Oil and Gas
California’s oil and gas industry has a long history, but the legal issues involved in developing, operating, buying, selling, and transferring oil and gas interests continue to evolve. Producers and operators need agreements that protect their operations. Royalty owners need confidence that they are receiving the payments required under their leases. Landowners and mineral owners need to understand the rights they have granted and the obligations associated with them. And companies buying or selling producing fields need to carefully evaluate both the assets and the regulatory obligations that come with them.
At Reed Energy Law, PC, we work with oil and gas companies, operators, producers, landowners, mineral owners, royalty owners, and other participants in California’s energy industry. Oil and gas attorney Alyssa Reed brings more than 20 years of experience working with oil and gas operations, real property, mineral interests, transactions, environmental requirements, and energy project development.
Our oil and gas practice covers the industry from the underlying property rights and leases through long-term operations, business transactions, royalty issues, and transfers of interests to the next generation. We understand the practical realities of oil and gas operations because Alyssa has worked in-house for a major California oil and gas producer and has advised land, business development, environmental, procurement, and other operational departments.
Oil and Gas Legal Opinions
Oil and gas transactions and property rights can involve complicated questions of title, ownership, lease interpretation, and contractual rights. In some circumstances, a client may need a formal legal opinion addressing a specific issue before proceeding with a transaction or making an operational decision.
We provide legal opinions involving oil and gas interests and related property and transactional matters. The appropriate scope of an opinion depends on the circumstances, but the analysis may require reviewing historical deeds, mineral reservations, leases, assignments, operating agreements, title materials, and other documents affecting the property or interest.
A legal opinion can be particularly valuable when an ownership question has existed for years or when a company needs greater certainty before investing in or transferring an asset. Our experience with California oil and gas property rights allows us to approach these questions with an understanding of how the legal analysis affects actual operations and transactions.
Oil and Gas Leases
The oil and gas lease is one of the fundamental documents in the industry. It establishes the relationship between the mineral owner and the operator and determines what rights the operator has to explore for, develop, and produce oil and gas. Lease provisions can address the term of the lease, development obligations, royalties, shut-in payments, delay rentals or other payments, pooling and unitization, surface use, assignment, operations, production, and termination.
We help clients negotiate, review, interpret, and administer oil and gas leases. For operators, the objective is to obtain the rights necessary to develop the property while establishing workable terms for long-term operations. For landowners, mineral owners, and royalty owners, careful review of the lease can help ensure that the agreement accurately reflects the rights and compensation negotiated at the outset.
Negotiating Shut-In Provisions
Oil and gas wells do not always produce continuously. A well may be temporarily shut in for operational, market, regulatory, mechanical, or other reasons. The treatment of a shut-in well can be important because an oil and gas lease may establish specific requirements for maintaining the lease when production temporarily stops. The lease may also establish payments associated with a shut-in period.
We help clients understand and negotiate shut-in provisions and evaluate how they apply to the circumstances of a particular well. The language of the lease matters. A provision concerning shut-in wells may establish deadlines, payment requirements, notice provisions, or other conditions that affect whether the lease remains in effect. Addressing these provisions carefully can help avoid uncertainty about the status of the lease and the rights of the parties.
Advance Royalty Payments
Oil and gas agreements may contain provisions requiring advance royalty payments or other forms of compensation under particular circumstances. These arrangements need to be understood in the context of the entire lease and the actual production status of the property. We assist clients with negotiating and interpreting payment provisions and evaluating whether the contractual requirements are being satisfied. For royalty owners and mineral owners, understanding the payment structure can be essential to determining whether they are receiving the compensation to which they are entitled. For operators, clear payment provisions can help reduce disputes and establish a predictable framework for ongoing operations.
Trespassing Wells and Settlement Agreements
Oil and gas development can sometimes involve questions about whether a well, production activity, or other operation extends beyond the rights granted under a lease or other agreement. When a well is alleged to trespass on another party’s property or mineral interest, the issue can involve significant financial and operational consequences. We help clients evaluate the underlying property rights and negotiate appropriate resolutions. Depending on the circumstances, a settlement may involve compensation, revised operating rights, acquisition of additional interests, or other contractual arrangements. The objective is to find a practical solution that addresses the parties’ respective interests and provides clarity regarding future operations.
