Oil & Gas Comparative Guide –

1 Legal and regulatory framework

1.1 What role does the national state play in the oil and gas
industry in your jurisdiction? Are oil and gas rights owned by the
state or is private ownership allowed?

The majority of oil and gas rights in the United States are
under private ownership. However, both the federal government and
each state government own the oil and gas rights on lands under
their respective control. An oil company seeking to develop those
oil and gas rights will typically obtain an oil and gas lease from
the private individual or the applicable state or federal
agency.

The federal government’s oil and gas leasing programme is
principally administered by two agencies:

• the Bureau of Land Management (BLM) for onshore leasing;
  and




• the Bureau of Ocean Energy Management (BOEM) for offshore
  leasing.

Federal oil and gas leases are granted through a competitive
auction process in which potential lessees bid on leases covering
defined areas of federal land or waters.

Depending on the location of the oil and gas rights, different
state agencies may have such authority. For example, in the state
of Texas, state universities may lease oil and gas rights located
on university property; while the General Land Office acts as agent
for the state in leasing oil and gas rights located on other state
lands.

Those seeking to develop oil and gas rights on tribal lands must
obtain a lease from the applicable tribe.

Whether the underlying oil and gas rights are under private or
governmental ownership, oil and gas operations are potentially
subject to federal, state and local laws and regulations.

1.2 Which national legislative and regulatory provisions govern
the oil and gas industry in your jurisdiction?

The development of oil and gas rights on federal waters is
governed by the Outer Continental Shelf Lands Act (OCSLA) and the
Submerged Lands Act.

The OCSLA generally provides for the authority of:

• the BOEM to administer the federal government’s offshore
  leasing programme; and




• the Bureau of Safety and Environmental Enforcement (BSEE) to
  regulate oil and gas operations in federal waters.

The regulations promulgated by the BOEM and the BSEE with
respect to the offshore oil and gas industry are set forth in Title
30 to the Code of Federal Regulations.

The federal government’s oil and gas leasing programme is
governed by:

• the Mineral Leasing Act of 1920, generally authorising and
  governing the leasing of federal lands for oil and gas and other
  mineral production; and




• the Federal Onshore Oil and Gas Leasing Reform Act of 1987,
  authorising the US Forest Service to grant oil and gas leases for
  areas within its jurisdiction.

Other relevant statutes include:

• the Naval Petroleum Reserves Production Act of 1976,
  authorising the development of oil and gas rights located on
  certain national reserves; and




• the Federal Oil and Gas Royalty Management Act of 1982 (as
  amended by the Federal Oil and Gas Royalty Simplification and
  Fairness Act of 1996), governing the BLM’s enforcement of oil
  and gas lessees’ royalty obligations.

The regulations promulgated by the BLM with respect to the
onshore oil and gas industry are set forth in Title 43 to the Code
of Federal Regulations.

1.3 What other national legislative and regulatory provisions
have relevance for oil and gas activities in your
jurisdiction?

Under the Foreign Investment and National Security Act of 2007
and related statutes, the president of the United States has the
authority to block or unwind – at any point – certain transactions
by foreign persons that threaten the national security of the
United States. The Committee on Foreign Investment in the United
States (CFIUS) – a committee composed of various US government
agencies – has jurisdiction to review such transactions for
national security issues.

The CFIUS has historically taken the position that covered
transactions involving oil and gas can raise national security
issues and as such should be reviewed by the CFIUS. As a result,
certain oil and gas transactions have been prevented from closing
by the CFIUS in the past.

The Hart-Scott-Rodino Act requires parties to transactions
valued above a certain value threshold – $500 million in 2021 for
acquisitions of oil and gas assets, and generally otherwise $92
million – to provide notice to the Federal Trade Commission (FTC)
and the Antitrust Division of the Department of Justice (DOJ). The
FTC and the DOJ will evaluate the transaction to determine whether
it may have an anti-competitive impact and may request further
information regarding the transaction in connection with that
evaluation.

1.4 Are there any regional treaties or laws that need to be
taken into account?

The Cartagena Convention (United Nations Environment Programme
Regional Seas Programme for the Wider Caribbean) provides for
signatory nations to cooperate to combat oil spills, protect
wildlife and reduce pollution in the Caribbean region. The United
States ratified the agreement in October 1984.

The United States-Mexico-Canada Agreement (USMCA) is the
successor to the North America Free Trade Agreement and prohibits
the imposition of tariffs on the flow of energy between the US,
Canada and Mexico. The USMCA also provides for flexible rules
regarding origin requirements for oil and gas traded between the
three signatory nations.

1.5 Which national regulatory bodies are responsible for
enforcing the applicable laws and regulations? What powers do they
have?

The BOEM acts as the United States’ agent in the leasing of
oil and gas interests in federal waters. In performing this
function, the BOEM:

• determines whether prospective lessees are qualified to hold a
  federal oil and gas lease; and




• manages the competitive bidding process for the award of
  leases.

The BOEM’s approval is required for any transfer of an
interest in an oil and gas lease or change in operatorship of the
underlying mineral interest.

The BSEE administers the permitting process for offshore oil and
gas operations, including drilling, and enforces environmental and
operational regulations in connection with offshore oil and gas
development. It conducts regular inspections of offshore wells and
other facilities to ensure compliance. It also ensures that the
regulatory requirements for decommissioning of oil and gas
facilities are met, and is responsible for approving and overseeing
operators’ decommissioning plans.

The BLM acts as the United States’ agent in the leasing of
oil and gas interests on federal lands (in coordination with the US
Forest Service in the case of oil and gas interests located in
national forests). Similar to the BSEE’s role with respect to
offshore oil and gas development, the BLM administers the
permitting process for drilling and other oil and gas operations on
federal lands, and enforces environmental and operational
regulations in connection with oil and gas development.

The Environmental Protection Agency (EPA) and the Federal Energy
Regulatory Commission are also prominent federal authorities with
jurisdiction over oil and gas activities.

1.6 What is the national regulators’ general approach in
regulating the oil and gas industry?

The oil and gas regulators’ stated mission is to facilitate
safe and responsible energy development while advocating for and
providing a fair return to US taxpayers in the form of royalties
and protections against liabilities resulting from that
development. The exact method of achieving that mission is left to
the discretion of the applicable agencies, with certain statutory
boundaries.

Regulatory agencies are created pursuant to statutes enacted by
the legislative branch, which effect a transfer of authority from
the legislative to the executive branch subject to the requirements
of those statutes. Regulatory agencies must adhere to their organic
statutes enacted by the US Congress, but those statutes grant the
agencies discretion over some aspects of the regulatory policy
within their jurisdiction. Therefore, regulatory policy can vary
depending on the priorities of the head of the executive branch
(ie, the US president). However, this discretion is subject to
checks and balances in the form of judicial review.

1.7 What role do provincial, state and/or other local
government regulatory bodies play in the regulation of the oil and
gas industry?

