Answer ... In the United States, ownership of minerals, including oil and gas (the mineral estate), may be severed from ownership of the surface of the land (the surface estate). The grant or reservation of minerals by the fee owner effects a horizontal severance and the creation of two separate and distinct estates: an estate in the surface and an estate in the minerals. The ‘surface estate’ refers to ownership of the surface of the land, which generally includes:
- dwellings;
- buildings;
- the right to cultivate crops; and
- the ability to dig into the land to bury underground storage tanks, such as wells or septic systems.
The ‘mineral estate’ generally includes ownership of the minerals below the surface of the land, including oil and gas; although the specific language of the instrument effecting the severance may provide for a whole or partial conveyance of specific minerals.
In Texas and a majority of states, the courts generally follow the ‘ownership in place’ theory, meaning that the mineral owner owns all substances, including oil and gas, which underlie its land. By contrast, Oklahoma, Louisiana and California, as well as a minority of other states, have adopted the ‘exclusive right to take’ or ‘non-ownership’ theory of mineral ownership, meaning that no one has ownership rights in resources, and the right to explore for and extract mineral resources vests in the first person to obtain them.
The right to produce oil and gas is derived by entering into a lease with the mineral owner (please refer to question 3..1). In addition to the common law doctrines and statutory laws governing the rights of the parties, the state and federal regulatory requirements that apply generally to the development of oil and gas will also apply to the development of minerals on a severed estate. A surface owner cannot unilaterally impose additional conditions beyond those imposed by law; however, the surface owner and the mineral owner may enter into certain contractual arrangements to further protect their rights.
Prior to severance of the estate, surface owners can define the extent of the surface rights beyond what is provided for by the law in the conveyance affecting the mineral severance. For example, the parties may agree to the inclusion of ‘no surface occupancy’ provisions in a deed, which would essentially require the mineral owner and any lessee to use horizontal drilling from an off-site location to extract the minerals. The conveyance may also include:
- surface damage and restoration requirements;
- road location and maintenance provisions; and
- limitations on the use of surface or subsurface water or the handling of wastewater and materials.
Another such contractual arrangement is a ‘surface use agreement’ between the surface owner and the mineral owner. When ownership is not severed, the surface owner is also the mineral rights owner and may seek protections for the surface when negotiating a lease with a lessee. However, in instances of severed ownership, the surface owner has no ownership of the minerals and as such does not have the right to negotiate a lease or restrict the activities of the mineral owner (beyond those restrictions imposed by law, as discussed above). In some states – such as Oklahoma and New Mexico – mineral owners and lessees are required by statute to enter into a surface use agreement before commencing production (as discussed above). However, in Texas, there is no such statutory protection, so mineral owners and lessees are under no obligation to enter into such an agreement, making surface use agreements a completely voluntary contractual arrangement. Thus, surface owners in Texas may not have much leverage to negotiate surface use agreements, other than the mineral owner/lessee’s desire to have a good working relationship with the surface owner. Surface use agreements may include various provisions covering issues such as:
- specific drilling sites;
- surface restoration obligations;
- hours of access for operations;
- notice obligations;
- damages for killing or injuring livestock or wildlife;
- speed limits;
- fencing or other barriers around well sites;
- payment for use of water; and
- limitations on the use of water.