1 Legal and regulatory framework

1.1 What role does the national state play in the oil and gas industry in your jurisdiction? Are oil and gas rights owned by the state or is private ownership allowed?

The majority of oil and gas rights in the United States are under private ownership. However, both the federal government and each state government own the oil and gas rights on lands under their respective control. An oil company seeking to develop those oil and gas rights will typically obtain an oil and gas lease from the private individual or the applicable state or federal agency.

The federal government's oil and gas leasing programme is principally administered by two agencies:

  • the Bureau of Land Management (BLM) for onshore leasing; and
  • the Bureau of Ocean Energy Management (BOEM) for offshore leasing.

Federal oil and gas leases are granted through a competitive auction process in which potential lessees bid on leases covering defined areas of federal land or waters.

Depending on the location of the oil and gas rights, different state agencies may have such authority. For example, in the state of Texas, state universities may lease oil and gas rights located on university property; while the General Land Office acts as agent for the state in leasing oil and gas rights located on other state lands.

Those seeking to develop oil and gas rights on tribal lands must obtain a lease from the applicable tribe.

Whether the underlying oil and gas rights are under private or governmental ownership, oil and gas operations are potentially subject to federal, state and local laws and regulations.

1.2 Which national legislative and regulatory provisions govern the oil and gas industry in your jurisdiction?

The development of oil and gas rights on federal waters is governed by the Outer Continental Shelf Lands Act (OCSLA) and the Submerged Lands Act.

The OCSLA generally provides for the authority of:

  • the BOEM to administer the federal government's offshore leasing programme; and
  • the Bureau of Safety and Environmental Enforcement (BSEE) to regulate oil and gas operations in federal waters.

The regulations promulgated by the BOEM and the BSEE with respect to the offshore oil and gas industry are set forth in Title 30 to the Code of Federal Regulations.

The federal government's oil and gas leasing programme is governed by:

  • the Mineral Leasing Act of 1920, generally authorising and governing the leasing of federal lands for oil and gas and other mineral production; and
  • the Federal Onshore Oil and Gas Leasing Reform Act of 1987, authorising the US Forest Service to grant oil and gas leases for areas within its jurisdiction.

Other relevant statutes include:

  • the Naval Petroleum Reserves Production Act of 1976, authorising the development of oil and gas rights located on certain national reserves; and
  • the Federal Oil and Gas Royalty Management Act of 1982 (as amended by the Federal Oil and Gas Royalty Simplification and Fairness Act of 1996), governing the BLM's enforcement of oil and gas lessees' royalty obligations.

The regulations promulgated by the BLM with respect to the onshore oil and gas industry are set forth in Title 43 to the Code of Federal Regulations.

1.3 What other national legislative and regulatory provisions have relevance for oil and gas activities in your jurisdiction?

Under the Foreign Investment and National Security Act of 2007 and related statutes, the president of the United States has the authority to block or unwind - at any point - certain transactions by foreign persons that threaten the national security of the United States. The Committee on Foreign Investment in the United States (CFIUS) - a committee composed of various US government agencies - has jurisdiction to review such transactions for national security issues.

The CFIUS has historically taken the position that covered transactions involving oil and gas can raise national security issues and as such should be reviewed by the CFIUS. As a result, certain oil and gas transactions have been prevented from closing by the CFIUS in the past.

The Hart-Scott-Rodino Act requires parties to transactions valued above a certain value threshold - $500 million in 2021 for acquisitions of oil and gas assets, and generally otherwise $92 million - to provide notice to the Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice (DOJ). The FTC and the DOJ will evaluate the transaction to determine whether it may have an anti-competitive impact and may request further information regarding the transaction in connection with that evaluation.

1.4 Are there any regional treaties or laws that need to be taken into account?

The Cartagena Convention (United Nations Environment Programme Regional Seas Programme for the Wider Caribbean) provides for signatory nations to cooperate to combat oil spills, protect wildlife and reduce pollution in the Caribbean region. The United States ratified the agreement in October 1984.

The United States-Mexico-Canada Agreement (USMCA) is the successor to the North America Free Trade Agreement and prohibits the imposition of tariffs on the flow of energy between the US, Canada and Mexico. The USMCA also provides for flexible rules regarding origin requirements for oil and gas traded between the three signatory nations.

1.5 Which national regulatory bodies are responsible for enforcing the applicable laws and regulations? What powers do they have?

The BOEM acts as the United States' agent in the leasing of oil and gas interests in federal waters. In performing this function, the BOEM:

  • determines whether prospective lessees are qualified to hold a federal oil and gas lease; and
  • manages the competitive bidding process for the award of leases.

The BOEM's approval is required for any transfer of an interest in an oil and gas lease or change in operatorship of the underlying mineral interest.

The BSEE administers the permitting process for offshore oil and gas operations, including drilling, and enforces environmental and operational regulations in connection with offshore oil and gas development. It conducts regular inspections of offshore wells and other facilities to ensure compliance. It also ensures that the regulatory requirements for decommissioning of oil and gas facilities are met, and is responsible for approving and overseeing operators' decommissioning plans.

The BLM acts as the United States' agent in the leasing of oil and gas interests on federal lands (in coordination with the US Forest Service in the case of oil and gas interests located in national forests). Similar to the BSEE's role with respect to offshore oil and gas development, the BLM administers the permitting process for drilling and other oil and gas operations on federal lands, and enforces environmental and operational regulations in connection with oil and gas development.

The Environmental Protection Agency (EPA) and the Federal Energy Regulatory Commission are also prominent federal authorities with jurisdiction over oil and gas activities.

1.6 What is the national regulators' general approach in regulating the oil and gas industry?

The oil and gas regulators' stated mission is to facilitate safe and responsible energy development while advocating for and providing a fair return to US taxpayers in the form of royalties and protections against liabilities resulting from that development. The exact method of achieving that mission is left to the discretion of the applicable agencies, with certain statutory boundaries.

Regulatory agencies are created pursuant to statutes enacted by the legislative branch, which effect a transfer of authority from the legislative to the executive branch subject to the requirements of those statutes. Regulatory agencies must adhere to their organic statutes enacted by the US Congress, but those statutes grant the agencies discretion over some aspects of the regulatory policy within their jurisdiction. Therefore, regulatory policy can vary depending on the priorities of the head of the executive branch (ie, the US president). However, this discretion is subject to checks and balances in the form of judicial review.

1.7 What role do provincial, state and/or other local government regulatory bodies play in the regulation of the oil and gas industry?

