Who regulates oil and gas production in the State of Kansas?
The Kansas Corporation Commission (KCC), Oil and Gas Conservation Division regulates oil and gas exploration and production activities in Kansas. The KCC also maintains publicly available records of oil and gas operations in Kansas that can be accessed via its website or through Kansas Open Records Act requests.
What is an oil and gas operator?
An oil and gas operator is an individual or business entity licensed with the KCC to operate oil and gas wells, gas gathering systems, or underground natural gas storage facilities in Kansas. Operators commonly obtain oil and gas leases for purposes of oil and gas exploration and development.
What is an oil and gas lease?
An oil and gas lease is a legal agreement that grants an oil and gas operator a license to explore and extract minerals from beneath the leased acreage. A lease must be granted by the owners of the minerals under the surface, which in some instances differs from the surface owner. While an oil and gas lease is not a possessory interest in the leased acreage, it does allow the operator to enter onto the land to conduct exploration and production activities. An oil and gas lease can be customized to ensure various protections for both the mineral and/or surface owners and the operator, including the exclusive right to explore during the term of the lease.
How long does an oil and gas lease remain in effect?
An oil and gas lease will include a provision detailing the primary term of the lease, generally 1-3 years. If production is obtained from the leased acreage during the primary term, or in some instances if drilling and exploration operations begin before the primary term ends, the lease will extend beyond the primary term into a secondary term that continues for so long as drilling and exploration operations continue or production continues in “paying quantities.” In general, the paying quantities requirement only perpetuates the lease if production is in an amount sufficient to generate a profit for the operator over the costs of operating the lease.
What are mineral interest owners paid for granting an oil and gas lease?
Mineral interest owners have the right to explore and produce minerals from the lands under which their minerals lie. Operators pay mineral interest owners a “bonus” at the time the lease is granted. The amount of the bonus is usually determined on a per acre basis, and compensates the mineral interest owners for allowing the operator to explore the leased acreage. The bonus amount can differ significantly across the State of Kansas. If and when production of oil or gas is obtained from the leased acreage, the mineral interest owners are paid a “royalty”, expressed as a fraction or percentage of the proceeds from the sale of minerals produced without any deduction for the costs of producing the minerals. In the case of gas production where no ready market exists, the operator may pay the mineral interest owners a “shut-in royalty” in an amount provided by the lease until a market can be established, the gas sold, and a royalty paid.
How can I determine who owns the minerals under a particular parcel of land?
Whether or not the surface owner also owns the minerals can be determined by examination of public records in the office of the Register of Deeds in the county where the land is located. You should consult an attorney experienced in title examination or a land professional for further guidance on this topic.
What is a working interest?
A working interest is an ownership interest in an oil and gas lease. A working interest owner shares in the costs of exploring and producing the oil and gas from the leased acreage, and in the revenues from the sale of such oil and gas.
What is an overriding royalty interest?
An overriding royalty interest is a revenue interest in an oil and gas lease. The owner of an overriding royalty interest earns a fraction or percentage of the revenue from the sale of oil and gas from the lease, but does not share in the costs of exploring and producing the oil and gas from the leased acreage. An overriding royalty interest reduces the amount of revenue available to working interest owners.
About the Author
Jon Schlatter’s oil and gas practice encompasses industry transactions, title examination and preparation of curative documents, and related litigation. Mr. Schlatter appreciates the nuances of the oil and gas industry and enjoys the unique challenges they present. If you have specific questions regarding oil and gas law feel free to contact Mr. Schlatter or one of the many other experienced oil and gas attorneys at Morris Laing.