Legal Definitions - capture-and-hold rule

The capture-and-hold rule is a doctrine used in the oil and gas industry to determine when production occurs for royalty-calculation purposes. According to this rule, production happens when oil or gas is extracted from the ground and stored, whether it is stored at the wellhead or elsewhere on the leased property.

For example, if an oil company extracts oil from a well and stores it in a tank on the leased property, the production is considered to have occurred under the capture-and-hold rule. Similarly, if natural gas is extracted and stored in a pipeline on the leased property, it is also considered production under this rule.

The capture-and-hold rule is different from the marketable-product rule, which considers production to occur only when the oil or gas is sold or otherwise transferred to a third party. The capture-and-hold rule is used to determine royalty payments to the landowner, while the marketable-product rule is used to determine when the oil or gas company must pay taxes on the extracted resources.