Development of oil and gas on private land is primarily governed by state and local authorities. In Texas, the Railroad Commission is the primary state agency responsible for the regulation of oil and gas development, including qualification and registration of operators. In Oklahoma, the primary oil and gas regulator is the Corporation Commission; while the Louisiana Department of Natural Resources fulfils the same role in Louisiana. State regulatory agencies such as the foregoing are responsible for:

  • issuing drilling permits;
  • registering oil and gas operators; and
  • enforcing bonding requirements of oil and gas lessees and operators.

States may also lease oil and gas rights located on state lands and state waters (defined under Submerged Land Act as extending from the state's coast to nine nautical miles from the coasts of Texas and Florida in the Gulf of Mexico and extending approximately three nautical miles from all other states' coasts.

2 Oil and gas industry

2.1 How mature is the oil and gas industry in your jurisdiction?

In 1859, the Pennsylvania Rock Oil Company completed the first drilled oil well at Oil Creek near Titusville, Pennsylvania. This event is seen as the beginning of the modern oil era and the start of the production of oil and gas in the United States. Since then, technological innovation has resulted in rapid growth for the drilling and production of US oil and gas.

The regulation of oil and gas has developed into a set of complex legal regimes in each state in the United States. Additionally, layered on top of the state legal regimes is the US federal government's regulation. As a result of these multiple legal frameworks, oil and gas law has developed and matured so that there is extensive jurisprudence governing oil and gas transactions and other related matters in each individual state.

2.2 What are the key oil and gas products which are produced in your jurisdiction and where are activities typically based?

The United States produces a full spectrum of petroleum products, including:

  • transportation fuels;
  • fuel oils for heating and electricity generation;
  • asphalt and road oil; and
  • feedstocks for making chemicals, plastics and synthetic materials.

In the years 2018 to 2020, the United States was the top producer of crude oil in the world, producing 15% of total crude oil production in 2020. The top crude oil-producing states in the United States in 2020 were as follows:

  • Texas (43% of production);
  • North Dakota (10.4% of production);
  • New Mexico (9.2% of production); and
  • Oklahoma (4.1% of production).

Additionally, 14.6% of US crude oil was produced from wells located offshore in the federally administered waters of the Gulf of Mexico.

Texas is the largest oil and gas producing state in the United States. In 2020, Texas accounted for 43% of the country's crude oil production and 26% of its natural gas production. There are 31 petroleum refineries in Texas, which together have the capacity to process almost 5.9 million barrels of crude oil per day. Additionally, there are more than 17,000 miles of interstate natural gas pipelines in Texas, connecting Texas to gas markets throughout the country.

In 2020, North Dakota accounted for 10.4% of the United States' crude oil production and 2.5% of its natural gas production. North Dakota has two oil refineries with a combined operating capacity of about 90,000 barrels of crude oil per day.

Other major oil and gas producing states are New Mexico, Oklahoma and Louisiana.

2.3 Who are the key players in the oil and gas industry in your jurisdiction?

The United States is unique in that it does not have a national oil company operating as an extension of the government. Instead, both public and privately held companies produce oil and gas from both private and public lands. Many of the companies are independent producers that usually only operate in the United States. The other companies are referred to as major oil companies and operate in many countries.

2.4 How are the following reflected in the domestic energy mix? (a) Oil and gas (b) Imports and exports?

(a) Oil and gas

The US oil and gas industry has seen rapid growth in production during the last few years, due to technological developments in drilling and production methods. In 2020, the United States produced 11,313,000 barrels per day of crude oil. Also in 2020, the United States withdrew 40,689,764 million cubic feet of natural gas.

(b) Imports and exports

In 2020, the United States exported about 8.51 million barrels per day (MMb/d) and imported about 7.86 MMb/d of petroleum, making it a net annual petroleum exporter. Refined petroleum products and petroleum liquids make up the majority of US petroleum exports. Also in 2020, the United States imported nearly 5.88 MMb/d and exported about 3.18 MMb/d of crude oil. The top five sources of US petroleum imports were:

  • Canada;
  • Mexico;
  • Russia;
  • Saudi Arabia; and
  • Colombia.

In 2020, the United States was a net exporter of natural gas, exporting 5.28 trillion cubic feet (Tcf). The United States also imported 2.55 tcf. Increases in domestic production have reduced the need for natural gas imports. The United States exported natural gas to 32 countries in 2020.

3 Exploration and production

3.1 What rights are required to undertake exploration and production in your jurisdiction? Do these vary depending on the type or location of the activity?

In the United States, minerals are owned by federal and state governments, private citizens and business entities. The right to produce oil and gas is derived by entering into a lease with the requisite mineral right owner. An oil and gas lease is a contractual agreement between a lessor, as owner of the mineral estate, and the lessee - typically an oil and gas company. The lease permits the lessee to develop oil and gas in the area detailed in such lease. While many oil and gas leases are based on similar forms, each lease is negotiated on an individual basis, so provisions in each lease may vary.

3.2 What regulatory or contractual requirements must be satisfied to obtain exploration and production rights?

In the United States, producers of oil and gas must ensure they comply with the regulatory requirements of federal, state and local governments. The federal government focuses on regulating exploration and production as it relates to environmental protection. For example, the Environmental Protection Agency has the authority to set standards for drinking water and air quality.

The exploration of oil and gas is also regulated by the state in which production occurs. Each state has a different entity that promulgates and enforces oil and gas regulations. These state entities enforce their regulations through the issuance of permits and a variety of regulatory inspections.

In addition to federal and state regulations, there may be local municipalities with ordinances that impact on the exploration and production of oil and gas. For example, municipalities may pass zoning ordinances that require the minimum distance wells and other facilities must be set back from homes and businesses.

3.3 If there is state ownership of oil and gas rights in your jurisdiction, what is the procedure for obtaining exploration and production rights? How long does this typically take?

The Bureau of Ocean Energy Management (BOEM) acts as the United States' agent in the leasing of oil and gas interests in federal waters. In performing this function, the BOEM determines whether prospective lessees are qualified to hold a federal oil and gas lease and manages the competitive bidding process for the award of leases. BOEM approval is required for any transfer of an interest in an oil and gas lease or a change in operatorship of the underlying mineral interest. The Bureau of Safety and Environmental Enforcement (BSEE) administers the permitting process for offshore oil and gas operations, including drilling, and enforces environmental and operational regulations in connection with offshore oil and gas development.

The Bureau of Land Management (BLM) acts as the United States' agent in the leasing of oil and gas interests on federal lands (in coordination with the US Forest Service in the case of oil and gas interests located in national forests). Similar to the BSEE's role with respect to offshore oil and gas development, the BLM administers the permitting process for drilling and other oil and gas operations on federal lands, and enforces environmental and operational regulations in connection with oil and gas development.

