Texas Oil And Gas Exam With
Complete Solutions.
Extraneous gas - CORRECT ANSWER✔✔gas drilled and produced elsewhere and stored in a new place
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Native gas - CORRECT ANSWER✔✔gas that has not been produced and still in its original formation
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Extraneous gas Rule - CORRECT ANSWER✔✔Once extracted gas, relocated to another underground
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storage site it is the personal property of the extracting company - Texas American Energy Corp. v. Citizens
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Fidelity Bank & Trust Co.
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What is an oil and gas lease - CORRECT ANSWER✔✔fee simple determinable with the possibility of reverter
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Rule of Capture - CORRECT ANSWER✔✔The owner of a tract of land acquires title to any oil and gas
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produced from legal(no slant well drilling or trespass) wells on his lands, even if the oil and gas is drained
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from adjoining lands. There is no liability for reasonable and legitimate drainage from a common pool by a
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neighbor
j
,Cause of action if someone takes extraneous gas - CORRECT ANSWER✔✔Conversion
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Correlative Rights - CORRECT ANSWER✔✔Each owner of land in a common source of supply of oil and gas
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has legal privileges as against other owners of land therein to take oil and gas therefrom by lawful
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operations conducted on his own land; such owner has duties to the other owners not to exercise his
j j j j j j j j j j j j j j j j j j
privileges of taking so as to injure the common source of supply
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Negligence(ROC) - CORRECT ANSWER✔✔The rule of capture does not protect you from liability due to j j j j j j j j j j j j j j
negligence; each owner must exercise reasonable care in drilling with some regard to the rights of others
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Eliff v. Texon Drilling Co. - You have to operate the well as a reasonable prudent operator
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Eliff v. Texon Drilling Co. - CORRECT ANSWER✔✔Held the rule of capture should not be extended so as to
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include the negligent waste or destruction of the oil and gas
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D negligently did not use the correct drilling mud which resulted in their well blowing out and causing
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significant loss of gas and oil in the formation
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Public Nuisance - CORRECT ANSWER✔✔IF a city ordinance or municipal law forbids legitimate
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development activity, that is a legitimate restriction on your right to develop. The rule of capture is limited
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to lawful practices
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United Carbon Co. v. Campbellville Gas Co. - CORRECT ANSWER✔✔The Court found that an operator has a
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right to use a compressor to increase the pressure in his well and the other operator's only relief is in the
j j j j j j j j j j j j j j j j j j j j j
form of self-help, that operator needs to get their own compressor(note: if the operator fails to get a
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compressor - this would likely violate the implied covenant to manage and operate estate)
j j j j j j j j j j j j j j
Phillips Petroleum Co. v. American Trading - CORRECT ANSWER✔✔The operator drilled a well in violation
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of spacing requirements - well was to close to property line and produced gas from a common reservoir -
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court found that the rule of capture will not help you because you broke the law
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,Wronski v. Sun Oil Co. - CORRECT ANSWER✔✔Operator produced way more than the field pro-ration order
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Court held any violation of a pro-ration order constitutes conversion of oil from the pool and subjects the
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violator to liability to all the owners of interest in the pool for conversion of the illegally oil
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If rule broken in bad faith - must pay fair market value of the oil and cannot offset any production costs(used
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here)
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If broken through negligence - fair market value of oil with an offset for production costs
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Browning Oil Co. v. Luecke - CORRECT ANSWER✔✔Operator owed damages based on a determination of
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production that can
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be attributed to their tracts with 'reasonable probability'; court refused to apply the rule of capture to a
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horizontal well bore which had been perforated to directly produce oil from several tracts. Oil should be
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apportioned on basis of amount produced from each tract.
