Protecting Surface Interests in Oil and Gas Leases

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Oil and Natural Gas ProductionMineral owners who also own the surface above their minerals have distinct advantages in negotiating an oil and gas lease to protect and advance their surface interests.

The owner of a fee simple, or unqualified, interest in land holds title to the surface of the land, the space above it, and the sub-surface minerals below it to the center of the earth. Most landowners who want to benefit from the production of their minerals enter into an oil and gas lease with a lessee who specializes in operating drilling programs.

By law the mineral estate is dominant to the surface estate. A mineral lessee (operator), unless restricted by the terms of the lease, may use any part of the surface reasonably necessary to conduct mineral operations – even drilling in irrigated fields. Since the surface rights of the parties to a mineral lease are expressly provided for by the terms of the lease, it is vital to include clauses which protect the land, water and existing use of the land.

Designating the locations of roads, drilling and production areas, and access points to the property are huge advantages for surface owners. The prevalence of horizontal drilling allows for greater flexibility in the location of drilling sites. This creates an opportunity for surface owners to prohibit activity in areas close to homes, pens, fields and other improvements.  Scenic and sensitive areas, such as mountains, streams, aquifers and prehistoric sites may also be designated as prohibited areas.

The lessee will need access to the land and the ability to build roads, pipelines, electric lines, compressor sites and central batteries. Experienced landowners require plat approval from their lessees before the lessee selects the locations for these facilities. For many surface and mineral owners, having your lessee build an expensive road that can be used in farm operations after the drilling is over is a big benefit.

Access points into the lease should be limited in order to prevent the land from becoming a staging point for other leases in the area. The locations for ingress and egress should be identified in the lease.  Access activity can be prohibited during certain hours, such as limiting trucking, gauging and pumping to daytime hours, except in emergency situations.

Water usage has become an important area for landowners to protect their interests.  The lease should specify which water sources are permitted for use and the quantity.  The quality of  water must be protected by strategic location of pits and storage, environmental protection, and reclamation of areas exposed to hydrocarbons and chemicals.

Lease surface maintenance includes road quality, which should be specific regarding width and material used, and the depth of pipelines. Anticipate damage from accidents which may occur during drilling and production by specifying penalties for spills, trash, and excessive use.

Another way to protect the land is to specify surface damage rates in the lease. Institutions that control large mineral lands establish a rate and damage schedule which is filed as public record. This is an excellent reference source for defining the prevailing rates at the time the lease is negotiated. And for adjusting the rates over time to not less than the prevailing rate.

Landowners who control both the surface and mineral interests have a tremendous benefit. They can take advantage of the fact that all terms in an oil and gas lease are negotiable to enjoy significant royalty income while preserving their land for future generations.