The leasing of state lands is generally overseen by the relevant state regulatory agency. For example, the Texas General Land Office is charged with leasing state lands to companies for the exploration and production of oil and gas.

3.4 Who can own exploration and production rights in your jurisdiction? Do specific requirements or restrictions apply to foreign operators? Do any indigenous ownership requirements apply?

Certain federal regulations may apply to foreign operators that seek to develop oil and gas properties in the United States. The Committee on Foreign Investment in the United States (CFIUS) is an interagency committee authorised to review certain transactions involving foreign investment in the United States and certain real estate transactions by foreign persons, in order to determine the effect of such transactions on the national security of the United States. The BLM has stated that the real estate transactions subject to CFIUS review could include certain transactions involving the leasing or purchase of federal mineral interests. A review by the CFIUS of a potential transaction with the BLM could lead to a modification or prohibition of such transaction. Therefore, potential lessees and purchasers of federal mineral interests should review CFIUS rules before bidding on any federally owned oil and gas interests.

If a company intends to produce oil and gas in indigenous lands, they should consult with the Bureau of Indian Affairs, the BLM and the Office of Natural Resources Revenue to ensure that they are following all applicable laws and regulations.

3.5 If there is state ownership of oil and gas rights in your jurisdiction, what fees and other charges are incurred in obtaining exploration and production rights?

Oil and gas rights owned by the applicable state will be subject to the agency for such state that governs the production of oil and gas in the state or in some instances independent agencies that own the lands related to such oil and gas rights (eg, the General Land Office of Texas). As such, any fees or charges associated with obtaining such oil and gas rights will be determined by such governing body and can vary widely from state to state.

3.6 What is the duration of exploration and production rights? What is the process for renewal?

The duration of an oil and gas lease is comprised of two terms: the primary term and the secondary term. The primary term is typically a specified number of years. The lease remains in effect during the primary term even if the lessee does not achieve production in paying quantities (PPQ). 'PPQ' is a term used to quantify oil and gas production for a certain well. In order for PPQ to be met:

  • revenue from production must be sufficient to cover operating costs; and
  • a reasonably prudent operator would continue operation of the specific well for a profit.

If PPQ is not achieved at the end of the primary term, the lease terminates (absent an applicable savings clause). Once PPQ is achieved, the lease remains in effect for the remainder of the secondary term, which is as long as PPQ continues.

3.7 What are the operator's rights and obligations under exploration and production rights?

The requirements associated with operators' rights and obligations under exploration and production rights will depend on the terms negotiated between a lessor and lessee in an oil and gas lease. Each lease can potentially vary in regards to such rights and obligations.

In addition to express obligations, US courts have also interpreted oil and gas leases to imply certain obligations on the part of the lessee. The most commonly recognised implied covenants include the duty to:

  • drill an initial test well;
  • develop the leasehold interests;
  • conduct further exploration;
  • protect against drainage; and
  • market any oil and gas produced.

3.8 Are there any requirements re relinquishment of exploration and production rights or part of the area covered by such rights?

The requirements associated with relinquishment of exploration and production rights will depend on the terms negotiated between a lessor and lessee in an oil and gas lease. Each lease can potentially vary in regard to what is required of lessee in the event lessee wants to relinquish all or part of its rights to produce.

3.9 Can exploration and production rights be transferred or assigned? If so, how and subject to what government consents? Do any fees, taxes or other charges apply to direct or indirect transfers?

For leases of federally owned lands, the transfer of operatorship for oil and gas leases requires following the rules set out by the BOEM and the BSEE. A new entity should first notify the BSEE that it would like to become an operator of a federal lease. The new entity will then submit certain qualification paperwork, along with lease and right-of-way assignments and filing fees, as applicable. The new operator or leaseholder must then submit to BOEM the lease bond or area-wide bond and right-of-way bond, as applicable. Next, the new operator must submit audited financial statements and a decommissioning cost estimate. The new operator then sends a letter to the BSEE's Oil Spill Preparedness Division certifying its capability to respond to a worst-case discharge or a substantial threat of such a discharge from its facilities. After a period of review, BOEM will approve the new operator.

For leases of privately owned lands, the requirements associated with transfer or assignment of exploration and production rights is dependent on the terms of oil and gas lease executed by the lessor and lessee.

3.10 Can security be taken over exploration and production rights?

Security can be taken over exploration and production rights. This is perfected through mortgages and deeds of trust taken on the leases granting such exploration and production rights. A mortgage or deed of trust permits the financing party to foreclose on the relevant properties if the company defaults on the mortgage or deed of trust.

3.11 What contractual or regulatory provisions apply with regard to cessation of exploration and production or abandonment of exploration and production rights?

With respect to an oil and gas lease, a lessee must be producing oil and gas at the end of the primary term of the lease in order to perpetuate the lease into the secondary term. However, many oil and gas leases have different saving clauses, which are provisions that extend the duration of the lease past the primary term even when there is no production. The law surrounding interpretation of these savings clauses varies state by state, but common provisions include the following:

  • Drilling operations clause: This clause extends the lease as long as the lessee is actively engaged in operations for drilling a well.
  • Shut-in clause: This clause typically provides that a lease may remain in effect whenever oil or gas is not being produced if a specified shut-in royalty is paid.
  • Dry-hole clause: This clause allows a lease to continue if the lessee drills a dry hole during a period when the lease would otherwise terminate.
  • Cessation of production clause: This clause perpetuates a lease for a certain period if a well ceases production during a period when the lease would otherwise terminate.
  • Force majeure clause: This clause allows a lessee to extend a lease that would otherwise terminate when the lessee is unable to produce oil or gas due to some reason beyond the lessee's control.

4 Surface rights

4.1 Does the law of your jurisdiction distinguish between exploration and production rights and surface rights? If so, how does an owner of exploration and production rights acquire surface rights?

In the United States, ownership of minerals, including oil and gas (the mineral estate), may be severed from ownership of the surface of the land (the surface estate). The grant or reservation of minerals by the fee owner effects a horizontal severance and the creation of two separate and distinct estates: an estate in the surface and an estate in the minerals. The 'surface estate' refers to ownership of the surface of the land, which generally includes:

  • dwellings;
  • buildings;
  • the right to cultivate crops; and
  • the ability to dig into the land to bury underground storage tanks, such as wells or septic systems.

The 'mineral estate' generally includes ownership of the minerals below the surface of the land, including oil and gas; although the specific language of the instrument effecting the severance may provide for a whole or partial conveyance of specific minerals.

