Legal Definitions - ownership-in-place theory

The ownership-in-place theory is a legal principle primarily applied to oil and gas rights in certain jurisdictions, particularly in the United States. Under this theory, a landowner or the owner of mineral rights is considered to have actual ownership of the oil and gas resources that are physically located beneath their property. This ownership grants them the right to possess these resources while they remain in place, as well as the right to use the surface of the land to explore for, develop, and extract these minerals.

However, this ownership is not absolute over individual molecules once they move. A crucial aspect of this theory is that if the oil or gas naturally migrates or is drawn away from beneath their property and flows to an adjacent property, the original owner's claim to those specific resources terminates. The new owner, under whose land the resources now reside, gains ownership upon capture, a concept often referred to as the "rule of capture."

Here are some examples illustrating the ownership-in-place theory:

• Example 1: Drilling on Your Own Land

  Imagine Maria owns a large ranch in West Texas, and geological surveys indicate a significant oil reservoir beneath her property. Under the ownership-in-place theory, Maria is considered the owner of the oil and gas *as long as it remains under her land*. She has the legal right to drill wells on her ranch to extract these resources.

  How it illustrates the term: When Maria successfully drills a well and begins producing oil, she is exercising her right to capture the oil she legally owns *in place*. The theory grants her the right to possess and extract the resources that are physically beneath her property boundaries.

• Example 2: Drainage by a Neighbor's Well

  Consider Maria's neighbor, David, who owns an adjacent property overlying the same oil reservoir. David drills a highly productive well on his land. Due to the natural pressure and flow of underground fluids, David's well begins to draw oil from *underneath Maria's land* towards his wellbore.

  How it illustrates the term: Even though Maria initially "owned" that oil when it was under her property, once it migrates across the subsurface boundary and is captured by David's well, Maria loses her ownership claim to those specific molecules. The ownership-in-place theory dictates that her interest in that oil terminates once it is no longer "in place" beneath her land, and David gains ownership upon its capture.

• Example 3: Severed Mineral Rights

  A large energy company, "Apex Energy," owns the mineral rights beneath Farmer Ben's land, while Farmer Ben owns only the surface estate. Apex Energy plans to drill for natural gas.

  How it illustrates the term: Under the ownership-in-place theory, Apex Energy, as the owner of the severed mineral estate, is considered to own the natural gas *in place* beneath Farmer Ben's farm. This gives Apex Energy the legal right to access the surface (with reasonable accommodation to Farmer Ben) to drill wells and extract the gas. If Apex Energy drills a well and captures gas that was previously under Farmer Ben's land, they are exercising their ownership rights. However, if a neighboring company's well drains gas from under Farmer Ben's land before Apex Energy can capture it, Apex Energy would lose its claim to that specific gas, as it is no longer "in place" under their owned mineral estate.