CHAPTER 13 ACCESS AND SURFACE USE WITHIN UNITS AND COMMUNITIZED AREAS

• Jurisdiction: United States

Federal Onshore Oil & Gas Pooling & Unitization - part 1
(Oct 2014)
CHAPTER 13
ACCESS AND SURFACE USE WITHIN UNITS AND COMMUNITIZED AREAS
Bradford C. Berge
Holland & Hart LLP
Santa Fe, New Mexico

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BRADFORD C. BERGE is a partner in Holland & Hart's office in Santa Fe, New Mexico, and a member of the firm's Energy, Environmental and Natural Resources practice group. Since 1980, his practice has focused on litigation and trials, related primarily to natural resources and environmental matters. He represents industry clients in commercial disputes, access issues, and surface and subsurface disputes, as well as personal injury and tort matters in courts throughout New Mexico and Colorado. Mr. Berge received his J.D. from the University of Denver in 1978, and was a law clerk for the Honorable Robert McWilliams, U.S. Court of Appeals, Tenth Circuit, in 1979 and 1980. He is admitted to practice before all courts in Colorado and New Mexico, as well as the Tenth Circuit and the U.S. Supreme Court.

Introduction

Access and surface use issues arise in in federal units. The prevailing presumption that unitization entitles a unit operator to unfettered use of the entire unit surface has not always been embraced by the courts. Even though mineral lessees are bestowed with the right to use as much of the surface estate as is reasonably necessary to develop and produce the minerals, it does not necessarily follow unit operators are entitled to use as much of the unit's surface as they deem necessary for unit operations. Although such rights are generally assumed to exist, and usually spelled out in unit agreements, those agreements have not always been upheld.

Oil and gas reserves do not follow surface boundaries, and domestic development is expanding into new areas, with existing residential, industrial and agricultural uses. At the same time, residential, industrial and agricultural uses are expanding into established production areas. The convergence is not always friendly, and while mineral lessees often believe that their surface access is limited only by the bounds of reason, surface owners tend to disagree, and to seek to limit the extent to which their surface estates are disrupted. The expansion of uses on both sides provides fertile ground for acrimony and litigation.

The tension is easy to easy to understand. As the Tenth Circuit recently noted,

When you own property in the West you don't always own everything from the surface to the center of the Earth. Someone else might own the minerals lying underground and the right to access them. Someone else still might own the right to use the water flowing through your property. All of this can invite confusion - and litigation.¹

Such confusion breeds resentment. Communication is not always optimal. Landowners naturally believe that they own their land, and they don't always welcome to drilling crews,

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lease operators, rigs, wells and equipment, with open arms.² And while unitization is intended to promote efficient development, it is not always perceived that way. Surface owners, and particularly those who have no mineral rights, may not see a benefit in roads or pipelines across their land, particularly when the roads and equipment are for operations on adjoining or nearby land.

Although it is generally assumed, access can be a concern, and when the courts get involved, access is frequently denied or limited. This has been particularly true when leases are unitized.

This paper discusses the origin and evolution of the surface use and access issues that can arise, and the different ways in which courts have addressed them.

1. The Guiding Principles: Dominance and Unitization

a. It is universally recognized that the mineral estate is dominant over the surface estate, and that a mineral lease includes a right to use as much of the surface as is reasonably necessary to develop and produce the minerals. This right was recognized by the Supreme Court in Kinney-Coastal Oil Co. v. Kieffer,³ where the Court considered efforts by a surface owner to interfere with an oil and gas lessee's development in Wyoming. The patent was granted pursuant to the Act of July 17, 1914 (30 U.S.C. § 121 et seq.), and the mineral lease was granted under the Mineral Leasing Act of 1920 (30 U.S.C. § 181 et seq.). Reading these two acts together, the Court perceived "an intention to divide oil and gas lands into two estates for the purposes of disposal -one including the underlying oil and gas deposits and the other the surface."⁴ The Court also held that the two acts also demonstrated that Congress intended to make the surface estate servient to the mineral estate, as this relationship "naturally would be suggested by their physical relation and relative values."⁵ The Court went on to hold that "In effect therefore a servitude is laid on the surface estate for the benefit of the mineral estate to the end, as the acts otherwise show, that the United States may realize, through the separate leasing, a proper return from the extraction and removal of the minerals."⁶