In Texas and a majority of states, the courts generally follow the 'ownership in place' theory, meaning that the mineral owner owns all substances, including oil and gas, which underlie its land. By contrast, Oklahoma, Louisiana and California, as well as a minority of other states, have adopted the 'exclusive right to take' or 'non-ownership' theory of mineral ownership, meaning that no one has ownership rights in resources, and the right to explore for and extract mineral resources vests in the first person to obtain them.

The right to produce oil and gas is derived by entering into a lease with the mineral owner (please refer to question 3..1). In addition to the common law doctrines and statutory laws governing the rights of the parties, the state and federal regulatory requirements that apply generally to the development of oil and gas will also apply to the development of minerals on a severed estate. A surface owner cannot unilaterally impose additional conditions beyond those imposed by law; however, the surface owner and the mineral owner may enter into certain contractual arrangements to further protect their rights.

Prior to severance of the estate, surface owners can define the extent of the surface rights beyond what is provided for by the law in the conveyance affecting the mineral severance. For example, the parties may agree to the inclusion of 'no surface occupancy' provisions in a deed, which would essentially require the mineral owner and any lessee to use horizontal drilling from an off-site location to extract the minerals. The conveyance may also include:

  • surface damage and restoration requirements;
  • road location and maintenance provisions; and
  • limitations on the use of surface or subsurface water or the handling of wastewater and materials.

Another such contractual arrangement is a 'surface use agreement' between the surface owner and the mineral owner. When ownership is not severed, the surface owner is also the mineral rights owner and may seek protections for the surface when negotiating a lease with a lessee. However, in instances of severed ownership, the surface owner has no ownership of the minerals and as such does not have the right to negotiate a lease or restrict the activities of the mineral owner (beyond those restrictions imposed by law, as discussed above). In some states - such as Oklahoma and New Mexico - mineral owners and lessees are required by statute to enter into a surface use agreement before commencing production (as discussed above). However, in Texas, there is no such statutory protection, so mineral owners and lessees are under no obligation to enter into such an agreement, making surface use agreements a completely voluntary contractual arrangement. Thus, surface owners in Texas may not have much leverage to negotiate surface use agreements, other than the mineral owner/lessee's desire to have a good working relationship with the surface owner. Surface use agreements may include various provisions covering issues such as:

  • specific drilling sites;
  • surface restoration obligations;
  • hours of access for operations;
  • notice obligations;
  • damages for killing or injuring livestock or wildlife;
  • speed limits;
  • fencing or other barriers around well sites;
  • payment for use of water; and
  • limitations on the use of water.

4.2 Where surface rights are acquired, what are the operator's rights and obligations as regards the landowner? And what are the landowner's rights and obligations as regards the operator?

When there is severed ownership of the surface and the minerals, the mineral estate is generally considered the dominant estate, with the surface estate being servient to the mineral estate. The mineral owner has the right to use the surface to enforce and enjoy the mineral estate. However, although the mineral estate is the dominant estate, courts still limit the mineral owner's right to use the surface in order to protect the surface estate. Many US jurisdictions - including Texas, Oklahoma and Louisiana - protect the surface estate through common law and/or statutory law versions of the 'accommodation doctrine'.

With the accommodation doctrine, courts weigh the benefits and injuries to both the surface owner and the mineral owner to determine whether a particular use of the surface is consistent with the implied easement of surface use. The accommodation doctrine requires not only that a mineral owner's actions are reasonably necessary for the extraction of the mineral, but also that the right can be exercised without any substantial burden to the surface owner. Reasonably necessary activities generally include:

  • geophysical exploration;
  • drilling;
  • building roads;
  • installing machinery, storage tanks and pipelines; and
  • using water as is reasonably necessary to accomplish extraction of the minerals.

As a result of concurrent ownership, conflicts often arise between mineral owners and surface owners. However, as a general rule, the mineral owner is entitled to use the surface without liability for surface damage caused by its operations, as long as such use:

  • is reasonably necessary to extract the minerals (eg, the accommodation doctrine);
  • is not prevented by law, lease or contract; and
  • is not negligent.

4.3 Is there a process for the mandatory acquisition of surface rights? If so, what does this involve?

There is no mandatory acquisition of surface rights in the US. Instead most producers rely on the dominant estate theory which establishes the mineral estate as "dominant" over the surface estate and allows them to access and utilize surface locations within the applicable lands for development of the underlying minerals.4.4 Are any native title issues applicable?

In United States v Shoshone Tribe, the US Supreme Court held that when lands are reserved or otherwise set aside for tribes in executive order, treaties or agreements approved by Congress, the tribes hold the beneficial rights to the soil and the mineral interests under the lands. Therefore, on Indian trust lands, the tribes generally retain ownership of the surface and the minerals. Today, mineral leasing on tribal lands is governed by:

  • the Indian Mineral Leasing Act of 1938 (52 Stat 347; 25 USC 396a et seq) (IMLA);
  • the Indian Mineral Development Act of 1982 (25 USC Secs 2101-2108) (IMDA); and
  • tribal governments that regulate oil and gas development though tribal codes, ordinances, and constitutions.

The IMLA creates a set of leasing procedures on tribal lands, with all leases requiring tribal consent and approval from the secretary of the interior. They have a term of 10 years, which can be extended only if the minerals are producing in paying quantities. The IMLA also protects native lands by establishing a fiduciary duty between the federal government and Indian tribes, requiring that the secretary may approve lease sales only where they are "in the interest of the Indians". The IMDA expands on the IMLA by permitting Indian mineral owners to enter into mineral agreements that give them greater responsibility and flexibility in disposing of their mineral resources than was permitted by the IMLA. Federal agencies - including the Bureau of Land Management and the Bureau of Indian Affairs - also regulate tribal oil and gas development and protection of the tribal rights, including surface rights.

4.4 Are any native title issues applicable?

In United States v Shoshone Tribe, the US Supreme Court held that when lands are reserved or otherwise set aside for the tribes in executive order, treaties or agreements approved by Congress, the tribes held the beneficial rights to the soil and the mineral interests under the lands. Therefore, on Indian trust lands, the tribes generally retain ownership of the surface and the minerals. Today, mineral leasing on tribal lands is governed by:

  • the Indian Mineral Leasing Act of 1938 (52 Stat 347; 25 USC 396a et seq) (IMLA);
  • the Indian Mineral Development Act of 1982 (25 USC Secs 2101-2108) (IMDA); and
  • tribal governments that regulate oil and gas development though tribal codes, ordinances, and constitutions.

