Landowner’s Guide to Oil and Gas Development

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Speaking of landowners, I recently came across the Oil & Gas Accountability Project website. They’re an activist organization aligned with the environmentalist camp, looking to recruit and build on a landowner constituency. They offer a publication entitled “Oil and Gas at Your Door? A Landowner’s Guide to Oil and Gas Development”. It’s a biased presentation of the horrible things that accompany oil and gas development. For example, their Coalbed Methane Project is a campaign “for the protection of critical ecosystems, private ranch lands, and people’s health from the devastating impacts of coalbed methane development.” I have some clients doing CBM development, and haven’t seen anything quite approaching “devastating”. Introductory remarks in the guide state “OGAP has prepared this guide to assist those facing oil and gas development on their land and in their communities”. They should have said, “We’ve prepared this guide to scare you out of leasing your land for oil or gas development and to teach you how to make life for developers so difficult they’ll go away.” Nevertheless, they do manage to cover a lot of oil and gas topics, terminology and law. For that reason I’ve reluctantly included it on the list of reading materials to which I can refer virgin landowners who come to me with the standard question, “How does this lease affect my rights?” To which I start by saying, “It’ll take about a day to cover the important subjects and I charge $xxx an hour, were you planning to spend that much?” Usually they weren’t, so I have to do the quick tour, barely scratching the surface, then try to point them somewhere they can try to educate themselves.

The problem is there’s not much out there that’s both informative and written in terms the uninitiated can digest. There’s an outline called “Oil and Gas Law Outline – Fall 2000” that I downloaded once upon a time while surfing the net. I was later told it was from a course at Texas Tech School of Law taught by Prof. Bruce Kramer. However, Prof. Kramer told me he didn’t write it and didn’t know who the author was. There’s also an IRS training document aimed at educating examiners about oil and gas. They can be downloaded from my Yahoo Briefcase. The OGAP Landowners Guide paints a picture of the worst case scenario which, admittedly, could happen. It fails, however, to describe the more likely scenarios, and definitely omits the best case scenario. After reading it, a landowner who might have signed a lease may decide not to and, as a result, miss out on the retirement income his neighbors are getting in the form of monthly royalties. Someday if I can find the time I’ll search for a publication that’s equally extreme on the other side to balance things out. I suspect such a treatment doesn’t exist. One of my oil clients and I were commiserating recently about the prevalent attitudes toward our respective vocations. We didn’t resolve which are perceived as the greater shysters, only that if we wanted to move up in peoples’ eyes, we should start a used car business.

2009/10/18 Update: Yahoo shut down the “briefcase” feature, so the above link no longer works. The items that were there can now be downloaded with these links: Oil and Gas Law Outline, Oil and Gas IRS Manual, Oil and Gas At Your Door.

2010/02/11 Update: Another resource item: NY Coop Extension Landowners Guide.

2020/04/19 Update: The Oil & Gas Accountability Project (OGAP), which “champions drilling impacted communities in their fights with too-often unresponsive governments (and corporations)”, is now found on the Earthworks website. They still offer the publication, Oil and Gas at Your Door? A Landowner’s Guide to Oil and Gas Development, though apparently downloadable a chapter at a time.

A Really Brief Brief

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Yesterday I posted the “nature of the case” paragraph of a brief I was working on. The finished brief is 25 pages. It occurred to me, however, that it might be shortened a bit. So, what follows is an “arguments and authorities” section for a truly brief brief.

In Hartford Fire Insurance Co. v. Unites States of America, 1986 U.S. Dist. LEXIS 27338, (D.C. Kansas 1986) the federal court set forth a brief summary of Kansas law on the recording of mortgages and deeds as follows: All deeds, mortgages and assignments of mortgages must be recorded to impart notice to subsequent purchasers and mortgagees. K.S.A. 58-2222. No deed, mortgage or assignment of mortgage is valid, “except between the parties thereto, and such as have actual notice thereof, until the same shall be deposited with the register of deeds for record.” Id. at 58-2223. Thus, when a subsequent purchaser buys property for value and without notice of a prior conveyance or mortgage, the subsequent purchaser has priority over the earlier purchaser or mortgagee. E.g., Edwards v. Myers, 127 Kan. 221, 273 P. 468 (1929); Penrose v. Cooper, 88 Kan. 210, 128 P. 362 (1912). The recording of deeds, mortgages and assignments of mortgages acts as constructive notice to the subsequent purchaser. See, generally, Luthi v. Evans, 223 Kan. 622, 576 P.2d 1064 (1978). If no record is made or if the record is ineffectively made, the later purchaser takes free unless he had actual knowledge of the mortgage or prior conveyance.

It is generally understood among the bar that few things in the law are black and white. Yet, some legal principles come close, and if there is any one principle that can be said to come closest to black and white, it is this: In Kansas, a bona fide purchaser takes title free of an unrecorded interest. In re: Cascade Oil Company, Inc., Debtor, et al., 65 B.R. 35; 1986 Bankr. Lexis 5730 (July 8, 1986), citing In re Southworth, 22 B.R. 376 (Bankr. D. Kan. 1982); Smith v. Worster, 59 Kan. 640, 54 P. 676 (1898); Stalcup v. Stalcup, 137 Kan. 141, 19 P.2d 447 (1933); K.S.A. 58-2223. Perhaps even more fundamental is that in a contest between two recorded instruments, the one that’s recorded first prevails.

The decision of the district court should be reversed, the court should be directed to enter judgment for the appellants as bona fide purchasers for value of the 32.7 acres, mineral interest (including gas) and fixtures thereon (gas well), free and clear of any right, title or interest of the appellee, and the matter remanded for disposition of the remaining counter-claims.

:jesors:

It’s a Gas

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Here’s a case I have on appeal at present. Been working on the brief this weekend. This is the opening “Nature of the Case” paragraph of the brief.

This case is about a gas well in Douglas County, Kansas. Appellants bought a home and 32.7 acres, including the gas well, not knowing that appellee, who owned an adjoining 7.2 acres, had an underground connection to the well. The case is in the courts for determination of whether appellants’ title to their property is burdened with a covenant giving appellee an enforceable right to take gas from appellants’ well. The district court held that it is and permanently enjoined appellants from disconnecting appellee from the well. Appellants disagree.

I still can’t believe the district court ruling. Neither can any of my colleagues, other than the appellee’s lawyer. When the appellants bought the property, there was nothing on the record about the appellee having any gas rights. Her lawyer recorded an instrument two years later. If that really works, we’re all in trouble!