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California Oil and Gas Law Blog

Authority scope of the DOGGR

While states like North Dakota may have received a lot of attention in recent years when it comes to domestic oil production, the fact remains that the state of California continues to be a major player in this market. If you are involved in this industry, you will know just how regulated this business can be and how important it is that your company follow appropriate laws and guidelines. For this reason, it is important to have a good understanding of what the Division of Oil, Gas and Geothermal Resources is and what its scope is relative to your activities.

As explained by the California Department of Conservation, the DOGGR was first established more than 100 years ago to promote safe operation and extraction of natural resources from California's land and ocean bounty. The agency has responsibility for all onshore wells statewide as well as all wells in the Pacific Ocean located within three miles of the California coastline.

What factors should you look for in a gas lease?

If you plan to lease your land for the purpose of oil extraction in California, there are several heavy considerations you must make before signing on the dotted line. Your contract with the oil and gas company should address those considerations. Though every case is unique, and though you should always consult with an attorney before signing over the rights to your property, PennState details several components that all oil and gas lease contracts should include.

According to the paper, you and your attorney should first determine the actual length of the lease. This may not be as cut-and-dry as you might think. Depending on the language of the contract, the length of the lease may be the primary term of the lease, which is typically five years, or it may extend into a secondary term so long as production is still active. If a secondary term is necessary, it is usually as long as the primary term.

How is the value of mineral rights determined?

Ideally, the agreement between a mineral rights owner in California and an oil and gas company to drill a well should be a mutually beneficial arrangement. The oil company has the equipment and expertise necessary to reap the bounty of your estate, and you get a percentage of the profits. According to MineralWise, however, the value of your mineral rights can vary widely on the basis of several different factors, some of which you have little to no control over.

The commodity prices of gas and oil are not only among the most obvious factors contributing to the value of mineral rights, but they may also be the most variable as prices fluctuate on a nearly daily basis. You can continually monitor changes in oil and gas commodity prices on the New York Mercantile Exchange.

The consequences of an oil and gas dispute

We have focused on many aspects of oil and gas disputes on this blog, such as some of the reasons why business owners find themselves in the middle of a disagreement. As the owner of an oil and gas company, you should also think of the potential consequences associated with a dispute. Aside from financial headaches, you may face serious and potentially long-term complications depending on how the dispute plays out in court. Across the state of California, it is pivotal for oil and gas company owners to be prepared for these setbacks.

Regardless of the factors that have led to a dispute, the way in which your company handles this difficult situation could have an impact on the future of your firm. Sometimes, disputes can be resolved relatively effortlessly and simply communicating with those involved in the dispute can help reduce tensions and settle the disagreement. This is certainly not possible in every dispute and some can be extremely contentious, with very strong emotions and even negative media coverage.

What are surface owner rights?

If you own a piece of land in Texas and someone wants to drill for oil on your land, you may get excited about the potential income that may bring. However, before you get too excited, you need to know the rights you have to the property. In some cases, you may only have surface owner rights, which means that oil drilling may not be quite so lucrative.

According to MineralWise, surface rights give you the ownership rights to only the land and not what is below the land, which is the mineral rights. In this state, because there is a lot of oil underground, it is very common for surface and mineral rights to be separate. If you only have surface rights, you may get some money for the use of your land and any damage done to your land to drill. However, you will not see income from any oil found unless you own the mineral rights.

What you should know before about a gas lease

If you have the potential to collaborate with other entities and participate in a gas lease, the opportunity may sound incredibly promising when you hear about the potential benefits. However, doing your research before agreeing to any type of contract is imperative to protecting your assets. At Ehrlich, Pledger Law, LLP, we have helped many land owners in California to understand more about their rights in preparation for signing a contract. 

Going into a potential contract deal in regards to a gas lease, you can never ask too many questions. Your vigilance and interest in finding out exactly what you are getting involved in may potentially be the difference in a successful agreement versus one that completely takes advantage of your assets. According to dojmt.gov, to begin, you should take your time to get to know the entity who is requesting a contract deal. Ask around about them and pay attention to what people are saying. 

Can effective contract negotiation prevent disputes?

You have been approached with the possibility of joining forces with another industry leader in California to arrange an oil and gas transaction that has the potential to become extremely successful. One of the first things you will be required to do is to form a contractual agreement that will detail which party will be responsible for which requirements and their subsequent outcome. Preventing contract disputes is something you must proactively be aware of in order to maintain a functional agreement. 

One of the best ways to prevent contention and misunderstanding from infiltrating your ability to operate with confidence and success is to take your time negotiating your contract from the very start of communications. According to Entrepreneur, you should maintain the mindset that articulating a contract is going to take a bit of time to accomplish. Break it down into sections and focus time on each aspect of the contract. A term sheet can give you direction as to which specific clauses you want and need to include in your content. 

Proposal aims to tighten restrictions on drilling procedures

While drilling natural resources in California can provide a variety of economic benefits, if regulations are not followed, it can pose an immediate threat to the environment, as well as the people and wildlife that live nearby. As such, regulations are put into place to protect the investment of the drillers, as well as the safety and well-being of people who reside near the drilling site. 

In Colorado, lawmakers are working hard to modify previously written agreements to tighten restrictions on various drilling procedures. They say that their underlying intention is to put a greater distance between drilling sites. Additionally, they hope to maintain a considerable distance between drilling sites and the people who live within that radius. While there has been interest and support for the suggested changes, both have failed to make any kind of voting ballot in recent years. Opponents voiced concern about how such restrictions would affect economic performance, as well as how it would impact the number of people who would potentially be jobless. A recent surge in activity has put Colorado at number seven for states with the largest presence of natural gas exploration. 

Learning how to negotiate can help you make a sale

Whenever you have the opportunity to explore a new area, you are going to have to create a plan for how you are going to get from considering your options to finalizing a sale. In many cases, you will be one of several interested contractors who are going to need to show the seller why you are the best fit for potential exploration. At Ehrlich Pledger Law, LLP, we have helped many companies in California with the legal side of natural resource exploration. 

While pitching and making an effective sale is a compilation of many different skills, one of the most important skills that you will need to have is negotiation. This skill allows you to discuss details with the seller in a manner that will allow you to create a deal that is beneficial to both parties, without compromising too much of what you desire. According to Forbes Magazine, in order to be able to negotiate effectively, you should remember the following:

  • Select a time and setting to make your pitch that is appropriate and strategic.
  • While using a persuasive tone of voice, avoid involving too much emotion.
  • Make sure you have your facts straight before making any false assumptions.
  • Know when to be silent and listen to the other side.

Oil and gas service providers may see positive growth

Oil company contract service providers in California and elsewhere in the United States have had to adjust their expectations for growth, and many now struggle in the market. Nasdaq points out that those who provide support to energy companies focused on exploration and production are apparently suffering from what may be long-term issues.

In order to compensate for low revenues during the oil slump in 2014, exploration and production companies began taking care of their own support services. While servicing contractors are still necessary, the initial losses continue in the form of reduced day rates, diminishing backlogs and forced efficiencies. Now, although energy explorers and producers do still make some capital investments, many have turned those investment funds inward to develop their own technology for maintaining in-house support services.

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