STATE SURFACE OWNER PROTECTION LAWS: TALES OF PREEMPTION, FEDERALISM, AND A CHANGING WEST

• Jurisdiction: United States

Surface Use for Mineral Development in the New West
(Feb 2008)
CHAPTER 13A
STATE SURFACE OWNER PROTECTION LAWS: TALES OF PREEMPTION, FEDERALISM, AND A CHANGING WEST
Rebecca W. Watson
Hogan & Hartson LLP
Denver, Colorado

I. INTRODUCTION

As oil and gas development has accelerated in the Rockies, many states are enacting new surface use laws to address public concern over the pace and location of development. The issue is heightened when oil and gas development occurs on split estate lands - where the surface is severed from the oil and gas estate.¹ Several states that have enacted surface owner protections have either asserted that these state laws govern federal mineral development or have left ambiguous whether or how these new requirements apply to federal lands and minerals. Some argue that these state surface owner protection laws are preempted by federal law. Yet, the federal government has hesitated to assert preemption in these instances. This paper focuses on the preemption question as it arises on split estates where the mineral estate is under federal ownership and the surface estate is under private ownership.

Federal land grant acts created split estates by granting surface rights, only, to homesteaders while reserving minerals to the federal government. These acts codified a right of access over the surface estate to the minerals. Congress recognized, and the U.S. Supreme Court has held, that valuable mineral resources must remain accessible to the mineral developer to allow the United States to control this federal resource which is vital to the nation's economy and security.² This type of split estate is particularly common in the West -- where some 58 million acres of subsurface mineral estate with non-federal surface are managed by the Bureau of Land Management ("BLM").³

[Page 13A-2]

Conflicts between federal mineral developers and private surface owners are increasing as oil and gas development in the region intensifies.⁴ The Rockies contain the only basins in the United States where natural gas production is increasing, and these fields are predicted to be the domestic energy industry's biggest source of growth over the next decade.⁵ Much of the natural gas being developed is unconventional -- coalbed methane and tight sands -- and more frequently requires dense drilling to extract the resource. At the same time, the population of western states has increased significantly and this population growth is sprawling out towards public lands and national forests. Federal mineral development that was once "out of sight, out of mind" is now in the backyards of these western landowners and impacting their open space, wildlife, and recreation amenities. New residents frequently lack basic knowledge of split estates and the respective property rights of mineral and surface owners. Many are shocked to learn that they do not own the minerals and that they have little say-so as to their development.⁶

Thus, despite long-standing recognition for mineral access, over the last thirty-five years, state judicial decisions, state surface owner protection laws and federal policy are modifying the relative burdens of the two estates in response to new public views on land use.⁷

Wyoming, Colorado, and New Mexico are among the states whose legislatures have recently passed laws that protect surface owners on split estates by implementing heightened notice provisions, required surface use agreements, and increased surface damage bonds. In Congress, citizen groups and their allies have repeatedly sought legislative change to the limited surface owner federal

[Page 13A-3]

protections in the oil and gas context. At the Department of the Interior ("DOI"), new rules and guidance emphasize the need for cooperation and agreement between the two estates.

Some have argued that federal law plainly preempts these state surface owner protection laws as applied to federal mineral estates with private surface estates. Regardless, whether this position may be correct under a purely academic legal analysis, the reality is that the federal government appears unlikely to bring a legal challenge to state surface protection laws except in the most extreme cases. There is a desire to work with states as partners in managing the effects of mineral development.

With this context in mind, this paper will analyze the question of federal preemption of surface owner protection laws recently enacted by several Rocky Mountain states, including Wyoming, Colorado, and New Mexico. This paper will also address the policy issues surrounding federal preemption of state surface owner protection laws on split estates. To lay the groundwork for the preemption analysis, the next section covers the legal context that created federal mineral-private surface split estates.

