CHAPTER 12 SURFACE USE AGREEMENTS: THE GOOD, THE BAD, AND THE UGLY
| Jurisdiction | United States |
(Feb 2008)
SURFACE USE AGREEMENTS: THE GOOD, THE BAD, AND THE UGLY
Suncor Energy (U.S.A.), Inc.
Greenwood Village, Colorado
Ronald I. Schindler
Pioneer Natural Resources USA, Inc.
Denver, Colorado
I. Introduction
Each day oil and gas lessees and operators face resistance from surface owners, local governments, legislators, and others when trying to access lands covered by a carefully negotiated Surface Use Agreement.2 Operators spend thousands of dollars trying to negotiate, draft, and execute the "perfect" SUA in order to avoid future access and other surface use issues. While the final SUA may seem perfect and the parties believe that all of the necessary risks or protections are provided for in SUA's content, there is always the uncertainty that the terms, scope, or conditions of the SUA will be challenged at a later date.3 The intent of this portion of the paper is to provide landmen, practitioners, in-house counsel, and others in the oil and gas industry with a practical overview of how outside counsel may address a situation when the terms of a SUA is challenged, or when surface owners decide to disregard the Operator's express access rights under a SUA and take matters into their own hands.4
II. Outside Counsel Perspective
A. The Operator Calls For Legal Advice - What Are The First Steps?
Once the Operator determines that it requires the assistance of outside counsel, Counsel should be prepared to address the situation with a sense of urgency and understanding.5 Operators and their employees are very sophisticated at resolving access issues so, in many instances, the Operator only "makes the call" to Counsel when the conflict relating to a SUA has become highly controversial, if negotiations towards a resolution have reached a standstill, or if an obstruction or interference with the Operator's access has resulted in a hostile confrontation.
i. Learn The "Key" Facts.
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During the first meeting or conversation with the Operator, Counsel must gather certain key facts by asking the Operator the following questions:
• When did the incident or dispute occur?
• Where did the incident or dispute occur?
• How did the incident or dispute occur?
• What are the names of the people involved in the incident?
• Was an employee of the Operator, a contractor, or a contractor's employee injured?
• Is there any damage to the Operator's property or equipment?
• Is there any damage to the surface owner's property?
• Has the incident or dispute been reported to all necessary local, state or federal agencies or authorities?
• Does the Operator or the Operator's equipment still remain on the subject lands?
• If so, is the Operator's equipment secured and locked down?
• Is there a SUA in place?
• Does the SUA provide for access at the time the incident or dispute occurred?
• Did the surface owner breach a specific provision of the SUA?
• Does the incident call for immediate court action?
These are basic questions Counsel should ask the Operator in order to gain an understanding of the incident and/or dispute that resulted in a violation of the Operator's rights under a SUA. Each answer is important because the answers will help determine the course of action the Operator wants to take to either resolve the dispute or to protect its rights in court.
ii. Learn the "Key" Players.
Counsel must also learn who the "key players" are in any incident or dispute arising under a SUA. When Counsel is notified of a dispute relating to a SUA, Counsel may want to instruct the Operator to make a list of all of the people involved in the dispute as well as any person who may have information about the dispute. These people could be used to assist in settlement negotiations with the surface owner or they could be used as fact witnesses if litigation becomes necessary. In access disputes, the following people typically have pertinent information about the events surrounding the dispute or the SUA in general:
• The Operator's employees who were on location during the incident or dispute
• The Operator's contractors and their employees
• The surface owners
• Any third party claiming a right to use the surface estate
• The Operator's employees or agents who negotiated the SUA
• Any police officers or other law enforcement personnel called as a result of the incident or dispute
• Any neighbors or passers-by who witnessed or heard the incident or dispute
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In addition to learning the facts from each of these people, the interviews will assist Counsel in determining whether the Operator will need to retain any experts to prove the Operator's claims and damages should the dispute result in litigation.
