2021 ] CARBON CAPTURE , UTILIZATION , AND SEQUESTRATION 61
B . Legal Distinctions between EOR and Sequestration Projects
The primary difference between the two types of projects is that the EOR operations inherently entail the injection of CO 2 to enhance the extraction of native mineral substances from the subject property , while sequestration operations are limited to the permanent injection of CO 2 into the reservoir selected for storage . Extraction of native mineral substances will require the operator to obtain the right to extract mineral substances from the mineral owner , either in the form of an oil and gas lease or an outright purchase of the mineral estate . Practically speaking , CO 2 EOR almost always takes place in fields with existing production and leases . 80 For this reason , an oil and gas lease is required to conduct EOR operations . As a lessee under an oil and gas lease , the injecting party will have obligations under implied covenants that are owed to its lessor as well as an obligation to compensate the mineral owner for its share of the produced mineral substances .
One unique consideration with respect to mineral owners conducting EOR operations is the payment of royalties . Within this context , there are two principal issues to consider : ( 1 ) whether the mineral owner is entitled to the payment of royalties on injected substances ( rather than native substances ) and ( 2 ) the calculation of royalty payments on produced EOR volumes . On the first issue , many courts , including the Texas Supreme Court , recognize extraneous ( e . g ., non-native ) gas as personal property once it has been severed from the realty ( e . g ., after it is initially produced prior to injection ). 81 In these jurisdictions , the injecting party will retain ownership of extraneous gas that is injected into a reservoir and typically will not owe a mineral lessor a royalty on such injected gas . 82 This principle regarding the retention of ownership of injected gas has also generally been applied in the storage and sequestration context . 83 With respect to the calculation of royalty payments on produced native mineral substances after injection of CO 2 , the Texas Supreme Court has recognized that “ royalty owners and working interest owners are , of course , free to agree on what royalty is due , the basis on which it is to be calculated , and how expenses are to be allocated .” 84 As such , the applicable oil and gas lease will govern the payment of royalties on produced native mineral substances in the context of EOR operations and should be tailored to account for EOR operations .
80 . Durrant , supra note 72 , at 4 . 81 . Humble Oil & Ref . Co . v . West , 508 S . W . 2d 812 , 817 ( Tex . 1974 ) ( citing Lone Star Gas Co . v .
Murchison , 353 S . W . 2d 870 ( Tex . App .— Dallas 1962 , writ ref ’ d n . r . e )). 82 . Id . 83 . Id . Note : This common law ownership theory may be changed by the local jurisdiction ’ s sequestration statutes . At least one state ’ s regulations governing sequestration provides that the ownership rights to sequestered CO 2 transfers to the state upon 10 years after the completion of operations . See LA .
STAT . ANN . § 30:1109 ( 2019 ). 84 . French v . Occidental Permian Ltd ., 440 S . W . 3d 1 , 8 ( Tex . 2014 ).