The IMLA creates a set of leasing procedures on tribal lands, with all leases requiring tribal consent and approval from the secretary of the interior. They have a term of 10 years, which can be extended only if the minerals are producing in paying quantities. The IMLA also protects native lands by establishing a fiduciary duty between the federal government and Indian tribes, requiring that the secretary may approve lease sales only where they are "in the interest of the Indians". The IMDA expands on the IMLA by permitting Indian mineral owners to enter into mineral agreements that give them greater responsibility and flexibility in disposing of their mineral resources than was permitted by the IMLA. Federal agencies - including the Bureau of Land Management and the Bureau of Indian Affairs - also regulate tribal oil and gas development and protection of the tribal rights, including surface rights.

4.5 Are any other rights needed to use the land (eg, zoning permissions or planning requirements)?

In addition to the applicable state or federal permits and permissions needed to develop oil and gas within the boundaries of a state or on federal lands, local county and municipalities may requirement additional permissions be obtained, such as road use bonds or noise ordinances. Due to the diversity of such county and municipal regimes, an operator must review carefully the local rules and regulations regarding the development of oil and gas in a particular area, such as any county or municipal rules or ordinances.

5 Processing, refining and export

5.1 What requirements and restrictions apply with regard to the processing and refining of oil and gas?

The United States has a robust regulatory regime governing the handling, processing and refining of hydrocarbons. While it is important also to consider state and municipal regulations when undertaking the refinement of hydrocarbons, beginning with the touchpoint of US federal laws and regulations is an important first step in understanding the overall regulatory regime that processors must comply with in any jurisdiction within the United States.

At the highest level, three legislative acts form the basis for regulatory oversight of hydrocarbon refining in the United States:

  • the Clean Air Act (1963);
  • the Clean Water Act (1972); and
  • the Safe Drinking Water Act (1974).

As amended over the years, the combination of the legislative measures provides environmental and safety rules that are implemented and monitored by federal agencies such as the Environmental Protection Agency (EPA) and the Federal Energy Regulatory Commission (FERC), an independent agency within the US Department of Energy (DOE).

In particular, the EPA sets certain ambient air quality standards on oil and gas processors aimed at restricting and reducing air pollution related to hydrocarbon refinement activities. Importantly, the EPA dictates appropriate pollution mitigation standards and measures and sets maximum legal pollutant emissions within the United States. Further, each state then promulgates its own air pollution regulations based on EPA standards, creating 'attainment areas' and 'non-attainment areas' based on the air quality standards measured within regions of the state.

5.2 What requirements and restrictions apply to the export of oil and gas?

Trade in natural gas from the United States is governed by the Natural Gas Act. The Natural Gas Act prohibits the import or export of natural gas, including liquefied natural gas (LNG), from or to a foreign country without the prior approval of the US DOE. As part of its decision-making process, the US DOE will consider, among other factors:

  • the interested suppliers and purchasers in the requested authorisation; and
  • the geographic markets served and the proposed length of the authorisation.

In addition to US DOE export authorisation and EPA/FERC oversight, LNG exported from the United States is subject to the Jones Act. The Jones Act is a collection of rules passed as part of the Merchant Marine Act of 1920 that impose restrictions on coastwise trade which, in short, require that US ships transport goods between US ports. Due to penalties which may be imposed by US Customs for violation of the Jones Act (including potential seizure of merchandise and vessels), LNG importers/exporters must carefully consider voyage routes that may involve a vessel calling at several US ports.

6 Transport and storage

6.1 What requirements and restrictions apply with regard to the transport and storage of oil and gas? Do these vary in the case of cross-border transportation?

The transportation and storage of oil and natural gas are regulated at both the federal and state levels. The interstate transportation of oil and natural gas is regulated by the Federal Energy Regulatory Commission (FERC) under the Interstate Commerce Act and the Natural Gas Act. Under these statutes, FERC has jurisdiction over the rates, terms and conditions of service. Under the Natural Gas Act, FERC also has jurisdiction over the siting and construction of pipeline, storage and related facilities used in the interstate transportation of natural gas. In contrast, there is no federal regulator for the siting and construction of oil pipelines, which instead is subject to state regulation through state public utility or transportation commissions, regardless of whether the pipeline crosses state lines. Similarly, natural gas and oil pipelines used for intrastate transportation are subject to regulation by individual states. For cross-border transportation from the United States to Canada or Mexico, a presidential permit is required, which is issued by FERC for natural gas pipelines and by the US Department of State for oil pipelines. Given the overlap of federal and state jurisdiction and the complex precedent on the jurisdictional status of transactions and facilities, parties planning to engage in the transportation or storage of natural gas and oil should carefully examine what regulatory requirements and restrictions apply.

6.2 What requirements and restrictions apply to the construction and operation of transport and storage infrastructure?

Please refer to question 6.1.

7 Environmental issues

7.1 What environmental authorisations are required to undertake oil and gas activities in your jurisdiction? Do these vary depending on the type or location of the activity?

In the United States, oil and gas activities are largely regulated from an environmental perspective at the state level. Even in situations where relevant environmental requirements stem from a federal law, the day-to-day administration and authorisation of these requirements is often carried out by a state agency under a state-delegated programme. For this reason, the types of environmental authorisations that are required to undertake oil and gas activities can vary from state to state; so it is important to confirm applicable requirements for each jurisdiction.

Generally, the types of environmental authorisations that are required for oil and gas activities are as follows:

  • permits to authorise and/or restrict air emissions, which are primarily required to be obtained and approved prior to the beginning of construction on a site;
  • permits to develop in a floodplain, as applicable;
  • pre-development environmental impact assessments, which may also include environmental, historical and archaeological resources;
  • species protection;
  • stormwater pollution prevention and spill, prevention, control and countermeasure plans;
  • waterbody or other wetlands authorisation, if applicable;
  • solid and/or hazardous waste storage and/or disposal authorisation, as applicable; and
  • hydraulic fracturing or other activity-specific permits, if applicable.

An important distinction is that oil and gas activities undertaken on federal lands or in offshore federal waters are largely authorised by federal agencies. These operations typically have an additional layer of federal requirements, including requirements to conduct lengthy and comprehensive environmental impact analyses before permits are received and operations may begin. These environmental analyses are typically coordinated across multiple federal agencies. If operations are also on tribal lands, there may be an additional layer of trial consultation or authorisation involved.

7.2 What environmental regulations or contractual obligations must the operator observe while oil and gas facilities are operational?

After construction and development, while oil and gas facilities are operational, the operator must observe an array of environmental requirements that cover:

  • air emissions;
  • water usage and discharges;
  • waste creation, storage and disposal;
  • spill prevention;
  • wildlife and species protection;
  • stormwater pollution prevention;
  • risk management;
  • biodiversity measures;
  • public safety;
  • pipeline transportation; and
  • various reporting and record-keeping requirements, including greenhouse gas emissions reporting.

