Basic Oil & Gas

I.

Ch. 1: Historical & Physical Background

a. Petroleum
i. A fossil fuel consisting of a large variety of combustible gaseous and
liquid (as well as solid) hydrocarbons.
1. Hydrocarbon = 1C + 1H
ii. The liquid part is crude oil.
iii. Gaseous portion is natural gas.
1. Methane primarily
2. Natural gas is the refined product you get from crude
oil.
iv. Organic Theory
1. Hydrogen and carbon came from sea and land plants
and animals.
b. Oil and gas formed from organic matter in sedimentary rocks.
c. Commercial oil and gas reservoir
i. Source of H and C.
1. Deposition
a. Deemed to come from marine animals and
plants
b. Sedimentary Rock
i. The pressure on sedimentary rock can
create your petroleum.
ii. Conditions that are favorable to the formation of petroleum
from these materials.
1. Generation
a. Heat, pressure, and the fact that the organisms
cannot decompose in a normal way.
2. Source rocks
a. Source + favorable conditions.
b. Source rocks for petroleum are black shales,
deposited originally as black, organic rich muds
on the sea floor.
iii. Carrier Rocks
1. The petroleum migrates through carrier rocks.
a. The water moving through the carrier rocks
drives oil along with it.
b. Generally upward movement but it can also be
horizontal.
2. Porous and permeable
a. Porosity = when the material falls and there is
space in between/holes.
i. There is room to hold liquid or gas.
ii. Saturation would be the actual amount of
fluid in a given space.

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1. ex: 20% saturation = 1/5 of

available space contains fluid being
measured.
b. Permeability = the ability to transmit a fluid or
let fluid flow.
i. The holes are arranged so that the fluid
can go from one hole to another.
1. Spaces are connected.
iv. Trapping
1. Impermeable features that will stop the migration
and will be a trap allowing a reservoir to form.
2. Once oil and gas hit the trap it ends up stuck and it
becomes bigger and backing up and becomes a
reservoir (or pool).
3. Structural Trap
a. Result from movement in the earths crust that
deforms or offsets neatly laid rock layers.
b. Anticline
i. Layers are interfered with by outside
forcing movement.
c. Faulting
i. Caused by the cracking and breaking of a
rock plane.
ii. Earthquake or gravity moves the layers.
4. Stratigraphic Trap
a. Occurs either when sedimentary rock was
created, or
b. Occurs when erosion wore down a layer and an
impermeable layer was deposited on top of
that rock.
i. Truncated
v. Reservoir Rock
1. Must be both porous and permeable
2. Where the petroleum gathers in the rocks, the holes
in the rocks, when it is trapped and cannot go
further.
3. Layering
a. Natural Gas
i. A gas cap is formed when enough gas is
present for the gas to be a separate
layer.
b. Crude
c. Water
i. Heaviest

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ii. Petroleum hitchhikes on the water and

as the petroleum moves through the rock
so does the water.
4. Once oil and gas hits the reservoir it is not
continuing to move.
a. The petroleum will remain static until disturbed
by human activity.
d. Ownership Prior To and At Extraction
i. Del Monte Mining and Milling
1. Common law regarded ownership of land as
including:
a. Surface,
b. Airspace above and outward to the heavens,
and
c. Everything beneath to the center of the earth.
2. Ad Coleum Doctrine
a. Heaven and Hell theory of property
ownership.
ii. Kelly v. Ohio
1. Kelly is the oil and gas lessee of Hastings. Ohio Oil is
developing property adjacent to that of Kelly. Wells
within 25 feet of the property line on Ohio Oils
territory NEAR Kellys. Some of the oil being
produced by Ohio is coming from Kellys land.
2. The court does not give any relief to Kelly.
3. Rule of Capture
a. Oil goes from high pressure to low
pressure.
i. Wells create a low pressure zone that
drains oil and gas toward it.
1. Zone of Depression
b. If you want the gas beneath your own land you
must drill.
c. There is no liability for oil and gas that is
drained from under the lands of another.
d. Does not allow you to enter your neighbors
land to drill.
e. Creates a lot of waste.
f. Balancing Act
i. Right of landowner to minerals beneath
the land.
ii. Right of driller to fruits of labor.
iii. Correlative Rights
1. Right to fair chance to produce oil and gas under
ones land, and a duty to produce in accordance with
3

