Bisel Logo Pennsylvania Oil and Gas Law and Practice

Revised 2nd Edition

AUTHORS: JAMES W. ADAMS, JR.
HARRY WEISS OF BALLARD SPAHR, LLP
and J. C. WILKINSON, III

Published: December, 2014 (Previous Editions: 1st: October, 2012)
Most recent supplement/update:March 2017
(Current Subscriber's Price: $129.00)
Library of Congress Control Number: 2012947277
ISBN: 978-0-9910771-7-5

1 VOLUME; LOOSE-LEAF; PRICE: $195.00

Announcing a New Pennsylvania
Oil and Gas Resource!

This new treatise, with forms, deals with the recent explosion of issues involving Pennsylvania oil and gas law including commercial leasing, drilling, producing and marketing of its hydrocarbon resources, especially in the Marcellus Shale region.

In 2012, Pennsylvania oil and gas law has found itself subject to an explosion of issues involving commercial leasing, drilling, producing and marketing of its hydrocarbon resources, particularly gas resources in the Marcellus shale region. This explosion of legal issues is ongoing and becoming more complex. Of particular concern to legal professionals in Pennsylvania are (1) conveyancing issues, such as reservations and exceptions of oil and gas interests, (2) unitization issues, (3) oil and gas leasing issues, (4) drilling issues, including water usage and disposal and (5) emerging upstream, midstream and downstream regulatory schemes.

The oil and gas industry includes exploration, production, refining, transporting and marketing oil, gas and related petroleum products. The largest volume products of the industry are fuel oil and gasoline. Oil, gas and associated hydrocarbons are also the base material for many chemical products, including pharmaceuticals, solvents, fertilizers, pesticides, and plastics. The oil and gas industry is usually divided into three major components: (1) upstream, (2) midstream and (3) downstream. The term “upstream” usually includes exploration and production of oil, gas and related hydrocarbons. “Midstream” usually encompasses transmission and transportation of hydrocarbons, including oil and gas pipelines. “Downstream” usually encompasses refining and related operations.

The first commercial oil well in the United States was in 1859, when oil was successfully drilled in Titusville, Pennsylvania. Pennsylvania has experienced a major boom with the ongoing development of the Marcellus shale gas formation.

ABOUT THE AUTHORS
James W. Adams Jr. has edited and published extensively on energy law, real property, litigation and corporate law. He is a frequent MCLE speaker and author for organizations such as the Energy & Mineral Law Foundation, the Rocky Mountain Mineral Law Foundation, West Group, CCH, Inc., Thomson-West Publishing, Matthew Bender & Co, and Lexis Nexis. With over 30 years of legal experience in the energy industry, Mr. Adams has assisted oil, gas, and energy industry clients in a variety of transactions, including upstream and midstream matters, asset acquisitions and divestitures, corporate mergers and acquisitions, and litigation. He has extensive experience litigating property and energy-related disputes, as well as in other types of commercial litigation. Mr. Adams was named a LEXIS NEXIS® Expert Commentator in 2008, and was admitted to SCRIBES, The American Society of Writers on Legal Subjects in 2003. He has been admitted to practice in the U.S. Supreme Court, the U.S. 3rd Circuit Court of Appeals, and the U.S. District Court, Western District of Pennsylvania. He is a member of the Pennsylvania Bar Association. Several of his published articles have been cited as Significant Reading by the American Bar Association.

Harry Weiss is a partner in the Environment and Natural Resources Group at the Philadelphia office of the national law firm of Ballard Spahr, LLP. He has represented landowners, banks and energy companies in connection with leasing and other transactions in the Marcellus, Barnett, Permian Basin and Utica shale formations. Mr. Weiss also litigates on behalf of energy industry clients issues before the Pennsylvania Public Utility Commission, as well as disputes over title to oil and gas estates in the Pennsylvania state court system. A frequent speaker on the environmental impacts of unconventional oil and gas exploration, he has appeared at gatherings of industry, bankers, real estate lawyers, opponents and proponents of unconventional drilling, law enforcement agencies and conservation groups. Mr Weiss has published articles in business and trade journals concerning environmental regulation of unconventional drilling, and has also assisted North Carolina's Office of Attorney General in that state's effort to update its oil and gas regulations to account for newer methods of oil and gas exploration.