Development of oil and gas on private land is primarily governed
by state and local authorities. In Texas, the Railroad Commission
is the primary state agency responsible for the regulation of oil
and gas development, including qualification and registration of
operators. In Oklahoma, the primary oil and gas regulator is the
Corporation Commission; while the Louisiana Department of Natural
Resources fulfils the same role in Louisiana. State regulatory
agencies such as the foregoing are responsible for:

• issuing drilling permits;




• registering oil and gas operators; and




• enforcing bonding requirements of oil and gas lessees and
  operators.

States may also lease oil and gas rights located on state lands
and state waters (defined under Submerged Land Act as extending
from the state’s coast to nine nautical miles from the coasts
of Texas and Florida in the Gulf of Mexico and extending
approximately three nautical miles from all other states’
coasts.

2 Oil and gas industry

2.1 How mature is the oil and gas industry in your
jurisdiction?

In 1859, the Pennsylvania Rock Oil Company completed the first
drilled oil well at Oil Creek near Titusville, Pennsylvania. This
event is seen as the beginning of the modern oil era and the start
of the production of oil and gas in the United States. Since then,
technological innovation has resulted in rapid growth for the
drilling and production of US oil and gas.

The regulation of oil and gas has developed into a set of
complex legal regimes in each state in the United States.
Additionally, layered on top of the state legal regimes is the US
federal government’s regulation. As a result of these multiple
legal frameworks, oil and gas law has developed and matured so that
there is extensive jurisprudence governing oil and gas transactions
and other related matters in each individual state.

2.2 What are the key oil and gas products which are produced in
your jurisdiction and where are activities typically based?

The United States produces a full spectrum of petroleum
products, including:

• transportation fuels;




• fuel oils for heating and electricity generation;




• asphalt and road oil; and




• feedstocks for making chemicals, plastics and synthetic
  materials.

In the years 2018 to 2020, the United States was the top
producer of crude oil in the world, producing 15% of total crude
oil production in 2020. The top crude oil-producing states in the
United States in 2020 were as follows:

• Texas (43% of production);




• North Dakota (10.4% of production);




• New Mexico (9.2% of production); and




• Oklahoma (4.1% of production).

Additionally, 14.6% of US crude oil was produced from wells
located offshore in the federally administered waters of the Gulf
of Mexico.

Texas is the largest oil and gas producing state in the United
States. In 2020, Texas accounted for 43% of the country’s crude
oil production and 26% of its natural gas production. There are 31
petroleum refineries in Texas, which together have the capacity to
process almost 5.9 million barrels of crude oil per day.
Additionally, there are more than 17,000 miles of interstate
natural gas pipelines in Texas, connecting Texas to gas markets
throughout the country.

In 2020, North Dakota accounted for 10.4% of the United
States’ crude oil production and 2.5% of its natural gas
production. North Dakota has two oil refineries with a combined
operating capacity of about 90,000 barrels of crude oil per
day.

Other major oil and gas producing states are New Mexico,
Oklahoma and Louisiana.

2.3 Who are the key players in the oil and gas industry in your
jurisdiction?

The United States is unique in that it does not have a national
oil company operating as an extension of the government. Instead,
both public and privately held companies produce oil and gas from
both private and public lands. Many of the companies are
independent producers that usually only operate in the United
States. The other companies are referred to as major oil companies
and operate in many countries.

2.4 How are the following reflected in the domestic energy mix?
(a) Oil and gas (b) Imports and exports?

(a) Oil and gas

The US oil and gas industry has seen rapid growth in production
during the last few years, due to technological developments in
drilling and production methods. In 2020, the United States
produced 11,313,000 barrels per day of crude oil. Also in 2020, the
United States withdrew 40,689,764 million cubic feet of natural
gas.

(b) Imports and exports

In 2020, the United States exported about 8.51 million barrels
per day (MMb/d) and imported about 7.86 MMb/d of petroleum, making
it a net annual petroleum exporter. Refined petroleum products and
petroleum liquids make up the majority of US petroleum exports.
Also in 2020, the United States imported nearly 5.88 MMb/d and
exported about 3.18 MMb/d of crude oil. The top five sources of US
petroleum imports were:

• Canada;




• Mexico;




• Russia;




• Saudi Arabia; and




• Colombia.

In 2020, the United States was a net exporter of natural gas,
exporting 5.28 trillion cubic feet (Tcf). The United States also
imported 2.55 tcf. Increases in domestic production have reduced
the need for natural gas imports. The United States exported
natural gas to 32 countries in 2020.

3 Exploration and production

3.1 What rights are required to undertake exploration and
production in your jurisdiction? Do these vary depending on the
type or location of the activity?

In the United States, minerals are owned by federal and state
governments, private citizens and business entities. The right to
produce oil and gas is derived by entering into a lease with the
requisite mineral right owner. An oil and gas lease is a
contractual agreement between a lessor, as owner of the mineral
estate, and the lessee – typically an oil and gas company. The
lease permits the lessee to develop oil and gas in the area
detailed in such lease. While many oil and gas leases are based on
similar forms, each lease is negotiated on an individual basis, so
provisions in each lease may vary.

3.2 What regulatory or contractual requirements must be
satisfied to obtain exploration and production rights?

In the United States, producers of oil and gas must ensure they
comply with the regulatory requirements of federal, state and local
governments. The federal government focuses on regulating
exploration and production as it relates to environmental
protection. For example, the Environmental Protection Agency has
the authority to set standards for drinking water and air
quality.

The exploration of oil and gas is also regulated by the state in
which production occurs. Each state has a different entity that
promulgates and enforces oil and gas regulations. These state
entities enforce their regulations through the issuance of permits
and a variety of regulatory inspections.

In addition to federal and state regulations, there may be local
municipalities with ordinances that impact on the exploration and
production of oil and gas. For example, municipalities may pass
zoning ordinances that require the minimum distance wells and other
facilities must be set back from homes and businesses.

3.3 If there is state ownership of oil and gas rights in your
jurisdiction, what is the procedure for obtaining exploration and
production rights? How long does this typically take?

The Bureau of Ocean Energy Management (BOEM) acts as the United
States’ agent in the leasing of oil and gas interests in
federal waters. In performing this function, the BOEM determines
whether prospective lessees are qualified to hold a federal oil and
gas lease and manages the competitive bidding process for the award
of leases. BOEM approval is required for any transfer of an
interest in an oil and gas lease or a change in operatorship of the
underlying mineral interest. The Bureau of Safety and Environmental
Enforcement (BSEE) administers the permitting process for offshore
oil and gas operations, including drilling, and enforces
environmental and operational regulations in connection with
offshore oil and gas development.

The Bureau of Land Management (BLM) acts as the United
States’ agent in the leasing of oil and gas interests on
federal lands (in coordination with the US Forest Service in the
case of oil and gas interests located in national forests). Similar
to the BSEE’s role with respect to offshore oil and gas
development, the BLM administers the permitting process for
drilling and other oil and gas operations on federal lands, and
enforces environmental and operational regulations in connection
with oil and gas development.

