Common Contractual, Property, and Security Issues Associated With Production and Marketing Agreements
Many of the issues regarding the production and marketing of oil and gas can be resolved by simply ascertaining: who owns the oil or gas at any given moment. For example, when the oil and gas emerges from the ground, who owns it? What documents must we examine to answer this question? What can each party do with the oil and gas? Does the gas gatherer “own” the gas, or are they merely providing a “service” to move the gas from point A to point B? Does the gas processor “own” the gas, or are they merely providing a “service” to separate the liquefiable hydrocarbons from the gas and redeliver the components back to the owner? This basic “property” concept of ownership will often determine basic “contract” concepts, such as what body of law will apply to determine the rights of the parties to the production? Will Article 2 of the Uniform Commercial Code apply or “general” contract (non-Code) law? Can a security interest be created in the property interest? If so, how will the property interest be classified for Article 9 purposes?
The oil and gas industry presents a wonderful opportunity to explore the complexities of property law and contract law. As this article demonstrates, the best way to deal with these complexities, as with most areas of the law, is to ascertain the essence of each relationship and each transaction and then build from this foundation. Complex legal
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