J.C. Wilkinson, III (Jay) concentrates his practice on Oil and Gas Title and related issues. He has assisted both energy industry clients and landowner clients in their title confirmation processes throughout the Commonwealth of Pennsylvania. He graduated from Dickinson College (B.S. 1985) in Carlisle PA with a major in Economics and a minor in Geology. In 2000, he returned to Carlisle PA and obtained his law degree from the Dickinson School of Law (J.D. 2003). Attorney Wilkinson has rendered thousands of Opinions of Oil and Gas Title for properties across Pennsylvania. Additionally, he has extensive title litigation experience and has served both as leading and support counsel in cases involving the sub-surface rights to over 20,000 net mineral acres. Attorney Wilkinson is an active member of the Energy and Mineral Law Foundation (EMLF) and the American Association of Petroleum Landmen (AAPL). Licensure as an Attorney with the State Bar of Ohio is pending. Attorney Wilkinson is a recognized authority on Oil and Gas title issues that are unique to Pennsylvania. He has assisted various mid-continent law firms in their Pennsylvania based Oil and Gas Title practices including Burleson LLP. Presently he is serving “Of Counsel” to Martin, Bode, Werner and Mann of Houston, Texas.


TABLE OF CONTENTS

     
About the Authors
Dedications and Acknowledgments
Publisher's Acknowledgment
Table of Cases

PART I
OIL AND GAS LAW: INTRODUCTION AND OVERVIEW

CHAPTER 1
OVERVIEW OF OIL AND GAS LAW
§ 1.1. Brief History of Pennsylvania Real Estate Law
§ 1.2. Brief History of Pennsylvania Oil and Gas Law

CHAPTER 2
MODERN OIL AND GAS INDUSTRY
§ 2.1. Introduction
§ 2.2. Geology and Technology
  § 2.2.1. In General
  § 2.2.2. Hydraulic Fracturing
  § 2.2.3. Horizontal Drilling

PART II
RIGHTS AND INTERESTS IN OIL AND GAS ESTATES

CHAPTER 3
THE OIL AND GAS ESTATE
§ 3.1. Nature of the Oil and Gas Interest
  § 3.1.1. Property Interests in General
  § 3.1.2. The Mineral Estate
  (a) Generally
  (b) Adverse Possession
  (c) Attributes of Mineral Estate
  § 3.1.3. Rights of Surface and Subsurface Use
  (a) The Dominant/Servient Estate Theory
  (b) Restrictions on Mineral Owner's Rights of Surface and Subsurface Use
    (1) Contractual and Deed Restrictions
    (2) Judicial Restrictions: The Accommodation Doctrine
    (3) Statutory, Regulatory and Ordinance-Imposed Restrictions
  (c) Rights to Authorize Underground Gas Storage
  § 3.1.4. Rights to Oil and Gas Interests in Conveyance of "Minerals"
  (a) The Dunham Rule
  (b) Exceptions to the Dunham Rule
  (c) Taxing the Oil and Gas Interest
§ 3.2. Rule of Capture
  § 3.2.1. Generally
  § 3.2.2. Historical Background and Application
  (a) Advances in Technology
  (b) Waste of Resources
  § 3.2.3. Modern Perspective
  § 3.2.4. Limitations on the Rule of Capture
  (a) Common Law Limitations
  (b) Legislative Limitations
  (c) Pennsylvania's Legislation—Oil and Gas Conservation Law
  (d) Modifications to the Rule of Capture by Contract: Pooling Clauses
§ 3.3. Pooling and Unitization
  § 3.3.1. Introduction
  § 3.3.2. Historical Background and Application
  (a) Generally
  (b) The Rule of Capture Results in Unnecessary Drilling and the Waste of Oil and Gas Resources
  § 3.3.3. Oil and Gas Conservation Law
  (a) Oil and Gas Conservation Law Administered by the Department of Environmental Protection
  (b) Oil and Gas Conservation Law Applies Only to Wells Which Penetrate Certain Geologic Formations
  (c) Oil and Gas Conservation Law Prohibits "Waste"
  (d) Spacing Orders Establish Drilling Units
  (e) Interests Within a Drilling Unit Established by a Spacing Order Must be Integrated
  § 3.3.4. Recent Developments

