Oil and Gas Leases

Abstract

The oil and gas lease is the basic contract of the oil and gas industry; itis the foundation stone upon which the producing industry, particularly, isbased. As the industry is precarious and highly speculative, the foundationcontract should be of the utmost integrity and certainty. But right there ananomaly exists; the oil and gas lease is the most obscure, most uncertain, doubtful contract in the realm of law today. That is a condition that must beconsidered when taking oil and gas leases, and when buying, selling, andholding them.It may fairly be asked why should this industry rest upon so insecure afoundation. Why should not the oil industry rest upon the contract that is thebasis of all industry, the warranty deed? There are many contributing reasons, but the principal one is business expediency.The Anglo-Saxon idea of ownership of land is that every land owner owns fromthe center of the earth to the sky - all that is above and all that is below -consequently the oil and gas are owned by the person who owns the surface. Thatidea is not exactly true with reference to oil and gas, for many states haveadopted the doctrine that oil and gas are like wild animals; they are fugaciousand migratory and belong to the man that traps them. But, except for thatdoctrine, we believe that oil and gas are owned by the owner of the surface, wherein we differ from the Latin-American countries where the mineral rightsare owned by the government.The United States was settled largely by homesteading. The owners of landwere, in the main, farmers, who did not have the means or the faith to drillfor oil or gas. The operators or speculators did not want to buy the land onthe mere possibility of finding oil; hence a compromise resulted by which theland owner gave the speculator or the operator what he called an oil and gaslease, or a right to go upon his land and drill for oil and gas.AIME 070–67