Minerals including gas and oil in place and those produced from land are different. Oil and gas in place, or in and under the land are realty. They are part of the land. Transfer of interests of oil and gas in place or under land is a severance of the fee. One person can own the surface of the land and another person can own the minerals under the surface[i].
In the U.S., oil and gas rights to a land can be privately owned. Oil and gas rights are owned by the surface landowner, in the absence of separate deed. However, like other real estate property, oil and gas rights can be bought, sold, or transferred. Owner of a land has the right to extract oil and gas underneath his/her land. Additionally, an owner has the right to transfer oil and gas underneath his/her land. Mineral servitude can be created by selling and reserving the ownership of oil and gas. When such a right is created the holder of the right can enter the land and can extract oil and gas.
A person owing the fee of the soil owes everything below the surface. However, the exclusive right is limited by the extent of the surface rights[ii]. Oil and gas being fluid, flow in the subsurface across property boundaries. Due to this character, a person can extract oil and gas from beneath the land of another, provided the extraction is lawfully conducted on his/her own property. This does not allow a person to direct a well to penetrate beneath property not owned by or leased to him/her.
Under the ownership in place theory, a landowner owns the oil or gas beneath his/ her lands to the same extent as s/he owns coal or any other hard mineral. However, the ownership is qualified by the rule of capture. The rule of capture provides that when the oil or gas beneath an owner’s lands escape and go into the lands of another, his/her title is gone. However, a land owner’s right to extract oil and gas underneath his/her land will not preclude the recovery of oil and gas under the rule of capture[iii]. “Ownership of oil and gas in place should be considered in connection with the law of capture. This rule of capture gives the right to extract all of the oil and gas that will flow out of the well on one’s land. This property right is limited only by the physical possibility of the adjoining landowner diminishing the oil and gas under one’s land by the exercise of the same right of capture[iv]. However, the rule of capture gives land owners an incentive to pump out oil as quickly as possible to capture the oil of neighbors.
A landowner’s exclusive right to extract oil and gas from his/ her land does not mean that s/he has got title to the oil and gas underneath his/ her property. However, a landowner’s right to minerals is legally protected. An owner is protected against trespass; when a person enters his/her land without permission for extracting oil and gas. For such trespass the owner can approach a court for injunction and damages.
According to ownership-of-strata doctrine, the right to explore for oil and gas and to reduce them to possession is a valuable part of the property. The right constitutes an interest in the land springing out of the ownership of everything above and below the surface. The stratum in which oil and gas are found is capable of severance. By an appropriate writing, the owner of the land can transfer the stratum containing oil and gas to another person. The transfer confers upon the grantee an estate and title to the stratum of oil and gas. This is made subject of taxation, encumbrance, or conveyance.
It is impossible to trace the oil and gas produced from a well and determine where it actually came from in the subsurface with any certainty. The rule of capture gives an owner the right to extract all of the oil and gas flowing out of the well on one’s land. The Fourteenth amendment to the U.S. constitution specifically protects private property. An Owner’s right to extract oil and gas pursuant to the rule of capture violated private property right. This problem was resolved by establishing a non-ownership or qualified ownership theory of oil and gas law. By virtue of proprietorship, an owner of the surface can bore wells for the purpose of extracting natural gas and oil. Until minerals are actually reduced by him/ her to possession, an owner has no title to them as owner. An owner has the exclusive right on his/ her own land to seek to acquire minerals. However, the minerals do not become his/ her property until the effort has resulted in dominion and control by actual possession[v].
Moreover, the principle that oil and gas cannot be owned absolutely until found and reduced to possession is recognized in all of the oil and gas producing jurisdictions of the U.S.
[i] Palmer v. Crews, 203 Miss. 806 (Miss. 1948).
[ii] Del Monte Mining & Milling Co. v. Last Chance Mining & Milling Co., 171 U.S. 55 (U.S. 1898).
[iii] The Rule of Capture and its Implications as Applied to Oil and Gas, Hardwicke, R.E., 1935, Tex Law Rev, 401.
[iv] Delhi-Taylor Oil Corp. v. Gregg, 337 S.W.2d 216, 220 (Tex. Civ. App. Austin 1960).
[v] Ohio Oil Co. v. Indiana, 177 U.S. 190 (U.S. 1900).