CHAPTER 14 SURFACE AND MINERAL CONFLICTS: OIL AND GAS ACCESS AND NEW WEST REAL ESTATE DEVELOPMENT
| Jurisdiction | United States |
(Feb 2008)
SURFACE AND MINERAL CONFLICTS: OIL AND GAS ACCESS AND NEW WEST REAL ESTATE DEVELOPMENT
Dufford & Brown, P.C.
Denver, Colorado
1700 Broadway, Suite 2100
Denver, CO 80290-2101
303/861-8013 (Telephone)
303/832-3804 (Facsimile)
rfeuerstein@duffordbrown.com
Jeffrey R. Fiske, Esq.
Senior Counsel
Anadarko Petroleum Corporation
Denver, Colorado
1999 Broadway, Suite 3700
Denver, CO 80202-5744
720/929-6804 (Telephone)
720/929-7804 (Facsimile)
jeffrey.fiske@anadarko.com
A. Setting the Stage
Scene 1. The farmer or landowner, having finished harvest just a few months ago for the 2007 growing season, is generally pleased that in her 160 acre quarter section (SW1/4), located in Weld County, there exists only one oil and gas well producing in the J-sand, Codell and Niobrara formations. The production pad is no more than 20' × 20' (located in the center of the NW1/4SW1/4 of the section), and the tank battery and other above-ground production fixtures and equipment are way out on the edge of the property next to the County Road. Exhibit "A" to these materials shows the mineral operations on her property. So, she's thinking that mineral production will not unduly hamper continued farming operations (or for that matter, future development potential of her quarter section into a residential subdivision with parks, open space, and maybe a school site or some commercial/retail for a small convenience center).
She gets a call from the oil and gas operator and learns that more oil and gas wells are planned for her farm ....... as many as one well per undrilled Greater Wattenberg Area ("GWA") drilling window and maybe three more offset or boundary Rule 318A (e) wells. She also gets a
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call from a front range land developer who is interested in purchasing her land and water for residential and perhaps some commercial development. She visits with the developer and they agree to collectively contact the operator and jointly negotiate for a compatible surface use agreement
They contact a real estate attorney with experience in oil and gas matters who arranges a meeting with the oil and gas operator to share development plans from both the surface and mineral perspectives. The developer has her land use planner and architect lay out a preliminary development plan ("PDP") with some high density, a school site, a regional park, streets, curb and gutter, a convenience center (some shopping, office and pad sites on 10 acres), and the balance as four to six detached units/acre. The well site and surface equipment locations are located within circles having a 200' radius described on the PDP as a no build zone. Access over public streets is provided to these circles.
The attorney and developer explain the PDP to the operator. The operator pulls out a copy of the spacing diagram for the GWA, Exhibit "A" to these materials, and indicates that the operator, and possibly other working interest owners in other formations, may need one or more drill site locations in each of the five drilling windows.
The developer and landowner turn to the attorney and ask what's next? The attorney wishes to consult privately with his clients and suggests a follow up meeting with the operator and other working interest owners to attempt to negotiate a mutually acceptable surface use agreement.
Scene 1-A. The oil and gas company has been producing four wells on its 320 acre lease since shortly after the lease was first executed in 1971. The wells have been in slow decline for years, but have remained profitable for both the company and the mineral owner who sold the surface to someone else a number of years ago. The operation of the wells and the surrounding farming operations have compatibly co-existed throughout this 30-plus year period, although the relationship is now somewhat strained because the new surface owners are not receiving any royalty income from production.
Over the last several years, advancements in drilling and well-fracturing technology, as well as a better understanding of reservoir characteristics and increased commodity prices, have caused oil and gas operators to look for additional drilling locations where existing wells are not adequately draining potential reserves. Consistent with the terms of its oil and gas lease and applicable well spacing rules established by the Colorado Oil and Gas Conservation Commission ("COGCC"), the operator proposes to drill a number of additional wells on its 320 acre lease in order to capture reserves that would otherwise not be produced by the existing wells.