Basic Oil & Gas

conservation rules and without waste or negligent

damage to the producing formation.
2. Both a right and a duty.
a. Duty because others have rights and you must
produce in accord with conservation laws and
to not waste and do no damage.
b. You have a fair right to your share of the oil
when drilling.
3. To not commit waste is:
a. Economic Waste
i. More wells are drilled than necessary
b. Surface Waste
i. Ex: leaking
c. Underground Waste
i. Leaving recoverable hydrocarbons in the
ground due to the insufficient dissipation
of reservoir energy, and inefficient use of
reservoir pressure.
iv. Ownership Theories
1. Ownership in Place
a. Right to search, develop, and produce from
land, and
b. Right to present possession of oil and gas in
place.
c. TEXAS is an OIP state.
d. Owner owns oil and gas in place UNTIL
someone else captures it.
2. Non-Ownership
a. Exclusive right to take the gas.
b. OKLA. is a NO/QO state.
c. Right to search, develop, and produce from the
land and thats it.
d. No true ownership of oil and gas until you
capture the molecules.
i. Up to that time, the mineral owners right
is the right to come on the land and take
the oil or gas.
e. Conduct Allowed in Production
i. Peoples Gas v. Tyner
1. Tyner owned land within the city of Greenfield. P
drilled well 200 ft. from Tyners home, but on Ps
land. P intended to shoot the well with nitroglycerin
to stimulate recovery.
2. 2 theories posed and Tyners prevail on one.

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a. Nuisance = unreasonable use of property that

unreasonably interferes with anothers use of
property.
i. It is unreasonable to use nitroglycerin on
property.
b. Without nitroglycerin there would ne no liability
for the molecules drained.
i. Shooting the well stimulates gas
production.
ii. Tyners would lose on the theory that the
drilling of the well is taking their
property.
ii. Rule of Capture after Tyner
1. Applies when oil and gas is part of the property and
there is no liability if drained, unless
a. Trespass
b. Nuisance
c. Negligence, OR
d. other oil and gas doctrines for liability
i. Violating correlative rights
ii. Violating conservation rules or
regulations
iii. Legitimate Operation:
1. Should have NO:
a. Torts
b. Waste
c. Violations
iv. Wronski v. Sun Oil
1. P owned 200 acres of land. D drilled several wells on
nearby property. Ps allege that D intentionally and
unlawfully produced 150,000 barrels of oil, 50,000 of
which had been drained from beneath the Ps
property. This was production above the amount D
was authorized to produce.
2. D was held liable for violating the conservation
statute.
a. 2 rate types for conversion:
i. Mild- value of the oil at the time of the
taking.
ii. Harsh punishment for willful converters
1. Pay for value of oil at time of taking
with no credit for your cost.
3. Fair Share Principle
a. Modified Rule of Capture

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b. Within reasonable limits, each operation has an

equal opportunity to recover the equivalent of
the amount of recoverable petroleum
underlying his property.
c. Correlative rights!
i. Ohio Oil v. Indiana
1. P was venting although a statute
said this was not ok.
2. Even if a producer is not being
negligent it cannot commit waste.
3. Conservation statutes generally
upheld as valid exercise of state
police power.
a. Balances public and private
interests
ii. Ellif
1. Reasonable opportunity to
produce his fair share of the oil and
gas is the landowners common law
right, but the right of each land
holder is qualified and limited to
legitimate operations.
v. Ability of a landowner to exploit oil and gas
1. Under the rule of capture, no limit on number of wells
or production, unless
a. State exercises its police power, OR
b. Judge-made doctrine of correlative rights
violated, OR
c. Basic tort law is violated.
f. Ownership of Extracted Oil and Gas