CHAPTER 3 EXPLORATION AGREEMENTS: ACQUIRING GEOLOGICAL AND GEOPHYSICAL DATA

• Jurisdiction: United States

Oil and Gas Agreements: The Exploration Phase
(May 2004)
CHAPTER 3
EXPLORATION AGREEMENTS: ACQUIRING GEOLOGICAL AND GEOPHYSICAL DATA
Newman Trowbridge, Jr.
Attorney-at-Law
Lafayette, Louisiana

Introduction

Ownership of Geophysical Rights

1. Severed Surface And Subsurface Rights

2. Exploration On Lands Subject To An Existing Mineral Lease

3. Stratigraphic Division Of Ownership

4. Multiple Owners Of The Right To Explore

Acquiring Data From Non-Permitted Lands

Seismic Agreements

1. Contracts With The Private Mineral Owner

2. Seismic Exploration On The OCS

3. Seismic Exploration In Texas State Waters

4. Seismic Exploration In Louisiana State Waters

Conclusion

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Introduction

There are few oil and gas prospects drilled today without the acquisition and evaluation of geophysical data. Obviously, seismic is crucial, if not critical, to the development of the exploration prospect. Therefore, the information obtained from a seismic survey is extremely valuable. While the value of seismic to the oil and gas developer is fundamental, every jurisdiction has also recognized that the right to conduct geophysical operations is a valuable property right which the law protects. ¹

Consent to exercise this property right is typically obtained through one of several means. The consent may be in the form of a permit, a seismic and lease option agreement, or a lease. This paper will ultimately focus on those agreements. However, before reaching the agreements themselves, this paper will look at issues related to identification of the parties from whom the agreement must be obtained and the right to conduct seismic activities under oil and gas leases, as well as surface and subsurface trespass issues. In the course of this discussion, it will become apparent that there are aspects of seismic exploration which have not been fully addressed by courts or legislatures. It is, therefore, all the more important to the seismic explorer that those issues be identified and, to the extent possible, addressed in planning and permitting the survey.

Ownership of Geophysical Exploration Rights

Before negotiating the seismic agreement, the seismic explorer must determine from whom to acquire the agreement. If a single person or entity owns all interests in the land over which the survey is to occur, i.e. both surface and subsurface rights, the identity of the person from whom the seismic agreement must be acquired is apparent. However, given the fact that seismic surveys today typically cover large areas, the likelihood of finding this situation throughout the survey area is small. More likely, the survey area will include lands which are subject to existing mineral leases, lands which have different surface and subsurface owners, and lands which have multiple owners. The ownership of some lands may even be divided stratigraphically. The presence of one or more of these variables in a tract may increase the complexity of identifying the persons from whom the seismic agreement must be obtained and, in some instances, may create the need to acquire the consent of multiple parties.

1. Severed Surface And Subsurface Rights

In circumstances in which the mineral rights in a tract have been severed from the surface ownership, all jurisdictions have established that the mineral owner possesses the right to use the surface to exercise his mineral rights. ² In the context of seismic exploration, two questions arise. First, does the right to conduct geophysical exploration belong to the mineral owner or the surface owner? Second, if it belongs to the mineral owner, what limitations, if any, are imposed on his use of the surface in the exercise of the mineral right?

It is now established, in all jurisdictions, that the right to conduct geophysical exploration is an attribute of the mineral estate. ³ Since 1995, Louisiana has provided for this result by statute. ⁴ Other jurisdictions have achieved essentially the same result by establishing by implication a servitude in favor of the mineral estate for those rights essential to the full enjoyment of that estate. ⁵ Of course, the rights of the mineral owner may be expressly provided for in the contract by which the ownership is severed, whether the severance is accomplished through a grant, such as a sale or lease, or by reservation. Accordingly, in situations in which the surface and subsurface rights have been severed, the seismic operator will want to give particular attention to the instrument by which those rights were severed to determine the existence of specific limitations on the mineral owner's rights, including his right to use the surface for exploration activities. Nonetheless, even in the absence of specific provisions, the surface owner has rights which the seismic operator must consider.

