Although it may not be immediately intuitive, the surface and its attendant rights (associated rights) of a particular tract of land can be owned separately from the minerals underneath. This may sometimes come as a surprise to an owner that would like to participate (as in make money) through an oil and gas lease. Surface owners can be restricted simply by the fact that they are not the owner of the minerals underneath. This article addresses some of the issues related to the interplay between surface and mineral ownership with respect to oil and gas operations.
Depending on the area of the country, it can be normal for ownership (legally referred to as "fee simple") to include rights to everything - the surface, the minerals, pore space, the water, the sky, etc. - and the executive power that goes with their rights. In other words, nothing has been severed, thus all rights remain joined with the property and thus “transfer with” the property. However, in other parts of the U.S. where drilling, mining or wind energy operations are common, it is not unusual to see ownership rights that are segregated (ie, severed). States where minerals (the mineral estate)are often severed from the surface estate include: Texas, Oklahoma, Pennsylvania, Louisiana, Colorado, New Mexico and others where oil and gas has been produced for decades.
When Surface and Minerals Are Separated
Let’s say John originally owns the surface and mineral rights to his property, then sold just the surface rights to his brother Jack. Since John retained his mineral rights, he is the person an oil and gas company will approach to sign an oil and gas lease. Jack’s surface rights are in most states subservient (secondary) to John’s mineral rights. The oil company will, however, have to consider John when it comes to surface operations on this particular tract of land. A review of the deed to your property may or may not tell you if you own the mineral rights. A task known as running title (the mineral title) is the only sure way of determining ownership with any measure of authority. By having a qualified person run (ie, examine) title, you may determine whether or not the mineral rights have been severed through a prior mineral conveyance.
The process of drilling and completing an oil or gas well is obviously going to cause disturbance to the surface. A typical footprint needed for drilling, completion, and subsequent production is generally in the 3 to 10 acre range. As you can imagine, this may cause problems with those who own the surface rights only, and are not going to enjoy future royalty income. It is beyond the scope of this article to review each state’s law on this topic - simply understand that laws vary from state to state on this matter, thus owners need to review the law in their state before setting expectations.
Smaller Drill Sites Are the Trend
The trend toward horizontal drilling is reducing the required area needed to drill an oil or gaswell. Damage to the surface-only owner’s property has been greatly reduced in some areas, most significantly in the shale plays where Operators are drilling multi-well pads. One ten-acre drill-site might replace 5 five-acre drill sites. Horizontal and directional drilling allows an operator to access minerals beneath adjacent tracts of property from a nearby location; therefore, minimizing surface damage.
Surface Damage and the Surface Owner
A certain amount of surface space (acreage) is required for an oil and gas operator to drill a well and keep it in production throughout well's life. In cases where the surface and mineral owner are one and the same, and they have enough acreage for the operation, oil and gas companies often provide compensation for surface related issues. The following are samples of different types of surface damage clauses which could be added to a lease (provided they are appropriate for a specific situation):
In addition to the items covered in this article, consideration of equipment storage, equipment takeaway, salt water disposal wells, ingress and egress during production, are topics of importance to surface owners. You'll want to understand the industry - learn more in our Oil & Gas 101 short course.
Surface Owners Are Not Left Out of All Oil & Gas Operations
If your property is going to be damaged, make sure you negotiate a payment that compensates you for current and future losses.
Also, in many states the surface owner retains the pore space of formations. That means you might not own the oil and gas in the ground, but you own the rock where it is contained. This is important when it comes to natural gas storage or fluid (usually salt water) disposal. In states like Texas, agreements for storage and disposal are negotiated with and for the benefit of the surface owner.
As you can see, there are multiple ways by which an owner can feel more comfortable with an oil and gas company using their land. Information, reasonableness, and localized intelligence are your friend. Be sure to initiate conversation with the land agent about surface rights clauses that may be appropriate for your situation. As always, understand what the laws in your state can or cannot do for you. While the law may or may not be "on your side", reasonable and intelligent thought applied to your lease prior to signing will serve you best.
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