CHAPTER 4
RESERVED

CHAPTER 5
DIVIDED OWNERSHIP OF OIL AND GAS
§ 5.1. Ownership in Common
  § 5.1.1. Generally
  § 5.1.2. Development Rights
  § 5.1.3. Leasing Co-Owned Lands
  § 5.1.4. Leasing of Joint Tenants
  § 5.1.5. Accounting for Oil and Gas Production
§ 5.2. Partition
  § 5.2.1. Pennsylvania Rules of Civil Procedure 1551–1574 Annotated
  § 5.2.2. Draft Complaint in Partition
§ 5.3. Successive Ownership
  § 5.3.1. Life Estates and Remainders
  § 5.3.2. Right to Lease
  § 5.3.3. Division and Payment of Lease Benefits
  § 5.3.4. Open Mine Doctrine
  § 5.3.5. Other Types of Successive Ownership
  (a) Surface Lease
  (b) Defeasible Fee
§ 5.4. Equitable Ownership and Management Power: Trusts and Decedents' Estates
  § 5.4.1. The Trust
  § 5.4.2 Minerals, Water and Other Natural Resources. 20 Pa.C.S. § 8151

PART III
TITLE ISSUES AND EXAMINATION

CHAPTER 6
MINERAL DEEDS
§ 6.1. Introduction to Mineral Deeds
  § 6.1.1. Generally
  § 6.1.2. Environmental Deed Disclosure Obligations
  § 6.1.3. Uniform Parcel Identifier
  § 6.1.4. Statutory Form of Mineral Deed
§ 6.2. Interpretation of Ambiguous Language in Mineral Deeds and Conveyances
§ 6.3. Creation of Fractional Interests
  § 6.3.1. Generally
  § 6.3.2. The Double-Fraction Problem
  (a) The Distinction Between a Grant or a Reservation "Of" and "Out Of" a Fractional Interest
  (b) The Distinction Between Interests Reserved in "Land Conveyed" and "Land Described"
  (c) Over-Conveyances
§ 6.4. Statute of Frauds and Mineral Deeds
  § 6.4.1. Statute of Frauds
  (a) Generally
  (b) Statute of Frauds Requirements
  § 6.4.2. Horizontal Severances and Conveyances of "All Mineral Interests"
  § 6.4.3. Land Descriptions
  § 6.4.4. Areas of Mutual Interest Clauses
  § 6.4.5. Notice and Effect of Recording Statutes

CHAPTER 7A
EXAMINATION OF TITLE
§ 7A.1. Public Record Examination for Oil and Gas Title
§ 7A.2. Public Record Searches
  § 7A.2.1. Searches for Deeds or Conveyances
  § 7A.2.2. Searches for Encumbrances
§ 7A.3. On Site Inspection and Examination of Property

CHAPTER 7B
OIL AND GAS TITLE OPINIONS
§ 7B.1. Introduction
§ 7B.2. Types of Oil and Gas Title Opinions
  § 7B.2.1. Oil and Gas Drillsite Opinion
  § 7B.2.2. Oil and Gas Wellbore Tract Opinion
  § 7B.2.3. Oil and Gas Non-Wellbore Tract Opinion
  § 7B.2.4. Oil and Gas Leasing Opinion
  § 7B.2.5. Division Order Opinion
  § 7B.2.6. Litigation Opinion
  § 7B.2.7. Supplemental Opinion
  § 7B.2.8. Limited Opinion
§ 7B.3. Basis of Opinion and Materials Examined
  § 7B.3.1. Abstract of Title
  (a) Generally
  (b) Standard Components
    (1) Property Description
    (2) Table of Contents or Index
    (3) Instruments
  § 7B.3.2. Title Runsheets
  § 7B.3.3. Prior Opinions
  § 7B.3.4. Official Records
  § 7B.3.5. Curative Instruments
  § 7B.3.6. Other Records
§ 7B.4. Components of Oil and Gas Title Opinion
  § 7B.4.1. Opinion Date and Closing Date
  § 7B.4.2. Addressee
  § 7B.4.3. Caption
  § 7B.4.4. Description of Property
  § 7B.4.5. Materials Examined
  § 7B.4.6. Division of Ownership or Interest
  § 7B.4.7. Comments and Requirements
  (a) Generally
  (b) Patents and Warrants
  (c) Early History of Title
  (d) Unreleased Oil and Gas Leases
  (e) Current Oil and Gas Leases
  (f) Unreleased Liens
  (g) Easements and Rights-of-Way
  (h) Status of Taxes
  § 7B.4.8. General Comment, Advisories and Exceptions