II. THE FEDERAL LAND GRANT STATUTES

The common law history of split estates is an instructive backdrop against which to view the land grant statutes that created modern contemporary split estates. Specifically, the practical policy considerations that led to the creation of the common law doctrine of mineral dominance over the surface have continuing relevance today. In England, minerals were owned by the Crown to provide it with the ability to carry out essential governmental functions: coining money and defending the country.⁸ Both of these essential functions required mineral resources -- gold and silver for coining money, and saltpeter for making gunpowder for military use.⁹ The Crown's ability to access its minerals, to assert dominance over the surface estate, was inherent in its ownership of the minerals, as a mineral estate that the sovereign could not freely access impeded the essential national functions for which the mineral estate was reserved.

This common law doctrine of mineral dominance over the surface estate formed the basis for the creation of the severed federal mineral estates in the United States. At the turn of the last century, a young, rapidly industrializing and

[Page 13A-4]

expanding nation was concerned about ensuring the availability of energy and minerals to fuel that growth. A coal shortage at the turn of the Twentieth Century, along with pressure from Western interests to release federal land for homesteading, spurred the United States to begin issuing limited patents that would sever the surface from the mineral estate and allow for the separate disposal of each.¹⁰

Thus, the land grant statutes of the early Twentieth Century created split estates by granting surface rights to homesteaders while reserving minerals to the federal government. These land grant statutes include the Coal Lands Acts of 1909 and 1910,¹¹ the Stock Raising Homestead Act of 1916 ("SRHA"),¹² and the Agricultural Entry Act of 1914.¹³ Each of these statutes includes similar provisions protecting the interests of surface owners -- requiring notification and bonding, and providing for certain limited damages -- that provide an important context for answering the question of whether similar or conflicting state surface owner protection laws are preempted.

The Coal Lands Acts of 1909 and 1910 were the first to issue limited land patents reserving coal to the United States and permitting the surface to be patented by homesteaders.¹⁴ The Coal Lands Acts reserve "all coal in said lands, and the right to prospect for, mine, and remove the same."¹⁵ However, the Coal Lands Acts limited the common law precept of the mineral estate's dominance by stating that in the absence of surface owner consent, the mineral developer may only enter after posting a bond for damages to "crops and improvements."¹⁶

The SRHA is the most comprehensive source of federal mineral-private surface split estates. Under the SRHA, the United States granted surface patents to homesteaders but reserved "coal and other minerals" to itself.¹⁷ Thus, under the SRHA, mineral developers with federal leases "have the right at all times to enter upon the lands entered or patented . . . for the purpose of prospecting for coal or

[Page 13A-5]

other mineral therein" and "may reenter and occupy so much of the surface thereof as may be required for all purposes reasonably incident to the mining or removal of the coal or other minerals."¹⁸ (Emphasis added). This provision reflects the SRHA statutory mineral estate dominance provision but requires the developer to use only those lands reasonably necessary for the development of the federal minerals.¹⁹ The mineral developer's right to enter and prospect for minerals is further conditioned on the requirement that the developer seek the consent of the surface owner, that "he shall not injure, damage, or destroy the permanent improvements of the entryman or patentee, and shall be liable to and shall compensate the entryman or patentee for all damages to the crops on such lands by reason of such prospecting".²⁰ The SRHA's damages provision is limited. The terms "crops" and "improvements" are "strictly construed by courts to exclude natural vegetation relied upon by

[Page 13A-6]

ranchers, non-agricultural buildings and improvements, and general loss of value of lands."²¹

The Agricultural Entry Act of 1914, also known as the Non-Mineral Entry Act, also reserved oil, gas, and other specified minerals to the federal government.²² Under that act, federal mineral interest holders "may re-enter and occupy so much of the surface thereof as may be required for all purposes reasonably incident to the mining and removal of the minerals therefrom."²³ However, mineral rights holders may enter the property only after the Secretary of the Interior has approved a bond as security for the "payment of all damages to the crops and improvements of such lands by reason of such prospecting."²⁴

When Congress enacted the Agricultural Entry Act, it contemplated surface entry only for agricultural purposes and related activities. Thus, in Kinney-Coastal Oil, the United States...