Producers, surface landowners confront split-estate issues

Jan. 16, 2006
As the Bureau of Land Management begins a new examination of split-estate resource management, Rocky Mountain oil and gas producers and landowners continue to grapple with problems resulting from surface and subsurface land rights being held by different parties at the state level.

As the Bureau of Land Management begins a new examination of split-estate resource management, Rocky Mountain oil and gas producers and landowners continue to grapple with problems resulting from surface and subsurface land rights being held by different parties at the state level.

On Dec. 22, 2005, BLM announced its review, which is required under the 2005 Energy Policy Act. It also established a web site,, which includes instructions on submitting comments to a preliminary draft of a report that it plans to send Congress once it completes the review.

The Department of the Interior agency manages 261 million acres of federally owned land, mostly in 12 western states. It also administers 700 million acres of subsurface mineral holdings throughout the US.

Trade associations representing oil and gas producers welcome the review. “We need to study the issue more. The notice seeks views on the split-estate issue and is fairly general,” said Dan Naatz, vice-president for federal resources at the Independent Petroleum Association of America in Washington, DC. “Our view has been very strongly that there should not be federal legislation to address the split-estate issue. It’s much more reasonably handled through local agreements between private and federal landholders.”

Bob Gallagher, president of the New Mexico Oil and Gas Association in Santa Fe, concurred with Naatz, saying, “I think it’s good that the BLM is reviewing it. But I think any review that does not stop and understand the premise that the mineral estate is the predominant estate shouldn’t get out of the gate.”

Gallagher believes much can be accomplished through open communications between industry and landowners including “timely notification, timely entry on the land, compensation for surface disturbance, and other subjects.”

Laurie Goodman, a member of the Landowners Association of Wyoming (LAW) and a consultant based in the Jackson-Pinedale area, noted that the BLM discussed split-estate regulations in general earlier in 2005.

“We’re very curious about what the required study under the energy law requires BLM to do. We’ll offer our comments,” she said.

Areas of agreement

When it comes to resolving split-estate questions, landowners and producers generally agree on two points: A majority of such negotiations are satisfactorily resolved, and the issue is best handled locally.

“The vast majority of oil and gas producers in the Mountain West successfully negotiate surface use agreements with the vast majority of landowners,” said Naatz.

“The holdouts seem to be the owners who simply don’t want wells on their property and will try to stop drilling any way they can,” he said, adding, “We think that’s unfortunate since it creates obstacles to getting access to public resources.”

Gallagher noted: “We want to be sensitive to the other users of the land while understanding that we have a job to do. There’s a fine line, but an area that can be agreed upon that does not give the industry nor the surface owner overwhelming benefits.”

Gallagher added: “Proper notification can go a long way. It can conceivably equal timely entry. We can’t allow a leasing agreement to go to an arbitrator and then wait 60, 90, or 120 days for a decision. It’s easily attainable. You bond to the fair market value, and then you move on.”

Goodman, who was administrator of regional, state, and local operations at the US Environmental Protection Agency when George H.W. Bush was president, said Wyoming landowners worked hard to get that state’s legislature to pass a law last year that gives surface landowners more input when producers lease subsurface rights from BLM.

But even in that law, she continued, “We pressed to avoid a one-size-fits-all approach and keep as much power between the two negotiating parties.” She said, “We want to retain that.”

Gallagher said that in 2005 New Mexico’s legislature voted down a surface landowners’ rights bill that the state oil and gas association opposed because it would have prevented timely entry.

When he spoke with OGJ, NMOGA’s president was scheduled to meet with New Mexico Gov. Bill Richardson and his staff later that day to discuss energy issues that might come before the state’s lawmakers in 2006.

“If they include the same bill as last year, we will absolutely work tirelessly to defeat it,” Gallagher said. “But if all sides are willing to sit down and communicate, I absolutely believe there is compromise language that could be agreed upon and turned into law.”

A pressing issue

Producers and surface landowners also agree that the split-estate question is a pressing issue, but for different reasons.

“It’s been occurring increasingly in the West, where there are a lot of private surface rights and public subsurface holdings,” Naatz said. “The increasing interest in coalbed methane production has made these issues come to the forefront much more quickly.”

Gallagher noted: “These public lands are multiple use. We need to get on them to produce the natural resources our country needs. But that doesn’t mean there can’t be communication prior to and during our exploration and production. That’s where state associations are going.”

Goodman said Wyoming’s law, which went into effect on July 1, 2005, includes a provision requiring federal subsurface lessees to give 30 days’ notice of activities that would disturb the surface.

It also gives a surface landowner an opportunity for more input on surface activities, such as encouraging directional drilling, consolidating operations, and discussing points of access and water discharge, she told OGJ.

The state law contains compensation provisions that surface landowners believe are more realistic.

“Companies were offering more than they were required under law, usually a per-well fee and an amount per rod,” Goodman explained. “But the amount was arbitrarily set in various locations. In the 1970s, when only four locations per square mile were being drilled, that was fine. But in the Jonah area, for example, producers are seeking to drill 128 wells/sq mile.”

Goodman added: “Now, the rancher can negotiate for much broader damages. If all of the drilling is going to be in one section of land but reduce the value beyond the agricultural production in three sections, the landowner has the ability to negotiate for that under the 2005 law.”

She pointed out that while the oil and gas industry is able to drill wells closer together and more quickly, surface land values also have increased dramatically on an aesthetic basis.

“So if oil and gas companies take some of that value away due to industrialization, legislators agreed that the industry should pay for it,” she said. “That’s been the most difficult provision to enforce.”

She emphasized, “Nothing about the state statute, like the nine other state statutes in the country, takes away the BLM’s dominance, nor does it allow landowners to preclude activity.”

But, she added, BLM in its previous split-estate proposals has limited joint planning to producers and the agency instead of including surface owners. It also has not required lessees to state how many wells would be drilled.

“We understand that. But they know enough to go to our state corporation commission and ask for bottomhole spacing,” she said. “If they know that, they have a pretty good idea of how many locations can be maximized on the surface. The landowner should know this.”