CHAPTER 8
TITLE WASH
§ 8.1. Introduction
§ 8.2. History of Tax Sale Law in Pennsylvania
§ 8.3. Seated Lands and Unseated Lands
§ 8.4. The Lumber Company "Title Wash"
§ 8.5. Duty to Notify Tax Assessors of Severed Estates
§ 8.6. Permissive Redemptions
§ 8.7. Conflicting Pennsylvania Law
§ 8.8. Tax Sales under 72 P.S. § 5860 et seq.

CHAPTERS 9–15
RESERVED

PART IV
OIL AND GAS LEASES

CHAPTER 16
INTRODUCTION TO OIL AND GAS LEASES
§ 16.1 Generally
§ 16.2. Nature of Oil and Gas Lease Conveyance
§ 16.3. Transfer of Oil and Gas Leases
§ 16.4. Lessor's Remedies

CHAPTER 17
SELECT OIL AND GAS LEASE CLAUSES
§ 17.1. Generally
§ 17.2. The Granting Clause
  § 17.2.1. Introduction
  § 17.2.2. Size of Interest Granted
  § 17.2.3. Substances Covered
  § 17.2.4. Legal Description/Mother Hubbard Clause
  § 17.2.5. Uses Permitted Under the Oil and Gas Lease
§ 17.3. The Habendum Clause
  § 17.3.1. Introduction
  § 17.3.2. Primary Term
  § 17.3.3. Secondary Term
  § 17.3.4. Concept of Production/Production in Paying Quantities
§ 17.4. The Drilling-Delay Rental Clause
  § 17.4.1. Introduction
  § 17.4.2. "Drill Unless" Clause
  § 17.4.3. "Drill Or" Clause
  § 17.4.4. Paid-Up Provision
§ 17.5. Oil and Gas Lease Clauses Extending Term Without Production
  § 17.5.1. Introduction
  § 17.5.2. Operations Clauses
  § 17.5.3. Force Majeure Clauses
  § 17.5.4. Shut-in Royalty Clauses
  § 17.5.5. Pooling and Unitization Provisions
  § 17.5.6. Pugh Clauses
§ 17.6 Royalty Clauses
  § 17.6.1. Introduction
  § 17.6.2. The Nature of Royalty Interest
  § 17.6.3. Calculating Royalty Interest

CHAPTER 18
IMPLIED COVENANTS
§ 18.1. Overview
§ 18.2. Implied Covenant to Protect
§ 18.3. Implied Covenant to Market
§ 18.4. Implied Covenant to Develop

CHAPTERS 19–29
RESERVED

PART V
INTERFERENCE WITH OIL AND GAS INTERESTS

CHAPTER 30
SLANDER OF TITLE
§ 30.1. Introduction
§ 30.2. Publication
§ 30.3. Falsity of Statement
§ 30.4. Malice
§ 30.5. Special Damages
§ 30.6. Ownership of an Interest in the Property
§ 30.7. Remedies

CHAPTER 31
TRESPASS
§ 31.1. Drilling, Production, and Related Operations
  § 31.1.1. Surface Operations and Drilling
  (a) Surface Uses Related to Drilling or Production
  (b) Drilling Resulting in Production
  (c) Drilling Resulting in a Dry-Hole
  § 31.1.2. Subsurface Trespass
  (a) Generally
  (b) Slant-Hole Drilling
  (c) Hydraulic-Fracturing Operations
  (d) Secondary Recovery, Cycling, and Pressure Maintenance Operations
§ 31.2. Underground Gas Storage
§ 31.3. Seismic Trespass

