Oil and Gas Implied Covenants for the 21st Century: The Next Steps in Evolution
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Oil and Gas Implied Covenants for the 21st Century: The Next Step in Evolution is the first book in over 75 years to be devoted to the implied covenants that courts apply to oil-and-gas and other natural-resource leases. Implied covenants, which apply to all oil-and-gas and other natural-resource leases that use a royalty structure, are hugely important. The United States has reclaimed its position as the world's largest natural-gas producer, it may soon again become the largest oil producer, and the oil-and-gas industry once again is rapidly growing. All this production comes from leased land. And the covenants are the basic body of law, an oilfield common law, developed to carry out the basic purpose of these leases.
Oil and Gas Implied Covenants features an extended treatment of the issue of greatest controversy in recent years: whether the lessee has to bear all costs of making oil or gas "marketable," or instead can deduct some of those costs from the landowner's interest. This book also focuses on the duty to drill additional zones or formations. This affects many shale and other unconventional reservoirs -- the main sources of the surge in oil and gas production over the last decade. Many of these leases are being held by older wells producing from conventional reservoirs. The implied duty to develop and explore should empower lessors to force drilling into the new, unconventional reservoirs, too. If prices begin to drop and lessees begin cutting back on drilling, this duty will end up being a major litigation weapon in the geographic areas into which production is expanding today.
On another issue that will be vitally important in the future but has received far too little recognition, the author surveys the law on environmental cleanup and restoration. It is the author's recommendation that lessor and lessee would be better served by treating these issues under a new contract-based implied duty to restore rather than the current treatment under the torts of negligence, nuisance, and trespass. The author also recommends that courts consider a new implied duty to disclose material facts and a new duty limiting costs deducted from the royalty share to actual, reasonable costs.
Finally, Oil and Gas Implied Covenants illustrates how covenants should apply to hard minerals and other natural resources leased on a royalty-structure basis. And it identifies the areas where implied covenants should be useful to parties in international arbitration and litigation. Thus it points to important new applications of this settled body of law.
John Burritt McArthur has been a trial lawyer handling complex commercial cases and many, many oil-and-gas cases for 31 years. A former Editor-in-Chief of the Texas Law Review and clerk to Judge Joseph Sneed on the Ninth Circuit Court of Appeals, he has been a partner in Houston's Susman Godfrey LLP and San Francisco's Hosie McArthur LLP. Today he runs a solo practice in which he tries and arbitrates complex commercial cases including many energy cases.
In addition to his J.D. from the University of Texas, Mr. McArthur has a B.A. from Brown University, an M.A. in economics from the University of Connecticut, an M.P.A. from Harvard's Kennedy School of Government, and a Ph.D from the Goldman School of Public Policy at the University of California in Berkeley.
Since beginning his practice in Houston in 1983, Mr. McArthur has represented parties from all sides of the industry: large producers like British Petroleum, Unocal, BHP, and TransAmerican Natural Gas Company, independent Hallador Petroleum Company, the large investor A.E. Investments, Inc., offshore drilling company Sonat Offshore, private royalty owners, and two of the largest producing states in the country, the States of Alaska and Louisiana. His oilfield cases span a wide variety of issues, including investment issues, royalty disputes, Joint Operating Agreement standards, natural gas deregulation, oil pricing and natural gas pricing, development and operational costs, pipeline issues, refining, and processing. Cases in which Mr. McArthur has been trial counsel include three of the largest energy cases tried to verdict over these decades. He has testified as an expert in a number of oil-and-gas cases and served as arbitrator in many energy cases.
Mr. McArthur is a Sponsoring member of the Institute for Energy Law; a member of the Rocky Mountain Mineral Law Institute; a Founder of the International Institute of Natural Resources, Energy and Environmental Law of Litigation Counsel of America; a member of the ABA's standing committee Section of Environment, Energy and Resources (SONREEL) and the Texas Bar's Oil, Gas, and Energy Resources law section; and a Member of the Multi-Million-Dollar Advocates Forum. He has long held an "av" rating from Martindale-Hubbell, and is a member of the Million-Dollar and Multi-Million-Dollar Advocates Forum. Mr. McArthur has published dozens of articles on legal issues, including on energy issues, arbitration, case management, and antitrust. He has also served as an expert in a number of energy cases.
"This well researched and well written book examines the origins and rationale for the widely recognized implied covenants, including: the covenant to drill a test well, the covenant to fully develop the lease; the covenant to further explore; the covenant to protect against drainage; and the covenant to market. The book also looks at the accommodation doctrine through the lens of another species of implied covenant.
For the oil and gas practitioner, this book is a good and enlightening read, and a great addition to an oil and gas library."
-- Institute for Energy Law, Energy Law Advisor Vol. 9 No. 2 (Click to view the full review)
"With his latest contribution to the field of oil and gas legal scholarship and commentary, John McArthur offers a superbly researched and written explication of an elusive and ever-evolving subject... McArthur assumes his rightful place among his peers as an acknowledged expert on the American oil and gas industry and its laws. His in-depth analysis of the law of implied covenants in oil and gas leases - its historical development, current status across multiple state court jurisdictions, and new applications as a result of game-changing scientific and technological industry advancements - not only constitutes a remarkable achievement and an essential desk reference, but the new gold standard for treatment of this immensely important subject."
--John P. Bowman, Partner, King & Spalding LLP
"Oil and Gas Implied Covenants in the Twenty-First Century: The Next Step in Evolution, is the most comprehensive review of the topic... It contains updated information that cannot be found in any other source. McArthur's book should be an essential and efficient reference for landowners; attorneys; petroleum landmen; industry managers and executives; academics; legislators; regulators; and judges."
--Rick Harper, former President, ARCO Gas
"As a lawyer who has practiced oil and gas law for over forty years, this is the book that I have always hoped for... Mr. McArthur's objective analysis and impeccable scholarship does a magnificent job of explaining, organizing and consolidating the existing law... this book is a must for all lawyers who deal with oil and gas leases, either in transactions or in litigation..."
--Dick Watt, Watt Beckworth Thompson & Henneman LLP; former Chair State Bar of Texas Section on Oil & Gas, Energy and Natural Resources
"As is always the case when John McArthur tackles a subject, he has produced a thoughtful, insightful work that provides a deep and broad survey of the current state of the law of implied covenants and a view of how the law may develop in the future. This book will benefit both the novice and the most experienced oil and gas practitioner."
--Jesse R. Pierce, Pierce & O'Neill, LLP