The operator contacts the surface owner to begin discussions about the proposed drilling and is advised that she is contemplating a mixed-use development of her property and that further oil and gas well drilling, together with the necessary production facilities and pipelines will substantially impact her development plans.
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The rest of the story proceeds the same as Scene 1 where the parties all meet, making full use of a large conference room table to lay out the PDP and then overlay the well spacing pattern prescribed by the COGCC. There is no well, either existing or proposed, that does not negatively impact in some way the PDP in its current state. As the developer and surface owner turn to their attorney, the oil and gas operator on the other side of the table does the same and, in unison and perfect harmony, all ask, "now what?"
B. Reasonable Accommodation
Surface and mineral estate issues result from the fact that separate surface and mineral estates, as interests in real property, do legally exist. These separate estates may be created by either reservation or grant.1 The mineral estate may be leased to an operator who, under express rights in the relevant deed or an implied right of easement, will conduct operations upon the surface to explore for, drill, develop and produce the oil, gas and other minerals. The numerous issues that occur include access, extraction operations, subsidence, use of surface resources and environmental issues. Because both real property law and contract law will be applicable, the deed severing the minerals by grant or reservation, the oil and gas lease and any addenda or amendments, including surface use agreements or other documents and instruments that may not have been recorded in the real property records, should be reviewed when evaluating the respective rights of the parties and commencing surface use negotiations. Other considerations include residential and/or commercial unit densities, zoning, local government master plans and other land use or building regulations. Many local and county jurisdictions have their own oil and gas regulations which must also be reviewed.
Although statutes and administrative rules and regulations exist to govern the production of oil and gas in Colorado,2 the relationship between surface owners and mineral owners (or their lessees) has historically been framed by the common law developed from judicial decisions. The cases generally involve claims based on negligence and trespass where the mineral developer is alleged either to have breached some duty of care owed to the surface owner (negligence) or exceeded the limits of its implied surface easement (trespass). Until recently, a mineral owner's rights to make use of the surface for mineral development purposes generally were not set forth in the deed by which the surface and minerals were severed. In the absence of any express
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language, the common law has consistently recognized that the surface estate is subject to an implied easement for the benefit of the mineral estate so that the mineral owner may utilize that portion of the surface estate as is reasonable and necessary to extract minerals.
1. Magness
In Gerrity Oil & Gas Corp. v. Magness, 946 P.2d 913 (Colo. 1997) the Colorado Supreme Court addressed a conflict between the surface owner and mineral lessee regarding reasonable use of the surface estate for mineral exploration, development and production. There, the operator sued the landowner for an injunction to prevent the surface owner from interfering with oil and gas operations. Magness had purchased approximately 1300 acres where the minerals had been previously severed from the surface. The minerals had been leased 13 years prior to the purchase by Magness. Gerrity notified Magness of a 4-well drilling program and the parties met to lay out well locations that would minimize crop damage and disruption to livestock operations. At the request of Magness, Gerrity did move a drill site from its initial proposed location. After one drill site location had been agreed to, Gerrity proposed a second well but Magness would not permit entry for conducting operations on any future wells.
Gerrity sued for a temporary restraining order and preliminary injunction against Magness' efforts in preventing access and to order Magness to remove equipment and other materials. The trial court granted the TRO and preliminary injunction. By the time the case went to the permanent injunction phase, Gerrity had completed all four wells. Magness counterclaimed for a declaratory judgment based on Gerrity's alleged negligence and trespass - failed restoration and remediation, drilling mud and foreign substances left in excavated pits and depositing hazardous and toxic substances. Magness also alleged that Gerrity did not follow COGCC rules on notice and consultation. The trial court did not grant the permanent injunction requested by Gerrity because the wells had been drilled and it was moot. The court also denied Magness' request for declaratory judgment, holding that even though Gerrity had been on the Magness property for over a year, the parties had not disputed Gerrity's right to reasonable access and finding the dispute to be factual and not...
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