CHAPTER 2 SURFACE USE AGREEMENTS

• Jurisdiction: United States

Rights of Access and Surface Use
(Nov 1984)
CHAPTER 2
SURFACE USE AGREEMENTS
Rebecca Love Kourlis
Gibson, Dum & Crutcher
Denver, Colorado
Stephen D. Alfers
Davis, Graham & Stubbs
Denver, Colorado

I. Introduction

When land was plentiful and mineral development an economic and social priority, the need for the surface estate owner to yield to a mineral developer was uncontroverted. As one Pennsylvania Supreme Court decision stated, "To encourage the development of the great natural resources of the country, trifling inconveniences to particular persons must some time give way to the necessities of a great community."¹

As time has passed, the trend of the law has been away from the absolutes of the past and toward Solomonic solutions in which the mineral and surface uses are weighed against one another in a particular circumstance. More often than not, a compromise is worked, either by terms of statutory law, common law or agreement between the parties. The other papers presented in this Special Institute treat in detail the law which governs the mineral developer's right to the use of surface interests necessary for mineral development. The uncertainties in the trend toward accommodation of surface and mineral interests give rise to the premise of this paper: that the best solution for both the surface owner and the mineral owner is an agreement which sets forth the respective rights and responsibilities of the parties.

This paper identifies some of those uncertainties in Part II, and in Part III it provides a checklist for the practitioner undertaking the negotiation or drafting of surface use agreements. The authors have tried to make the checklist germane to both oil and gas and mining surface use agreements. In Part IV the paper examines specific and particularly troublesome provisions of surface use agreements.

Finally, appended to this paper are "Appendix I, Surface Use Agreement — Oil and Gas," and "Appendix II, Surface Use Agreement — Mining." The reader will quickly observe that neither is a "form" or even a "model" agreement. They are meant as examples, not as models. Appendix I is an agreement between an oil and gas lessee under a federal oil and gas lessee and a surface owner. Appendix II is an agreement between an owner of reserved minerals and an owner of a ranch. Neither would be appropriate in all situations; in fact it may be that neither as written would be appropriate in any situation. However, the authors propose them to practitioners as an appropriate starting point, from which parties might negotiate fair agreements responsive to

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their own particular legal position and their own particular land use objectives.

II. Uncertainties.

Agreements allocate risks. Surface use agreements allocate risks between mineral developers and surface owners. Before examining such agreements, it is important to identify the risks and uncertainties surrounding surface-mineral estate owners' rights, not only for the purpose of convincing parties of the problems inherent in litigation and, thus, the wisdom of reaching an agreement, but also for the purpose of assuring that whatever agreement is used resolves each outstanding issue.

The proliferation of articles² on the subject of access to severed mineral interests since the 1970's is ample evidence of the fact that, where once there were few uncertainties regarding a mineral developer's use of surface estate, there are now many.

Those uncertainties fall into three general categories: first, whether the mineral developer has the right to use the surface estate for mineral development; second, if so, what kind of use can be lawfully made of the surface estate by the mineral developer; and third, what are the remedies available either to the mineral developer or the surface owner to redress grievances.

A. What Rights Does the Mineral Developer Have?

The mineral owner's right to use the surface estate is found either in the original patent by which the federal government reserved the minerals and conveyed the surface estate subject to certain access rights, or in the granting instruments which severed the fee mineral estate from the fee surface estate. When the federal patent is the document at issue, the mineral developer must look to the express terms of the law under which the surface estate was patented, for different rights arise out of different patents.³ By express language in most patent reservations, the United States reserved to itself not only the minerals, but also access for purposes of developing and producing those minerals. Various fee reservations use similar language. There would appear to be no ambiguity; however, the nature and extent of the access reservation is anything but certain.

For instance, both with respect to federal and fee minerals one of the principal questions is whether a mineral developer is entitled to access not only within the boundaries of the particular patent or fee reservation, but also across

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bordering lands to reach the subject mineral estate. Some courts have held that so long as the surface estate is in common ownership, the mineral developer has the right to traverse adjoining surface estate to reach the mineral interest to be developed.⁴ Other courts have held that the right of access to mineral interests is for production of those minerals only and does not extend to adjoining lands; therefore, if the mineral developer cannot reach the mineral interest without crossing adjoining lands, there is no access.⁵ In a 1956 Ninth Circuit case⁶ , a surface owner in Montana sent a mineral developer an agreement setting forth terms of use and daily rental for his surface estate with a letter stating that if the developer continued to use the surface, he would be deemed to have accepted the offer incorporated in the agreement. The developer neither signed the agreement nor offered to pay a usage fee. The Court enforced damages against the developer in the amount of the daily rental, on the grounds that the developer was using the property as access to other lands on which mineral development was proceeding and thus had no right to be there absent the agreement.

In the absence of an express right of access such as is set forth in federal patents or in some fee severances, a mineral developer must look to other precepts of law to gain entry.

When a mineral interest is severed from the surface, the right of access over the specific surface estate itself is implied by the act of severance.⁷ However, seldom does the surface owner or mineral owner resolve the specifics of access at the time of severance. Where neither express language nor a manifested intent is available for guidance, Courts later attempting to resolve the question of access have reached differing conclusions. Lacking some express surface access provision, the Courts have looked to prescriptive easements, private ways of necessity, and rights of condemnation to permit the developer access. Each alternative includes proof problems and encompasses areas of uncertainty which have yet to be resolved. For instance, there are questions regarding the extent of use permitted by a way of necessity,⁸ and there is differing case law on the question of whether a federal lessee has standing to condemn a private way of necessity across surface estate.⁹

Further questions regarding the extent of use to which a mineral developer who is proceeding without an agreement is entitled are the right to use of the water¹⁰ and the right to conduct seismic operations.¹¹

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A mineral developer must also analyze the extent to which its rights are subject to the necessity for surface owner consent in a variety of local, state and federal regulatory provisions regarding issuance of permits necessary for mineral development. For instance, many local planning commissions have required surface owner consent for the issuance of a special use permit allowing oil and gas development.¹² Similarly, there is some precedent for states, through their Mined Land Reclamation Boards, to require surface owner consent before they will issue mining permits on the grounds that access will eventually be necessary for reclamation.¹³ Similarly, Montana statute provides that the surface owner must consent to development operations.¹⁴ Even the issuance of a federal permit to drill on federal minerals underlying private surface requires participation by the surface owner.¹⁵ Thus, the mineral developer must face the litigation necessary to establish his rights without such surface owner consent, or must make adequate provision in a surface use agreement for cooperation from the surface owner.

B. What Constitutes Reasonable Use?

The next general area of uncertainty involves the kind of use of the surface to which a mineral developer is entitled. The starting point for this analysis is the adage that the mineral developer can use as much of the surface as is necessary and reasonable for the removal of the minerals.¹⁶ That concept has produced cases in which reasonable was defined as "convenient," "profitable," "consistent with industry practices," use of all of the surface, use of part of the surface or temporary use of the surface only.¹⁷ Some Courts have held that the severance of the surface and mineral estates does not contemplate destruction of one to the benefit of the other.¹⁸

In recent years, the concept of reasonably necessary use has been interpreted to require the mineral developer to give "due regard" to the rights of the surface owner. The mineral developer is required, under this line of cases, to choose the least damaging alternative for development of the minerals even if it is more costly than other methods.¹⁹

There are also cases holding that a mineral developer must use the access route which will minimize surface damage,²⁰ and must use a public road rather than a private road if both are available.²¹ Mineral developers...