The leasing of state lands is generally overseen by the relevant
state regulatory agency. For example, the Texas General Land Office
is charged with leasing state lands to companies for the
exploration and production of oil and gas.

3.4 Who can own exploration and production rights in your
jurisdiction? Do specific requirements or restrictions apply to
foreign operators? Do any indigenous ownership requirements
apply?

Certain federal regulations may apply to foreign operators that
seek to develop oil and gas properties in the United States. The
Committee on Foreign Investment in the United States (CFIUS) is an
interagency committee authorised to review certain transactions
involving foreign investment in the United States and certain real
estate transactions by foreign persons, in order to determine the
effect of such transactions on the national security of the United
States. The BLM has stated that the real estate transactions
subject to CFIUS review could include certain transactions
involving the leasing or purchase of federal mineral interests. A
review by the CFIUS of a potential transaction with the BLM could
lead to a modification or prohibition of such transaction.
Therefore, potential lessees and purchasers of federal mineral
interests should review CFIUS rules before bidding on any federally
owned oil and gas interests.

If a company intends to produce oil and gas in indigenous lands,
they should consult with the Bureau of Indian Affairs, the BLM and
the Office of Natural Resources Revenue to ensure that they are
following all applicable laws and regulations.

3.5 If there is state ownership of oil and gas rights in your
jurisdiction, what fees and other charges are incurred in obtaining
exploration and production rights?

Oil and gas rights owned by the applicable state will be subject
to the agency for such state that governs the production of oil and
gas in the state or in some instances independent agencies that own
the lands related to such oil and gas rights (eg, the General Land
Office of Texas). As such, any fees or charges associated with
obtaining such oil and gas rights will be determined by such
governing body and can vary widely from state to state.

3.6 What is the duration of exploration and production rights?
What is the process for renewal?

The duration of an oil and gas lease is comprised of two terms:
the primary term and the secondary term. The primary term is
typically a specified number of years. The lease remains in effect
during the primary term even if the lessee does not achieve
production in paying quantities (PPQ). ‘PPQ’ is a term used
to quantify oil and gas production for a certain well. In order for
PPQ to be met:

• revenue from production must be sufficient to cover operating
  costs; and




• a reasonably prudent operator would continue operation of the
  specific well for a profit.

If PPQ is not achieved at the end of the primary term, the lease
terminates (absent an applicable savings clause). Once PPQ is
achieved, the lease remains in effect for the remainder of the
secondary term, which is as long as PPQ continues.

3.7 What are the operator’s rights and obligations under
exploration and production rights?

The requirements associated with operators’ rights and
obligations under exploration and production rights will depend on
the terms negotiated between a lessor and lessee in an oil and gas
lease. Each lease can potentially vary in regards to such rights
and obligations.

In addition to express obligations, US courts have also
interpreted oil and gas leases to imply certain obligations on the
part of the lessee. The most commonly recognised implied covenants
include the duty to:

• drill an initial test well;




• develop the leasehold interests;




• conduct further exploration;




• protect against drainage; and




• market any oil and gas produced.

3.8 Are there any requirements re relinquishment of exploration
and production rights or part of the area covered by such
rights?

The requirements associated with relinquishment of exploration
and production rights will depend on the terms negotiated between a
lessor and lessee in an oil and gas lease. Each lease can
potentially vary in regard to what is required of lessee in the
event lessee wants to relinquish all or part of its rights to
produce.

3.9 Can exploration and production rights be transferred or
assigned? If so, how and subject to what government consents? Do
any fees, taxes or other charges apply to direct or indirect
transfers?

For leases of federally owned lands, the transfer of
operatorship for oil and gas leases requires following the rules
set out by the BOEM and the BSEE. A new entity should first notify
the BSEE that it would like to become an operator of a federal
lease. The new entity will then submit certain qualification
paperwork, along with lease and right-of-way assignments and filing
fees, as applicable. The new operator or leaseholder must then
submit to BOEM the lease bond or area-wide bond and right-of-way
bond, as applicable. Next, the new operator must submit audited
financial statements and a decommissioning cost estimate. The new
operator then sends a letter to the BSEE’s Oil Spill
Preparedness Division certifying its capability to respond to a
worst-case discharge or a substantial threat of such a discharge
from its facilities. After a period of review, BOEM will approve
the new operator.

For leases of privately owned lands, the requirements associated
with transfer or assignment of exploration and production rights is
dependent on the terms of oil and gas lease executed by the lessor
and lessee.

3.10 Can security be taken over exploration and production
rights?

Security can be taken over exploration and production rights.
This is perfected through mortgages and deeds of trust taken on the
leases granting such exploration and production rights. A mortgage
or deed of trust permits the financing party to foreclose on the
relevant properties if the company defaults on the mortgage or deed
of trust.

3.11 What contractual or regulatory provisions apply with
regard to cessation of exploration and production or abandonment of
exploration and production rights?

With respect to an oil and gas lease, a lessee must be producing
oil and gas at the end of the primary term of the lease in order to
perpetuate the lease into the secondary term. However, many oil and
gas leases have different saving clauses, which are provisions that
extend the duration of the lease past the primary term even when
there is no production. The law surrounding interpretation of these
savings clauses varies state by state, but common provisions
include the following:

• Drilling operations clause: This clause extends the lease as
  long as the lessee is actively engaged in operations for drilling a
  well.




• Shut-in clause: This clause typically provides that a lease may
  remain in effect whenever oil or gas is not being produced if a
  specified shut-in royalty is paid.




• Dry-hole clause: This clause allows a lease to continue if the
  lessee drills a dry hole during a period when the lease would
  otherwise terminate.




• Cessation of production clause: This clause perpetuates a lease
  for a certain period if a well ceases production during a period
  when the lease would otherwise terminate.




• Force majeure clause: This clause allows a lessee to
  extend a lease that would otherwise terminate when the lessee is
  unable to produce oil or gas due to some reason beyond the
  lessee’s control.

4 Surface rights

4.1 Does the law of your jurisdiction distinguish between
exploration and production rights and surface rights? If so, how
does an owner of exploration and production rights acquire surface
rights?

In the United States, ownership of minerals, including oil and
gas (the mineral estate), may be severed from ownership of the
surface of the land (the surface estate). The grant or reservation
of minerals by the fee owner effects a horizontal severance and the
creation of two separate and distinct estates: an estate in the
surface and an estate in the minerals. The ‘surface estate’
refers to ownership of the surface of the land, which generally
includes:

• dwellings;




• buildings;




• the right to cultivate crops; and




• the ability to dig into the land to bury underground storage
  tanks, such as wells or septic systems.

The ‘mineral estate’ generally includes ownership of the
minerals below the surface of the land, including oil and gas;
although the specific language of the instrument effecting the
severance may provide for a whole or partial conveyance of specific
minerals.

