As we have previously discussed, in Texas, the mineral estate is dominant over the surface estate. This means that a mineral owner (or lessees, as the case frequently is) has the right to use as much of the surface estate as is reasonably necessary for the production of minerals like oil and gas without compensation to the surface owner. One way for surface owners to protect themselves is by entering into a Surface Use Agreement.
What They Are
Initially, I want to note that the best way to negotiate surface protections is during the negotiation of the actual oil and gas lease between the oil company and the mineral owner. This assumes that the surface owner owns part or all of the minerals and has a “seat at the table” during the negotiations. The parties each have something the other wants and a real negotiation can be held. Surface protections are best included as part of the actual lease agreement. Many times however, the mineral ownership has been “severed” from the surface and the first time that the surface owner is aware that an oil and gas lease was signed is when the oil company shows up to develop the minerals. In these instances, a Surface Use Agreement is likely the best alternative.
A Surface Use Agreement is a voluntary agreement between the surface owner and the mineral owner/lessee (usually an oil and gas company) that will govern relations between the two parties. In some states, like Oklahoma and New Mexico, oil and gas companies are required by statute to enter into these agreements before production begins. In Texas, unfortunately, no such statutory protection exists for surface owners. Mineral lessees are under no obligation to enter into this type of an agreement, but are frequently willing to do so in order to have a good working relationship with the surface owner. In light of this, Texas surface owners must use whatever leverage they have in order to convince an oil company to enter into this type of agreement.
How To Get One
Here are some ideas to keep in mind when seeking a Surface Use Agreement.
* Look for lease provisions. If there are already existing provisions in the oil and gas lease that require compensation or protection for the surface owner, that is ideal. Those provisions should be enforced and may allow the surface owner a good starting point to request related compensation from the lessee.
* Request an operational meeting. Up front, it is a great idea to sit down with the mineral lessee and have a meeting to discuss operational issues. This includes things like gate access, keeping gates closed, work hours, etc. There are some oil and gas companies that believe Surface Use Agreements benefit both parties and are happy to negotiate with the surface owner in order to avoid confrontation in the future. Setting up a meeting will allow the surface owner to determine the willingness of the lessee to work together. At the very least, a surface owner may be able to obtain maps and details about the scope of future operations on his property.
* Watch for a quid pro quo opportunity. Often times the mineral lessee will request something from the surface owner that is not allowed under the lease. For example, the oil and gas company may seek a pipeline easement or a road easement across the property to reach another leased parcel. This is the perfect time to bring up a potential Surface Use Agreement and seek favorable terms.
* Be aware of old, abandoned equipment or potential contamination issues. If these type of issues exist, it might be a starting place for a discussion about the need for surface use protection. If a surface owner is concerned about contamination or safety issues, he or she has the right to contact the Texas Railroad Commission and seek an investigation/evaluation of the situation. Knowing that, an oil and gas lessee may be more willing to work with a surface owner if these issues are present to avoid RRC involvement.
* Keep legal limitations on use in mind. Although there are few legal limitations on the right of a mineral lessee to use the surface estate, there are some protections of which the landowner should be aware. First, the lessee has the right to use only the amount of the surface estate that is “reasonably necessary” to produce oil and gas from that particular lease (or pool, if pooling occurred). If the use is more than is reasonably necessary (i.e. the landowner uses water from your property to produce oil and gas on another unpooled property), it is not allowed. Second, the accommodation doctrine protects a surface owner with an existing surface use in certain situations. For more details, read this blog. Finally, the oil company does not have the right to act negligently–meaning he or she is held to a reasonable operator standard. If any of these limitations are violated, that may provide a good opportunity for the surface owner to initiate a conversation about a Surface Use Agreement with the lessee, who would likely rather sign an agreement rather than face litigation.
* Be respectful and realistic. Because oil and gas companies are under no obligation to sign a Surface Use Agreement, surface owners are not in a great negotiating position. This is important to keep in mind when talking with the company and making requests. By being respectful to the company representative and realistic about the terms that should be included, a surface owner is much more likely to get a Surface Use Agreement.