Legal Definitions - nonownership theory

The nonownership theory is a legal principle, primarily applied in a minority of U.S. states, that defines the nature of rights to oil and natural gas located beneath the surface of land. Under this theory, an individual or entity that holds the mineral rights to a property does not actually own the oil and gas itself while it remains underground in its natural state. Instead, their right is limited to the exclusive privilege of exploring for, drilling, extracting, and ultimately taking possession of the oil and gas once it has been brought to the surface.

This concept is often likened to a "profit a prendre," which is a right to enter another person's land to take something of value from it, such as timber, minerals, or game. The key distinction from other legal theories is the absence of a present ownership interest in the minerals in situ (in their natural place) until they are physically captured and produced.

• Example 1: Severed Mineral Rights in a Land Sale

  Imagine a rancher in Wyoming, a state that follows the nonownership theory, decides to sell their vast ranch to a developer. However, the rancher wants to retain the rights to any oil or gas that might be discovered beneath the property. Under the nonownership theory, when the rancher sells the surface land but reserves the mineral rights, they do not "own" the oil and gas currently residing underground. Instead, they retain the exclusive legal right to explore for, drill wells, and extract any oil or gas found. Only when the oil or gas is brought to the surface and captured does the rancher (or their designated company) gain actual ownership of that specific quantity of petroleum.

• Example 2: Oil and Gas Lease Agreement

  Consider a landowner in Oklahoma, another nonownership state, who grants an oil and gas company a lease to explore for and produce hydrocarbons on their property. The lease agreement specifies the terms under which the company can operate. According to the nonownership theory, the oil company does not acquire ownership of the oil and gas reserves while they are still in the ground. The lease grants them the exclusive right to drill and extract. Their ownership interest in the oil and gas only vests once they successfully bring it to the surface and reduce it to possession, at which point they typically pay royalties to the landowner based on the value of the extracted resources.

• Example 3: Underground Migration of Oil

  Suppose an oil reservoir underlies two adjacent properties in Louisiana, a nonownership jurisdiction. A drilling operation on Property A causes some of the oil to migrate underground and flow towards Property B. Under the nonownership theory, the owner of Property B does not automatically gain ownership of the oil that has migrated beneath their land while it remains underground. The oil is still considered unowned until captured. If the owner of Property B drills a well and successfully extracts that migrated oil from their own property, only then do they acquire ownership of the oil they have produced. This illustrates the "rule of capture" where ownership is established by bringing the resource to the surface, not by its mere presence beneath one's land.