CHAPTER 32
ADVERSE POSSESSION
§ 32.1. Introduction
§ 32.2. Applicable Statutes

PART VI
REGULATION OF DRILLING IN THE COMMONWEALTH

CHAPTER 33
SELECTED PENNSYLVANIA STATUTES AND REGULATIONS
§ 33.1. Introduction
§ 33.2. The Pennsylvania Oil and Gas Act
  § 33.2.1. Well Permitting, Permit Transfers and Objections
  § 33.2.2. Well Location and Environmental Protection
  § 33.2.3. Well Drilling and Operation
  § 33.2.4. Well Abandonment and Plugging
  § 33.2.5. Unconventional Well Restoration
  § 33.2.6. Well Recordkeeping and Reporting
  § 33.2.7. Bonding Requirements
  § 33.2.8. Underground Gas Storage
  § 33.2.9. Pennsylvania Department of Environmental Protection Inspection Policy
  § 33.2.10. Enforcement and Penalties
  (a) Enforcement
  (b) Penalties
§ 33.3. The Oil and Gas Conservation Act
  § 33.3.1. Applicability
  § 33.3.2. Summary of Key Provisions
  (a) Penalties
  (b) Enforcement
§ 33.4. The Coal and Gas Resource Coordination Act
  § 33.4.1 Coordination with Oil and Gas Act Permits
  § 33.4.2. Compliance Requirements for Drilling, Operating and Plugging
  § 33.4.3. Enforcement and Penalties
§ 33.5. The Delaware, Ohio and Susquehanna River Basin Commissions
  § 33.5.1. Introduction
  § 33.5.2. The Susquehanna River Basin Commission
  § 33.5.3. The Delaware River Basin Commission
  § 33.5.4. Ohio River Basin
§ 33.6. Local Regulation of Oil and Gas Activity
  § 33.6.1. 2012 Amendments' Additional Provisions on Local Regulation
  § 33.6.2. Previously Limited Permissible Local Regulation
  § 33.6.3. Previous Case Law Regarding Preemption of Local Regulation Related to Oil and Gas Wells

PART VII
CURING TITLE

CHAPTER 34
QUIET TITLE ACTION
§ 34.1. Introduction
§ 34.2. Quiet Title Action—Generally
§ 34.3. Quiet Title Action—Procedural Rules
§ 34.4. Quiet Title Action—Burdens
§ 34.5. Quiet Title Action or Ejectment—Service
§ 34.6. Petitions to Strike or Open Prior Entry by Default

CHAPTER 35
ACTIONS IN EJECTMENT
§ 35.1. Generally
§ 35.2. Elements of Complaint

CHAPTER 36
CURATIVE TOOLS
§ 36.1. Overview of Curative Tools
  § 36.1.1. Introduction
  § 36.1.2. Standards of Title Examination
  § 36.1.3. Statutes Eliminating Defects
§ 36.2. Use of Affidavits to Clear Title Defects
  § 36.2.1. Scope and Purpose of Affidavits
  § 36.2.2. Affidavit of Adverse Possession or Use and Possession
  § 36.2.3. Affidavit of Heirship
  § 36.2.4. Affidavit of Marital Status
  § 36.2.5. Affidavit of Identity
  § 36.2.6. Affidavit of Non-Development, Non-Production, or Non-Payment of Rental
§ 36.3. Use of Deeds to Cure Title Defects
  § 36.3.1. General Requirements
  § 36.3.2. Quitclaim Deeds
  § 36.3.3. Correction Deeds
§ 36.4. Declaratory Judgments
  § 36.4.1. General Characteristics
  § 36.4.2. Examples of Declaratory Judgments
§ 36.5. Defects in the Oil and Gas Lease
  § 36.5.1. Ratification of Oil and Gas Lease
  § 36.5.2. Amendment of Oil and Gas Lease
  § 36.5.3. Assignments of Interests

CHAPTER 37
DORMANT OIL AND GAS ACT
§ 37.1 Introduction
§ 37.2 Dormant Oil and Gas Act (58 P.S. §701.1 et seq.) annotated
§ 37.3 Draft Form - Petition

