JOINT COOPERATION AGREEMENTS: RESOLVING CONFLICTS BETWEEN OIL & GAS OPERATIONS AND SOLAR AND OTHER RENEWABLE ENERGY DEVELOPMENT
| Jurisdiction | United States |
JOINT COOPERATION AGREEMENTS: RESOLVING CONFLICTS BETWEEN OIL & GAS OPERATIONS AND SOLAR AND OTHER RENEWABLE ENERGY DEVELOPMENT
Stoel Rives LLP
Sacramento, CA
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MICHAEL N. MILLS is a Partner in the Sacramento office of Stoel Rives LLP and serves as Chair of the firm-wide Mining Industry Team. His practice is focused on environmental, mining, oil and gas, natural resources development, land use, and property tax matters. Mike has more than nineteen years of experience with federal and state environmental laws and regulations, as well as permitting and compliance issues associated with mining and natural resources development. He is a frequent speaker and contributes regularly to the firm's blogs at www.californiaenvironmentallawblog.com and www.minerallawblog.com. Contact Mike at michael.mills@stoel.com or www.stoel.com/mmills.
I. Introduction
As renewable energy projects continue to proliferate, riding a wave of steadily decreasing development and production costs, the search for suitable sites, especially for wind and solar projects, has become increasingly challenging. When selecting such sites, developers must bear in mind the potential existence of a "split" mineral estate and the possibility of current and future mineral development. There is an increasing number of conflicts between renewable energy development and traditional oil and gas development in many parts of the country, which sometimes lead to an impasse because of the perception that the conflicting surface uses cannot coexist.
The first part of this paper highlights the challenges presented by the overlapping nature of geographic areas that hold the most mineral development potential with those that also hold the most potential for renewable energy development.
The next part examines the legal backdrop for the conflict: the dual nature of estates in real property. The ability to split the surface estate and the mineral estate into separate ownership creates a host of issues with which the renewable energy developer must contend, the most important of which is the dominant nature of the mineral estate over the surface estate. This paper will examine the efforts in certain states, namely Oklahoma and California, to address such conflicts.
This paper also explores the physical, economic, and legal barriers to resolving these conflicts. These include the physical needs of mineral projects in contrast to those of renewable energy projects and the needs of banks, lenders, and utilities for certainty regarding use of the surface for renewable energy projects in light of the legal rights of the respective parties. Finally, this paper concludes with recommendations for win-win solutions that can be implemented through negotiated agreements to relieve such conflicts.
II. The Conflict's Geographic Genesis - The Trifecta Effect of Wind, Solar, and Mineral Resources
The increasing probability of conflict between mineral development and renewable energy development is due almost exclusively to nature. Those areas of the country that are rich in mineral resources, especially oil and natural gas, are--for better or for worse--coincidentally the same areas with the most potential for solar and wind development. The conflict is based on structural needs on the surface of the ground. Solar and wind development require very large tracts of land for development,1 and oil and gas, while underground, still require large parcels of land for surface infrastructure, such as wells and pipelines. This potential for conflict is most
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acute west of the Mississippi River in the United States.2 Most notably, for purposes of this paper, there are high levels of oil and gas production in the following states: Texas, Oklahoma, Kansas, Nebraska, Colorado, Wyoming, Montana, South Dakota, and California. With the exception of California, these states form a diagonal line from Alberta, Canada to the Gulf of Mexico. A strikingly similar pattern emerges for wind resources west of the Mississippi River.
All of the same states identified above as being centers of historic oil and gas exploration and production are also the ones with the highest potential for wind resources.3 A similar, but not as extreme, overlapping conundrum exists for areas of high photovoltaic solar resource potential.4
A number of states identified as areas of historical oil and gas production in the United States are also areas with the greatest annual average solar resource, namely Texas, Oklahoma, Colorado, and California.
In light of the coincidental overlap between these varied resources in these particular states and regions, the next section of this paper examines the legal backdrop for the conflict between the development of renewable energy resources (wind and solar) and oil and gas, and it also specially examines the legal framework for dealing with such conflicts in two of the above-referenced states: Oklahoma and California.
III. The Legal Bundle of Sticks
In the United States, lawyers think of property ownership as a bundle of sticks. Each stick represents a different right of ownership, and together the bundle represents full and complete ownership of property. Sometimes the bundle of sticks is divided among different owners, each having a different set of rights in the subject real property. A common example is an easement for access or utility lines. The easement owner has one (or more) stick(s) from the bundle while the underlying landowner retains the remainder of the sticks in the bundle.
Mineral rights or interests are another example of sticks that are often divided, or severed, from the rest of the bundle. Generally, mineral rights include not only ownership of the minerals, but also the right to extract the minerals from beneath the surface of the ground. The severed minerals could be all minerals, or only those specified, such as coal or oil and gas. When mineral rights are severed, the remaining bundle of sticks is typically referred to as the
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surface interest.5 The severance of mineral interests creates separate rights of ownership and use in and to the minerals and the surface.
Severance of mineral rights is typically accomplished by deed, lease, or patent reservation.6 To sever a mineral interest by deed, the property owner may deed the minerals to a separate person or, in transferring the property to another, the original owner may reserve the minerals to him- or herself. The deed should be recorded. If severed by lease, either the lease or a memorandum of the lease should be recorded. Thus, one should be able to determine whether mineral interests have been severed from the surface estate by examining the public records.
Severance of a mineral estate means that there are different owners holding distinct rights in the same property. Conflicts sometimes arise between these different owners and the exercise of their respective rights. These conflicts have been resolved differently over time and by various states.
A. The Dominant Estate Doctrine
When courts were originally asked to resolve conflicts between owners of mineral and surface estates, the courts had to determine which right - surface or mineral - prevailed over the other. The courts looked at the deed severing the interest and attempted to determine the intent of the parties based upon the language used.7
Early court decisions found that a severed mineral estate was dominant over the surface estate8 because the mineral rights would be useless without the use of the surface to access and extract them.9 This means that the mineral owner can use as much of the surface as is reasonably necessary to locate, access, and extract the minerals even though it does not own the surface.10 The dominant rights of the mineral owner also mean that the mineral owner is not liable for damages to the surface unless caused by negligence or excessive use.11 In other words, the mineral estate owner cannot use the surface negligently or excessively.
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One limitation on the dominant estate doctrine is known as the law of subjacent support. This common-law doctrine provides that, generally, the surface estate is entitled to support from the underlying mineral estate, which it requires in its natural condition.12 The doctrine prohibits the mineral owner from extracting minerals by stripping or open pit mining without the consent of the surface owner. When mining removes the surface support such that subsidence results, the surface owner or lessee may recover damages. The surface owner must prove that the subsidence was caused by mining, which shifts the burden to the miner to prove another cause, such as the weight of surface improvements.13 Because wind turbines are not a natural condition and substantially increase the support burden on the land, the subjacent support doctrine is unlikely to provide protection for such structures.14
The surface owner can waive its rights to subjacent support, and courts are sometimes asked to determine whether a severance deed contains such a waiver.15 Some courts have allowed the mineral owner to destroy the surface if no reasonable alternative exists or when usual and customary mining methods so require.16 Subjacent support requirements are generally a matter of state law and, therefore, vary from state to state.17
B. The Accommodation Doctrine
Because the dominant estate doctrine is often viewed as imposing a disproportionate burden on the surface estate, some courts have adopted what has become known as the accommodation doctrine.18 The accommodation doctrine requires that, when a mineral owner's operations would impair existing surface uses and a reasonable alternative is available to the mineral owner, the mineral owner must employ the reasonable alternative to avoid impairment of the surface...
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