CHAPTER 9 OWNERSHIP AND DEVELOPMENT CONFLICTS BETWEEN OIL & GAS AND OTHER MINERALS
| Jurisdiction | United States |
(Nov 2012)
OWNERSHIP AND DEVELOPMENT CONFLICTS BETWEEN OIL & GAS AND OTHER MINERALS
Dorsey & Whitney L.L.P.
Salt Lake City, UT
WELLS S. PARKER is an associate in Dorsey & Whitney LLP's Salt Lake City office where he practices in the firm's Mining and Natural Resources Practice Group. His practice focuses on natural resources development, energy and environmental law. He represents clients in a wide range of mining, milling, oil and gas development, permitting and environmental matters including all aspects of mineral acquisition and development on private, public and Indian lands; joint venture development and finance; mergers and acquisitions; conveyancing; and environmental and regulatory permitting and compliance for coal, gold, uranium, hard minerals, industrial minerals, and oil and gas projects. Wells is an active member of the Rocky Mountain Mineral Law Foundation (RMMLF) and the Energy, Natural Resources and Environmental Law Section of the Utah State Bar. Wells is currently a member of the RMMLF Publications Committee. He served on the planning and organizing committee for the RMMLF Mineral Title Examination Special Institute held in February of 2012. Wells was an instructor and lecturer for the RMMLF's 2010 Mining Law Short Course in which he coauthored the paper "Acquisition and Exercise of Mineral Rights on Federal Lands." Wells coauthored a paper for the RMMLF's 2010 Due Diligence in Mining and Oil & Gas Transactions Special Institute titled "Power, Water, Transportation and Work Force Services - What to Know and Where to Focus in Large Scale Natural Resource Transactions" and coauthored a chapter of the RMMLF's Handbook of Due Diligence Checklists. Wells earned his J.D. from Brigham Young University and a B.A. from the University of Utah.
I. INTRODUCTION
Multiple mineral development has always posed a challenge in lands containing multiple mineral deposits capable of development and production. Often lands that are valuable for oil and gas deposits are also valuable for other mineral deposits. Whether it be coal, potash, trona, sand and gravel, gold, silver or uranium, valuable mineral deposits located in lands subject to oil and gas development pose difficult challenges to oil and gas owners, developers and operators.
The principal focus of this paper deals with how development disputes are addressed, resolved and potentially avoided. Since a vast majority of the land in the western United States is federally owned, much of the focus will be on how disputes are addressed on federal lands. On federal lands, minerals are generally classified into three separate categories: (i) leasable minerals (minerals subject to leasing under the Mineral Leasing Act of 1920, as amended1 ), (ii) locatable minerals (minerals subject to location under the General Mining Law of 1872, as amended2 ), and (iii) salable minerals or salable mineral materials (minerals subject to sale under the Materials Act of 1947, as amended3 ).
This paper will examine three specific conflicts between oil and gas and competing mineral developers: (i) conflicts between coal and oil and gas development, principally in the Powder River Basin in northeastern Wyoming, (ii) conflicts between potash and oil and gas development, principally in the Permian Basin in southeastern New Mexico, and (iii) conflicts between trona and oil and gas development in southwestern Wyoming. Oil and gas conflicts with coal, potash and trona development have resulted in the vast majority of the statutory and regulatory framework used to resolve multiple mineral development conflicts and provide a set of principals that will likely be applied to resolve future conflicts involving other mineral resources.
II. CONFLICTS BETWEEN OIL AND GAS, COAL, POTASH AND TRONA (MINERAL LEASING ACT MINERALS)
Multiple mineral development conflicts between competing lessees under the Mineral Leasing Act are almost innumerable. Two prime examples of the complexities of these conflicts are reflected in conflicts between coal and oil and gas in Wyoming, and potash and oil and gas in
[Page 9-2]
New Mexico. In general, federal regulations do not provide a well-defined system for resolving conflicts between mineral lessees attempting to simultaneously develop their respective leasehold interests.