CHAPTER 38
RESERVED

PART VIII
FORMS

CHAPTER 39
OIL AND GAS LEASES AND ASSOCIATED FORMS
Form 39.01. Oil and Gas Lease for State Forest Lands – Pennsylvania Department of Conservation and Natural Resources, Bureau of Forestry, Minerals Section Form M-O&G
Form 39.02. Wyoming County Landowners Paid-Up Oil and Gas Lease By Agent
Form 39.03. Fact Sheet: Landowners and Oil and Gas Leases in Pennsylvania – Pennsylvania Department of Environmental Protection
Form 39.04. Oil, Gas and Mineral Rights Disclosure and Addendum to Agreement of Sale – Pennsylvania Association of Realtors® Form OGM
Form 39.05. Mortgage Subordination – Pennsylvania Land Trust Association
Form 39.06. Model Mortgage Subordination and Commentary – Pennsylvania Land Trust Association

CHAPTER 40
OPERATING AGREEMENTS
Form 40.01. Operating Agreement – AAPL Model Form 610-1989
Form 40.02. Operating Agreement – AAPL Model Form 610-1982
Form 40.03. Joint Operating Agreement – Rocky Mountain Mineral Law Foundation Joint (Operating) Form 3
Form 40.04. Mining Joint Operating Agreement – Rocky Mountain Mineral Law Foundation (Mining Joint Operating) Form 4
Form 40.05. Operating Agreement and Financing Statement – AAPL Model Form Recording Supplement 610RS-1989
Form 40.06. Accounting Procedure – Joint Operations – COPAS Form MF-6.
Form 40.07. Gas Balancing Agreement – Rocky Mountain Mineral Law Foundation Form 6
Form 40.08. Gas Balancing Agreement – AAPL Model Form

CHAPTER 41
DRILLING CONTRACTS
Form 41.01. Model Turnkey Contract – IADC Model Form
Form 41.02. Drilling Bid Proposal and Daywork Drilling Contract, U.S. – IADC Form Contract
Form 41.03. Master Service Contract – IADC Form Contract

CHAPTER 42
POOLING AND UNITIZATION AGREEMENTS
Form 42.01. Consent to Pool
Form 42.02. Pooling Agreement
Form 42.03. Unit Operating Agreement – Rocky Mountain Mineral Law Foundation Form 1 (Undivided Interest)

CHAPTER 43
DIVISION AND TRANSFER ORDERS
Form 43.01. Oil/Gas/Other Division Order – NADOA Model
Form 43.02. Gas Transfer Order

CHAPTER 44
RELATED FORMS
Form 44.01. Master Land Services Contract – AAPL Form
Form 44.02. Confidentiality and Nondisclosure Agreement – Rocky Mountain Mineral Law Foundation Form 7

CHAPTER 45
CONTRACTS FOR SALE AND PURCHASE OF GAS
Form 45.01. Base Contract for Sale and Purchase of Natural Gas – NAESB Standard 6.3.1
Form 45.02. Base Contract for Short-Term Sale and Purchase of Natural Gas – NAESB (GISB) Standard 6.3.1
Form 45.03. Gas Day Trade Interruptible Contract – NAESB Standard 6.3.2

CHAPTER 46
OIL AND GAS MANAGEMENT FACILITY SPECIFIC FORMS
Form 46.01. Well Location Plat – D.E.P. Form 5500-FM-OG0002
Form 46.02. Contractual Consent of Landowner – D.E.P. Form 5500-FMOG0047
Form 46.03. Operator's General Information Form – D.E.P. Form 5500-FMOG0099
Form 46.04. Surface Activities Inspection Report – D.E.P. Form 5500-FMOOGM0114
Form 46.05. Well Site Restoration Report – D.E.P. Form 5500-PM-OG0075
Form 46.06. Water Management Plan for Marcellus Shale Gas Well Development Example Format – D.E.P. Form 5500-PM-OG0087

CHAPTER 47
MINERAL AND ROYALTY DEEDS
Form 47.01. Oil, Gas and Mineral Deed
Form 47.02. Conveyance of Royalty Interest

INDEX

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