In Louisiana, Article 11 of the Mineral Code ⁶ declares that the rights of the surface owner and those of the mineral owner are correlative. In Pennington v. Colonial Pipeline Company, ⁷ the court described correlative rights as "neither being superior to nor inferior to the other, and the rights of each party can only be exercised in such a manner as not to unreasonably interfere with the rights of the other." ⁸ The Comments to Article 11 expressly state the intent of the redactors of the Mineral Code to treat the mineral owner as the owner of the dominant estate and the owner of the surface rights as the owner of the servient estate. Those Comments further make clear the intent that Article 11 be utilized as a "flexible formula" and that the relationship between the mineral owner and the surface owner "be one in which the parties each must exercise their rights to use the land with reasonable regard for those of the other." ⁹

Article 23 of the Mineral Code ¹⁰ grants to the owner of a mineral servitude the same freedom to use the surface for his operations as if he were the landowner. The mineral owner's use of the surface, however, is limited by the provisions of Article 22 of the Mineral Code ¹¹ which obligate the mineral owner "to use only so much of the land as is reasonably necessary to conduct these operations" and to restore the surface to its original condition at the earliest reasonable time." Pennington is a pre-Mineral Code case; ¹² however, the balancing exercise in which the court engaged in that case, in the context of a dispute over the use of the surface of the property between a mineral lessee who wished to engage in seismic exploration and the landowner/pipeline owner who asserted the seismic activities constituted an unreasonable interference with its use of the property, appears to be precisely the balancing which Article 11 of the Mineral Code and the decisions of the Louisiana Supreme Court require. ¹³ Ultimately, the court in Pennington concluded that the seismic exploration would, in fact, constitute an unnecessary and unreasonable interference of the pipeline company's use of the property and required the mineral lessee to alter his plan of exploration. ¹⁴ The precedential value of Pennington may, on a broader scale, be questionable in view of the court's finding in that case that it was unnecessary for the mineral lessee to place any shot points on the pipeline company's property in connection with the survey and its further finding that, while unnecessary, the mineral lessee had the right to place shot points on the property so long as their placement did not unreasonably interfere with or endanger the pipeline's facilities or operations. ¹⁵

In other jurisdictions, since the mineral estate is deemed to be dominant and the surface estate servient, when conflicts developed between the use of the surface by the mineral owner and uses of the land by the surface owner, the mineral owner traditionally prevailed. In recent years, however, both courts and legislatures have evidenced a trend toward heightening the consideration to be accorded surface owners.

Beginning with the case of Getty Oil Company v. Jones, ¹⁶ the Texas courts began to develop what has become known as the "accommodation doctrine." In Getty, the Texas Supreme Court acknowledged that the mineral estate is the dominant estate and held that the implied right of the mineral owner to utilize the surface is "to be exercised with due regard to the rights of the owner of the servient estate." ¹⁷ In that case, the surface was being used for agricultural purposes in connection with which uses an irrigation system had been put in place by the surface owner. After the irrigation system was in place, the mineral owner successfully completed multiple wells and installed pumping units which prevented the surface owner from using a portion of his irrigation system. On those facts, the court reasoned that, where an existing use of the surface would be precluded by the use contemplated by the owner of the exploration right, in that case a mineral lessee, and industry accepted alternatives exist by which the minerals can be recovered without interfering with the surface use, "the rules of reasonable usage of the surface may require the adoption of an alternative by the lessee." ¹⁸

In mandating that Getty use an alternative method of production, the Texas Supreme Court observed that the alternative would serve public policy by allowing development of the mineral resources, while permitting the use of the surface for agricultural purposes to continue. ¹⁹ On rehearing, the court clarified its ruling, clearly placing the burden of proof on the surface owner to establish the unreasonableness of the mineral owner's operation and stating that, if the mineral owner's proposed use is reasonable, usual and customary and no alternatives exist, the rights of the surface owner must yield. ²⁰ Thus, the court in Getty determined that the "accommodation" that was due the surface owner by the mineral owner was limited to circumstances in which the evidence indicated the presence of (1) an existing use of...