The marketable-product rule is a method used to determine royalties for oil and gas. According to this rule, production occurs when the oil or gas is extracted, stored, and prepared for sale. The company responsible for drilling must cover all expenses associated with extracting the oil or gas until it reaches a state where it can be sold. This differs from the capture-and-hold rule, which considers production to occur as soon as the oil or gas is captured, regardless of its readiness for sale.
The marketable-product rule is a doctrine utilised in the oil and gas industry to determine the timing of production for royalty calculation. According to this rule, production occurs when oil or gas is extracted, stored, and processed into a marketable product. Prior to the production of a marketable product, the lessee is accountable for all expenses related to capturing and handling oil and gas. For instance, if an oil company extracts crude oil but has not yet processed it into a usable product, it does not meet the criteria for production under the marketable-product rule. The lessee is responsible for the costs of capturing and handling the crude oil until it is processed into a marketable product, such as gasoline or diesel fuel. Similarly, if a natural gas company extracts gas but has not yet processed and transported it to customers, it does not meet the criteria for production under the marketable-product rule. The lessee must bear the costs of capturing and handling the gas until it is processed and transported to customers. The marketable-product rule ensures that the lessee bears the costs of capturing and handling oil and gas until it is processed into a marketable product, thereby ensuring fair compensation for the lessor for the use of their resources.
The Marketable-Product Rule is a legal principle that allows a property owner to extinguish certain restrictions on the use of their property after a specific period of time.
Under this rule, restrictions or covenants that were imposed on a property become unenforceable if they have not been enforced or reaffirmed within a certain time frame, typically ranging from 20 to 30 years.
The rule applies to various types of restrictions, such as easements, covenants, and other encumbrances that limit the use or transferability of a property.
No, the rule does not apply to certain types of restrictions, such as government regulations, public rights-of-way, or restrictions related to public health and safety.
Consulting with a real estate attorney or conducting a title search can help determine if the Marketable-Product Rule applies to your property and if any restrictions can be extinguished.
No, the rule requires a specific period of time to pass before restrictions can be extinguished. This time period varies depending on the jurisdiction and the specific circumstances.
In some cases, yes. If the property has been owned for a sufficient period of time and the restrictions have not been enforced or reaffirmed, the rule may apply.
The applicability of the rule to properties within an HOA can vary. It is important to review the specific HOA bylaws and consult with an attorney to determine if the rule can be invoked.
Yes, the rule can apply to both residential and commercial properties, as long as the necessary conditions are met.
Yes, there may be exceptions or limitations to the rule depending on the jurisdiction and specific circumstances. It is advisable to consult with a qualified attorney to understand the applicability of the rule in your situation.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 16th April 2024.
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