THE WYOMING SPLIT ESTATES ACT
| Jurisdiction | United States |
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The Wyoming Split Estates Act (the "Act")1 became effective on July 1, 2005.2 At the outset the Act acknowledges the right of an operator owning the underlying oil and gas interests to enter the surface "for all purposes reasonable and necessary" to conduct its operations.3 But, the Act establishes detailed procedures the operator must follow in the exercise of that right with respect to operations on split estates. These procedures are designed to protect a surface owner who owns less than all of the oil and gas interests underlying his or her surface estate.
The Wyoming Oil and Gas Conservation Commission ("WOGCC") has a central role in ensuring operator compliance with the procedures mandated by the Act. An application for a permit to drill ("APD") will not be approved unless the operator either certifies to the WOGCC the Act is not applicable or files with the WOGCC a statement certifying compliance
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with the Act. Moreover, the WOGCC has revised a number of its applications and reporting forms to address compliance with the Act.4
This article is in three sections. The first addresses the split estate situations to which the Act applies. In this connection the Act's exclusions will be discussed. The second section addresses the procedures established by the Act. Finally, this article will review the Act's miscellaneous provisions and the forms and applications whereby the WOGCC requires the operator to address how it has complied with the Act.
I. APPLICATION OF THE ACT.
A split estates situation mandating compliance is determined by the Act's definitions of "surface owner" and "oil and gas operations." Even if the proposed operation is located on split estates, the Act may not apply by virtue of certain exclusions.
A. Surface Owner.
A "surface owner" is one holding a recorded interest in the legal or equitable title in the surface estate on which the oil and gas operations occur. A person or governmental agency owning the entire surface estate and all of the underlying oil and gas estate is not a surface owner for purposes of the Act.5 In other words, for purposes of the Act a "surface owner" is one who owns none or just a portion of the underlying oil and gas estate. All ownership determinations are based upon the records on file with the county clerk of the county in which the lands are located.6
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Not all recorded interests confer "surface owner" status on an individual or entity. The surface owner definition expressly excludes any person or governmental entity that "owns only an easement, right-of-way, license, mortgage, lien, mineral interest or nonpossessory interest in the land surface."7 However, while the holders of these excluded interests are not protected by the Act, such holders will continue to enjoy their rights previously granted by law or contract.8 Said differently, claims such as one for easement interference are unaffected by the Act.
The "surface owner" definition is silent with respect to surface leases. Thus, there is a question as to whether a surface lessee under a recorded lease is a surface owner under the Act. However, the Wyoming Supreme Court's reasoning in Belle Fourche Pipeline Co. v. State9 suggests a surface lessee is not such a surface owner.
The issue in Belle Fourche Pipeline Co. was whether a long-term surface lessee was a "surface owner" or a "surface landowner" protected by the analogous consent and bonding provisions relating to mining permits in Wyoming's Environmental Quality Act.10 In holding that a surface lessee was not a "surface owner," the Court stated that the "very nature of a lease encompasses a recognition by the lessee that he does not have an ownership interest in the property."11 If the Belle Fourche Pipeline Co. reasoning is applied to the Act, a surface lessee would not be a surface owner for purposes of the Act.
State lands present a variation of this issue. As noted above, if a governmental entity owns all of the surface estate and all of the underlying oil and gas estate, it is not a "surface owner" protected by the Act. This raises a question as to whether the grant by the State of a grazing lease to one party and the grant of an oil and gas lease to another breaks this unity, thus triggering the applicability of the Act for the benefit of the grazing lessee. Informal indications are that a State grazing lessee would not be a
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"surface owner."12 Here, too, the Bell Fourche Pipeline Co. decision supports that conclusion. In any event, even without the Act State grazing lessees are protected. The Board of Land Commissioners' rules address conflicts between State grazing lessees and other State lessees.13