A. Federal Provisions
Federal statutes encourage simultaneous development of resources within the same lands, but often provide very few practical guidelines. The Classification and Multiple Use Act of 1964 provides that federal lands be developed for "multiple use and sustained yield of the several products and services obtainable therefrom."4 The Federal Land Policy and Management Act further encourages concurrent development in its definition of "multiple use" but provides little guidance with respect to how multiple use should be carried out or implemented.5
In addition to federal statutes, federal regulations contain multiple mineral development provisions that provide that the grant of a lease for one mineral does not preclude the issuance of permits or leases for deposits of other minerals in the same lands, but do not describe how multiple mineral development can be carried out.6 Oil and gas and coal regulations recognize the possibility of the simultaneous development of different minerals, but lack operational detail.7 Federal lease forms under the Mineral Lease Act include a reservation to the government to permit uses of the leased lands for other purposes, but contain little guidance concerning multiple mineral development.8
B. Suspensions of Operations and Production
One area in which the Mineral Leasing Act does provide some instruction concerning conflicting mineral development is the area of lease suspensions. Under the Mineral Leasing Act, the Secretary of the Interior is granted the authority to suspend mineral leases "for the purpose of encouraging the greatest ultimate recovery of coal, oil, gas, oil shale, gilsonite, phosphate, sodium, potassium and sulfur and in the interest of conservation of natural resources."9 The authority granted under the Mineral Leasing Act to suspend leases has been interpreted by regulators to apply to several different circumstances, including conservation, minerals conflict situations and certain events of force majeure. In mineral conflict scenarios, a
[Page 9-3]
mineral lessee may apply for a "suspension of operations and production."10 Suspension of operations and production may be granted when the BLM's authorized officer finds that the suspension is in the interest of conservation and for the purpose of encouraging the greatest ultimate recovery under the lease.11 Suspensions for oil and gas leases are routinely used to coordinate and stage the development of oil and gas and coal in the Powder River Basin and the development of oil and gas and potash in the Permian Basin, as discussed in greater detail below.
A suspension of operations and production tolls the running of the lease term and adds the period of suspension to the term of the lease.12 In addition, any rentals or minimum royalties required under the lease are suspended.13 During the period of suspension the lessee may not conduct any activities under the lease, except for operations that consist strictly of routine maintenance in order to prevent damage to the leased lands or any wells thereon.14
In order to obtain a lease suspension, the oil and gas lessee must file an application with the BLM's authorized officer, generally with the local BLM field office.15 There is no specific form of application, although BLM regulations and guidance materials require that the application describe the basis for the suspension, including thorough documentation of the reasons for requesting the suspension.16 Furthermore, the application must be filed in triplicate and signed by the lessees of record or if the suspension affects an approved Federal unit, by the unit operator.17
Oil and gas lease suspensions are often used in conflicts between coal and oil and gas development, when coal mining activities, particularly surface coal mining activities, will mine through oil and gas wells. In such circumstances, the oil and gas lessee notifies the BLM that the conflicting coal operation plans to mine through the leased area and submits its application for suspension, including documentation from the coal operator evidencing the conflict. If granted, the suspension will preserve the lease by tolling the lease term, rentals and minimum royalty requirements under the lease, until such time as the coal operator has completed its activities on the lands and the oil and gas lessee is allowed to reenter and develop the leased area.
[Page 9-4]
C. Case Study: The CBNG/Coal Story-Powder River Basin, Wyoming
One of the geographic areas of greatest conflict between multiple mineral developers is the Powder River Basin in Wyoming and Montana. The Powder River Basin contains 17 active coal mines which produced nearly 500 million tons of coal in 2008.18 Before the 1970's, coalbed natural gas (CBNG), which is produced during the coalification process as a byproduct,19 was largely regarded as a harmful and valueless gas and routinely ventilated. However, beginning in the 1970's, oil and gas companies began exploring the development of the vast CBNG resources in the Powder Rive Basin, and over the last 40 years, development of CBNG resources has flourished. In 2009, the Powder River Basin produced 558.9 billion cubic feet of gas, making the Powder River Basin field the 3rd largest source of natural gas in the United States.20
The BLM's stated goal in the Powder River Basin is to optimize recovery of both coal and CBNG in an endeavor to secure the maximum return to the public in revenue and energy production.21 Consistent with and in furtherance of that goal, the BLM issued an Instructional Memorandum...
To continue reading
Request your trial