Oil

Generally, oil is a mixture of hydrocarbons existing in the liquid state in natural underground pools or reservoirs.  It is a slippery substance that does not mix with water.  It is a petroleum-based liquid and it falls under the general term petroleum product.  Gas is often found in association with oil.

Pursuant to 42 USCS § 6202 (3) the term “petroleum product” means crude oil, residual fuel oil, or any refined petroleum product (including any natural liquid and any natural gas liquid product).

Compared to other energy sources, oil is light in weight, easily transportable by a variety of means and can be readily processed and stored.  With the rise of motor vehicles, the demand for petroleum in the U.S. grew steadily.  The increasing demand for the oil and petroleum products was regulated by oil and gas law in the U.S.  Oil and gas law contains provisions relating to acquisition and ownership rights in oil and gas both under the soil before discovery and after its capture.  It also contains provisions governing the adjudication of oil and gas ownership rights.

However, oil because of its fugacious qualities is incapable of ownership.  And ownership in relation to oil generally belongs to the owner of the land in which it is found.  But, such ownership remains only so long as it remains underneath the land.  Once the landowner makes a grant of oil to another, it is only a grant of the oil that the grantee takes from the land[i].

Federal statutes govern the extraction of gas and oil from lands owned by the U.S.  Federal law also prohibits interstate transportation of oil which has been produced, transported, or withdrawn in violation of state law.  The regulations imposed on the U.S. oil industry by federal statutes aim at protecting the property owners and producers from the direct effects of physically wasteful production methods employed by others producing oil from the same reservoir.

In 1990, the Oil Pollution Act (OPA) was enacted in response to rising public concern following the largest oil spill in the U.S (Exxon Valdez Incident).  The OPA mainly aimed at improving the nation’s ability to prevent and respond to oil spills.  It also established a national Oil Spill Liability Trust Fund, to provide economic assistance in oil spill incidents.

The main features of OPA are:

  • it provides for the establishment of spill contingency plans for all areas of the U.S.;
  • it mandates the development of response plans for individual tank vessels and certain facilities; and
  • it provides requirements for spill removal equipment and periodic inspections.

 

The National Oil and Hazardous Substances Pollution Contingency Plan (NCP) is the spill contingency plan provided by OPA.  The NCP mainly adopts a three-tiered approach[ii]:

  • that the Federal government must direct all public and private response efforts for certain types of spill events;
  • that the area committees composed of federal, state, and local government officials must develop detailed location-specific area contingency plans; and
  • that the owners or operators of vessels and certain facilities who pose a serious threat to the environment must prepare their own facility response plans.

 

According to the provisions contained in OPA, the owner of a vessel or facility from which oil is discharged, or which poses a substantial threat of a discharge will be liable for:

  • the specified damages resulting from the discharged oil; and
  • the removal costs incurred in a manner consistent with the NCP.

 

However, if the owner of a vessel or facility can establish that the removal costs and damages resulting from an incident were caused solely by an act or omission by a third party, the third party will be held liable for such costs and damages.

[i] Cont’l Res. of Ill., Inc. v. Ill. Methane, LLC, 364 Ill. App. 3d 691 (Ill. App. Ct. 5th Dist. 2006).

[ii] http://www.epa.gov/oem/content/lawsregs/ncpover.htm.


Inside Oil