The facility must operate within permit limits and representations, and reporting may be required for certain violations or unplanned events or incidents. In the event of a spill or release at a site, the operator will be responsible for reporting the incident, if required, and complying with clean-up standards. If conditions or operations are expected to change at a facility, the operator may be required to re-permit the facility prior to the change. Finally, an operator is also responsible for ensuring that contract workers and other service providers that are onsite or receive waste from the site comply with relevant environmental requirements, as the operator can retain ultimate responsibility for compliance based on ownership/responsibility for the site or generation of the waste at issue. Overall, these requirements may be a patchwork of federal, state and locally imposed laws and regulations, and can significantly vary from jurisdiction to jurisdiction. In addition, there may be contractual obligations with landowners or mineral interest owners associated with development of the surface land and natural resource.

7.3 What environmental regulations or contractual obligations must the operator observe in relation to decommissioning?

Following the conclusion of operations at an oil and gas facility, there are various decommissioning, reclamation and restoration obligations imposed on an operator. The extent of these requirements depends on whether the facility is on federal lands or offshore waters or state lands. On state lands, plugging, decommissioning and abandonment requirements will largely be set forth in state regulations that are carried out by state governments. The extent of these requirements and any authorisations that may be required can vary from jurisdiction to jurisdiction. On federal lands and offshore waters, these requirements will likely be carried out under federal regulations and by federal agencies, including the Bureau of Ocean Energy Management (BOEM) and the Bureau of Safety and Environmental Enforcement. In addition, for offshore waters, there are more prescriptive decommissioning requirements set forth in plans that are approved in the early stages of project development. Overall, decommissioning requirements are largely focused on safe and effective decommissioning of the well operations with the aim of:

  • preventing any long-term pollution associated with the abandoned well;
  • returning the landscape to its prior vegetated state; and
  • ensuring that there is an entity that can be financially responsible for the safe and effective decommissioning of the site on a long-term basis.

7.4 What are the potential consequences of breach of these requirements - both for the operator itself and for directors, managers and employees?

State and federal governments may bring administrative enforcement actions, civil claims or criminal claims for alleged violations of applicable environmental requirements. Furthermore, under some environmental statutes - including the federal Clean Air Act and the Clean Water Act and Resource Conservation and Recovery Act, as well as some state counterparts to these laws - citizens may also bring civil claims for alleged violations of statutory requirements. Enforcement actions typically involve monetary penalties and may involve enforcement settlements requiring injunctive actions as well as the performance of supplemental environmentally beneficial projects.

In addition, common law claims against onshore oil and gas operators can be brought by landowners or groups of landowners, and usually consist of some combination of the following torts:

  • negligence;
  • strict liability;
  • fraud;
  • trespass; and
  • nuisance.

Finally, in the event of contamination resulting from hazardous substances, claims for clean-up standards can be brought by the government or other responsible parties under the Comprehensive Environmental Response, Compensation, and Liability Act, also known as Superfund.

With respect to directors, managers and employees, courts have historically required some degree of direct participation or oversight to hold directors or officers personally liable for an environmental issue. When imposing direct liability, courts concentrate on assessing:

  • direct participation in environmental decision making;
  • inclusion of natural persons in the statutory definition of those potentially liable; and
  • intent to commit the statutory violation.

Finally, under the responsible corporate officer doctrine, directors and officers may be held strictly liable for violations of various environmental statutes, subject to certain additional showings required by courts.

7.5 Which national, provincial/state and/or local government regulatory bodies are responsible for enforcement of environmental obligations?

Environmental obligations are enforced by an array of federal, state and local regulators in the United States. These include:

  • environmental regulators (eg, the US Environmental Protection Agency and state counterparts);
  • natural resource regulators (eg, the Bureau of Land Management and state oil and gas or natural resource regulators);
  • wildlife regulators (eg, the US Fish and Wildlife Service and state counterparts);
  • the US Army Corps of Engineers; and
  • offshore regulators (eg, Bureau of Ocean Energy Management and the Bureau of Safety and Environmental Enforcement).

In addition, under some state regulatory schemes, health agencies oversee certain environmental-related programmes. Finally, local governments - including county and city governments - often have environmental-related ordinances and laws that can prescribe environmental obligations applicable to oil and gas operations. Outside of governmental authorities, under some environmental statutes - including the federal Clean Air Act, the Clean Water Act and the Resource Conservation and Recovery Act, as well as some state counterparts to these laws - citizens may also bring civil claims for alleged violations of statutory requirements.

7.6 What is the regulators' general approach in regulating the oil and gas sector from an environmental perspective?

Overall, the US regulators' ultimate objectives are:

  • to facilitate and achieve compliance with applicable environmental laws and regulations; and
  • to administer laws and regulations consistent with the stated objective(s) and within the authority provided by the relevant statute.

For most environmental statutes, the stated objective is ultimately the protection of human health and/or the environment. At a practical level, however, the approach to regulating the oil and gas sector can vary significantly among state and local jurisdictions. In some states, this can be attributable to a history of being 'business friendly' from a regulatory perspective. In addition, at the state and federal level, there can be significant variation between different elected administrations that carry out the executive branch (ie, regulatory agencies) of the government. Therefore, it is important to assess the state and/or local jurisdiction in which the oil and gas sector operates from a historical perspective as well as the status of the current executive administration at the federal and state levels.

8 Health and safety

8.1 What key health and safety requirements apply to oil and gas operators in your jurisdiction?

In the United States, health and safety requirements can be imposed at both the federal and state levels. These include requirements covering the health and safety of employees and contractors, as well as requirements aimed at ensuring the safety of the public outside oil and gas facility boundaries, including pipeline safety requirements.

At the federal level, the Occupational Safety and Health (OSH) Act protects the safety and health of workers involved in oil and gas operations (29 USC § 651 et seq). The general duty clause of the OSH Act requires employers to provide workers with a safe workplace that has no recognised hazards that cause or are likely to cause death or serious injury. Exposures to hazards present in the oil and gas well drilling, servicing, and storage industry are addressed in specific standards for general industry (29 CFR Part 1910). These include requirements for the following, among other things:

  • emergency planning;
  • safe practices;
  • environmental controls;
  • protective equipment and clothing;
  • fire protection; and
  • training.