In Texas and a majority of states, the courts generally follow
the ‘ownership in place’ theory, meaning that the mineral
owner owns all substances, including oil and gas, which underlie
its land. By contrast, Oklahoma, Louisiana and California, as well
as a minority of other states, have adopted the ‘exclusive
right to take’ or ‘non-ownership’ theory of mineral
ownership, meaning that no one has ownership rights in resources,
and the right to explore for and extract mineral resources vests in
the first person to obtain them.

The right to produce oil and gas is derived by entering into a
lease with the mineral owner (please refer to question 3..1). In
addition to the common law doctrines and statutory laws governing
the rights of the parties, the state and federal regulatory
requirements that apply generally to the development of oil and gas
will also apply to the development of minerals on a severed estate.
A surface owner cannot unilaterally impose additional conditions
beyond those imposed by law; however, the surface owner and the
mineral owner may enter into certain contractual arrangements to
further protect their rights.

Prior to severance of the estate, surface owners can define the
extent of the surface rights beyond what is provided for by the law
in the conveyance affecting the mineral severance. For example, the
parties may agree to the inclusion of ‘no surface
occupancy’ provisions in a deed, which would essentially
require the mineral owner and any lessee to use horizontal drilling
from an off-site location to extract the minerals. The conveyance
may also include:

• surface damage and restoration requirements;




• road location and maintenance provisions; and




• limitations on the use of surface or subsurface water or the
  handling of wastewater and materials.

Another such contractual arrangement is a ‘surface use
agreement’ between the surface owner and the mineral owner.
When ownership is not severed, the surface owner is also the
mineral rights owner and may seek protections for the surface when
negotiating a lease with a lessee. However, in instances of severed
ownership, the surface owner has no ownership of the minerals and
as such does not have the right to negotiate a lease or restrict
the activities of the mineral owner (beyond those restrictions
imposed by law, as discussed above). In some states – such as
Oklahoma and New Mexico – mineral owners and lessees are required
by statute to enter into a surface use agreement before commencing
production (as discussed above). However, in Texas, there is no
such statutory protection, so mineral owners and lessees are under
no obligation to enter into such an agreement, making surface use
agreements a completely voluntary contractual arrangement. Thus,
surface owners in Texas may not have much leverage to negotiate
surface use agreements, other than the mineral owner/lessee’s
desire to have a good working relationship with the surface owner.
Surface use agreements may include various provisions covering
issues such as:

• specific drilling sites;




• surface restoration obligations;




• hours of access for operations;




• notice obligations;




• damages for killing or injuring livestock or wildlife;




• speed limits;




• fencing or other barriers around well sites;




• payment for use of water; and




• limitations on the use of water.

4.2 Where surface rights are acquired, what are the
operator’s rights and obligations as regards the landowner? And
what are the landowner’s rights and obligations as regards the
operator?

When there is severed ownership of the surface and the minerals,
the mineral estate is generally considered the dominant estate,
with the surface estate being servient to the mineral estate. The
mineral owner has the right to use the surface to enforce and enjoy
the mineral estate. However, although the mineral estate is the
dominant estate, courts still limit the mineral owner’s right
to use the surface in order to protect the surface estate. Many US
jurisdictions – including Texas, Oklahoma and Louisiana – protect
the surface estate through common law and/or statutory law versions
of the ‘accommodation doctrine’.

With the accommodation doctrine, courts weigh the benefits and
injuries to both the surface owner and the mineral owner to
determine whether a particular use of the surface is consistent
with the implied easement of surface use. The accommodation
doctrine requires not only that a mineral owner’s actions are
reasonably necessary for the extraction of the mineral, but also
that the right can be exercised without any substantial burden to
the surface owner. Reasonably necessary activities generally
include:

• geophysical exploration;




• drilling;




• building roads;




• installing machinery, storage tanks and pipelines; and




• using water as is reasonably necessary to accomplish extraction
  of the minerals.

As a result of concurrent ownership, conflicts often arise
between mineral owners and surface owners. However, as a general
rule, the mineral owner is entitled to use the surface without
liability for surface damage caused by its operations, as long as
such use:

• is reasonably necessary to extract the minerals (eg, the
  accommodation doctrine);




• is not prevented by law, lease or contract; and




• is not negligent.

4.3 Is there a process for the mandatory acquisition of surface
rights? If so, what does this involve?

There is no mandatory acquisition of surface rights in the US.
Instead most producers rely on the dominant estate theory which
establishes the mineral estate as “dominant” over the
surface estate and allows them to access and utilize surface
locations within the applicable lands for development of the
underlying minerals.4.4 Are any native title issues applicable?

In United States v Shoshone Tribe, the US Supreme Court
held that when lands are reserved or otherwise set aside for tribes
in executive order, treaties or agreements approved by Congress,
the tribes hold the beneficial rights to the soil and the mineral
interests under the lands. Therefore, on Indian trust lands, the
tribes generally retain ownership of the surface and the minerals.
Today, mineral leasing on tribal lands is governed by:

• the Indian Mineral Leasing Act of 1938 (52 Stat 347; 25 USC
  396a et seq) (IMLA);




• the Indian Mineral Development Act of 1982 (25 USC Secs
  2101-2108) (IMDA); and




• tribal governments that regulate oil and gas development though
  tribal codes, ordinances, and constitutions.

The IMLA creates a set of leasing procedures on tribal lands,
with all leases requiring tribal consent and approval from the
secretary of the interior. They have a term of 10 years, which can
be extended only if the minerals are producing in paying
quantities. The IMLA also protects native lands by establishing a
fiduciary duty between the federal government and Indian tribes,
requiring that the secretary may approve lease sales only where
they are “in the interest of the Indians”. The IMDA
expands on the IMLA by permitting Indian mineral owners to enter
into mineral agreements that give them greater responsibility and
flexibility in disposing of their mineral resources than was
permitted by the IMLA. Federal agencies – including the Bureau of
Land Management and the Bureau of Indian Affairs – also regulate
tribal oil and gas development and protection of the tribal rights,
including surface rights.

4.4 Are any native title issues applicable?

In United States v Shoshone Tribe, the US Supreme Court
held that when lands are reserved or otherwise set aside for the
tribes in executive order, treaties or agreements approved by
Congress, the tribes held the beneficial rights to the soil and the
mineral interests under the lands. Therefore, on Indian trust
lands, the tribes generally retain ownership of the surface and the
minerals. Today, mineral leasing on tribal lands is governed
by:

• the Indian Mineral Leasing Act of 1938 (52 Stat 347; 25 USC
  396a et seq) (IMLA);




• the Indian Mineral Development Act of 1982 (25 USC Secs
  2101-2108) (IMDA); and




• tribal governments that regulate oil and gas development though
  tribal codes, ordinances, and constitutions.

