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Duties and Obligations Owed by an Operator to Nonoperators, Investors, and Other Interest Owners

Ernest E. Smith, Proceedings of 32nd Annual Rocky Mountain Mineral Law Institute (1986)

Ten years ago, indeed, even five years ago, one could safely say that the typical area of controversy over duties and obligations concerned the duties owed by a lessee to its lessor in developing the property, exploring the property, or protecting the property against drainage. To the extent that there were serious issues of the standard of conduct owed by a participant in some other type of oil and gas arrangement, they involved the duty owed by the holder of the executive right to owners of nonparticipating interests, such as royalty owners.1 Within the last few years, however, the focus has shifted dramatically. Whether as a result of the decline in oil and gas prices, concentration within the industry, the trend toward federal deregulation, or a combination of these or other factors, the most hotly contested issues of duties now concern the standard of conduct owed by an operator to other participants in a drilling venture, most commonly, of course, the nonoperators and investors in the project. This paper will examine the standard of conduct which the [12-5] nonoperators and other owners of interests in an operating unit can expector should be able to expectof the operator.