In addition, the US Department of Transportation, including the Pipeline and Hazardous Materials Safety Administration (PHMSA), regulates safety associated with various forms of transportation used in the oil and gas industry, including transportation by oil and gas pipeline. Finally, certain environmental requirements - such as the Clean Air Act Risk Management Programme carried out by the US Environmental Protection Agency - are considered related to safety requirements and cover various oil and gas facilities. Many of these safety and environmental programmes have state counterparts, so additional requirements may be carried out at the state level, as well by state environmental, safety, health or oil and gas/natural resource agencies.

8.2 Which national, provincial/state and/or local regulatory bodies are responsible for enforcement of health and safety regulations or obligations? What reporting requirements apply with regard to oil and gas accidents in your jurisdiction?

Health and safety obligations are enforced by an array of federal, state and local regulators in the United States. These include:

  • safety regulators (eg, the US Occupational Safety and Health Administration (OSHA) and state counterparts);
  • transportation regulators (eg, the Department of Transportation and the PHMSA);
  • environmental regulators that oversee environmental regulatory programmes that may be related to safety programmes (eg, the US Environmental Protection Agency);
  • state health agencies; and
  • state oil and gas or natural resource agencies, which may also cover interstate pipeline safety.

At the federal level, OSHA implements standards under the OSH Act to protect the safety and health of workers involved in oil and gas operations (29 USC § 651 et seq). Many states have state counterpart laws to the OSH Act and state safety agencies that administer these laws; but most do not have a state safety programme and so federal OSHA primarily administers safety requirements in those states. In addition, many states have federally delegated pipeline safety programmes and oversee pipeline safety for interstate oil and gas pipelines. These requirements cover the design and construction of pipelines, as well as safe practices, training and emergency planning.

8.3 What are the potential consequences of breach of these requirements - both for the operator itself and for directors, managers and employees?

State and federal governments may bring administrative enforcement actions, civil claims or criminal claims for alleged violations of the safety requirements. Enforcement actions typically involve monetary penalties and often involve enforcement settlements requiring injunctive actions. Certain types of safety violations may also be referred to the US Department of Justice for criminal prosecution, which may be brought against individuals such as managers and directors. Finally, a breach of safety requirements could also result in common law tort claims brought by private parties.

8.4 What best practices in relation to health and safety should operators consider adopting in your jurisdiction?

Operators may consider assessing and sharing best practices by undertaking one or more of the following practices:

  • joining an industry association;
  • investing in substantial safety programmes;
  • undertaking analysis and understanding of the various health and safety requirements in the operating jurisdictions;
  • completing hazard evaluations at job sites and implementing proper safety control solutions;
  • developing and implementing safe practices and work standards, such as hazard communications; and
  • reviewing worker and contractor training programmes.

Many industry associations share best practices for health and safety with respect to oil and gas operations, including:

  • the American Petroleum Institute;
  • IPIECA;
  • the American Exploration Petroleum Council;
  • the Western Energy Alliance; and
  • the Interstate Oil and Gas Compact Commission.

Finally, regulators can offer guidance and educational opportunities on perceived best practices and expectations for compliance with applicable health and safety requirements. In the United States, it is common for industry and safety authorities such as first responders to coordinate in emergency preparedness and training, including in the oil and gas industry.

8.5 What is the regulators' general approach in regulating the oil and gas sector from a health and safety perspective?

Overall, safety regulators in the United States have an ultimate objective of facilitating and requiring compliance with applicable safety law(s). Some regulators may view part of their role as educational with respect to continuous improvement in safety and sharing best practices. Health and safety are generally perceived as priority subjects, and employers are considered responsible for bearing the obligation to protect the health and safety of workers involved in oil and gas operations.

9 Taxes and royalties

9.1 What national, provincial/state and/or local taxes, royalties and similar charges are levied on oil and gas operators in your jurisdiction? How are these calculated?

State and local jurisdictions impose taxes with respect to oil and gas production, which vary significantly by type of tax and tax rate depending on location, but generally include some combination of:

  • annual property taxes based on the value of property;
  • severance taxes based on the amount or value of oil and gas production;
  • sales and use taxes based on the purchase price of tangible property; and/or
  • state and local income or franchise taxes based on the net income or gross revenue of the operator.

Additionally, oil and gas operators that lease oil and gas development rights owned by a federal, state or local governmental entity generally will be subject to a royalty payable to such governmental entity based on the oil and gas produced under the lease.

Oil and gas operators and/or their direct and indirect owners are also subject to federal tax on their net income from oil and gas operations as determined under the federal income tax regime that generally applies to all taxpayers (with certain modifications that apply only to the oil and gas industry). Certain special rules apply to non-US persons that directly or indirectly hold oil and gas interests in the United States, including the imposition of a 15% federal withholding tax on the gross proceeds from a disposition of such interests under the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA).

9.2 Are any tax incentives available for oil and gas operators?

Oil and gas operators currently benefit from certain tax incentives under federal income tax law that are intended to encourage oil and gas production, including:

  • the use of 'percentage depletion' for oil and gas wells (which generally allows independent (ie, non-integrated) oil and gas producers to claim deductions based on the gross income from a well rather than the costs incurred with respect to such well); and
  • the current deduction for 'intangible drilling and development costs', which generally consist of expenditures made by an operator incident to and necessary for the drilling of wells and the preparation of wells for the production of oil and gas, including expenses for wages, fuel, drilling, repairs, hauling and supplies.

State and local governments may offer additional incentives to oil and gas producers, including:

  • discretionary property tax abatement for capital-intensive investments;
  • discretionary tax credits or cash grants for desirable jobs creation; and/or
  • various tax offsets or credits for underproducing wells, enhanced recovery projects and/or pollution control efforts.

9.3 What other strategies might oil and gas operators consider to mitigate their tax liabilities?

In order to mitigate their tax liabilities, oil and gas operators should carefully evaluate the manner in which they acquire and hold their oil and gas interests and conduct their operations, including:

  • the jurisdictions in which relevant entities are formed;
  • the federal, state and local tax classification of such entities; and
  • whether a particular acquisition will be treated as a purchase of equity interests or the underlying assets for tax purposes.

For capital-intensive investments, operators should investigate - early in the planning process, before finalising the project's location - potential state and local economic development tax incentives programmes that may be available.

When disposing of oil and gas interests, operators should consider whether to structure such disposition as an equity or asset sale for tax purposes. Taxes on capital gains attributable to the disposition of oil and gas properties may be deferred if such properties are or are deemed to be exchanged for real property in a transaction qualifying as a 'like-kind' exchange.

Special considerations apply to operators owned directly or indirectly by non-US persons, such as with respect to the FIRPTA withholding tax.

9.4 Have there been any significant changes to the taxation rates applicable to oil and gas operators in the last three years?

