading the mineral estate- i.e. drilling a well.

a clause in a lease or sale that includes "all land adjacent to the land described" which really only means that it includes any small strip of land not specifically included in the grant because of errors in surveys or descriptions.

Mother Hubbard clauses do not apply to large tracts of land owned by grantor that happen to be near the property granted.

the primary term- which is a fixed period of time during which Lessee has no obligation to drill

the secondary term- which is indefinite, but normally linked to "production in paying quantities" (this is the determinable part of the fee simple determinable)

OG lease begins on Jan. 1, 2007 with a 3 year primary term and a secondary term of "as long thereafter as oil and gas is produced from said land."

Oil company stays away but in December of 2009, discovers a large reserve of oil. What happens on Jan. 1 2010.

discovery is not production. There must be production of oil or gas to satisfy the secondary term.

Reverter kicks in and OG lease is terminated.

A temporary shutdown due to a mechanical failure does not terminate the lease if three elements are met.

1) it is a short, temporary shutdown.

2) the lessee acts diligently to fix it

3) it is due to a mechanical breakdown or the like.

Shut-downs due to economic conditions do not qualify for this exception and they terminate the lease.

what is it called when terms in the OG lease address a payment that can be given the lessor to keep the lease open into the secondary term despite the fact that no drilling has commenced.

what effect if the terms use the word "unless" the lessor is paid

what effect if the terms use the word "either" drill a well "or" pay

This is called a "delay rental Clause"

if it uses the phrase, "the lease shall terminate unless the lessee pays the lessor a sum of $____" the claus is a condition.

- Breach of the condition= automatic termination of the lease

if the K uses the phrase, "Lessee agrees to either drill a well or pay delay rentals" this is a covenant of the lease.

- failure to pay does not terminate the lease, rather it breaches the covenant and lessor must sue for breach of contract to get the delay rentals.