Legal Ownership Interests of Oil and Gas

Oil and gas interests are interests in real property and thereby have the same attributes as other real property such as a home or a ranch. Although the ownership of oil and gas interests can take many forms, courts commonly analogize the ownership of oil and gas interests to a bundle of sticks. 

Comprising this “bundle of sticks” are the following rights associated with the mineral estate: 

(1) the right to develop

(2) the right to lease (commonly referred to as the “executive right”)

(3) the right to receive bonus payments 

(4) the right to receive delay rentals

(5) the right to receive royalty payments

 

Any one of the forgoing “sticks” may be conveyed or reserved by the holder of the interest separate and apart from the associated surface estate. The conveyance or reservation from a conveyance of an oil and gas interest by the holder of the interest is commonly referred to as a “severance” of the surface and the mineral estate.  Once oil and gas interests are severed, the owner of an interest in oil and gas and the owner of the surface estate may have competing desires regarding the use of the surface for development of the oil and gas interest. 

Given the devastating effect that the development of oil and gas interests can have on the associated surface acreage and the increase in technology allowing for development of oil and gas interests in areas where the production of oil and gas interests were seen noneconomic or even impossible, the examination of title instruments creating and defining the real property interests is increasingly important. 

In recent years, the Texas Supreme Court has issued landmark decisions interpreting rights of surface owners relative to the ownership of the water in place, the rights of surface owners to grant easements in subsurface mineral formations, and the interplay between the rights of the surface owner and the mineral estate. In light of these recent decisions, analyzing the terms of the instrument creating a surface or mineral interest in conjunction with judicially pronounced principles of oil and gas law has become increasingly more complex and important.

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Stephen J. Ahl

Stephen Ahl is a Shareholder in Langley & Banack’s Carrizo Springs and San Antonio offices.  Mr. Ahl’s practice is focused primarily on representing Texas land and business owners in both litigation and transactional matters.   Mr. Ahl graduated from the University of Texas at Austin in 2004 with a Bachelor’s degree in Government. After graduating with a Juris Doctorate degree from the St. Mary’s University School of Law in 2007, Mr. …