Surface Use Agreement
Property laws and mineral ownership work differently in the US than in many other parts of the world. As such, the rights to the surface of the land and the rights to what is underneath that land are different. While, in many cases, these rights belong to the same party, in cases where the rights are severed (split estate), a surface use agreement comes in handy for the surface owner (landowner).
Surface use agreement in the oil and gas industry differs from the oil and gas lease, typically signed between an oil and gas company and the mineral rights owner, who may not necessarily own the land surface underneath which the minerals are.
What is Surface Use Agreement?
A surface use agreement is a legal document that defines the extent of the surface land use necessary to extract minerals. It also notes the operational requirements and the impact of those operations on the surface owner’s property.
This document is also called a land use agreement.
In simpler words, this agreement defines what the operating company can do on a landowner’s property to drill a well and produce minerals. It will also define what they cannot do. Similarly, this document also outlines what compensation the surface owner may receive for the use of their land.
When is Surface Use Agreement Used?
A surface use agreement may not be necessary for all oil and gas exploration and extraction scenarios. However, in most cases where the landowner is also the mineral owner, the surface use terms and conditions are typically negotiated in the oil and gas lease.
This agreement is typically used when a party other than the mineral owner owns the land surface. This usually happens when the surface and mineral rights have been severed.
Surface owners may not even be aware that a mineral lease has been signed on the minerals underneath their land. They may only learn about it when the company notifies them that they intend to start drilling. That’s when a landowner or surface rights owner may choose to enter a surface use agreement to protect their interests.
Some states like New Mexico and Oklahoma require oil and gas companies to sign a surface use agreement before beginning production. So the state laws on this agreement vary. However, in most cases, such agreements are voluntary, and operating companies enter into these agreements to avoid lawsuits in the future.
What Does Surface Use Agreement Cover?
A surface use agreement between a surface rights owner and an operating oil and gas company is a critical document that covers a wide range of terms and conditions regarding the use of the surface. It essentially gives the operating company the right to use the surface as necessary for extracting minerals. More importantly, it protects the rights of the surface owner.
In addition to the basic things already discussed, a surface use agreement covers the following:
- Type of equipment that is used on the surface within the specified area of disturbance and the type of equipment that is prohibited from using
- Use of roads on the surface or leading to it
- Loss of timber from the surface
- Water usage
- Prohibited activities (for example, littering, dumping waste, hunting, etc.)
- Insurance and taxes
- Arbitration processes in case of disputes
Another vital aspect that the surface use agreement should be covered is restoring the surface once the drilling operation has been completed or the mineral lease has expired.
The surface use agreement should also specify the landowner’s compensation if and when their property is damaged. This is usually decided based on the acreage of the land the operator will use.
Similarly, the agreement should specify damage compensation for these entities if real estate property or personal is on the surface. So, for example, if there’s a farm on the land, the document can specify compensation for any damage to the farm, its inhabitants, or the livestock on it.
These clauses are necessary because drilling and production of oil and gas involve heavy machinery, which can damage nearby land and properties.
The Accommodation Doctrine
When discussing surface use agreement, it’s important to discuss the Accommodation Doctrine. As such, in most states in the US, mineral rights take precedence over surface rights. That means a mineral rights owner/lessee can use the surface to extract the minerals.
However, according to the Accommodation Doctrine, s surface owner can prevent the mineral owner/lessee from using the surface without their permission if they can prove that:
- The mineral owner/lessee can produce mineral without interfering with the surface.
- Their use will result in the surface owner being unable to use their land.
- There are no practical alternatives for the surface owner.
The Accommodation Doctrine was adopted in Texas, but many other states have adopted such statutes to protect the surface owner. These states include Alaska, Colorado, Montana, New Mexico, North Dakota, South Dakota, Utah, and Wyoming. In most states, the mineral owner or lessee must inform the surface owner before beginning any drilling operations (normally at least 10 days in advance).
Negotiating Surface Use Agreement
Surface use agreements are common in the US oil and gas industry when the companies deal with split estates. Even though mineral rights dominate surface rights, companies may prefer to sign a surface use agreement before drilling a well.
Since a surface use agreement is a complex document, a surface owner should consult with a lawyer to protect their interests. Most companies have such agreements ready to go with default conditions that favor them more than the surface owner.
Of course, it’s the surface owner’s responsibility to read the agreement before signing it and negotiating to get a better deal that protects their interests and promises them fair compensation for use and damages to their property.
To summarize, a surface use agreement is a legal document that outlines the relationship between the surface owner and the mineral owner/lessee and outlines the conditions of using the surface and compensation for damages.
This document is used in cases where a gas or oil company is drilling on a split estate where the surface owner is a different party from the mineral owner.