CHAPTER 1 THE COMMON LAW OF SURFACE USE TO DEVELOP OIL AND GAS

• Jurisdiction: United States

Oil and Gas Agreements: Surface Use in the 21st Century (May 2017)
CHAPTER 1
THE COMMON LAW OF SURFACE USE TO DEVELOP OIL AND GAS
David E. Pierce
Professor
Washburn University School of Law
Norman R. Pozez Chair in Business and Transactional Law
Topeka, KS

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DAVID E. PIERCE is a professor at Washburn University School of Law where he teaches Oil and Gas Law, Advanced Oil and Gas Law, Mineral Title Examination, Oil and Gas Conservation Law and Practice, Oil and Gas Taxation, Environmental Regulation of the Oil and Gas Industry, Energy Regulation, Renewable Energy Law: Wind and Solar, Mining Law, and Drafting Contracts and Conveyances. He holds the Norman R. Pozez Chair in Business and Transactional Law. BA Pittsburg State University, JD Washburn University, LLM (Energy Law) University of Utah.

I. Introduction

There are many excellent articles discussing the mineral owner's right to use the surface of land to develop the underlying oil and gas.¹ Other speakers at this special institute will be focusing on the law of various producing states. This article identifies the common law principles governing split estates and evaluates how the law is likely to evolve. It also injects the Restatement (Third) of Property: Servitudes into the analysis. This Restatement has already had a major impact on a number of property-related activities and I predict it will have an equally significant impact on the development of oil and gas. Despite the odd acknowledgment that the Restatement may not apply in all oil and gas development cases,² it remains

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available, along with a well-developed body of easement law, to guide courts as they grapple with split estate issues.

II. Split Estates in Land

The genius and curse of American property law is the ability to create many different types of interests in land; the ability to splinter the bundle of sticks. When various interests coalesce they are referred to as "estates" in land.³ This article focuses on three estates in land: the "surface" estate, the "mineral" estate, and the estate of "subjacent support." It also focuses on the law of easements as applied to the surface and mineral estates. The common law of surface use for oil and gas development is a collection of cases that either apply or ignore easement law. The propensity of courts to ignore established easement law is a product of "oil and gas law" attempting to respond to the inherent friction caused by the split estate.

The "split estate" occurs whenever a mineral estate is owned separate from the balance of rights in a tract of land. For example, O, owning §30 in fee simple absolute, conveys the oil and gas in §30 to A. This conveyance vests the oil and gas mineral estate in A with O owning the balance of rights in §30. Although O is referred to as the "surface estate" owner, O does not own all rights in the surface because A has the right to make reasonable use of the surface to develop its mineral estate. As a "mineral estate" owner, A does not own all the minerals. O owns those minerals in §30 that are not encompassed by the grant of the oil and gas to A. O also retains the right to subjacent support of its surface estate.

When the owner of the complete bundle of sticks enters into an oil and gas lease, it also creates a split estate. In some states, like Texas, a possessory (corporeal) mineral estate is conveyed to the oil and gas "lessee" along with nonpossessory (incorporeal) easement rights to use the surface to develop the mineral estate.⁴ In other states, such as Kansas, a collection of

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nonpossessory (incorporeal) easement rights are conveyed, including an easement to mine and remove the granted minerals, called a profit à prendre.⁵

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The surface use issues that are the topic of this article, and this special institute, concern the easement rights of the mineral developer. Therefore, for our analysis it does not matter whether the minerals are owned in fee or subject to a profit à prendre. In either case an easement analysis is required.

