SURFACE USE LAW: COLORADO, NEW MEXICO, WYOMING

• Jurisdiction: United States

Oil and Gas Agreements: Surface Use in the 21st Century (May 2017)
CHAPTER 2D
SURFACE USE LAW: COLORADO, NEW MEXICO, WYOMING
Joseph C. Pierzchala
Welborn Sullivan Meck & Tooley, P.C.
Denver, CO

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JOSEPH C. PIERZCHALA is a Shareholder at Welborn Sullivan Meck & Tooley, P.C., in Denver, CO. He represents business and individual clients in complex commercial and civil litigation before state and federal courts. Mr. Pierzchala has experience litigating and arbitrating a wide array of disputes involving oil & gas, mineral rights, real estate, corporate law, and securities. Mr. Pierzchala's practice is also focused on representing clients in regulatory matters before the Colorado Oil & Gas Conservation Commission. He was selected for inclusion in Colorado Super Lawyers "Rising Stars" List, 2014-2017. He received his J.D. from the University of Denver, where he was Staff Editor or the Denver University Law Review.

INTRODUCTION

This paper provides a review of the state laws of Wyoming, Colorado, and New Mexico as administered by each state's respective oil and gas regulators related to surface use and impacts, specifically state regulator imposed mandatory pre-drilling requirements for notice, negotiation and siting of surface disturbances on fee surface including bond requirements. State regulation of oil and gas operations on surface evolved from the general common law rule that, in the case of a split estate, the mineral estate is dominant.¹ As a result, the surface estate cannot prohibit access to the surface by the mineral owner or mineral lessee for oil and gas development.² The mineral estate owner's rights, however, are subject to the reasonable accommodation doctrine.³ While the mineral owner or mineral lessee has the right to use as much of the surface estate as is reasonably necessary for development of the mineral estate, the right is not absolute.⁴ The prevailing trend is that the surface and mineral interests must show due regard for the other, and must accommodate the use of each.⁵ Addressed herein are the state regulatory procedures for obtaining a surface location for oil and gas operations, including surface owner notice requirements. While each state follows the common law doctrine that the mineral estate is entitled to use as much of the surface estate as is reasonably necessary to develop the mineral estate, each state varies significantly in the manner in which it regulates surface use. In each state, the statutes and regulations favor and are designed to encourage private surface use agreements for development on fee surface, which significantly reduces regulatory hurdles as well as avoids the uncertainties of disputes surely to follow in the absence of such an agreement.

WYOMING

The Wyoming Legislature has prescribed the procedures for obtaining a surface location for oil and gas development in the Wyoming Oil and Gas Conservation Act⁶ and the Wyoming Split Estate Act.⁷ Prior to enacting the Split Estate Act, Wyoming adhered to the reasonable accommodation doctrine, which provided an owner in the mineral estate

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the right to use as much of the surface estate as is reasonably necessary to develop the minerals.⁸ In 2005, the Wyoming Legislature effectively codified the common law reasonable accommodation doctrine when it adopted the Split Estate Act.⁹ An operator, with the right to any of the oil and gas underlying the subject surface, has the right to "locate and enter the land for all purposes reasonable and necessary to conduct oil and gas operations to remove the oil or gas underlying the surface of that land, . . . [and] the right at all times to enter upon the land for non-surface disturbing activities reasonable and necessary to determine the feasibility and location of oil and gas operations to extract the oil and gas thereunder."¹⁰ The operator must, however, first comply with the Split Estate Act and "shall reasonably accommodate existing surface uses."¹¹ Further, the operator has the right to "reenter and occupy so much of the surface of the land thereof as may be required for all purposes reasonable and necessary to conduct oil and gas operations on the land."¹²

Before entering upon the surface, the Split Estate Act requires that the operator first provide the surface owner with notice of the intended operations. For non-surface disturbing activity, i.e., activities that do not involve dirt work, including surveying, inspections, staking, etc., an operator must give at least five (5) days' advance notice to the surface owner before entry.¹³ The notice describing the proposed operations must be sufficiently detailed because in the event the operator wishes to conduct subsequent activities that were not included in the initial notice, the operator must provide new notice.¹⁴

