Oil and gas law in the United States

In the U.S., extraction of oil and gas is generally regulated by the individual states through statutes and common law.

State law often limits the rule of capture to protect correlative rights of neighboring owners.

[2] Government agencies and state oil and gas conservation commissions, such as the Texas Railroad Commission, have developed conservation laws which regulate extraction by individual owners to protect the rights of the mineral owners and to prevent economic and physical waste.

Once severed from surface ownership, oil and gas rights may be bought, sold, or transferred, like other real estate property.

[4] Extracted oil and gas which are subsequently stored in underground reservoirs are considered as personal property, rather than as an interest in real estate.

Major points in a lease include the description of the property, the term (duration), and the payments to the lessor.

A lease remains in effect for a certain period of time, called the primary term, as long as the lessee pays the annual rental.

[8] The habendum clause sets out these terms, as well as most significantly, identifying the parties to the transaction and their interests in the conveyed real property.

Such agreement relieves the lessee from liability for breach, if the party's performance is impeded as the result of a natural cause that could not have been anticipated or prevented.

The royalty is a portion of the gross value of any oil or gas produced from the lease that is paid to the mineral owner.

Whether or not the operator can deduct costs of treating, transporting, or marketing the oil and gas, if not specified in the lease, has been a matter of legal dispute.

The traditional royalty rate for oil and gas in the United States was one-eighth (12.5 percent), although today it is often higher.

Some states, such as Pennsylvania and West Virginia, have set the legal minimum royalty for private oil and gas leases to one-eighth.

For instance, a statute may void an agreement to indemnify a construction worker as to liability for death or bodily injury incurred on an oil well, regardless of the indemnitee's negligence, without affecting the validity of an insurance contract.

In such cases, the various interests sign a Joint Operating Agreement, a contract entered into by two or more ownership or leasehold co-tenants to jointly explore and develop the oil and gas property, including operations, voting mechanisms, subsequent operations, risk-sharing, indemnities and exculpatory provisions, revenue allocation, title examination and title issues, and future acquisitions and divestitures in the contract area.

Last, oil and gas attorneys work for federal and state governments that oversee energy and environmental policy and land acquisitions.

The names and organizational structures of the state agencies overseeing oil and gas extraction vary.

The key legal issue is generally whether, or to what extent, state regulations preempt local controls.

In 2023, a recent law in California banning new drilling in certain places including homes, schools, and healthcare facilities gathered enough signatures to put a referendum, filed on behalf of a board member of the California Independent Petroleum Association, on the 2024 general election ballot.

Requirements to receive drilling permits generally include minimum setbacks from lease or unit boundaries, and adequate casing and cementing programs.

States generally require permits for or notices of major work done on a well, and periodic reports of oil and gas produced.