Counsel, either during or immediately after an interview, may want to take a statement from each witness, unless of course the witness is represented by counsel. If this is the case, then Counsel must take the appropriate steps to secure a statement though the witnesses' legal counsel. Witness statements could be very useful because, if taken immediately after the dispute, they help to preserve and memorialize the circumstances and events surrounding the dispute. Further, witness statements could be used to support an Operator's position in an alternative dispute resolution proceeding as well as a court proceeding. For example, the witness statements could be used as: an affidavit to support an Operator's motion for a temporary restraining order and/or preliminary injunction, a motion for summary judgment, or as a tool for refreshing a witnesses' recollection during trial.
iii. Gather the "Key" Documents.
Counsel must also have the Operator provide all of the "key" documents relating to the subject lands, the incident or dispute, and the SUA. Examples of such documents are:
• The SUA
• Any drilling or construction contract
• The Operator's and/or contractor's employee time log
• Any invoices from third parties received by Operator as a result of the incident or dispute
• Copies of checks made payable to surface owner under the SUA or other document
• Any oil and gas leases covering the subject lands
• Any unitization agreement covering the subject lands
• Any police report prepared as a result of the incident or dispute
• Any hospital or medical records and bills incurred as a result of the incident or dispute
• Any other document necessary to support the Operator's claims against the surface owner
All of these documents should be reviewed by Counsel as they will be useful in determining the Operator's best course forward in resolving a conflict with a surface owner under a SUA.
B. Could Further Negotiations or Alternative Dispute Resolution Resolve the Matter?
i. Initiating or Continuing Negotiations With The Surface Owner.
Counsel should always analyze the possibility of initiating or continuing negotiations between the Operator and surface owner in an effort to resolve the matter. This can sometimes be a difficult task, however, because many surface owners are unrepresented by legal counsel
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and are uncomfortable dealing directly with an Operator's Counsel on their own.6 If the Operator has already initiated negotiations or conversations with the surface owner about the dispute, Counsel could step in and assist both parties reach a resolution. Counsel's role may be to educate the surface owner as to the Operator's rights under a SUA and how these rights coincide with the surface owner's right to use the land, or the Operator may just want Counsel to give negotiations with the surface owner "one last shot" before heading to court to protect its rights.
If the Operator, Counsel, and surface owner agree to meet and discuss the issue, then there are a few steps Counsel can take to make the surface owner feel more at ease with the situation. These are:
• Have one of the Operator's employees sit in on the discussion or, in some instances, lead the discussion 7
• Abide by the same "good neighbor" policies the Operator uses when trying to resolve an issue with a surface owner
• Meet with the surface owner and its legal counsel, if retained, on the surface owner's "turf" or a place where the surface owner is comfortable
• Give the surface owner some time to vent their frustrations or share their side of the dispute
• Address the Operator's concerns and rights in a courteous, tactful, and respectful way
If the discussion with the surface owner is going well, Counsel may want to immediately start drafting the agreed-upon terms for inclusion in a settlement agreement (or other negotiated document) within the presence of the surface owner. This allows the surface owner to be directly involved in the drafting of the settlement agreement. This is beneficial to the Operator because, if the surface owner later disputes the settlement agreement, it is clear that the surface owner was directly involved in the drafting of the documents and may have a difficult time arguing that the settlement agreement is ambiguous, unfair, or unconscionable and should be construed against the Operator.
ii. Mediation.
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Mediation is a confidential "voluntary process in which parties to a dispute work together with a neutral facilitator who helps them reach a settlement."8 Mediation is useful when parties are close to resolving a dispute, but cannot quite reach the final resolution themselves. If the mediation process is utilized, the parties should hire a mutually agreed upon, trained mediator to oversee the process.
The mediation process may be governed by various rules, procedures, or laws. The American Arbitration Association ("AAA") provides Commercial Mediation Procedures while many states have adopted their own dispute resolution acts.9 Generally, the mediation process
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