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Springer Ranch v. Jones - CORRECT ANSWER✔✔Court addressed the allocation of production for purposes
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of computing royalties due from a horizontal well that traversed multiple tracts
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Court held that production should be allocated to the respective tracts based on the ration of the productive
j j j j j j j j j j j j j j j j j
portions of the horizontal well that underlay each tract
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Additionally, precedent suggests that the operator bears the burden of proving what portion of production
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is attributable to each of the various tracts
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Pattie v. Oil & Gas Conservation Comm'n - CORRECT ANSWER✔✔A regulatory body must consider
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correlative rights when establishing a rule/order
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Pro-ration - CORRECT ANSWER✔✔Pro-rationing rules are used by the RRC to regulate the maximum
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amount of oil and gas that wells can produce, both to prevent physical waste and from the premature
j j j j j j j j j j j j j j j j j j
dissipation of the natural reservoir pressure in the field and to protect correlative rights
j j j j j j j j j j j j j j
, Pro-ration Rule(judicial review) - CORRECT ANSWER✔✔A pro-ration order must be reasonably supported
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by substantial evidence. When a pro-ration order is reasonably supported by substantial evidence, the
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Court will not substitute its judgment for that of the RRC(deferential)
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Atlantic Refining Co. v. Railroad Commission of Texas - CORRECT ANSWER✔✔Called the Normanna
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Decision; March 8, 1961
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The RRC issue a pro-ration formula(1/3 per well; 2/3 per acreage) that allowed a well on .3 acres to produce
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200 times as much oil than was underneath their tract. The court applied the rule: there must be substantial
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evidence to support the RRC's order and if there is the court shall not substitute its judgment for that of the
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RRC
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The Court held under the facts of the case, the pro-ration formula is invalid because there was no substantial
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evidence in the record justifying such a wide discrepancy in the rate of production
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This case gave birth to compulsory pooling
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Pickens v. Railroad Commission of Texas (1965) - CORRECT ANSWER✔✔Pickens challenged the pro-
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rationing order(50 per well; 50 per acreage)j j j j j j j
The Court held the pro-ration order was supported by substantial evidence and it is a valid exercise of the
j j j j j j j j j j j j j j j j j j
police power of the RRC to protect correlative rights
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KEY FACT: In this case it seemed that the oil was moved inwards Picken's tract, thereby flooding out the
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outer tract holders interest; therefore, order was required to ensure that outer operators leases would not
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be flooded out
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Thompson v. Consolidated Gas Utilities Corp. (SC 1937) - CORRECT ANSWER✔✔Court found that the pro-
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ration order neither prevented waste nor protected correlative rights
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Complete Solutions.
Extraneous gas - CORRECT ANSWER✔✔gas drilled and produced elsewhere and stored in a new place
j j j j j j j j j j j j j j
Native gas - CORRECT ANSWER✔✔gas that has not been produced and still in its original formation
j j j j j j j j j j j j j j j
Extraneous gas Rule - CORRECT ANSWER✔✔Once extracted gas, relocated to another underground
j j j j j j j j j j j
storage site it is the personal property of the extracting company - Texas American Energy Corp. v. Citizens
j j j j j j j j j j j j j j j j j j
Fidelity Bank & Trust Co.
j j j j j
What is an oil and gas lease - CORRECT ANSWER✔✔fee simple determinable with the possibility of reverter
j j j j j j j j j j j j j j j j
Rule of Capture - CORRECT ANSWER✔✔The owner of a tract of land acquires title to any oil and gas
j j j j j j j j j j j j j j j j j j
produced from legal(no slant well drilling or trespass) wells on his lands, even if the oil and gas is drained
j j j j j j j j j j j j j j j j j j j j
from adjoining lands. There is no liability for reasonable and legitimate drainage from a common pool by a
j j j j j j j j j j j j j j j j j j
neighbor
j
,Cause of action if someone takes extraneous gas - CORRECT ANSWER✔✔Conversion
j j j j j j j j j j
Correlative Rights - CORRECT ANSWER✔✔Each owner of land in a common source of supply of oil and gas
j j j j j j j j j j j j j j j j j
has legal privileges as against other owners of land therein to take oil and gas therefrom by lawful
j j j j j j j j j j j j j j j j j j
operations conducted on his own land; such owner has duties to the other owners not to exercise his
j j j j j j j j j j j j j j j j j j
privileges of taking so as to injure the common source of supply
j j j j j j j j j j j j
Negligence(ROC) - CORRECT ANSWER✔✔The rule of capture does not protect you from liability due to j j j j j j j j j j j j j j
negligence; each owner must exercise reasonable care in drilling with some regard to the rights of others
j j j j j j j j j j j j j j j j j j
Eliff v. Texon Drilling Co. - You have to operate the well as a reasonable prudent operator
j j j j j j j j j j j j j j j j
Eliff v. Texon Drilling Co. - CORRECT ANSWER✔✔Held the rule of capture should not be extended so as to
j j j j j j j j j j j j j j j j j j
include the negligent waste or destruction of the oil and gas
j j j j j j j j j j j j
D negligently did not use the correct drilling mud which resulted in their well blowing out and causing
j j j j j j j j j j j j j j j j j
significant loss of gas and oil in the formation
j j j j j j j j j
Public Nuisance - CORRECT ANSWER✔✔IF a city ordinance or municipal law forbids legitimate
j j j j j j j j j j j j
development activity, that is a legitimate restriction on your right to develop. The rule of capture is limited
j j j j j j j j j j j j j j j j j j
to lawful practices
j j j
United Carbon Co. v. Campbellville Gas Co. - CORRECT ANSWER✔✔The Court found that an operator has a
j j j j j j j j j j j j j j j j
right to use a compressor to increase the pressure in his well and the other operator's only relief is in the
j j j j j j j j j j j j j j j j j j j j j
form of self-help, that operator needs to get their own compressor(note: if the operator fails to get a
j j j j j j j j j j j j j j j j j j
compressor - this would likely violate the implied covenant to manage and operate estate)
j j j j j j j j j j j j j j
Phillips Petroleum Co. v. American Trading - CORRECT ANSWER✔✔The operator drilled a well in violation
j j j j j j j j j j j j j j
of spacing requirements - well was to close to property line and produced gas from a common reservoir -
j j j j j j j j j j j j j j j j j j j
court found that the rule of capture will not help you because you broke the law
j j j j j j j j j j j j j j j j
,Wronski v. Sun Oil Co. - CORRECT ANSWER✔✔Operator produced way more than the field pro-ration order
j j j j j j j j j j j j j j j
j
Court held any violation of a pro-ration order constitutes conversion of oil from the pool and subjects the
j j j j j j j j j j j j j j j j j
violator to liability to all the owners of interest in the pool for conversion of the illegally oil
j j j j j j j j j j j j j j j j j j j
If rule broken in bad faith - must pay fair market value of the oil and cannot offset any production costs(used
j j j j j j j j j j j j j j j j j j j j
here)
j j
If broken through negligence - fair market value of oil with an offset for production costs
j j j j j j j j j j j j j j j
Browning Oil Co. v. Luecke - CORRECT ANSWER✔✔Operator owed damages based on a determination of
j j j j j j j j j j j j j j
production that can
j j j
be attributed to their tracts with 'reasonable probability'; court refused to apply the rule of capture to a
j j j j j j j j j j j j j j j j j
horizontal well bore which had been perforated to directly produce oil from several tracts. Oil should be
j j j j j j j j j j j j j j j j j
apportioned on basis of amount produced from each tract.
