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Common Contractual, Property, and Security Issues Associated With Production and Marketing Agreements

David E. Pierce, Oil & Gas Agreements: Midstream and Marketing

The development, production, and marketing of oil and gas are accomplished through a series of commonly encountered contracts that create myriad property interests and contractual relationships. During the exploration and development phase the primary focus is on identifying property rights in the oil and gas mineral estate and ensuring the necessary rights are brought under the developer's control through an oil and gas lease. Pooling agreements and unitization agreements may impact the underlying ownership in a pooled or unitized area. Multiple owners of leasehold interests may enter into operating agreements to coordinate development of leased land. New property interests may be created in the leasehold estate through assignments. Development rights in oil and gas leases may change hands through assignment or farmout agreements. Division orders may further define the rights of the parties to their interests in production. The one common attribute of all these agreements, in the development context, is they seek to define the development rights-the oil and gas property interests-of each party involved in the development process.

The major non-ownership relationship at the development phase is the drilling contract. The drilling contract is designed to allocate the risks of exploring for oil and gas between the drilling contractor and the developer. The developer freq