B. Oil and Gas Operations.
The term "oil and gas operations" is broadly defined as surface disturbing activities associated with drilling, producing and transporting oil and gas, including the full range of development activity from exploration through production and reclamation of the disturbed surface.14 In turn, an oil and gas operator is any person engaged in oil and gas operations or that person's designated agents, contractors and representatives.15
The insertion of "exploration" in the oil and gas operations definition and a reference to "seismic locations" elsewhere16 in the Act imply that the Act covers seismic data acquisition activities. The WOGCC has concluded that the Act does indeed cover such activities.17 However, at the June 14, 2005 hearing at which the WOGCC considered the draft rules implementing the Act, it was argued, particularly by seismic companies, that such coverage was not intended by the Legislature, particularly in light of the WOGCC's extensive regulations covering seismic data acquisition.18 These arguments appeared to have had some effect and may result in an effort to amend the Act to expressly remove such activity from the Act.
C. Federal Oil and Gas Lessees.
Neither the definition of "surface owner" nor the definition of "oil and gas operations" makes any distinctions based on ownership of the oil and gas estate. Moreover, the Act contains no exclusion or exemption for
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operations conducted under an oil and gas lease granted by the federal government. Simply put, the Act literally applies even when the surface estate is held in fee and the federal government owns the underlying oil and gas estate.
The application of the Act to federal oil and gas interests has generated considerable controversy. Arguments have been raised as to whether such an application is constitutional (e.g., on preemption grounds) or even necessary in light of existing federal statutes and regulations relating to split estates where the federal government owns the oil and gas interests.19 However, the WOGCC left no doubt as to its position on the applicability of the Act and the implementing rules to federal oil and gas interests. Those implementing rules expressly provide:
The federal Application for Permit to Drill must be accompanied by a statement of compliance as provided in Section 8(d) of this Chapter if a split estate situation exists which is subject to the Split Estates Act.20
While there has been discussion of a challenge to the applicability of the Act to operations on federal oil and gas leases, as of November 1, 2005 no litigation had been filed. Until the application of the Act to federal oil and gas interests is resolved in litigation or the federal government and Wyoming reach some accommodation,21 an operator under a federal oil
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and gas lease will need to comply with both the federal split estate laws and rules and the Act and its implementing rules. In particular, in those situations when a federal oil and gas lessee is unable to reach an agreement with a surface owner covered by the Act, the operator will be subject to two different bonding requirements.22
D. Application for Permit to Drill, Form 1.
The WOGCC has revised its APD, Form 1, to add check boxes by which the operator must state whether or not the proposed well is located on split estates. If the well is located on split estates, the operator must attach a Form 1A, a new form by which the operator certifies how it has complied with the Act.
Next to the check boxes on the APD the WOGCC has added a note instructing that a well is on split estates "if Surface owner differs at all from Mineral owner." This use of the word "Mineral" is inappropriate. "Mineral" encompasses much more than oil and gas.23 Yet, as discussed above, the Act applies only when a surface estate owner does not own the entire underlying oil and gas estate. Ownership of other minerals, such as coal, is simply irrelevant. Further, the use of "Mineral" on the APD is all the more perplexing given that the Act expressly excludes from the surface owner definition a person owning only a "mineral interest."
E. Exclusions.
Even if the proposed oil and gas operation is on split estates, the Act may not apply by virtue of exclusions under the Act. The principal exclusion is set out in Section 2 of Chapter 81 of the Session Laws (the "Section 2 Exclusion"):24
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Any written surface use agreement, consent, prior regulatory approval or judicial order or decree in effect prior to the effective date [July 1, 2005] of this act shall not be subject to the provisions of this act.
Thus, if an operator entered into a surface use agreement with a particular surface owner prior to July 1, 2005, the operator need not comply with the Act's notice or bonding procedures in dealing with that surface owner. Care will be needed in dealing with pre-July 1, 2005 surface use agreements that do not cover all of a surface owner's lands. For example, if a surface use agreement does not cover the lands on which the proposed...
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