Landowners and mineral owners may transfer their entire interest in the land containing gas and oil. The owner of land may make the transfer using any method permitted under the law of the jurisdiction. When a transfer of the land is effected, the contents are also considered as transferred, if no specific limitation or stipulation is made in it otherwise as to the subsurface rights. On the transfer of land, it is considered that everything under the surface as well as on the surface is conveyed. Conveyance of a right to enter upon the land for the purpose of prospecting and operating for oil and gas is a conveyance of an interest in the land.
However a landowner may split his/her right in the oil and gas in the land with the interest in the surface area of the land[i]. S/he may transfer the land dividing it vertically or horizontally thereby keeping the right over the oil and gas with him/her. A land owner can convey the right to the surface area and the right in oil and gas underneath separately. The fact of severance of the right has to be specifically stated or expressed in the document of conveyance.
When the ownership of subsurface oil and gas interests is severed from the ownership of the surface, the owner of oil and gas rights must do some act, enumerated in the statute, to indicate ownership or the oil and gas interests are deemed abandoned and become the property of the surface owner[ii].
A transfer of right induced by fraud will be declared null and void[iii]. Relief will be granted to a defrauded transferor as well as a defrauded transferee.
The transfer of mineral ownership can be made by a legal instrument called a mineral deed. A landowner may convey the surface area right, subsurface area right, or both by a mineral deed. An owner may transfer two different interests in the minerals in one instrument. S/he may transfer an absolute interest in the minerals and an interest in the royalty payable under existing or future leases.
A transfer of the right to extract gas and oil may be made with a reservation of the royalty and an agreement to develop the property. A land owner may give the right to extraction of oil and gas by executing a lease. A reservation in a deed providing that if oil or gas were found the parties would share the profits equally, indicates the intention of the parties to share in the gain.
Each state may have different laws with regard to the transfer of mineral, oil, and gas rights. In certain states, if a landowner sells land, s/he may retain ownership of the minerals underneath it for a period of ten years. S/he has to transfer such mineral rights later to the current owner of that land only if that owner has retained the land for the same period of time.
An instrument transferring mineral rights must satisfy the statutory requirements of the concerned state and must be in writing[iv]. An oral agreement to purchase oil and gas leases is not enforceable. The instrument of conveyance must contain a proper description of the subject property so as to identify the property. The transfer must be for a consideration and even if an amount paid is nominal, a lessee can be considered a bonafide purchaser for value[v]. Any benefit conferred on the grantor or detriment suffered by the grantee is sufficient consideration in a transfer of oil and gas rights.
With regard to construction of a document, if there is no ambiguity, terms will be construed taking the literal meaning of the words. An instrument will be construed taking into consideration the intention of the parties[vi]. When there is ambiguity in the document, the intention of the parties will be ascertained or looked into from the whole contents of the instrument[vii]. The intention of the parties will prevail unless it violates some principle of law.
When the right transferred is for an indefinite period to enter upon land and extract gas and oil, it amounts to a license. But a transfer for a specific period of time to enter upon the property and make developments is a lease.
[i] Ates v. Yellow Pine Land Co., 310 So. 2d 772 (Fla. Dist. Ct. App. 1st Dist. 1975).
[ii] Van Slooten v. Larsen, 86 Mich. App. 437 (Mich. Ct. App. 1978).
[iii] Holland v. De Walt, 225 S.W. 216 (Tex. Civ. App. 1920).
[iv] Gillman v. Martin, 366 S.W.2d 89 (Tex. Civ. App. San Antonio 1963).
[v] Carter Oil Co. v. McQuigg, 27 F. Supp. 182 (D. Ill. 1939).
[vi] French v. Chevron U.S.A., 896 S.W.2d 795 (Tex. 1995).
[vii] Luckel v. White, 819 S.W.2d 459 (Tex. 1991).