Who’s First – Does it Matter?
One thing is clear, Wind and Solar Energy are here to stay. But, what about Natural Gas? One main and large issue with Wind and Solar Energy is the lack of ability to store any of the energy they create, unlike natural gas reserves (underground storage facilities and LNG).
A common thread with both industries is that they require well trained Landmen, especially in negotiating and understanding associated leases along with acquiring Right-of-Ways and Easements.
Every Petroleum Landman, oil and gas lease agent, and every landman working with wind and/or solar leases should be able to answer the question, “Does Who Came First” really matter?
Other questions to consider are:
- What happens if the minerals are severed from the surface and the Landowner had an existing wind or solar energy lease and the Wind or Solar project was underway prior to the oil and gas lease?
- Oil and Gas Lease – First: What happens if the minerals are severed from the surface and the Mineral Owner had an existing oil and gas lease and there were existing wells and new ones planned to develop the lease?
- Wind or Solar Energy Lease – First: What happens if the minerals are not severed from the surface and the Landowner had an existing wind or solar energy lease and the Wind or Solar project was underway?
- Oil and Gas Lease – First: What happens if the minerals are not severed from the surface and the Landowner has an existing oil and gas lease?
It’s almost like the Hatfields and McCoys.
Thus, with Wind and Solar Farms, this expanded and expensive surface use requires a broader and more extensive “purpose clause” in those alternative energy leases.
Oil and gas operations also have existing and planned developments. For example, one well can “hold” many undeveloped mineral lands (HBP) for future development such as in 640-acre Spacing or even large spacing units for horizontal well development. In some cases, seismic may need to be conducted to allow for the increased number of spacing units of future wells on the HBP acreage and extended (or pooled) areas.
Other surface use issues which have created disputes between oil and gas companies and wind/solar companies include such things as the location of drilling rigs, drillsites and production facilities, use of roads, installation of electric systems, and ingress and egress to properties. Since the Mineral Estate has been the “Dominant Estate”, this has allowed oil and gas operations to take precedence over surface use issues. Oil and Gas Operators could therefore use as much of the surface “as necessary” in extracting oil and gas.
But over time, oil and gas operations have had to deal with the Accommodation Doctrine and the reasonable use of the surface. Along with these factors, if an oil and gas company had to adjust their operations through the Accommodation Doctrine, the costs of doing so could enter the picture. Thus, Oil and Gas Operators are only liable to the Servient Owner for damages only inflicted negligently.
The Reasonable Accommodation Doctrine has been followed in Arkansas, California, Colorado, Illinois, Kansas, Kentucky, Louisiana, Mississippi, Montana, New Mexico, North Dakota, Oklahoma, Oregon, Texas, and Wyoming. In other words, the Oil and Gas Operator may only use so much of the surface as is reasonably necessary for the exploration and production of the minerals.
In addition, the Oil and Gas Operator must use the surface and conduct his exploration and production operations in a non-negligent manner. In some states such as Texas, the Oil and Gas Operator’s has the right to use as much of the surface in such a manner as is reasonably necessary to comply with the terms of the lease and to effectuate its purpose.
The following are some examples regarding the “reasonably necessary surface use” issues.
- The right of an oil company to enter upon the surface for the exploration and production of oil and gas.
- The right to construct roads to drill sites.
- The right to take a reasonable amount of water for operations.
- The right to house employees during operations.
- The right to mine caliche for use in constructing roads and pads for drill sites and tank batteries.
- The right to construct production and storage facilities to produce, save, care for, and dispose of oil and gas production.
- The right to select drilling sites.
- The right to select the timing of drilling operations.
- The right to dispose of salt water produced on the lease.
- The right to conduct geophysical exploration and seismic operations.
- The right to enter premises with growing crops.
In that same article by Roderick Wetsel, he states: “It is important to note that the Accommodation Doctrine focuses only on the method of the Oil and Gas Operator’s operations. Thus, “due regard” for the Landowner’s rights was not intended to limit the Mineral Owner’s decision about whether or when to extract any minerals. Also, the Accommodation Doctrine applies only to existing surface uses and does not require a Mineral Owner to consider a Landowner’s future uses.”
When considering oil and gas operations, something to take into consideration is whether the Accommodation Doctrine is attempting to be applied where directional or horizontal drilling is a potential alternative.
In addition, this type of potential alternative could be impacted due to the additional costs associated with it and which are reasonable based on the projected income from the oil and gas operation.
Another important point to consider is where the Accommodation Doctrine could be enforced by the courts. The Wind or Solar Developers may be able to force the oil and gas Lessee to adjust its development plans to prevent interference with the wind or solar development operations. On the other hand, once a Wind or Solar Farm is constructed, it should constitute a reasonable use of the surface of the land.
The ultimate question might be whether the oil and gas Lessee has a reasonable alternative method of working around the Wind and/or Solar Farm to develop its interest. According to that same article written by Roderick Wetsel, it is a closer question as to whether courts will apply the Accommodation Doctrine.
Something to consider is that many wind leases today are given for an option term of five to 10 years (or longer), which can result in a long delay between execution of the lease and actual construction. During this period, the Oil and Gas Lessee should be able to use the surface freely, even if wind development is planned.
In the case of Valence, Mr. Roderick Wetsel stated that the court found it to be highly relevant in applying the Accommodation Doctrine to protect a future use by the Landowner, that such future use was a part of the design of an overall project that was already in operation.
A wind company, for example, might be able to rely upon this decision to protect the surface of a Wind Farm that is being built in phases where the first phase has already been constructed, especially if the first phase includes infrastructure that will also be used in subsequent phases. In this situation, the wind company could argue that, as in Valence, surface layouts for the subsequent phases are part of the entire project and should be entitled to the same protection as the existing phase.
For more in depth information regarding certain “landmines” regarding the oil and gas lease versus the wind and/or solar lease, you should take the Institute of Energy Management’s 5-part series course, “Alternative Energy Land Practices.”
Enroll today at www.InstituteOfEnergyManagement.com