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The Landowner vs. the Owner of the Oil and Gas

Surface Use Agreements can protect landowners when they do not own the subsurface estate

By Paul R. Yagelski, Esq.

 

Although the landowner owns the surface of his land, the landowner does not always own the rights to the underlying oil and gas.  What happens when the owner of the oil and gas decides to develop the oil and gas underlying the surface of the landowner’s land?  What can the landowner do when an oil and gas company comes onto the landowner’s land to develop the underlying oil and gas?

In Pennsylvania, the owner of the subsurface estate, which would include the oil and gas, is the owner of the dominant estate.  As such, the rights of the oil and gas owner supersede the rights of the owner of the surface, and under Pennsylvania law, the owner of the oil and gas can do whatever is reasonably necessary on the surface of the landowner’s land in order to develop the underlying oil and gas.  The landowner however, is entitled to damages for the damage done to the surface of the landowner’s land due to the disturbance caused by oil and gas company’s operations.  In addition, although the oil and gas company is not obligated to enter into an agreement with the landowner in order to develop the oil and gas underlying the landowner’s land, the landowner should, nevertheless, seek to enter into such an agreement with the oil and gas company concerning its development of the oil and gas.  Such an agreement is frequently referred to as a surface use agreement.  It provides the landowner with various protections where the landowner does not own the oil and gas underlying the landowner’s property, but the landowner’s land is being used to develop the underlying oil and gas.

The following are some of the provisions, which the landowner should seek to have included in a surface use agreement:

  1. Definition of Rights. This provision would include an acknowledgment and agreement by the oil and gas company that it has no rights to the surface other than what is set forth in the surface use agreement.
  2. Oil and Gas Company’s Specific Rights as to the Landowner’s Land.  In this section, the specific rights that the oil and gas company has as to its development of the oil and gas are specified.  These rights would include, among others, ingress and egress; installation, operation, and maintenance of pipelines; construction, maintenance and use of well pads; the operations that can be conducted, e.g., fracking; the location of the well pads; the buildings, equipment, facilities, and pipelines that can be constructed on the surface of the landowner’s lands. 
  3. Area of Disturbance.  In this provision, the acreage that is to be utilized by the oil and gas company in the development of the oil and gas is specified; i.e., the amount of the acreage and its location.  The oil and gas company’s activities would be limited to this area, which is known as the area of disturbance.  The boundaries of the area of disturbance should be set forth on an exhibit, which would be attached to the surface use agreement so that there is no question as to where the oil and gas company’s activities are to take place.  This provision should state that all of the oil and gas company’s activities are to take place, with certain specified exceptions, within the area of disturbance.
  4. Payment for Surface Use.  Essentially in this provision, the oil and gas company and the landowner agree on the amount of damages that the landowner will be paid for the damage to his land and for the use of his land within the area of disturbance.  The amount of the damages is usually determined on a per acre basis.  This section should also include a provision providing for payment of damages to real and personal property outside of the area of disturbance, either during construction or anytime thereafter.
  5. Limitation on Operator’s Activities.  Limitations are imposed in this section on the Operator’s activities.  For example, this section may provide that the oil and gas company has no right to access any part of the landowner’s lands outside of the area of disturbance for any purpose except with the permission of the landowner.  This section can also prohibit any type of activity in the area of disturbance or on the landowner’s lands that is outside of the normal construction activities that occur during the development of the oil and gas; e.g., hunting, fishing, trapping or using firearms, alcoholic beverages, or illegal drugs.  This section can also include a provision prohibiting the use of gas or water from anywhere on the landowner’s property except within the area of disturbance.  Most importantly, this section should include a provision that states that no activities of the oil and gas company are to take place outside of the area of disturbance.  All activities to develop the oil and gas, with certain specified exceptions, are to take place only within the area of disturbance.
  6. Landowner’s Right to Use the Landowner’s Lands.  This provision would acknowledge that the landowner has the right to fully and freely use his lands, which are outside of the area of disturbance, for any purpose.
  7. Care in Operations.  The surface use agreement should include a section that provides that the oil and gas company is to conduct its operations in a good and workmanlike manner in keeping with the standard of conduct of a reasonably prudent operator.  It can also specify that the oil and gas company will take steps to prevent its operations from causing soil erosion; pollution of the landowner’s land, water, springs, or ponds; or damage to crops, grasses, foliage or trees.  This type of section can also expressly prohibit the release or discharge of toxic or hazardous substances.  A provision can also be inserted in this section that would prohibit the oil and gas company from using, without the landowner’s consent, any water from wells, pools, reservoirs, wetlands, or other water sources on the landowner’s property.
  8. Roads and Fences and Gates.  This provision would specify what roads, if any, on the landowner’s property can be used by the oil and gas company for ingress and egress.  This provision can also specify the type of traffic that can be used on roads within the landowner’s property and the reclamation that the oil and gas company must perform should any of the roads on the landowner’s property be damaged.  Maintenance requirements can also be specified in this provision.  If fences and gates are disturbed, provision can be made for replacement along with maintenance of gates and fencing.  Provision for the construction of fences and gates can also be specified. For example, a provision can be inserted that provides that the well pad location or the area of disturbance is to be fenced and gated. 
  9. Water Testing.  Specific provision can be made for testing of the water sources on the landowner’s land along with provision for replacement of the water sources, both as to quality and quantity, if the landowner’s water is adversely affected by the oil and gas company’s activities. 
  10. Restoration of Surface after Drilling or Reworking Operations.  Provision should be made as to how or in what manner the surface of the landowner’s land that has been disturbed by the oil and gas company is to be reclaimed.
  11. Insurance.  A provision can be inserted into the surface use agreement that requires the oil and gas company to obtain and maintain insurance; e.g., commercial general liability and environmental liability insurance, in order to protect the landowner in case of damage.
  12. Taxes.  The landowner’s land may be covered by a clean and green program.  If so, a provision can be inserted into the surface use agreement, which requires the oil and gas company to pay any penalty, rollback, or recapture of tax abatements created or imposed under any governmental program and levied upon the landowner as a result of the oil and gas company operations on the landowner’s property.  In addition, if there is an assessment or reassessment resulting in a tax increase by reason of any improvements to the landowner’s property by an oil and gas company, provision can be inserted that requires the oil and gas company to reimburse the landowner for such a tax increase.
  13. Remedies.  If there is a dispute between the oil and gas company and the landowner over the oil and gas company’s activities, the landowner’s remedies can be specified in the surface use agreement.  In particular, the right to have disputes arbitrated as opposed to proceeding to the Court of Common Pleas for a determination can be inserted into such a provision.
  14. Indemnification.  It is important that an indemnification provision be included in the surface use agreement under which the oil and gas company would be required to defend, indemnify, and hold the landowner harmless against the oil and gas company’s use of and activities on the landowner’s property.
  15. Termination of Surface Use Agreement.  It is important to insert a provision within the surface use agreement that specifies when the surface use agreement will terminate.

The aforesaid are some of the provisions that can be included in a surface use agreement.  Although it is not obligated to enter into a surface use agreement with a landowner, an oil and gas company will generally endeavor to do so with the landowner. 

The landowner should contact an oil and gas attorney for representation in negotiating a surface use agreement.  Such an agreement is to the landowner’s benefit.  It should not be overlooked.  You need an oil and gas attorney to negotiate such an agreement.

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