CHAPTER 7 ACQUIRING SURFACE USE RIGHTS FOR PIPELINES: THE EASEMENT WAY OR THE HARD WAY

• Jurisdiction: United States

Oil and Gas Agreements: Surface Use in the 21st Century (May 2017)
CHAPTER 7
ACQUIRING SURFACE USE RIGHTS FOR PIPELINES: THE EASEMENT WAY OR THE HARD WAY
Isaac N. Sutphin
Holland & Hart LLP
Cheyenne, WY

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ISAAC N. SUTPHIN is a Partner with Holland & Hart LLP, in Cheyenne, WY. Isaac specializes in condemnation and other land use and access matters for oil and gas companies. His practice focuses on linear projects ranging from interstate transmission pipelines to local gathering systems. Isaac has successfully negotiated numerous easements and surface use agreements for a variety of energy clients. He has also acquired access rights through condemnation proceedings in both federal and state courts. He counsels oil and gas and other energy sector clients in permitting, licensing, and compliance matters. He has also been involved in complex, multi-party litigation, including trial practice, motion practice, appellate practice, and alternative dispute resolution. He has practiced before the Wyoming Environmental Quality Council, the Wyoming Oil and Gas Conservation Commission, and other administrative bodies as well as numerous state and federal courts in Wyoming.

With the constant change in the world of surface use for the extractive industries, the possibilities for acquiring surface use rights are varied and, at times, complicated. This paper will examine some of the unique issues facing surface uses for pipelines and related facilities, including negotiated agreements and rights acquired through eminent domain. In light of the authors' licensure and experience, most of the citations and supporting case law referenced in this paper is from Wyoming. However, given the nearly universal reorganization of easements and eminent domain, most of the principles addressed herein have an analog in every jurisdiction in the United States.

1. Easements - Fundamental Pipeline Rights

Although there are various options available to acquire surface rights for a pipeline, including simple permission, licenses, and leases, the preferred device is an easement. An easement is an interest in land that grants to the holder a defined right to use or enjoyment of another person's property.¹ As a real property right, easements are usually created through a written agreement, which is recorded in the land records for the appropriate county.² Indeed, to comply with the Statute of Frauds, easements should be in writing and include words of conveyance such as "grant" or "convey." Easements also typically include the formalities accompanying a transfer of property in the jurisdiction, including acknowledgements and legal descriptions of the property.

One hallmark of an easement is that the fee owner retains all rights and incidents of ownership in the land that is compatible with and does not impede the purposes of the easement. Nevertheless, the rights of the easement holder to use the land are dominant to the extent they are defined in the easement agreement. Thus, the surface estate is servient to the easement, but the servient owner may use the easement property in any manner that does not interfere with the dominant use as provided for in the easement.³

This joint use is particularly appropriate in the context of a pipeline easement where the pipeline is typically buried and operated in a manner to limit the impact on surface operations. Whether obtained by mutual agreement or through condemnation, pipeline easements generally include terms and conditions regarding depth of cover and other limitations on surface use necessary to protect the integrity of the pipeline. In the absence of specific provisions, industry standards regarding pipeline safety would typically apply.

For these reasons, pipeline easements are not generally considered to grant an exclusive right to the holder. This is appropriate where the property owner is able to continue certain uses of the surface on and around the pipeline. Unlike easements for railroads of highways, which may require the exclusive use of the surface, pipeline easements can typically be shared with other uses. Thus, while the language of the easement grant is important when determining

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whether it is exclusive or not, so too is the stated purpose and use of the right-of-way. Because an exclusive easement is paramount to a fee interest in the property, no intention to convey such a right can be implied without an unambiguous provision in the easement agreement.⁴ Simply stating the term "exclusive" is insufficient by itself to preclude use of the property by the owner or by others with the owner's consent.⁵