j j j j j j j j j
Springer Ranch v. Jones - CORRECT ANSWER✔✔Court addressed the allocation of production for purposes
j j j j j j j j j j j j j
of computing royalties due from a horizontal well that traversed multiple tracts
j j j j j j j j j j j j j
Court held that production should be allocated to the respective tracts based on the ration of the productive
j j j j j j j j j j j j j j j j j
portions of the horizontal well that underlay each tract
j j j j j j j j j j
Additionally, precedent suggests that the operator bears the burden of proving what portion of production
j j j j j j j j j j j j j j
is attributable to each of the various tracts
j j j j j j j j
Pattie v. Oil & Gas Conservation Comm'n - CORRECT ANSWER✔✔A regulatory body must consider
j j j j j j j j j j j j j
correlative rights when establishing a rule/order
j j j j j j
Pro-ration - CORRECT ANSWER✔✔Pro-rationing rules are used by the RRC to regulate the maximum
j j j j j j j j j j j j j
amount of oil and gas that wells can produce, both to prevent physical waste and from the premature
j j j j j j j j j j j j j j j j j j
dissipation of the natural reservoir pressure in the field and to protect correlative rights
j j j j j j j j j j j j j j
, Pro-ration Rule(judicial review) - CORRECT ANSWER✔✔A pro-ration order must be reasonably supported
j j j j j j j j j j j
by substantial evidence. When a pro-ration order is reasonably supported by substantial evidence, the
j j j j j j j j j j j j j j
Court will not substitute its judgment for that of the RRC(deferential)
j j j j j j j j j j j
Atlantic Refining Co. v. Railroad Commission of Texas - CORRECT ANSWER✔✔Called the Normanna
j j j j j j j j j j j j
Decision; March 8, 1961
j j j j j
The RRC issue a pro-ration formula(1/3 per well; 2/3 per acreage) that allowed a well on .3 acres to produce
j j j j j j j j j j j j j j j j j j j
200 times as much oil than was underneath their tract. The court applied the rule: there must be substantial
j j j j j j j j j j j j j j j j j j j
evidence to support the RRC's order and if there is the court shall not substitute its judgment for that of the
j j j j j j j j j j j j j j j j j j j j j
RRC
j j
The Court held under the facts of the case, the pro-ration formula is invalid because there was no substantial
j j j j j j j j j j j j j j j j j j
evidence in the record justifying such a wide discrepancy in the rate of production
j j j j j j j j j j j j j j j
This case gave birth to compulsory pooling
j j j j j j
Pickens v. Railroad Commission of Texas (1965) - CORRECT ANSWER✔✔Pickens challenged the pro-
j j j j j j j j j j j j
rationing order(50 per well; 50 per acreage)j j j j j j j
The Court held the pro-ration order was supported by substantial evidence and it is a valid exercise of the
j j j j j j j j j j j j j j j j j j
police power of the RRC to protect correlative rights
j j j j j j j j j j
KEY FACT: In this case it seemed that the oil was moved inwards Picken's tract, thereby flooding out the
j j j j j j j j j j j j j j j j j j
outer tract holders interest; therefore, order was required to ensure that outer operators leases would not
j j j j j j j j j j j j j j j j
be flooded out
j j j
Thompson v. Consolidated Gas Utilities Corp. (SC 1937) - CORRECT ANSWER✔✔Court found that the pro-
j j j j j j j j j j j j j j
ration order neither prevented waste nor protected correlative rights
j j j j j j j j j