The IMLA creates a set of leasing procedures on tribal lands,
with all leases requiring tribal consent and approval from the
secretary of the interior. They have a term of 10 years, which can
be extended only if the minerals are producing in paying
quantities. The IMLA also protects native lands by establishing a
fiduciary duty between the federal government and Indian tribes,
requiring that the secretary may approve lease sales only where
they are “in the interest of the Indians”. The IMDA
expands on the IMLA by permitting Indian mineral owners to enter
into mineral agreements that give them greater responsibility and
flexibility in disposing of their mineral resources than was
permitted by the IMLA. Federal agencies – including the Bureau of
Land Management and the Bureau of Indian Affairs – also regulate
tribal oil and gas development and protection of the tribal rights,
including surface rights.

4.5 Are any other rights needed to use the land (eg, zoning
permissions or planning requirements)?

In addition to the applicable state or federal permits and
permissions needed to develop oil and gas within the boundaries of
a state or on federal lands, local county and municipalities may
requirement additional permissions be obtained, such as road use
bonds or noise ordinances. Due to the diversity of such county and
municipal regimes, an operator must review carefully the local
rules and regulations regarding the development of oil and gas in a
particular area, such as any county or municipal rules or
ordinances.

5 Processing, refining and export

5.1 What requirements and restrictions apply with regard to the
processing and refining of oil and gas?

The United States has a robust regulatory regime governing the
handling, processing and refining of hydrocarbons. While it is
important also to consider state and municipal regulations when
undertaking the refinement of hydrocarbons, beginning with the
touchpoint of US federal laws and regulations is an important first
step in understanding the overall regulatory regime that processors
must comply with in any jurisdiction within the United States.

At the highest level, three legislative acts form the basis for
regulatory oversight of hydrocarbon refining in the United
States:

• the Clean Air Act (1963);




• the Clean Water Act (1972); and




• the Safe Drinking Water Act (1974).

As amended over the years, the combination of the legislative
measures provides environmental and safety rules that are
implemented and monitored by federal agencies such as the
Environmental Protection Agency (EPA) and the Federal Energy
Regulatory Commission (FERC), an independent agency within the US
Department of Energy (DOE).

In particular, the EPA sets certain ambient air quality
standards on oil and gas processors aimed at restricting and
reducing air pollution related to hydrocarbon refinement
activities. Importantly, the EPA dictates appropriate pollution
mitigation standards and measures and sets maximum legal pollutant
emissions within the United States. Further, each state then
promulgates its own air pollution regulations based on EPA
standards, creating ‘attainment areas’ and
‘non-attainment areas’ based on the air quality standards
measured within regions of the state.

5.2 What requirements and restrictions apply to the export of
oil and gas?

Trade in natural gas from the United States is governed by the
Natural Gas Act. The Natural Gas Act prohibits the import or export
of natural gas, including liquefied natural gas (LNG), from or to a
foreign country without the prior approval of the US DOE. As part
of its decision-making process, the US DOE will consider, among
other factors:

• the interested suppliers and purchasers in the requested
  authorisation; and




• the geographic markets served and the proposed length of the
  authorisation.

In addition to US DOE export authorisation and EPA/FERC
oversight, LNG exported from the United States is subject to the
Jones Act. The Jones Act is a collection of rules passed as part of
the Merchant Marine Act of 1920 that impose restrictions on
coastwise trade which, in short, require that US ships transport
goods between US ports. Due to penalties which may be imposed by US
Customs for violation of the Jones Act (including potential seizure
of merchandise and vessels), LNG importers/exporters must carefully
consider voyage routes that may involve a vessel calling at several
US ports.

6 Transport and storage

6.1 What requirements and restrictions apply with regard to the
transport and storage of oil and gas? Do these vary in the case of
cross-border transportation?

The transportation and storage of oil and natural gas are
regulated at both the federal and state levels. The interstate
transportation of oil and natural gas is regulated by the Federal
Energy Regulatory Commission (FERC) under the Interstate Commerce
Act and the Natural Gas Act. Under these statutes, FERC has
jurisdiction over the rates, terms and conditions of service. Under
the Natural Gas Act, FERC also has jurisdiction over the siting and
construction of pipeline, storage and related facilities used in
the interstate transportation of natural gas. In contrast, there is
no federal regulator for the siting and construction of oil
pipelines, which instead is subject to state regulation through
state public utility or transportation commissions, regardless of
whether the pipeline crosses state lines. Similarly, natural gas
and oil pipelines used for intrastate transportation are subject to
regulation by individual states. For cross-border transportation
from the United States to Canada or Mexico, a presidential permit
is required, which is issued by FERC for natural gas pipelines and
by the US Department of State for oil pipelines. Given the overlap
of federal and state jurisdiction and the complex precedent on the
jurisdictional status of transactions and facilities, parties
planning to engage in the transportation or storage of natural gas
and oil should carefully examine what regulatory requirements and
restrictions apply.

6.2 What requirements and restrictions apply to the
construction and operation of transport and storage
infrastructure?

Please refer to question 6.1.

7 Environmental issues

7.1 What environmental authorisations are required to undertake
oil and gas activities in your jurisdiction? Do these vary
depending on the type or location of the activity?

In the United States, oil and gas activities are largely
regulated from an environmental perspective at the state level.
Even in situations where relevant environmental requirements stem
from a federal law, the day-to-day administration and authorisation
of these requirements is often carried out by a state agency under
a state-delegated programme. For this reason, the types of
environmental authorisations that are required to undertake oil and
gas activities can vary from state to state; so it is important to
confirm applicable requirements for each jurisdiction.

Generally, the types of environmental authorisations that are
required for oil and gas activities are as follows:

• permits to authorise and/or restrict air emissions, which are
  primarily required to be obtained and approved prior to the
  beginning of construction on a site;




• permits to develop in a floodplain, as applicable;




• pre-development environmental impact assessments, which may
  also include environmental, historical and archaeological
  resources;




• species protection;




• stormwater pollution prevention and spill, prevention, control
  and countermeasure plans;




• waterbody or other wetlands authorisation, if applicable;




• solid and/or hazardous waste storage and/or disposal
  authorisation, as applicable; and




• hydraulic fracturing or other activity-specific permits, if
  applicable.

An important distinction is that oil and gas activities
undertaken on federal lands or in offshore federal waters are
largely authorised by federal agencies. These operations typically
have an additional layer of federal requirements, including
requirements to conduct lengthy and comprehensive environmental
impact analyses before permits are received and operations may
begin. These environmental analyses are typically coordinated
across multiple federal agencies. If operations are also on tribal
lands, there may be an additional layer of trial consultation or
authorisation involved.

7.2 What environmental regulations or contractual obligations
must the operator observe while oil and gas facilities are
operational?

After construction and development, while oil and gas facilities
are operational, the operator must observe an array of
environmental requirements that cover:

• air emissions;




• water usage and discharges;




• waste creation, storage and disposal;




• spill prevention;




• wildlife and species protection;




• stormwater pollution prevention;




• risk management;




• biodiversity measures;




• public safety;




• pipeline transportation; and




• various reporting and record-keeping requirements, including
  greenhouse gas emissions reporting.