This servitude, which is also described as an implied easement, has been recognized in:

• Leases: federal leases typically include "the right to prospect, enter, extract and remove all minerals that may underlie" the leased acreage.⁷

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• Patents: patents granted under the Act of July 17, 1914 and the Stock Raising Homestead Act of 1916 include a reservation of all minerals, together with as much of the surface as "...may be required for all purposes reasonably incident to the mining and removal of the minerals therefrom.⁸

• Federal regulations: 43 C.F.R. § 3101.1-2 provides that the lessee "shall have the right to use so much of the leased lands as is necessary to explore for, drill for, mine, extract, remove and dispose of all the leased resource in a leasehold...."

• Caselaw: Kinney-Coastal; Gas Corp. v. Magness, 946 P.2d 913, 926 (Colo.1997); Bourdieu v. Seaboard Oil Corp., 38 Cal. App. 2d 11, 100 P.2d 528 (1940); Reno Livestock Corp. v. Sun Oil Co., 638 P.2d 147, 151 (Wyo.1981).

The application of this burden on a surface owner, for the benefit of a mineral lessee, for the development of minerals on the leased acreage, is clear. The extent of the mineral estate's dominance over unitized acreage has not always been clear.

b. Unitization: In the Act of July 17, 1914 and the Stock Raising Homestead Act of 1916, Congress authorized the Government to grant patents for surface use, reserving the minerals and as much of the surface as is reasonably necessary to develop them. Congress then passed, in 1920, the Mineral Leasing Act ("MLA") to establish a framework for mineral development. Initially, minerals were leased and developed on a first-come/first-served basis, based on the rule of capture. To restore some order and suppress the frenzy, Congress amended the MLA to allow unitization. Under the amendment, lessees in a common pool, field or area, were authorized and encouraged to develop "a cooperative or unit plan of development or operation of such pool, field or like area."⁹

The objectives of unitization, therefore, are to avoid waste and promote collective and cooperative development.¹⁰ Unitization "permits the entire field (or a substantial portion of it) to be operated as a single entity, without regard to surface boundary issues."¹¹ "By effectively eliminating internal property boundaries within the unit area, unitization permits the most efficient and cost-effective means of developing the underlying oil and gas resources."¹² And

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upon unitization, "operations conducted anywhere within the unit are deemed to occur on each lease within the communitized area...."¹³

2. What's the Problem?

The dominance of the mineral estate over the surface, the fact that unitized areas are treated as a single entity, and the strong policies in favor of the extraction of oil and gas¹⁴ and unitized development, would seem to clear a path for unit operators to use the entire unit area, and to locate roads, wells, lines and facilities in a manner that is most efficient for unit operations. Indeed, as respected scholars have said, "there is no logical reason why the mineral interest owner should not have the same implied easement rights wherever the unit well would be located when the use of the land is reasonably necessary for the enjoyment of the mineral rights."¹⁵

But this is not always the case, and while there is no logical reason why a unit operator's access to the unitized property should be any different than a mineral lessee's access to the leased surface, several courts have limited, and in some cases denied, the unit operator's access.

3. The early cases: "Who cares about unitization?"

Early opinions generally held that a mineral lessee did not have the right to use the surface for operations on adjoining property. In Bourdieu v. Seaboard Oil Corp.,¹⁶ for instance, the California Court of Appeals held a mineral lessee was entitled to use the surface only to the extent necessary to remove the minerals from the leased area, and not for transportation to or from adjoining property. Similarly, in Russell v. Texas Co., the Ninth Circuit held that "the right to use the surface of land as an incident of the ownership of mineral rights in the land, does not carry with it the right to use the surface in aid of mining or drilling operations on other lands."¹⁷ In Wiser Oil Co. v. Conley, the Kentucky court held that it was well-settled, in Kentucky and elsewhere, that absent an express agreement, mineral lessees cannot use the surface for the production of minerals from other lands.¹⁸

4. Mountain Fuel: Right Result, but for a Different Reason.

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In Mountain Fuel Supply Co. v. Smith,¹⁹ the Tenth Circuit granted the mineral lessees access to the defendants' entire surface, while flatly rejecting the idea that a unit operator could use the surface of one...