Surface Owners Beware!

**This article is not a substitute for the advice of an attorney.**

As the oil and gas boom continues across Texas, many surface owners are surprised at the rights that mineral lessees (usually oil or gas companies) have to use the surface of the land without any input, consent, or permission of the surface owner.  It is critical for all landowners, but in particular 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.”)

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Mineral Estate v. Surface Estate

Under Texas law, 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.

Mineral Lessee’s Implied Right to Use the Surface Estate

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.  Under Texas law, 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.

Mineral Lessee’s Use of Groundwater

When the mineral estate and the surface estate are severed and belong to two different owners, who owns the groundwater?  The surface owner or the mineral owner?

Many landowners are surprised to know that groundwater is considered part of the surface estate, and not part of the mineral estate.  Under Texas law, unless specified otherwise, the mineral estate consists only of oil, gas, uranium, sulfur and salt.  Groundwater is part of the surface estate, even though it is located below the surface.  Because of this, like the other portions of the surface estate, an oil company can use that amount of groundwater “reasonably necessary” to explore and produce minerals on the land.  Generally, groundwater used for the exploration or drilling of oil does not require the oil company to obtain a permit from the local groundwater conservation district.  Water used for production generally does fall within groundwater conservation district jurisdiction and requires a permit.  Groundwater conservation districts in Texas are divided on their approach to applying this rule to water wells drilled for fracking.  Some districts consider fracking to be production, thereby requiring a permit.  Other districts consider fracking to fall within the exemption for exploration or drilling and require no permit.

Liability for 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 where 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.  To read that, click here.

Negligence:  Texas 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 into 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.

What Can Surface Owners Do To Protect Themselves?

The best option for a surface owner to protect himself is to be involved in the negotiations of the mineral lease  When the surface owner and mineral owner are the same person, it is easier to ensure that these terms are raised with the oil company.  When the surface and minerals are owned by separate parties, however, these provisions may be overlooked by a mineral owner.  It is important for a surface owner to seek to be involved in lease negotiations and to negotiate protections into a lease.  This involvement is usually sought by reaching an agreement with the mineral owner that will allow for surface owner involvement in negotiations or an agreement that the mineral owner will require certain terms be include in all mineral leases.  For example, a mineral lease could require that a surface owner and the mineral lessee mutually agree on the location of any wells or other drilling activities.  A mineral lease could also require that at the conclusion of drilling, the surface estate must be placed back into the same condition that it was prior to drilling being commenced.  A third option would be to include a liquidated damage clause in the lease that would require the oil company to pay a set amount at the beginning of the lease to cover surface damages.

Another option is for a surface owner to work with the oil company leasing the minerals.  Even though they are not required to do so, many oil companies will attempt to be neighborly and work with the surface owner to avoid conflicts.  A surface owner may also seek an agreement as to surface-use with the oil company that leased the minerals.  The oil company, however, is under no obligation to enter into this type of agreement.

A third option may be for a surface owner to purchase all, or a portion of the undivided mineral estate underlying his land.  If the surface owner becomes a mineral owner, this may allow him to have some input into the negotiation of mineral leases.

Finally, surface owners that reside in subdivisions or municipalities may be able to rely upon ordinances or deed restrictions issued by the subdivision or municipality to obtain some protection.

More Information

For more information on these issues, I recommend the following publications:

Judon Fambrough’s Real Estate Center publication titled “Minerals, Surface Rights and Royalty Payments” that can be found here.

The Texas Railroad Commission paper titled, “Oil & Gas Exploration and Surface Ownership” available here.

A blog post by Texas attorney Eric Camp titled “Limitations on the Mineral Estate’s Use of the Surface” can be found here.

 

 *ADDITIONAL DISCLAIMER:  This blog focuses solely on Texas law.  For those readers from other states, the law in your jurisdiction may differ.  It is important that you consult an attorney licensed in your state before entering into any mineral lease.

15 Responses to Surface Owners Beware!

  1. Karen. says:

    Indeed, money will make people do crazy things. Thanks for the full post.

  2. tdowell says:

    Karen–Thank you for your comment and for reading the Texas Agriculture Law blog.

  3. Martin Walters says:

    In Midland -Odessa does the average buyer of commercial property accept no mineral, gas and oil rights, or insist on protections that their surface business will not be disturb without compensation?

    Is there a an available quanity of land still available where mineral rights are not demanded or already taken in theses areas?

  4. tdowell says:

    Martin–That is a great question. Thank you so much for commenting. I am not sure what the typical practice is in the Midland-Odessa area, but I know that often when land is for sale, the buyer is not given an option to purchase the mineral rights, either because they are owned by someone else, or because the landowner does not wish to sell them. In that instance, it is important for anyone buying a surface estate to ensure that he or she understands the rights of the mineral estate holder and lessee and protects the surface estate during negotiations.

  5. EOneal says:

    In Texas, if you are the surface owner and they drill for oil on your property, are you entitled to a portion of the money?

  6. tdowell says:

    Thank you so much for your comment on the Texas Agriculture Law Blog.

    I am unable to provide any specific legal advice and strongly encourage you to obtain advice from a licensed attorney who can review the titles/leases/ownership documents related to any property that you may own. This email is not a substitute for the advice of an attorney.

    In general, someone who owns only surface rights and does not own any mineral rights is not entitled to any profits received from oil and gas production. The surface estate and mineral estate are separate and distinct estates and ownership in the surface estate, alone, does not provide the surface owner any ownership in, or rights to, mineral production. If, however, the surface owner also owned some portion of the mineral rights from which production occurred, then he or she might be entitled to share in the profits from the mineral production.