The facility must operate within permit limits and
representations, and reporting may be required for certain
violations or unplanned events or incidents. In the event of a
spill or release at a site, the operator will be responsible for
reporting the incident, if required, and complying with clean-up
standards. If conditions or operations are expected to change at a
facility, the operator may be required to re-permit the facility
prior to the change. Finally, an operator is also responsible for
ensuring that contract workers and other service providers that are
onsite or receive waste from the site comply with relevant
environmental requirements, as the operator can retain ultimate
responsibility for compliance based on ownership/responsibility for
the site or generation of the waste at issue. Overall, these
requirements may be a patchwork of federal, state and locally
imposed laws and regulations, and can significantly vary from
jurisdiction to jurisdiction. In addition, there may be contractual
obligations with landowners or mineral interest owners associated
with development of the surface land and natural resource.

7.3 What environmental regulations or contractual obligations
must the operator observe in relation to decommissioning?

Following the conclusion of operations at an oil and gas
facility, there are various decommissioning, reclamation and
restoration obligations imposed on an operator. The extent of these
requirements depends on whether the facility is on federal lands or
offshore waters or state lands. On state lands, plugging,
decommissioning and abandonment requirements will largely be set
forth in state regulations that are carried out by state
governments. The extent of these requirements and any
authorisations that may be required can vary from jurisdiction to
jurisdiction. On federal lands and offshore waters, these
requirements will likely be carried out under federal regulations
and by federal agencies, including the Bureau of Ocean Energy
Management (BOEM) and the Bureau of Safety and Environmental
Enforcement. In addition, for offshore waters, there are more
prescriptive decommissioning requirements set forth in plans that
are approved in the early stages of project development. Overall,
decommissioning requirements are largely focused on safe and
effective decommissioning of the well operations with the aim
of:

• preventing any long-term pollution associated with the
  abandoned well;




• returning the landscape to its prior vegetated state; and




• ensuring that there is an entity that can be financially
  responsible for the safe and effective decommissioning of the site
  on a long-term basis.

7.4 What are the potential consequences of breach of these
requirements – both for the operator itself and for directors,
managers and employees?

State and federal governments may bring administrative
enforcement actions, civil claims or criminal claims for alleged
violations of applicable environmental requirements. Furthermore,
under some environmental statutes – including the federal Clean Air
Act and the Clean Water Act and Resource Conservation and Recovery
Act, as well as some state counterparts to these laws – citizens
may also bring civil claims for alleged violations of statutory
requirements. Enforcement actions typically involve monetary
penalties and may involve enforcement settlements requiring
injunctive actions as well as the performance of supplemental
environmentally beneficial projects.

In addition, common law claims against onshore oil and gas
operators can be brought by landowners or groups of landowners, and
usually consist of some combination of the following torts:

• negligence;




• strict liability;




• fraud;




• trespass; and




• nuisance.

Finally, in the event of contamination resulting from hazardous
substances, claims for clean-up standards can be brought by the
government or other responsible parties under the Comprehensive
Environmental Response, Compensation, and Liability Act, also known
as Superfund.

With respect to directors, managers and employees, courts have
historically required some degree of direct participation or
oversight to hold directors or officers personally liable for an
environmental issue. When imposing direct liability, courts
concentrate on assessing:

• direct participation in environmental decision making;




• inclusion of natural persons in the statutory definition of
  those potentially liable; and




• intent to commit the statutory violation.

Finally, under the responsible corporate officer doctrine,
directors and officers may be held strictly liable for violations
of various environmental statutes, subject to certain additional
showings required by courts.

7.5 Which national, provincial/state and/or local government
regulatory bodies are responsible for enforcement of environmental
obligations?

Environmental obligations are enforced by an array of federal,
state and local regulators in the United States. These include:

• environmental regulators (eg, the US Environmental Protection
  Agency and state counterparts);




• natural resource regulators (eg, the Bureau of Land Management
  and state oil and gas or natural resource regulators);




• wildlife regulators (eg, the US Fish and Wildlife Service and
  state counterparts);




• the US Army Corps of Engineers; and




• offshore regulators (eg, Bureau of Ocean Energy Management and
  the Bureau of Safety and Environmental Enforcement).

In addition, under some state regulatory schemes, health
agencies oversee certain environmental-related programmes. Finally,
local governments – including county and city governments – often
have environmental-related ordinances and laws that can prescribe
environmental obligations applicable to oil and gas operations.
Outside of governmental authorities, under some environmental
statutes – including the federal Clean Air Act, the Clean Water Act
and the Resource Conservation and Recovery Act, as well as some
state counterparts to these laws – citizens may also bring civil
claims for alleged violations of statutory requirements.

7.6 What is the regulators’ general approach in regulating
the oil and gas sector from an environmental perspective?

Overall, the US regulators’ ultimate objectives are:

• to facilitate and achieve compliance with applicable
  environmental laws and regulations; and




• to administer laws and regulations consistent with the stated
  objective(s) and within the authority provided by the relevant
  statute.

For most environmental statutes, the stated objective is
ultimately the protection of human health and/or the environment.
At a practical level, however, the approach to regulating the oil
and gas sector can vary significantly among state and local
jurisdictions. In some states, this can be attributable to a
history of being ‘business friendly’ from a regulatory
perspective. In addition, at the state and federal level, there can
be significant variation between different elected administrations
that carry out the executive branch (ie, regulatory agencies) of
the government. Therefore, it is important to assess the state
and/or local jurisdiction in which the oil and gas sector operates
from a historical perspective as well as the status of the current
executive administration at the federal and state levels.

8 Health and safety

8.1 What key health and safety requirements apply to oil and
gas operators in your jurisdiction?

In the United States, health and safety requirements can be
imposed at both the federal and state levels. These include
requirements covering the health and safety of employees and
contractors, as well as requirements aimed at ensuring the safety
of the public outside oil and gas facility boundaries, including
pipeline safety requirements.

At the federal level, the Occupational Safety and Health (OSH)
Act protects the safety and health of workers involved in oil and
gas operations (29 USC § 651 et seq). The general
duty clause of the OSH Act requires employers to provide workers
with a safe workplace that has no recognised hazards that cause or
are likely to cause death or serious injury. Exposures to hazards
present in the oil and gas well drilling, servicing, and storage
industry are addressed in specific standards for general industry
(29 CFR Part 1910). These include requirements for the following,
among other things:

• emergency planning;




• safe practices;




• environmental controls;




• protective equipment and clothing;




• fire protection; and




• training.

In addition, the US Department of Transportation, including the
Pipeline and Hazardous Materials Safety Administration (PHMSA),
regulates safety associated with various forms of transportation
used in the oil and gas industry, including transportation by oil
and gas pipeline. Finally, certain environmental requirements -
such as the Clean Air Act Risk Management Programme carried out by
the US Environmental Protection Agency – are considered related to
safety requirements and cover various oil and gas facilities. Many
of these safety and environmental programmes have state
counterparts, so additional requirements may be carried out at the
state level, as well by state environmental, safety, health or oil
and gas/natural resource agencies.

