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Every year, eager oil and gas companies drill thousands of wells in Oklahoma. Of Oklahoma’s 77 counties, 72 have oil- or gas-producing wells, and 2008 saw 3,439 new wells drilled. As more and more wells are drilled, average production from each well goes down. In this context—of increasing effort, decreasing return, and heightened competition—Oklahoma land and mineral right owners would do well to have a basic understanding of Oklahoma mineral rights law.Oil and gas ownership
In Oklahoma, landowners do not own subsurface gas or oil until they extract it from the ground. Oklahoma courts long ago decided that the rule of capture governs fugacious—fleeting—substances below the earth’s surface. In other words, if your neighbor drills a well at the border of your property and begins to extract oil from underneath your land, you cannot successfully sue him or her and hope to be compensated for your lost oil. Instead, you must drill your own well to capture as much of the oil as you can.
Oil and gas leases
Oklahoma oil and gas leases have two primary functions: they convey oil and mineral rights from the mineral owner to the lessee—usually an oil company—and create a contract in which the lessee takes possession of the mineral rights subject to certain conditions and obligations. Like all property deeds, the oil and gas lease must clearly identify the lessor, the lessee, and the interest conveyed, and must adequately describe the leased premises.
Like Texas, Oklahoma courts subscribe to a rule of capture for oil and gas instead of the old common-law rule granting absolute ownership of everything beneath the surface to the soil owner, Oklahoma oil and gas leases cannot convey absolute title to oil and gas. Instead, they convey a right to drill and to reasonably necessary use of the surface to exercise that right.
Primary and secondary terms of oil and gas leases
Oil and gas leases typically cover two terms, or periods of time specified by the lease. A delay-rental or unless clause governs the first term of the lease and this can last a period of several years. These clauses require that the lessee begin drilling within a set time period—usually a year—or pay a delay rental penalty to the lessor, otherwise, the lease expires. The secondary term usually lasts as long as the lessee produces oil and gas in paying quantities from the leased premises.
Protect your interests
If you own or lease land in any oil producing state—if you want to produce oil and gas in Texas, Oklahoma, or Louisiana—consult with attorneys who know oil and gas law. Contact Sloan, Bagley, Hatcher & Perry today to set up a consultation.