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California Oil and Gas Law Blog

How can a surface damage clause protect your property?

You want to be able to benefit financially from the rich oil deposits under your California property, but you do not want the beautiful land around your home destroyed. Is there anything you can do to enjoy both the surface beauty and the riches underneath?

According to MineralWeb.com, you may be able to include one of these surface damage clauses to the lease:

Fewer wells drilled despite state's continued dependence on oil

Owners of wells and real estate rich in minerals in California appear to have many advantages thanks to the state's massive underground reservoirs of oil. The state's economy and many of its individual and corporate residents have relied on the bounty that mining crude oil has provided. With the wealth of buried riches, many people may wonder why production is not increasing to meet the demand for gasoline.

In one of the largest oil producing locations in the state, San Joaquin Valley's Midway-Sunset field, production has dropped by 100,000 barrels per day over the last 20 years. The problem is not a lack of oil. Instead, it stems from environmental regulations that force California refineries to ship oil from overseas rather than produce its own.

What is hydraulic fracturing?

If you own land in California, you may at some point be approached by a company wanting to drill for oil or gas. Some companies may pitch the idea of hydraulic fracturing, or as it is more commonly called, fracking. While you have probably heard this term, you may not know exactly what it means or if you should allow it on your property. 

According to Western Land Services, fracking involves opening up natural fractures in the rock to release trapped gas or oil. Chemicals sand and water are mixed and pumped into the ground to open the fractures. If you are approached by a company for use of your land for hydraulic fracturing, you may be offered a lease, which usually extends a time period in which the company has to find oil or gas. If they find the product, a second part of the contract kicks in and you may have the company there for many years until the supply runs out.

Factors that could complicate your effort to create new contracts

Whether you have been involved in the oil and gas industry for decades or are relatively new to the scene, you have probably noticed that the process of finding, extracting and selling natural resources is highly competitive. You have probably been involved in your fair share of contract meetings where potential agreements are discussed and negotiated to create advantages for both parties. At Ehrlich, Pledger Law, LLP, we are familiar with the challenges of working in the oil and gas industry in California.

While all industries face competition from other successful companies, your involvement in oil and gas has probably exposed you to the excessive competition that can quickly deteriorate smaller companies if they are unprepared to make strategic moves in an efficient manner. According to Investopedia, some of the challenges you may face that could prevent you from being able to create new contracts include the following:

  • The availability of alternative options for consumers who are looking for solutions that create less impact on the environment. 
  • The pulling, pushing and shifting power and influence that both buyers and sellers exert on the industry. 
  • The possibility that new entrants will enter the market and compromise your position.
  • The constant competition with rivals who are also trying to build their presence and market their brand.

Are your rights to drill for oil on your land in jeopardy?

You own the mineral rights to your California real estate, and as neighboring areas discover oil beneath them, you have begun to think about whether you may want to explore the idea of a well on your property. However, according to InsideClimateNews.org, a recent report has raised a debate about continuing to allow new wells to be drilled. Could it affect your ability to get a permit?

Researchers say the state should stop issuing permits to drill altogether. They claim that the other methods the state has employed to cut emissions are not nearly enough, but that cutting oil production could make a more substantial dent in California's contribution to factors that cause global climate change. This may sound ominous, but you should know that it would be very difficult for the state to implement, particularly when it could affect your rights to your own property, as well as creating other legal issues.

The basics of a joint operating agreement

When planning oil and gas transactions in California, many companies, government entities and individuals consider joint operating agreements. According to Chron.com, this type of operational partnership allows them to contribute manpower or other resources to an oil and gas project so it can be completed without the creation of a new entity.

Oil & Gas Financial Journal explains that ownership, control and risk are the main factors that the JOA attempts to balance through its structure. The agreement typically contains the following specifics:

  • Who the parties are to the agreement
  • How long the agreement will last
  • How parties may withdraw from the agreement
  • Who will be the operator
  • Who is on the operating committee
  • The participating interests

Reviewing some other reasons for oil and gas disputes

We have covered a number of different reasons why oil and gas disputes arise. However, it is vital to bear in mind that there are many other issues that can result in an oil and gas dispute. If you do business in California, these disputes can be very contentious and have a major impact on your company and financial future, which is why they should be handled properly. By recognizing some of the different reasons these disputes take place, you might even be able to avoid a dispute altogether.

Sometimes, a dispute arises because of an area of mutual interest, the termination of a lease, indemnity, or an oil and gas title. Oil and gas companies may become dragged into a dispute as a result of breach of contract or some other issue related to an agreement, while disagreements also arise over preferential rights, development, and drainage. There are many different types of disputes that can arise and wreak havoc for an oil and gas company. These disputes may rise up during any phase of the process, from exploration and the early phases of production to years down the road. Regardless of the nature of your dispute, it is critical to protect your company from the negative consequences associated with litigation.

Are mineral rights part of the property your family inherited?

You and your siblings inherited some real estate in California, and you want to buy their portion of the land from them. The energy industry development in nearby areas has you hoping that one day you will be able to lease the mineral rights of the property in exchange for royalties. However, before your siblings agree to sell and you fix a price, you need to find out first if the mineral rights are attached to the surface rights, or if someone else owns them.

According to the Herald-Standard, even if you have the deed in hand and it mentions the mineral rights, you may still not be able to tell if they truly are conveyed with the surface rights. The correct information about the mineral rights will be contained in documents at the local county courthouse. These documents may include the following types of records:

  • Mortgages
  • Deeds
  • Leases
  • Royalty leases
  • Liens

Resolving an internal dispute

If you own an oil and gas company, you might have a plethora of challenges and concerns, some of which have been gone over on this blog. For example, legal action might arise with a competitor or landowner or you could be dealing with legal issues related to mineral rights. However, we understand that oil and gas companies across California might have other matters to work through, such as an internal dispute. If a dispute has arisen within the company you own, it is essential to approach this disagreement with care and pinpoint the best direction forward for your business and those you employ.

When it comes to internal disputes, each occurrence is unique. In some instances, the disagreement might be settled outside of the courtroom, but others require litigation. Disputes can arise for a wide variety of reasons, such as an employee claiming that they have not been compensated properly, that they were harassed, or that their rights were violated in another way. If the dispute is making you feel uneasy, it is important for you to focus on reducing stress during this time and securing a favorable end result for your company.

What research should you do before signing a mineral lease?

Being contacted by someone who wants to lease your California mineral rights can be an exciting moment. However, before you enter into a discussion with that individual or company, there are several things you need to know.

According to MineralWeb.com, here are some things to research before entering into negotiations:

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