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Understanding the Capture-and-Hold Rule [Oil and Gas Law]: Key Insights
Definition & Meaning
The capture-and-hold rule is a principle in oil and gas law that determines when production is considered to have occurred for royalty calculations. Under this rule, production takes place when oil or gas is extracted from the ground and stored, either at the wellhead or in another location on the leased property. This principle is essential for determining the rights of landowners and operators regarding royalties from extracted resources.
Table of content
Legal Use & context
This rule is primarily used in the context of oil and gas leases, which are agreements between landowners and companies that extract natural resources. It is relevant in legal practices related to property law, contract law, and energy law. Understanding the capture-and-hold rule is crucial for landowners to ensure they receive fair compensation for the resources extracted from their land. Users can manage related legal documents using templates available from US Legal Forms, which are drafted by experienced attorneys.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
For instance, if a company drills a well and successfully extracts oil, the moment the oil is stored on-site, it is considered produced under the capture-and-hold rule. This triggers the obligation to pay royalties to the landowner based on the quantity of oil stored.
(Hypothetical example) If a gas company extracts natural gas and stores it in a tank on the leased property, the production is recognized at that moment, establishing the basis for royalty payments.
State-by-state differences
Examples of state differences (not exhaustive):
State
Key Differences
Texas
Strong enforcement of the capture-and-hold rule in royalty calculations.
California
Additional regulations regarding environmental impact may affect extraction practices.
Oklahoma
Specific statutes may outline different royalty percentages based on the capture-and-hold rule.
This is not a complete list. State laws vary, and users should consult local rules for specific guidance.
Comparison with related terms
Term
Definition
Key Differences
Doctrine of Capture
The right of a landowner to extract resources from their property.
Focuses on the right to extract rather than the timing of production for royalty purposes.
Royalty Interest
A landowner's right to receive a portion of the revenue from extracted resources.
Royalty interest is the financial benefit, while the capture-and-hold rule determines when production occurs.
Common misunderstandings
What to do if this term applies to you
If you are a landowner or operator involved in oil and gas production, it is essential to understand your rights and obligations under the capture-and-hold rule. Consider reviewing your lease agreements and consulting with a legal professional to ensure you receive fair royalties. You can also explore US Legal Forms' templates for relevant legal documents to help manage your situation effectively.
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