  7. Bengy Kossmann says:

    Does the mineral owner have a responsibility to maintain the pump to certain noise standards and to burn off the chemicals to prevent the surface owner from inhaling noxious, poisionous fumes? There is a pump near my home and the past few days I’ve been nauseated, had a headache for two days. The wind shifted and I believe its due to the offgas. The crankshaft needs to be replaced and the owner refuses to do it. The noise is so loud I can hear the pump jack in every room of my house.

  8. Pamela says:

    We own a ranch in Texas. We only own the surface and no mineral on most of the ranch. The oil company
    Drilled a deep well on the ranch and is using it to drill and frack their oil wells. We were told we would be paid for the water and now the oil company changed its mind and says they don’t have to pay us. So, who owns the water rights, the surface owner or the mineral owners? Thanks

  9. Ryan says:

    Please help!

    We are currently under contract on a piece of land in Texas. The seller agreed to waive his surface rights but will retain mineral rights. We just found out that the seller only possesses HALF of the surface rights and HALF of the mineral rights. The other half of both the surface and mineral rights were retained by 2 sellers before him. We are scared that even though we will be receiving HALF of the surface rights, that the heirs of the seller from 75 years ago (who still owns the other half) can choose to drill on our property.

    Does anyone know anything about this situation? Does our ownership of HALF of the surface rights give us the ability to keep someone from drilling on our property?

    Thanks,

    Ryan
    rlinick@gmail.com

  10. tdowell says:

    Ryan–Thank you for your comment. I am sorry that you are having to deal with such a frustrating issue. I am going to send you an email that will hopefully provide you with some useful information.

    Thanks,
    Tiffany

  11. dr johnny lloode says:

    dear ryan..first only one person or group can own the surface rights.its not really divisible…even if its in a contract thats sorta silly..what hes trying to say is he has surfsce rights a s a mineral owner tyo ingress and egress if they drll for oil etc..but as ther surface owner …even half..if some how thats possible..they have to have all signatures before driving across your front lawn

    that said..no one can stop a mineral owner from drillng on his mineral estates…not half ownership nor a thousandth ownership..nor 100% surface ownership cant…there are extenuating circumstances such as cities and certain size parcels and zones

    make sure you have the right to drill a water well or one is provided and ingress and egress on the ranch..a title company will make sure all..well most of these things are in order..before ANY BANK will allow a home mortgage or a builder mortgage..if youre getting JUST a LAND ONLY LOAN make sure you have water ..utilities road and all necessary normal benefits in WRITING in the contract otherwise youre out of luck

  12. Cosshe says:

    We accepted an offer to purchase land and agreed on 50/50 mineral rights. At the last minute, Seller tried to throw in an addendum stating they would retain the surface rights. We said no. If mineral rights supercedes surface rights, can we stop the drilling with owning an even percentage of mineral rights?

  13. Tim Hayden says:

    An oil company is interested in leasing my 5 acres for oil, gas and mineral rights.
    No one has ever lived at this property. Should I be concerned about environmental cleanup or surface damage?

  14. tdowell says:

    Thank you for reading the Texas Agriculture Law Blog. This is a very common question. As I am not your attorney, I cannot give you any specific legal advice, but can provide you with some general information.

    In Texas, where undivided mineral interests are owned by more than one party, the parties are considered as “co-tenants” of the land.

    Generally, any co-tenant of the mineral estate may explore, drill and produce that estate without obtaining consent of the other co-tenant. There could be an exception to that general rule, however, if one of the co-tenants held the “executive right” (the right to lease the mineral estate). If one co-tenant leases his interest to an oil company, he does have to account to the other co-tenant for the oil and gas extracted from the land by paying a proportionate share of net profits from the well. Here is a great article discussing Texas law as it relates to mineral co-tenants: http://recenter.tamu.edu/pdf/843.pdf

    Lastly, a co-tenant has the right to seek partition, which is essentially asking the court to divide the shared interests and separate it out into two separate interests. Here is a second article that discusses the right to partition generally. http://recenter.tamu.edu/pdf/1815.pdf

    Again, thank you for reading the Texas Agriculture Law Blog!

  15. tdowell says:

    Thank you for your comment on the Texas Agricultural Law Blog.

    Under Texas law, absent a provision in the lease, an oil and gas company as mineral lessee is under no obligation to repair any surface damage caused by production activities that are reasonable and conducted in a non-negligent manner. In light of this, it is advisable to seek to negotiate protections and payments for damages when entering into a lease. Another consideration for you, given that you own only 5 acres, would be to request that the oil company waive surface operations–essentially agreeing that it will not conduct surface operations or drilling on your land. Although the lessee certainly does not have to agree to this, they often will if the land at issue is a small acreage and will be pooled with larger parcels to create a unit. Here are some articles and lease negotiation checklists that may be useful to you.

    http://www.rrc.state.tx.us/about/faqs/SurfaceOwnerInfo.pdf

    http://www.pillsburylaw.com/publications/scratching-the-surface-understanding-the-potential-impact-of-minerals-rights-on-your-texas-loan

    http://www.mde.state.md.us/programs/Land/mining/marcellus/Documents/Fambrough_Judon_Minerals_Surface_Rights_Royalty_Payments(2009).pdf

    http://www.gdhm.com/images/pdf/jbm-ogleasechecklist.pdf

    Thank you again for reading the Texas Agriculture Law Blog.

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