8.2 Which national, provincial/state and/or local regulatory
bodies are responsible for enforcement of health and safety
regulations or obligations? What reporting requirements apply with
regard to oil and gas accidents in your jurisdiction?

Health and safety obligations are enforced by an array of
federal, state and local regulators in the United States. These
include:

• safety regulators (eg, the US Occupational Safety and Health
  Administration (OSHA) and state counterparts);




• transportation regulators (eg, the Department of Transportation
  and the PHMSA);




• environmental regulators that oversee environmental regulatory
  programmes that may be related to safety programmes (eg, the US
  Environmental Protection Agency);




• state health agencies; and




• state oil and gas or natural resource agencies, which may also
  cover interstate pipeline safety.

At the federal level, OSHA implements standards under the OSH
Act to protect the safety and health of workers involved in oil and
gas operations (29 USC § 651 et seq). Many states
have state counterpart laws to the OSH Act and state safety
agencies that administer these laws; but most do not have a state
safety programme and so federal OSHA primarily administers safety
requirements in those states. In addition, many states have
federally delegated pipeline safety programmes and oversee pipeline
safety for interstate oil and gas pipelines. These requirements
cover the design and construction of pipelines, as well as safe
practices, training and emergency planning.

8.3 What are the potential consequences of breach of these
requirements – both for the operator itself and for directors,
managers and employees?

State and federal governments may bring administrative
enforcement actions, civil claims or criminal claims for alleged
violations of the safety requirements. Enforcement actions
typically involve monetary penalties and often involve enforcement
settlements requiring injunctive actions. Certain types of safety
violations may also be referred to the US Department of Justice for
criminal prosecution, which may be brought against individuals such
as managers and directors. Finally, a breach of safety requirements
could also result in common law tort claims brought by private
parties.

8.4 What best practices in relation to health and safety should
operators consider adopting in your jurisdiction?

Operators may consider assessing and sharing best practices by
undertaking one or more of the following practices:

• joining an industry association;




• investing in substantial safety programmes;




• undertaking analysis and understanding of the various health
  and safety requirements in the operating jurisdictions;




• completing hazard evaluations at job sites and implementing
  proper safety control solutions;




• developing and implementing safe practices and work standards,
  such as hazard communications; and




• reviewing worker and contractor training programmes.

Many industry associations share best practices for health and
safety with respect to oil and gas operations, including:

• the American Petroleum Institute;




• IPIECA;




• the American Exploration Petroleum Council;




• the Western Energy Alliance; and




• the Interstate Oil and Gas Compact Commission.

Finally, regulators can offer guidance and educational
opportunities on perceived best practices and expectations for
compliance with applicable health and safety requirements. In the
United States, it is common for industry and safety authorities
such as first responders to coordinate in emergency preparedness
and training, including in the oil and gas industry.

8.5 What is the regulators’ general approach in regulating
the oil and gas sector from a health and safety perspective?

Overall, safety regulators in the United States have an ultimate
objective of facilitating and requiring compliance with applicable
safety law(s). Some regulators may view part of their role as
educational with respect to continuous improvement in safety and
sharing best practices. Health and safety are generally perceived
as priority subjects, and employers are considered responsible for
bearing the obligation to protect the health and safety of workers
involved in oil and gas operations.

9 Taxes and royalties

9.1 What national, provincial/state and/or local taxes,
royalties and similar charges are levied on oil and gas operators
in your jurisdiction? How are these calculated?

State and local jurisdictions impose taxes with respect to oil
and gas production, which vary significantly by type of tax and tax
rate depending on location, but generally include some combination
of:

• annual property taxes based on the value of property;




• severance taxes based on the amount or value of oil and gas
  production;




• sales and use taxes based on the purchase price of tangible
  property; and/or




• state and local income or franchise taxes based on the net
  income or gross revenue of the operator.

Additionally, oil and gas operators that lease oil and gas
development rights owned by a federal, state or local governmental
entity generally will be subject to a royalty payable to such
governmental entity based on the oil and gas produced under the
lease.

Oil and gas operators and/or their direct and indirect owners
are also subject to federal tax on their net income from oil and
gas operations as determined under the federal income tax regime
that generally applies to all taxpayers (with certain modifications
that apply only to the oil and gas industry). Certain special rules
apply to non-US persons that directly or indirectly hold oil and
gas interests in the United States, including the imposition of a
15% federal withholding tax on the gross proceeds from a
disposition of such interests under the Foreign Investment in Real
Property Tax Act of 1980 (FIRPTA).

9.2 Are any tax incentives available for oil and gas
operators?

Oil and gas operators currently benefit from certain tax
incentives under federal income tax law that are intended to
encourage oil and gas production, including:

• the use of ‘percentage depletion’ for oil and gas wells
  (which generally allows independent (ie, non-integrated) oil and
  gas producers to claim deductions based on the gross income from a
  well rather than the costs incurred with respect to such well);
  and




• the current deduction for ‘intangible drilling and
  development costs’, which generally consist of expenditures
  made by an operator incident to and necessary for the drilling of
  wells and the preparation of wells for the production of oil and
  gas, including expenses for wages, fuel, drilling, repairs, hauling
  and supplies.

State and local governments may offer additional incentives to
oil and gas producers, including:

• discretionary property tax abatement for capital-intensive
  investments;




• discretionary tax credits or cash grants for desirable jobs
  creation; and/or




• various tax offsets or credits for underproducing wells,
  enhanced recovery projects and/or pollution control efforts.

9.3 What other strategies might oil and gas operators consider
to mitigate their tax liabilities?

In order to mitigate their tax liabilities, oil and gas
operators should carefully evaluate the manner in which they
acquire and hold their oil and gas interests and conduct their
operations, including:

• the jurisdictions in which relevant entities are formed;




• the federal, state and local tax classification of such
  entities; and




• whether a particular acquisition will be treated as a purchase
  of equity interests or the underlying assets for tax purposes.

For capital-intensive investments, operators should investigate
– early in the planning process, before finalising the
project’s location – potential state and local economic
development tax incentives programmes that may be available.

When disposing of oil and gas interests, operators should
consider whether to structure such disposition as an equity or
asset sale for tax purposes. Taxes on capital gains attributable to
the disposition of oil and gas properties may be deferred if such
properties are or are deemed to be exchanged for real property in a
transaction qualifying as a ‘like-kind’ exchange.

Special considerations apply to operators owned directly or
indirectly by non-US persons, such as with respect to the FIRPTA
withholding tax.

9.4 Have there been any significant changes to the taxation
rates applicable to oil and gas operators in the last three
years?

