Legal and equitable remedies are available to persons who have been injured by breaches of duty involving the law of oil and gas[i]. Common remedies available are:
- actions for damages,
- cancellation of a document,
- quieting title,
- specific performance,
- accounting, or
- declaratory judgment.
The lessee under an oil and gas lease acquires no title to the oil and gas in place as part of the realty, but only a right to enter upon the land, drill wells, and reduce the oil and gas to possession[ii]. When reduced to possession, the oil and gas are personal property and only then can absolute title vest in the lessee.
When there is a forfeiture of the lease, a lessor of mineral lands cannot maintain an action of unlawful detainer against the lessee since the lease passed a property right and the action involved an issue of title. Similarly, a lessee’s cause of action against the state lessor to recover allegedly excess royalty payments for natural gas is for monies had and received, not for breach of the implied covenant of good faith and fair dealing.
Absent a specific lease clause to the contrary, nonpayment of royalty does not terminate an oil and gas lease. The lessee’s sole remedy lies in an action for damages based on breach of covenant[iii]. Generally, an action for damages will lie in favor of the lessor when the lessee breaches a material provision of the lease or an implied covenant of the lease.
A lessor is entitled to recover damages from the lessee where provisions contained in the parties’ lease expressly obligate the lessee to restore the surface of the land to its prior condition and the lessee does not fulfill that obligation[iv]. Further, parties may by contract provide that the lessee should pay for the damage done to the land by the necessary drilling operations.
A temporary injunction may be issued where the plaintiff shows a likelihood of success on the merits. A permanent injunction may be issued where there is no adequate remedy at law. Four factors must be considered in determining whether an injunction should be granted[v]:
- Whether the plaintiff has shown a strong or substantial likelihood or probability of success on the merits;
- Whether the plaintiff has shown irreparable injury;
- Whether the issuance of a preliminary injunction would cause substantial harm to others; and
- Whether the public interest would be served by issuing a preliminary injunction.
The four factors to be considered in granting a preliminary injunction may not be weighed mechanically in order to determine if the injunction should be issued. No single factor is determinative but rather, the court should weigh each of the factors in light of the factual circumstances of the particular case.
The lessor under a gas and oil lease may obtain relief against a defaulting lessee in the form of an order for specific performance where there is no adequate legal remedy available. A court may use its equity powers to grant a lessor relief from the lessee’s unjustified refusal to furnish gas as required by a provision under an oil and gas lease entitling the lessor to domestic gas from a producing well on the premises.
A breach of an implied covenant in an oil and gas lease does not automatically terminate the estate but instead subjects the breaching party to liability for monetary damages or, in extraordinary circumstances, the remedy of conditional decree of cancellation[vi].
Under some jurisdictions, an action of accounting will lie where the lessee unlawfully drains gas or oil from the leasehold by means of wells on other lands. The courts order an accounting when a lessee pays royalties to a purported lessor who has no interest in the property. Similarly, when one of several co-owners develops the common property and thereafter refuses to share the profits with the other owners or where the lessee unjustifiably fails to pay the lessor royalties produced from wells drilled on the lessor’s land accounting is ordered by the courts.
[i] Pickens v. Adams, 7 Ill. 2d 283, 291 (Ill. 1955).
[ii] Western Oil & Refining Co. v. Venago Oil Corp., 218 Cal. 733 (Cal. 1933).
[iii] Mitchell Energy Corp. v. Samson Resources, 80 F.3d 976 (5th Cir. Tex. 1996).
[iv] Warren Petroleum Corp. v. Monzingo, 157 Tex. 479 (Tex. 1957).
[v] Columbia Gas Transmission Corp. v. Exclusive Natural Gas Storage Easement etc., 688 F. Supp. 1245 (N.D. Ohio 1988).
[vi] Anadarko Petroleum Corp. v. Thompson, 94 S.W.3d 550 (Tex. 2002).