Oil and Gas Rights: Modifying the Rule of Capture - dummies

Oil and Gas Rights: Modifying the Rule of Capture

By Alan R. Romero

A landowner has property rights to the oil and gas under her land. The traditional rule of capture is that others may lawfully take that oil and gas if they drill a well on their own land and the well draws the oil and gas away.

Even though the rule of capture is easy to apply and in a way treats everyone equally, it isn’t a great way to make the best use of oil and gas. The rule of capture encourages landowners to capture oil and gas as fast as they can before others capture it.

It also encourages over drilling, as landowners drill on their own land to offset drainage from wells on neighboring land, and that means people spend more money on drilling than necessary and in the process may deplete the pressure underground and leave more oil and gas uncaptured.

So states have adopted additional rules intended both to give landowners an equal opportunity to capture oil and gas from their surface and also to maximize the recovery of oil and gas. Here are some of those rules:

  • Fair share: The fair share rule, or correlative rights rule, is that every landowner has an equal, reasonable opportunity to capture the amount of recoverable oil and gas underlying her surface. That doesn’t mean she actually has the right to that amount of oil and gas, however.

    If she doesn’t act diligently in drilling wells on her land, others may drain the oil and gas from under her land, as the rule of capture allows. But if all the owners drill with the same diligence, each owner will generally capture the amount of oil and gas under her surface.

  • Proration orders: State law may authorize a state regulatory agency to set limits on the rate of production from wells, called proration orders. These limits help protect each owner’s fair share by preventing some owners from drawing out oil and gas faster than others. They also protect against overproduction that would impair the total recovery of oil and gas from the reservoir.

  • Well spacing rules: Even with a proration order limiting the rate of production from a well, one owner could capture more than her fair share by drilling more wells than other owners. So state law and regulations may specify the size of the area in which one well may be drilled, called a drilling unit, and where a well may be drilled within each drilling unit.

    That way, multiple wells won’t be drilled when one well could drain the same area, and multiple wells won’t be used to overproduce and infringe on others’ fair shares.