The current administration has proposed significant changes to
the taxation of oil and gas operators, including the repeal of
certain tax preferences currently enjoyed by the oil and gas
industry. The most consequential preferences that would be repealed
are:

• the deduction for IDCs;




• the use of percentage depletion for oil and gas wells; and




• a tax credit for oil and gas produced from marginal wells.

The current administration has also proposed to:

• reinstate and expand an excise tax on the production of crude
  oil and its byproducts, at double the historic rate; and




• increase the federal corporate and individual income tax rates
  that generally are applicable to all taxpayers.

There are thousands of individual state and local taxing units
in the United States, with constantly changing tax types, tax
rates, exemptions and applicability. Oil and gas operators should
remain informed of any such changes applicable to jurisdictions in
which they operate.

10 Disputes

10.1 In which forums are oil and gas disputes typically heard
in your jurisdiction?

In the United States, oil and gas disputes are often heard in
state courts. If the dispute involves a specific tract or tracts of
land, the suit is typically filed in the county where the land that
is the subject of the dispute is located. In the United States, the
following states see oil and gas disputes more regularly, in large
part because they produce the most oil and gas:

• Texas;




• North Dakota;




• New Mexico;




• Oklahoma;




• Colorado;




• Alaska;




• California;




• Louisiana;




• Wyoming;




• Kansas;




• Utah;




• Arkansas;




• Pennsylvania;




• Ohio; and




• West Virginia.

Oil and gas disputes can also be heard in federal court where
the parties are diverse or another federal statute, such as the
Class Action Fairness Act (CAFA), confers jurisdiction.

Royalty class actions are often filed in federal court under
CAFA jurisdiction.

It is less common to see oil and gas cases involving federal
question jurisdiction, as the causes of action that commonly arise
in oil and gas disputes usually involve state law claims. Two
exceptions to this general rule are:

• certain cases involving offshore drilling, which may invoke
  federal question jurisdiction under the federal Outer Continental
  Shelf Lands Act; and




• cases involving violations of the federal National Gas Act,
  which regulates the sale of natural gas in interstate
  commerce.

10.2 What issues do such disputes typically involve? How are
they typically resolved?

Upstream disputes often involve breach of contract claims and
commonly arise under oil and gas leases – such as for failure to
properly pay royalty – and joint operating or joint development
agreements between co-interest owners. In addition to breach of
contract claims, other common allegations include:

• failure by the operator to act as a reasonably prudent
  operator;




• failure to properly explore and develop the leased land;




• failure to properly market production;




• failure to protect the lease against drainage; and




• claims relating to surface or property damages.

Plaintiffs may also bring tort claims such as trespass,
nuisance, unjust enrichment or fraud if they believe the defendants
have acted in bad faith. Title disputes are also common in the oil
and gas context.

Other disputes relate to responsibility for development costs,
such as:

• whether such costs are properly chargeable to joint working
  interest owners; and




• the proper allocation of those costs among the relevant
  parties.

Midstream and downstream disputes also typically involve breach
of contract claims. For example, disputes regarding delivery of
products at designated locations or other issues related to the
transportation of products commonly arise – particularly when there
are delays, shortages or unexpected price fluctuations resulting in
unanticipated losses or gains. Disputes in the midstream context
also arise under long-term dedications in sales agreements.

Another category of cases are challenges to governmental
regulations of the oil and gas industry. For example, some cases
involve challenges to environmental regulations or the
government’s permitting schemes.

10.3 Have there been any recent cases of note?

Noteworthy oil and gas cases from recent years include the
following:

• Lightning Oil Co v Anadarko E&P Onshore, LLC (520
  SW 3d 39 (Tex 2017)): The Texas Supreme Court found that Anadarko
  did not trespass by drilling through Lightning’s mineral estate
  with the consent of surface owner on Lightning’s tract to reach
  Anadarko’s mineral estate beneath the adjacent tract. The court
  held that horizontal drilling permitted by a surface owner only
  constitutes subsurface trespass if the activity demonstrably
  interferes with the mineral owner’s ability to develop its
  estate.




• Louisiana v Biden (Cause 2:21-cv-00778; US District
  Court for the Western District of Louisiana): A federal judge
  preliminarily enjoined implementation of Biden’s executive
  order pausing issuance of new oil and natural gas leases on public
  lands or offshore waters while the case is litigated. The judge
  found that the plaintiffs had made the requisite showing that Biden
  exceeded his powers and stated that the power to pause offshore
  leases “lies solely with Congress”.




• Blasi v Bruin E&P Partners (Docket 20200327;
  Supreme Court for North Dakota): The North Dakota Supreme Court
  opined on a certified question about whether leases held by the
  royalty-owner plaintiffs allowed oil and gas producers to deduct
  the cost of bringing oil to market from their royalty payments. The
  court ruled in favour of the producers, holding that the lease
  established that oil is valued at the point at which it comes out
  of the ground, meaning that post-production expenses may be
  deducted from royalties.

11 Trends and predictions

11.1 How would you describe the current oil and gas landscape
and prevailing trends in your jurisdiction? Are any new
developments anticipated in the next 12 months, including any
proposed legislative reforms?

In 2020, a significant downturn in the global oil and gas
industry – attributable largely to the COVID-19 pandemic – led to
elevated restructurings among oilfield operators and service
providers. Independent producers as well as small-cap and mid-cap
service providers were particularly affected by this downturn, due
to often overleveraged positions and insufficient access to capital
to meet continuing obligations. Across the board, exploration and
production companies have reduced capital investments as compared
to prior years.

In response to market risks, supermajors and other large
companies have generally consolidated both geographically and by
way of M&A activity. Exploration and production companies in
this category have generally focused their operations from a more
widely dispersed geographic presence to a few formations. The
recent rise in prices has seen an increase in transactional
activity as companies continue to shed non-core assets while
looking to improve inventory.

12 Tips and traps

12.1 What are your top tips for oil and gas operators in your
jurisdiction and what potential sticking points would you
highlight?

Due to the complex interactions between state and federal law,
as well as mixed private and sovereign ownership of mineral rights,
it is important to find counsel experienced in oil and gas
transactions in the relevant state(s) in which an operator wishes
to engage in activities. It is also critical that an operator
understands any ongoing permitting and reporting obligations in the
relevant jurisdictions in which operations occur.

Operation of an oil and gas lease involves several traps for the
unwary. Apart from those explicit obligations in a lease, many
jurisdictions impose implied obligations at law. There is also a
highly developed jurisprudence surrounding payment of royalty
obligations, as well as whether a lease has been adequately
maintained, and this often varies among the several states. Again,
counsel expert in oil and gas transactions specifically are
recommended to international operators unfamiliar with such matters
in the United States.

Co-Authors:

Margaret Wittenmyer, Associate

Kimberly White, Senior Associate

Megan Young, Associate

Emil Barth, Partner

Bucky Brannen, Senior Associate

Jordan Hahn, Senior Associate

Taylor Lopez, Associate

Casey Polivka, Associate

Kyle Doherty, Associate

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.