Pooling and Unitization
Oil and gas reservoirs do not necessarily conform to individual property boundaries. Development may therefore involve pooling or unitization arrangements that allow production from multiple tracts or interests to be managed as part of a larger operation. These arrangements can affect the rights and compensation of mineral and royalty owners as well as the operational rights of producers. We help clients understand and negotiate pooling and unitization provisions and evaluate how they interact with the underlying leases and ownership interests. For owners, it is important to understand how their interests are incorporated into a unit and how production and royalties are allocated. For operators, the relevant agreements need to provide a workable framework for developing the reservoir while complying with the applicable contractual requirements.
Joint Operating Agreements
Joint operating agreements, or JOAs, establish the framework under which multiple parties participate in oil and gas operations. A JOA can address operatorship, costs, production, decision-making, accounting, insurance, indemnification, transfers, default, abandonment, and other operational and financial matters. Because the JOA can govern the relationship among the parties for years, its provisions deserve careful attention before the agreement is signed.
We help clients review and negotiate JOAs and related operating arrangements. Our experience working within oil and gas companies gives us practical insight into how these provisions function when the parties are actually operating a field.
Farm-In and Farm-Out Transactions
Farm-in and farm-out arrangements allow companies to acquire or transfer interests in oil and gas properties in exchange for financial commitments, development obligations, or other consideration. These transactions can be useful when a company wants to obtain an interest in a property without acquiring an entire field or when an existing interest owner wants to bring in another party to share development costs or obligations. We help clients structure and negotiate farm-in and farm-out transactions and address the leases, operating agreements, title, regulatory requirements, and other property interests involved. The transaction should clearly identify the interest being transferred, the obligations being assumed, the development commitments, and the conditions under which the parties’ respective interests will change.
Acquisition and Divestiture of Oil and Gas Fields
Buying or selling an oil and gas field is a major transaction that can involve substantially more than the purchase price. A field may include producing wells, non-producing wells, leases, mineral interests, surface rights, equipment, pipelines, contracts, permits, environmental obligations, and other assets. The buyer also needs to understand the operational and regulatory responsibilities that will accompany the acquisition.
We assist with the acquisition and divestiture of oil and gas fields throughout California. Our work includes due diligence, title analysis, review of leases and contracts, transaction structure, negotiation of purchase and sale agreements, financing considerations, regulatory requirements, and closing. Alyssa Reed’s direct experience with California oil and gas field transactions gives us a practical understanding of the issues that can affect the value and feasibility of an acquisition or divestiture.
Avoiding Unnecessary Bonding Consequences in Field Transactions
California oil and gas transactions can involve significant bonding and financial assurance considerations. The structure of a field acquisition or divestiture may affect the obligations associated with the wells being transferred. For an acquiring company, these requirements can materially affect the economics of the transaction. A buyer needs to understand what regulatory and financial obligations it will assume and how the proposed transaction structure affects those obligations. A seller also needs to consider how the transaction will affect its continuing obligations after the assets have been transferred.
Alyssa has direct experience with acquisitions and sales of California oil and gas fields and operating companies structured with these bonding considerations in mind. We help clients evaluate these issues as part of transaction planning rather than discovering them after the deal has been negotiated.
Royalty Negotiations
Royalty interests can represent significant long-term value for mineral owners and royalty owners. The terms of the underlying oil and gas lease establish the framework for those payments, but determining whether the actual payments comply with the lease can require careful analysis. We assist royalty owners and operators with royalty negotiations and the interpretation of royalty provisions. A royalty provision may address the percentage owed, how production is measured, allowable deductions, valuation, processing, transportation, pooling, commingling, and other issues that can affect the amount ultimately paid. Our objective is to help clients understand the economics of the lease and determine whether the parties’ respective obligations are being properly applied.
Oil Measurement and Royalty Compliance
Production measurement is an important but sometimes overlooked component of royalty payments. An oil and gas lease can establish a clear royalty percentage, but the amount actually received by a royalty owner depends on how the underlying production is measured and accounted for. Problems can arise when oil is commingled, inadequately measured, improperly classified, or otherwise excluded from the production volumes used to calculate royalties. In some circumstances, relatively small measurement discrepancies can accumulate into substantial amounts over time.
