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Duties of Oil and Gas Company

Oil and gas companies hold certain duties to all royalty owners and related individuals who do business with the company. These duties are far ranging and often include the duty to develop and the duty to monitor assets. If you believe that an oil and gas company has not properly developed a well or has engaged in inappropriate behavior, do not hesitate to contact an experienced oil and gas attorney.

Oil and Gas Law in Texas

Oil and gas law is a relatively new section of Texas law, despite the discovery of the Spindletop dome over one hundred years ago. It is a complex area of the law that combines property law and contract law and not every state has laws which specifically involve the oil and gas industry. Texas has become a state of boom cities with the recent discovery of oil and natural gas in the Eagle Ford Shale region. However, Texas is steeped enough in the history of successful oil wells that Texas courts and legislatures have successfully carved out many laws pertaining to oil and gas leases, including the implied duties of oil and gas companies.

Oil and Gas Company Duties

Oil and gas companies begin their excavations into the lands of Texas after entering into a contract with the landowner (often referred to as an oil and gas lease). The lease outlines all the specific requirements of the landowner and the oil and gas company. However, over the last decades, certain implied duties have emerged which are enshrined in contract law. These duties include the following:

  • Duty to develop
  • Duty to protect against drainage
  • Duty to manage and administer the lease (including the duties to market, meet deadlines, and pay royalties)
  • Duty to plug wells
  • Duty not to damage by negligence

Many of these duties are steeped in the deep tradition of acting as a “reasonably prudent operator” would act. For example, oil and gas companies have an implied duty to develop the land and any potential wells, based on the standard of care of the reasonably prudent operator. Therefore, a court will determine whether a reasonably prudent operator would have developed the land by this point in time.

The duty to protect against drainage involves the drilling of a well within a common reservoir and may lead to extensive damages. For example, an oil and gas company drilling on the eastern half of two parcels of land may inevitably drain the western half of the land (which has a different lessor). However, each case is unique, and the circumstances of each case dictate whether a breach has occurred.

One of the most important duties an oil and gas company has is the duty to plug the well. While there is no duty to clean up the surrounding area, the duty to plug a well is instrumental to protecting the surrounding area from pollution and any remnants of the drilling.

Damages for Breach of Duties

Since these duties are not written into a contract and are implied as part of the general lease, a remedy of damages (such as the value of royalties that the lessor would have received had the well been drilled when promised including interest) is the ultimate type of result. A lessor is often the appropriate person to bring action against an oil and gas company, but in limited situations a royalty owner may bring actions.

Malley Law Firm | Houston Oil and Gas Attorney

If you are involved in an oil and gas company dispute, contact the Malley Law Firm. Tony Malley has years of experience in handling all types of oil and gas disputes, and is experienced in drafting and reviewing oil and gas leases. Oil and gas companies create leases to earn themselves money through the process and often care little about what happens to the lessor or landowner. Do not allow the oil and gas company to get away with damage to your property or failure to develop. Contact our Beaumont or Houston office today for an initial free consultation.

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