Rock beats Scissors - Mineral beats Surface.
Every petroleum landman should be very familiar with the minerals being the dominate estate in the United States over the surface. Since mineral rights are considered real property, mineral owners have the full right of enjoyment of them. Without access to capture them they would be “landlocked” so to speak, which is against the law of the land. Therefore, you must have full access to have full enjoyment of your property and the surface owner must take a “back seat” and let this happen. Although, with this right comes responsibilities to protect the value and usage of the surface.
Surface owners cannot prevent the drilling of wells without a court’s intervention, unless the surface rights fall under a jurisdiction that prevents the drilling of wells. For example, within a pre-planned or approved subdivision within city limits. Even though the surface use could be restricted, one can capture oil from drilling underneath the surface from another surface location by either directionally or horizontally drilling the well.
Surface Easements
In real estate, if you are landlocked, you can obtain an easement to enter your property. An easement is a legal provision giving the owner of a landlocked property the right to cross someone else's land. An informal agreement among neighbors does not constitute an easement because it lasts only as long as the neighbors remain on good terms, and both own the property. The most secure easements are written into the deeds of both the landlocked property and the property used for access. Even though mineral owners have the right to enter the property (right of ingress and egress) it is best to have something in writing, such as the thought of in a prescriptive easement, that passes with the land.
Except in narrow circumstances, the severed surface owner does not have the right to participate in or control the development of the minerals underneath the property. Still, many oil and natural gas leases today contain provisions expressly providing for compensation or other benefits to the owner surface estate.
Lessees will often agree to voluntarily compensate the surface owner for surface impacts. In addition, leases commonly restrict drilling within certain distance of structures and contain provisions on the use of water for developing the minerals.
Texas courts, for example, have long held that the mineral estate is the dominant estate, and that the mineral owner, or the owner’s lessee, has an implied easement to use the surface in a manner that is reasonably necessary to develop the minerals.
Limitations of Surface Use
However, there are some limitations to the mineral owner’s use of the surface. The most significant restriction is the judicial accommodation doctrine, which requires the mineral owner to accommodate existing surface uses such as ranching or agricultural operations as is reasonably practicable. Contractual agreements, deed restrictions and statutes may also provide protection to surface owners.
As the oil and gas development increases across many states, many surface owners are surprised at the rights that mineral lessees (usually oil or gas companies) must use the surface of the land without any input, consent, or permission of the surface owner. It is critical for all landowners, but for those surface owners who do not own the mineral rights underlying their property, to understand the implied rights of mineral lessees. (For purposes of simplicity and clarity, the “mineral lessee” will be referred to as the “oil company.”)
Generally, a mineral estate and a surface estate are two separate legal interests which may be severed. This means that one person may own the surface estate, and another own the mineral estate underlying the land. This occurs most frequently when a landowner sells the surface estate to another but reserves the mineral estate. If the mineral estate is not expressly reserved, it passes to the buyer during the sale. As between the mineral estate and surface estate, the mineral estate is the dominant estate. This means that the surface estate exists for the benefit of the mineral owner and grants various rights to the mineral owner.
Reasonably Necessary Surface Use
When an oil or gas company leases the mineral rights from a mineral owner, that company essentially stands in the shoes of the mineral owner. Thus, it has the right to use the surface estate. States like Texas, for example, this right allows that oil company to use as much of the surface estate as is “reasonably necessary” for mineral exploration and production. This right is implied in the mineral lease and requires no permission or consent from the surface owner.
What constitutes “reasonably necessary” uses? Some examples include entering the property, building roads, using caliche found on the leased property, installing pipelines to transport products from the lease, storing of equipment, and injecting saltwater in disposal wells. Further, absent contractual provisions to the contrary, an oil company can select the locations of wells and pipelines to be place on the property without input from the surface owner.
Damages to the Surface Estate
So, what happens if an oil company damages the surface estate? Can the surface owner sue the oil company? A surface owner’s rights are limited. The oil company is not liable for damages unless the surface owner can prove one of the following: (1) the oil company went beyond what was “reasonably necessary” for exploration and production; (2) the company violated the accommodation doctrine; or (3) the company caused injuries due to its negligence.
Reasonably Necessary: Unreasonable or excessive use of the property will result in liability for the oil company. For example, if an oil company created a larger drill pad than necessary, it might be found to have acted unreasonably. Further, an oil company’s use of the surface of one leased property to benefit land other than the leased premises is unreasonable.
Accommodation Doctrine: This doctrine requires the oil company to accommodate the surface uses of the property were reasonably possible. In order for a surface owner to claim that a lessee failed to accommodate an existing use of the surface, he must prove that: (1) The mineral owner’s actions “precludes or substantially impairs the existing use”; (2) “There is no reasonable alternative method available to the surface owner by which the existing use can be continued”; and (3) There are reasonable alternatives available to the mineral lessee that will allow the discovery of minerals while also allowing the surface owner to continue his existing uses. A prior blog post discussed a recent accommodation doctrine case involving a Texas rancher against an oil company.
Negligence: Some courts have refused to find negligence in numerous cases involving damage to the surface owner caused by an oil company. For example, courts have found that the failure to restore the surface at the end of drilling, the failure to prevent livestock from entering the drilling area, and the draining of groundwater previously used for domestic use do not constitute negligence for which the oil company can be held liable. Negligence has been found, however, in situations where an oil company polluted groundwater, caused subsidence, and disposed of salt water in an unlined pit.
To learn more about the relationship between mineral and surface issues, visit our website at www.InstituteOfEnergyManagement.com.
View our course catalog and click on the Surface Use and Damage – Critical Issues.