Ownership of Production

The other day, we touched briefly on the Ownership in Place Doctrine.  This was extremely brief based on the amount of free time I had at the moment, and, as always, encourage you to review Texas Law of Oil and Gas, Second Edition for a thorough review of this and any other topics discussed herein with regard to oil and gas law in Texas.

Today, we're going to go over the concept of Ownership of Production.  We know from previous study that Oil and Gas underground are part of the realty - in other words, they can be conveyed like and other interest in land, and they can be severed, as well.

This changes, however, once the Oil and Gas resources are produced.  As a matter of law in Texas, once produced, oil and gas becomes personal property, and therefore out of the purview of the Rule of Capture.  This means that once you get minerals to the mouth of the well, if (as the book gives for example), a pipe breaks and the oil flows across the surface of the operator's land onto adjacent property, then the owner of that property's mineral estate does not automatically gain control of the oil.  With respect to gas, the authors cite Lone Star Gas Co. v. Murchison (353 S.W.2d 870 (Tex.Civ App. - Dallas 1962, writ ref'd n.r.e.)), where natural gas that is pumped into an underground reservoir for storage purposes by an injecting company, said natural gas retains its character as personal property. 

This seems to be the logical position - once you've take steps to retain the minerals, such as injecting the gas into a depleted reservoir, you are not "unproducing" the minerals, and as long as you retain control, then you aren't abandoning it.  As it stands, the authors note that the Underground Gas Storage and Conservation Act (Tex. Nat. Res. Code Ann. Sec. 91.171 - 91.184) actually outright states that natural gas is the personal property of the injector and not subject to the rule of capture.

This concept of classifying produced oil and gas as personal property does contain legal consequences, such as disposition on death, as well as what controls the sale - e.g. from the statute of frauds doctrine to the USS, as well as the type of security interest that can be acquired.

I will try to discuss the authors' section on Gas Storage in the next day or so.