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Guest Opinions

Opinion by Karen Budd-Falen

Split Estate: Wyoming Surface Use Agreements Explained
By Karen Budd-Falen, Budd-Falen Law Offices

    When a person owns just the surface of their property and not the rights to the underlying minerals, they are said to own the “surface estate.” The party that owns the underlying minerals owns the “mineral estate.” Where two different parties own the surface and mineral estate, a “split estate” is created, and there can be conflicts between these two competing interests.
    This article discusses how Wyoming statutes have attempted to address these conflicting interests to consider and protect the surface landowner. This article also contains suggestions on the various issues that landowners should consider when negotiating agreements allowing the surface use of their property.
    Although the surface owner cannot completely deny the mineral owner or lessee from getting to their minerals, there are certain statutory protections afforded surface owners that are intended to ensure oil and gas operators minimize damage to the surface and pay for damage that is caused.
Verifying mineral rights
    First and foremost, after receiving notification that an oil and gas operator or mineral owner wants to access his or her interests, the landowner should obtain documentation verifying that the operator has the right to seek access to the property in the first place. This will ensure that only persons with valid rights in the minerals are accessing the property. Similar verification should be obtained before an entity is permitted to conduct any geophysical operations on the property.
The Wyoming Split Estate Act
    In 2005, the Wyoming Legislature enacted the Wyoming Split Estate Act (Act). Under this Act, oil and gas operators are required to attempt to reach a surface use agreement with landowners regarding the use of the surface for mineral exploration and development and to reach an agreement respecting the calculation and payment of damages that occur to the surface as a result of this activity.
    The Act does permit oil and gas operators entry onto the surface for “non-surface disturbing activities” after giving the surface owner at least five days’ notice of the intended activity. Non-surface disturbing activities include “inspections, staking, surveys, measurements and general evaluation of proposed routes and sites for oil and gas operations.”
    The initial stages of oil and gas exploration can also include geophysical surveys to obtain data. Such operations have the potential to cause damage to property in the form of vehicle ruts and damage from vibrations.
    In February 2011 the Wyoming Oil and Gas Conservation Commission (WOGCC) determined that geophysical operations constitute “surface disturbing activities.” As a result of this determination, operators of these activities are now subject to the notice and negotiation requirements respecting use and the payment for damage to the surface as provided for in the Act.
    Before actual mineral exploration and development activities can begin, the Act mandates that oil and gas operators must provide at least 30 days’ notice to surface owners, informing them of the proposed plan for oil and gas operations, including the proposed locations for wells, well pads, pits, reservoirs, power lines, compressor pads, tank batteries, road access and other facilities. This notice is intended to enable the surface owner to evaluate the effect of oil and gas operations on the property; thereby, giving the landowner the ability to address concerns and issues that will arise as oil and gas operations progress.
    After the proposed plan of operations is received, the landowner and operator can discuss whether the proposed operations will negatively impact the surface owner’s operations and use of the property, and whether these impacts can be mitigated with changes to the proposed oil and gas operations. The Act requires that operators “attempt good faith negotiations” with landowners to reach an agreement that will, among other things, protect surface resources, provide for reclamation of the lands and payment for damage caused to the land.
    The landowner and the operator should also attempt to reach an agreement respecting payments for damages sustained by the landowner for lost production and income, lost value of the land and lost value of improvements that result from mineral exploration and production activities. Any surface use agreement should separately address damage payments, which can specifically provide that payment be made for damages to crops, fences, gates, livestock, buildings and other structures, roads and any other personal or real property.
    If an agreement regarding the payment of damages cannot be reached with the surface owner, the Act allows an oil and gas operator to post a bond with the WOGCC to gain access to the property. However, before this bond can posted, the operator must demonstrate that it attempted to negotiate, in good faith, damage payments with the landowner. If a bond is posted by an operator, the landowner has 30 days in which to challenge whether that bond is adequate to cover potential surface damage.
    Once a surface use agreement is successfully negotiated, the oil and gas operator cannot locate wells, pipelines, roads or other facilities or conduct other operations that are “substantially and materially different from those disclosed” to the surface owner in the proposed plan. If it becomes necessary for operations to substantially differ from those initially disclosed to the landowner, and to which a surface use agreement has already been reached, the operator must provide written notice to the landowner of the changes, and further negotiations regarding protection and use of the property must occur.
Considerations when negotiating a surface use
agreement
    There are several aspects of a landowner’s use of the surface that should be considered when negotiating a surface use agreement with the goal of protecting “surface resources” in mind.
    By way of example, some issues the landowner should consider are: roads, cattle guards, gates and fences; grazing pastures, hay fields, irrigated lands and crops; the proximity of houses, barns, buildings, water wells or other structures to proposed mineral activity; baseline water quality and quantity testing; issues involving tenants; noxious weeds and/or road dust; reclamation, including a deadline by which reclamation must be completed and the operator’s equipment and personnel removed from the property; and liability for any damage or injury caused to the landowner or his property as a result of the operator’s activities.
    If landowners find themselves in the position of needing to negotiate a surface use agreement for their property, the task can seem daunting. It is important to remember that, although surface estate owners cannot prevent oil and gas operations from occurring, the landowners can still negotiate protections for their property.