For surface disturbing activities, the operator may not enter the land until after a complete application for permit to drill has been submitted to the Wyoming Oil and Gas Conservation Commission ("WOGCC").¹⁵ Obtaining a surface location and pre-drilling notice requirements are part of the application for permit to drill process.¹⁶ Before an operator can submit a Form 1 application for permit to drill to the WOGCC, the operator must provide notice to and attempt good faith negotiations with the surface owner. The Form 1 application for permit to drill requires an operator to identify, by checking the appropriate boxes, whether the proposed well is located on split estate surface.¹⁷ If so, the Split Estate Act is implicated, and the operator must attach a Form 1A, which is a certification that the operator has complied with the Act.¹⁸ The Split Estate Act will apply to all circumstances where the operator is claiming a right of entry pursuant to an

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oil and gas lease. Only if the surface owner also owns the entirety of the unleased mineral estate, will the Act not apply.¹⁹

To comply with the Split Estate Act, the operator must, before submitting its Forms 1 and 1A, provide notice to and consult in good faith with the surface owner.²⁰ Notice must be sent to all surface owners, with legal or equitable title, at the address on county records at time notice is given, not more than 180 days but not less than 30days before commencing operations.²¹ The notice must provide a sufficiently detailed description of the work plan and proposed operations so that the surface owner can evaluate the impact to his or her lands, including, at minimum: proposed date that operations will begin; proposed surface locations, to the extent reasonably known, for roads, wells, well pads, seismic locations, pits, reservoirs, power lines, pipelines, compressor pads, tank batteries and other surface facilities; the name, address, telephone number, fax and email of operator and designee, if any; an offer to discuss and negotiate in good faith changes to proposed work plan prior to start of operations; and a copy of the Split Estate Act.²² After notice has been provided, the operator and surface owner must engage in good faith negotiations to reach a surface use agreement for protection of surface resources, reclamation activities, timely completion of reclamation, and damages payments.²³ In aid of reaching an agreement and resolving disputes, the parties may request, and upon mutual agreement, engage in mediation or arbitration through the Wyoming agriculture and natural resource mediation board.²⁴

Following such notice and good faith negotiations, the operator may proceed with submitting its Forms 1 and 1A if it has secured the written consent or waiver of the surface owner for entry to conduct oil and gas operations, obtained a surface use agreement providing for payment to the surface owner for damages caused by the operations pursuant to the Split Estate Act, or secured a waiver as provided in the Split Estate Act.²⁵ If the right of entry is secured by a surface use agreement, the operator need not attach the agreement itself to the Form 1A.²⁶ The Split Estate Act defines the types and measurement of damages for which the operator must compensate the surface owner for land directly affected by oil and gas operations: an amount equal to the loss of production and income, loss of land value and loss of value of improvements as a result of oil and gas operations; an amount and method mutually agreeable between the operator and surface owner with consideration to be given to the period of time during

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which the loss occurs.²⁷ If a waiver is obtained from the surface owner, it must identify which rights under the Split Estate Act have been waived.²⁸

In the event written consent, waiver, or a surface use agreement are not obtained or reached following good faith negotiations, the operator may still gain access to the surface, but it must post a good and sufficient surety bond to secure payment of damages for the benefit of the surface owner.²⁹ This bond is in addition to any other operating bonds required by the WOGCC. The surety bond or other form of guaranty shall be executed by the operator, or a bonding company acceptable to Commission,³⁰ in an amount to be determined by WOGCC but not less than $10,000 per well site.³¹ The WOGCC may require a separate blanket or surety bond to cover activities such as access roads, pipelines, and production facilities.³² In the alternative to a well site bond, the operator may request authorization to submit a blanket bond or other guaranty in amount determined by WOGCC to cover all operations on the surface as identified and described in the notice to the surface owner pursuant to the Split Estate Act.³³ Neither the well site bond nor blanket bond established by the WOGCC establishes the amount for reasonable and foreseeable damages.³⁴

In determining the amount of the well site or blanket bond, the WOGCC must consider the operator's proposed plan of work and operations included in the surface owner notice and any other factors...