We help clients evaluate whether production measurement and royalty calculations comply with the terms of the applicable oil and gas lease. This can include examining measurement practices, production records, accounting information, lease requirements, and the treatment of different categories of oil. For royalty owners, the issue is straightforward: they should receive the royalty required by their agreement based on the production covered by the lease. For operators, accurate measurement and compliance can help identify potential problems before they become larger financial and contractual issues.
Unmeasured and Under-Reported Production
The economics of an oil field depend on accurately accounting for the hydrocarbons produced. Issues involving skim oil, residual oil, poorly measured oil, or commingled production can create questions about whether all production subject to royalties is being properly accounted for. For instance, a royalty owner may receive payments that appear correct based on the statements provided while being unaware that certain production is not included in the calculation.
We help clients investigate these issues and compare actual measurement and accounting practices with the requirements established by the applicable lease. This work can require an understanding of both the legal language of the lease and the operational practices used to measure and report production. That combination is important because a legal analysis of the royalty clause alone may not reveal a measurement problem occurring in the field.
Master Service Agreements
Oil and gas operations depend on relationships with contractors and service providers. A master service agreement, or MSA, can establish the legal framework governing services performed over an extended period. Rather than negotiating every term from scratch for every job, an MSA can establish common requirements concerning safety, insurance, indemnification, payment, compliance, liability, and other matters.
We assist oil and gas companies with reviewing and negotiating master service agreements and related service contracts. The terms should be evaluated in the context of the actual services being provided and the risks associated with the work. A provision that may be appropriate for one type of contractor may not adequately address the risks associated with another. Our experience with energy operations helps us evaluate these agreements from a practical perspective.
Supply Chain and Vendor Agreements
Oil and gas operations depend on reliable supply chains. Equipment, materials, field services, transportation, maintenance, and other vendor relationships can all affect the ability to keep a producing field operating. Contractual problems with a supplier can have consequences that extend beyond the cost of a particular purchase. We help clients establish and negotiate agreements that define the responsibilities of vendors and service providers. This can include pricing, delivery requirements, specifications, warranties, insurance, indemnification, compliance obligations, termination, and dispute provisions. The goal is to create contracts that support the operational needs of the business while allocating risk in a way that makes sense for the particular relationship.
Oil and Gas Transactions Require an Understanding of the Field
Oil and gas law is closely connected to how the industry actually operates. The meaning of a lease provision can depend on production practices. A title issue can affect the ability to acquire a field. A measurement problem can affect royalty payments. A transaction structure can affect bonding obligations. A JOA provision can determine how costs are allocated when a field requires significant work.
Alyssa Reed has spent more than two decades working at this intersection of law and energy operations. As in-house counsel and a carbon solutions land manager for a major California oil and gas producer, she advised land, procurement, environmental, business development, and other departments. She managed an extensive land portfolio, evaluated asset opportunities, negotiated transactions, addressed real property and mineral owner disputes, and worked on major oil and gas projects. Alyssa also served as secondee legal counsel for Chevron U.S.A. Inc.’s San Joaquin Business Unit in Bakersfield, working with Land, Business Development and Planning, Environmental Health and Safety, Public Affairs, and Supply Chain.
That experience informs the way we approach oil and gas matters today.
California Oil and Gas Law With a Practical Perspective
At Reed Energy Law, PC, we represent oil and gas companies, operators, producers, mineral owners, royalty owners, landowners, and other participants in California’s energy industry. Our practice includes legal opinions, oil and gas leases, shut-in and advance royalty provisions, trespass-well settlements, pooling and unitization, JOAs, farm-in and farm-out transactions, royalty negotiations, production measurement and compliance, intergenerational transfers, field acquisitions and divestitures, and master service and supply chain agreements.
We understand that oil and gas matters rarely fit into a single category. A lease may affect a transaction. A title issue may affect a royalty. An acquisition may raise bonding concerns. A production measurement issue may require both legal and operational analysis. Our experience allows us to look at those issues together and help clients make decisions based on the broader business and property picture.
If you need assistance with an oil and gas lease, field acquisition or divestiture, royalty issue, title question, operating agreement, farm-in, master service agreement, or transfer of oil and gas interests in California, get in touch with Reed Energy Law, PC. Contact us to discuss your needs with Alyssa Reed and learn how our more than 20 years of energy industry experience can help you protect your interests and accomplish your oil and gas objectives.