The current administration has proposed significant changes to the taxation of oil and gas operators, including the repeal of certain tax preferences currently enjoyed by the oil and gas industry. The most consequential preferences that would be repealed are:

  • the deduction for IDCs;
  • the use of percentage depletion for oil and gas wells; and
  • a tax credit for oil and gas produced from marginal wells.

The current administration has also proposed to:

  • reinstate and expand an excise tax on the production of crude oil and its byproducts, at double the historic rate; and
  • increase the federal corporate and individual income tax rates that generally are applicable to all taxpayers.

There are thousands of individual state and local taxing units in the United States, with constantly changing tax types, tax rates, exemptions and applicability. Oil and gas operators should remain informed of any such changes applicable to jurisdictions in which they operate.

10 Disputes

10.1 In which forums are oil and gas disputes typically heard in your jurisdiction?

In the United States, oil and gas disputes are often heard in state courts. If the dispute involves a specific tract or tracts of land, the suit is typically filed in the county where the land that is the subject of the dispute is located. In the United States, the following states see oil and gas disputes more regularly, in large part because they produce the most oil and gas:

  • Texas;
  • North Dakota;
  • New Mexico;
  • Oklahoma;
  • Colorado;
  • Alaska;
  • California;
  • Louisiana;
  • Wyoming;
  • Kansas;
  • Utah;
  • Arkansas;
  • Pennsylvania;
  • Ohio; and
  • West Virginia.

Oil and gas disputes can also be heard in federal court where the parties are diverse or another federal statute, such as the Class Action Fairness Act (CAFA), confers jurisdiction.

Royalty class actions are often filed in federal court under CAFA jurisdiction.

It is less common to see oil and gas cases involving federal question jurisdiction, as the causes of action that commonly arise in oil and gas disputes usually involve state law claims. Two exceptions to this general rule are:

  • certain cases involving offshore drilling, which may invoke federal question jurisdiction under the federal Outer Continental Shelf Lands Act; and
  • cases involving violations of the federal National Gas Act, which regulates the sale of natural gas in interstate commerce.

10.2 What issues do such disputes typically involve? How are they typically resolved?

Upstream disputes often involve breach of contract claims and commonly arise under oil and gas leases - such as for failure to properly pay royalty - and joint operating or joint development agreements between co-interest owners. In addition to breach of contract claims, other common allegations include:

  • failure by the operator to act as a reasonably prudent operator;
  • failure to properly explore and develop the leased land;
  • failure to properly market production;
  • failure to protect the lease against drainage; and
  • claims relating to surface or property damages.

Plaintiffs may also bring tort claims such as trespass, nuisance, unjust enrichment or fraud if they believe the defendants have acted in bad faith. Title disputes are also common in the oil and gas context.

Other disputes relate to responsibility for development costs, such as:

  • whether such costs are properly chargeable to joint working interest owners; and
  • the proper allocation of those costs among the relevant parties.

Midstream and downstream disputes also typically involve breach of contract claims. For example, disputes regarding delivery of products at designated locations or other issues related to the transportation of products commonly arise - particularly when there are delays, shortages or unexpected price fluctuations resulting in unanticipated losses or gains. Disputes in the midstream context also arise under long-term dedications in sales agreements.

Another category of cases are challenges to governmental regulations of the oil and gas industry. For example, some cases involve challenges to environmental regulations or the government's permitting schemes.

10.3 Have there been any recent cases of note?

Noteworthy oil and gas cases from recent years include the following:

  • Lightning Oil Co v Anadarko E&P Onshore, LLC (520 SW 3d 39 (Tex 2017)): The Texas Supreme Court found that Anadarko did not trespass by drilling through Lightning's mineral estate with the consent of surface owner on Lightning's tract to reach Anadarko's mineral estate beneath the adjacent tract. The court held that horizontal drilling permitted by a surface owner only constitutes subsurface trespass if the activity demonstrably interferes with the mineral owner's ability to develop its estate.
  • Louisiana v Biden (Cause 2:21-cv-00778; US District Court for the Western District of Louisiana): A federal judge preliminarily enjoined implementation of Biden's executive order pausing issuance of new oil and natural gas leases on public lands or offshore waters while the case is litigated. The judge found that the plaintiffs had made the requisite showing that Biden exceeded his powers and stated that the power to pause offshore leases "lies solely with Congress".
  • Blasi v Bruin E&P Partners (Docket 20200327; Supreme Court for North Dakota): The North Dakota Supreme Court opined on a certified question about whether leases held by the royalty-owner plaintiffs allowed oil and gas producers to deduct the cost of bringing oil to market from their royalty payments. The court ruled in favour of the producers, holding that the lease established that oil is valued at the point at which it comes out of the ground, meaning that post-production expenses may be deducted from royalties.

11 Trends and predictions

11.1 How would you describe the current oil and gas landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

In 2020, a significant downturn in the global oil and gas industry - attributable largely to the COVID-19 pandemic - led to elevated restructurings among oilfield operators and service providers. Independent producers as well as small-cap and mid-cap service providers were particularly affected by this downturn, due to often overleveraged positions and insufficient access to capital to meet continuing obligations. Across the board, exploration and production companies have reduced capital investments as compared to prior years.

In response to market risks, supermajors and other large companies have generally consolidated both geographically and by way of M&A activity. Exploration and production companies in this category have generally focused their operations from a more widely dispersed geographic presence to a few formations. The recent rise in prices has seen an increase in transactional activity as companies continue to shed non-core assets while looking to improve inventory.

12 Tips and traps

12.1 What are your top tips for oil and gas operators in your jurisdiction and what potential sticking points would you highlight?

Due to the complex interactions between state and federal law, as well as mixed private and sovereign ownership of mineral rights, it is important to find counsel experienced in oil and gas transactions in the relevant state(s) in which an operator wishes to engage in activities. It is also critical that an operator understands any ongoing permitting and reporting obligations in the relevant jurisdictions in which operations occur.

Operation of an oil and gas lease involves several traps for the unwary. Apart from those explicit obligations in a lease, many jurisdictions impose implied obligations at law. There is also a highly developed jurisprudence surrounding payment of royalty obligations, as well as whether a lease has been adequately maintained, and this often varies among the several states. Again, counsel expert in oil and gas transactions specifically are recommended to international operators unfamiliar with such matters in the United States.

Co-Authors:
Margaret Wittenmyer, Associate
Kimberly White, Senior Associate
Megan Young, Associate
Emil Barth, Partner
Bucky Brannen, Senior Associate
Jordan Hahn, Senior Associate
Taylor Lopez, Associate
Casey Polivka, Associate
Kyle Doherty, Associate

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.