Thus, not only does the property owner implicitly reserve the right to the appropriate use of the surface in a pipeline easement, he or she enjoys the right to grant other easements in the same area, so long as the uses are compatible with the safe operation of the first pipeline. Nowhere is this more apparent than in so-called pipeline crossings. Even where the original pipeline easement includes an attempt to grant an "exclusive" right, crossings and even parallel encroachments are frequently allowed so long as the safety and operation of the pipeline is not adversely impacted.⁶

There are several other characteristics of an easement that make them ideal agreements for pipeline surface use rights. For example, unless explicitly stated otherwise, an easement is not revocable without the express agreement of the easement holder. While not technically "perpetual" in nature, most easements grant surface use rights for so long as the underlying purpose of the easement is met. As such, easements are generally transferrable and benefit the original holder's successors and assigns.

In some jurisdictions, easements must include a specific location and dimensions to be enforceable.⁷ In these jurisdictions, easements that purport to burden an entire parcel or even a section, half-section, or quarter-section, are no longer permitted. These so-called "blanket" or "floating" easements have been found to unduly burden the surface owner by tying up large portions of the surface indefinitely. Even in those jurisdictions where the floating easements are not permitted, the location, dimensions, and scope of the easement can be through use and by the stated purpose of the easement. In cases where the easement agreement does not specify size of the right-of-way, the dimensions will be limited to the area necessary to carry out the easement's purpose.⁸ Such a determination may require evidence and consideration of general easement requirements, industry practices, and established safety regulations, especially for pipeline easements. Even when the precise location of the easement is not set forth, as with a floating easement, the location becomes fixed when the project is built.⁹ Nevertheless, when prepared carefully and with sufficiently detailed information, easements offer an effective device for protecting surface use rights for pipeline projects.

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2. Other Surface Use Rights for Pipelines

a. Licenses

Although easements are not the exclusive method for memorializing surface use rights for pipelines, they are recognized almost universally as the preferred surface right. This is primarily a function of the certainty, ease, and relatively balanced approach that land use easements offer. For example, some pipeline rights have been acquired as licenses. Like an easement, a license grants the holder the privilege to do certain acts on the land of another. This privilege can be flexible and allow for any number of specific uses. Although the beneficiary of a license enjoys protections and cannot be treated as a trespasser, a license does not grant the holder a recordable interest in the land. Nor is a license typically assignable to another individual or entity. Rather, licenses are treated as a personal right granted to the licensee. Thus, a license can be granted verbally or in writing and can even be established through usage, custom, and course of conduct. Nevertheless, unlike an easement, licenses are revocable at will.

The authority to revoke at will is the primary characteristic of a license.¹⁰ Courts have recognized and enforced the power to revoke a license, leaving the licensee with no enforceable surface use or occupancy rights. With revocation, the licensor must provide ample time for the licensee to vacate the property and remove any equipment or structures that have been erected. During the reasonable period of removal, the licensee is not treated as a trespasser.¹¹ Nevertheless, at the conclusion of such reasonable period, any further use of occupancy of the surface would be in violation of the landowner's rights and would give rise to a claim for trespass damages.

Due to the long term nature of pipeline surface rights and the large investments in pipeline projects, the uncertainty of a license generally steers companies away from such an approach. Indeed, there has been ample litigation regarding whether certain surface use rights were easements or licenses. In such litigation, the conclusion generally turns on the parties' intent as well as the nature of the right created, the duration of such right, the compensation paid, and the express terms of the agreement.¹² Although it may provide evidence of the parties' intent, the name of the agreement itself does not necessarily control whether it is a license or an easement.¹³ Nor does use of terms such as "licensor" or "licensee" prove determinative in the analysis.¹⁴

b. Leases

Another common form of "temporary" surface use rights is a lease. Leases are similar to easements in that they grant a real property interest that is both recordable and enforceable. Like easements, the terms and conditions of a lease are negotiable and can be granted for any desired timeframe. Leases typically include a specific term, often with renewal rights, and are not

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revocable...