III. Oil and Gas Law vs. Easement Law

An interesting aspect of "oil and gas" law is the tendency to resolve basic easement issues without referencing centuries of established easement law. This is representative of a more insidious problem with oil and gas law. If a litigant or court desires to avoid the established property, contract, or tort rule, just declare it an "oil and gas" law issue and make up whatever you like.⁶ Because any litigant can from time-to-time benefit by avoiding an established property, contract, or tort rule, they will argue "oil and gas law" applies instead of a body of law that already exists. Once the "oil and gas" rule is applied, it becomes the law, with all kinds of authoritative works to instruct the world on "oil and gas" law. Courts tread lightly in the area because they do not want to appear unschooled in the mystics of oil and gas law.⁷

It is even worse when courts take a perfectly good property rule and bastardize it into an oil and gas rule; a rule that often departs in significant ways from the property rule. The best example is the mindless classification courts have engaged in to define oil and gas property interests; often to support a desired outcome. Some courts have become so entangled in classifying the property interest created by an oil and gas lease that they ended up questioning whether it was even "property."⁸

In an effort to buck this 150-year trend, in this article I articulate the "oil and gas" analysis followed by the "easement" analysis. The departure from easement law is most pronounced when comparing oil and gas concepts, such as the "accommodation doctrine," with the easement law approach to accommodation. To set the stage, consider one of the bigger myths of oil and

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gas law: that the mineral estate, being the "dominant" estate, somehow confers greater rights on the mineral estate owner than it would otherwise possess.

IV. Dominant vs. Servient

The concept of the dominant mineral estate is the product of mineral owners and developers desiring to obtain substantive rights, beyond those granted, by simply declaring: the mineral estate is "dominant" to the servient surface estate. As a matter of oil and gas law, the label was meant by those using it to have substantive significance. As a matter of easement law, it merely describes the land burdened by the granted easement rights. Nothing more. It is not a tie-breaker concept. The owner of the easement either has the right, or it does not. To determine whether the right exists requires interpretation of the easement document.

The purely descriptive function of the terms dominant and servient is carried forward in the Restatement (Third) of Property: Servitudes where it equates "dominant" with "benefited" and "servient" with "burdened."⁹ It describes the mutually exclusive nature of each party's rights in the land. They have a correlative relationship in that the benefited estate consumes space - and rights -- previously occupied by the burdened estate. Although all easements are "correlative" in nature, that does not reduce or expand a party's benefits or burdens.

V. Contract vs. Property

The interpretive process can be impacted by the selection of a contract analysis as opposed to a property analysis. Developers prefer a property analysis because the focus is on fulfilling the purpose of the easement. Landowners burdened by the easement prefer a contract analysis because it focuses more on the presumed collective intent of the parties.¹⁰

Interpreting rights under an easement requires, at least initially, a property analysis. The goal of the property analysis is to identify the bundle of sticks that have been assembled to accomplish a specified "purpose." The Restatement provides: "A servitude should be interpreted to give effect to the intention of the parties ascertained from the language used in the instrument, or the circumstances surrounding creation of the servitude, and to carry out

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the purpose for which it was created."¹¹ This purpose-centric approach to easement interpretation encompasses the concept of "secondary easements." Secondary easements are those necessary to fully enjoy the expressly granted easement.¹² For example, a grant of a pipeline easement that fails to expressly provide a right of entry to construct and maintain the pipeline. Absent an express restriction, a secondary easement exists to enter and use the land to construct and maintain the pipeline.¹³

With easements, property law serves the function of a sort of parol evidence rule to identify the operative terms of the easement before proceeding to the contract law function of interpreting the meaning of the terms. The property rules should be applied first to define the substantive content of the easement before turning to contract rules to interpret the easement.

VI. Implied Easements and the Mineral Estate

Easements are implied for two reasons: (1) to give effect to the presumed intent of the parties; and (2) to achieve a public policy goal of making land productive. First, it is presumed that parties would not create an interest and then provide no means to make productive use of the interest. Second, to ensure productive use of land, the interest owner must have access to the land. Both the intent and the public policy goals are achieved applying an easement-by-necessity analysis. The Restatement provides:

A conveyance that would otherwise deprive the land conveyed to the grantee, or land retained by the grantor, of rights necessary to reasonable enjoyment of the land implies the creation of a servitude granting or reserving such rights, unless the language or circumstances of the conveyance clearly indicate that the parties intended to deprive the property of those rights. ¹⁴

Applying this principle to mineral resources, the Restatement provides: "A...