Tara Righetti 2017-12-07 15:54:08
Wyoming, like the majority of other oil and gas producing states, provides a surface land owner with a statutory right to compensation for damage or loss of value resulting from a severed mineral owner’s lawful use of its property. These laws, called “Split-Estate Acts” or “surface damage acts,” reallocate certain property entitlements between surface and mineral owners, effectively providing surface owners with a cost-free insurance policy against certain types of harm resulting from use by the mineral owner. Recent case law in North Dakota and Montana suggests that these laws may extend the statutory right to compensation to subsurface harms as well. Historically, a mineral owner enjoyed an “implied easement” to “use, consume, or destroy” as much of the surface estate as was “reasonably incident” or “reasonably necessary” to the exploration and production of the minerals. Prior to the passage of split estate acts, the mineral owners’ right of use existed without obligations to pay compensation or accommodate the surface owner’s existing uses. However, in order to avoid nuisance claims and disagreements about the reasonableness of a proposed activity, it became customary to negotiate agreements requiring compensation for damages to crops and improvements. Split-estate acts modify the common law dominant-servient paradigm existing between owners of severed mineral and surface estates. In addition to providing surface owners with procedural rights and requiring accommodation of existing surface uses, these acts codified the norm of paying damages. The impact of these statutes on the relationship between mineral and surface owners may be further complicated by states’ statutory acknowledgments of surface property interests in the subsurface pore space. Around the same time that state legislatures were passing split estate acts, many states, including Wyoming, also statutorily declared the pore space to be part of the surface property. Pore space refers to the tiny voids that exist in the rock within which water, brine, or hydrocarbons reside prior to extraction and into which substances such as wastewater or CO2 can be injected. While the mineral owner has the right to the hydrocarbons in the pore space, Wyoming law establishes that the iterative structure of the reservoir itself is a severable part of the surface estate. Vesting this interest however may have implications in other areas of law: it’s possible that provisions of split estate law guaranteeing the owners of the “land surface” damage and disruption payments may also apply to the mineral owners’ use of the subsurface. Cases in North Dakota and Montana have recently examined whether those states’ split estate acts entitle the owner of pore space to compensation for damages resulting from the mineral developer’s lawful use. In both cases surface owners sought damages for the mineral owners’ use of the pore space for produced water disposal. The reinjection of produced water has long been established a reasonable use of the surface by the mineral owner. Thus, the cases did not question whether the mineral owner could inject water into the pore space, only whether the states’ split estate acts entitled the surface owners to damage and disruption payments for the use and occupation of the pore space. In Mosser v. Denbury Resources Inc., the North Dakota Supreme Court found North Dakota’s split estate act was “broad enough to encompass compensation for use of the surface owner’s pore space as a component of the “surface owner’s land,” regardless of whether the surface owner was actually using that pore space or had plans to use it in the future. In a similar case, Burlington Resources Oil & Gas Co. LP, v. Lang and Sons Inc., the Montana Supreme Court held that although the surface owner in the case had inadequately proven his damages, Montana’s split estate act’s provision requiring compensation for “lost land value” “could encompass damage sustained by a surface estate owner for use of pore space.” In each of these cases the court found that the term “land” encompassed the subsurface pore space. Accordingly, these cases indicate that while state surface damage acts may permit compensation for some subsurface damage or disruption, evaluation of potential claims will require a fact specific inquiry as to the nature and extent of damages alleged relative to those enumerated in the statute. An important statutory difference may limit the ability of Wyoming surface owners to assert claims for subsurface damages under the Act. North Dakota and Montana both define the operations for which damages are owed as those requiring “entry upon the surface estate,” whereas Wyoming’s statute provides compensation for “surface disturbing activities.” Accordingly, whereas both Montana and North Dakota’s statutes make clear that the enumerated categories of damages can occur throughout any portion of the surface estate, Wyoming’s statute is arguably more limited to the “surface.” Whether that term refers to the entire surface estate or, as mentioned elsewhere in the statute, to the “land surface” or the “surface of the land,” and whether there exists a distinction between the two, is unclear. A common meaning interpretation of the term “land surface” implies “[t]he outside part or uppermost layer of something.” Further, part (a) of Wyoming’s pore space law refers to pore space as “below the surface lands” and states that ownership of such pore space is vested “in the several owners of the surface above the strata.” This language implies that pore space is separate, and distinguishable, from the surface. Rather than declaring pore space to constitute part of the surface estate, as North Dakota and Montana both did, the statute instead defines it specifically as below the surface, permitting the conclusion that the surface and pore space are not one and the same. Despite this, however, salt water has been held to constitute part of the “surface” despite its locations below ground. Defining and calculating damages may also be difficult. Like those in Montana and North Dakota, Wyoming’s split estate act provides a surface owner with a right of compensation for “loss of production and income, loss of land value and loss of value of improvements” sustained as a result of “oil and gas operations.” Montana’s Surface Owner Damage and Disruption Compensation Act defines “lost land value” as “the value of the highest and best reasonably available use of the land directly utilized by oil and gas operations and production, other than uses appurtenant to the mineral estate,” and requires the landowner to have a permit, where required by law, to demonstrate that a use is “reasonably available.” In Burlington Resources Oil & Gas Co., the Supreme Court of Montana found that the appellant land owner had failed to demonstrate lost land value as defined by Montana’s split estate act. Wyoming’s statute includes no such limiting definition. Accordingly, as Professor Kulander of South Texas College of Law has noted, the right to damages for “lost land value” may conceivably permit recovery for “any diminution in value” including, for example, the dwindling of “dubious values associated with loss of a remotely-possible future use” such as future suitability for carbon capture and sequestration. However, as courts adjudicating subsurface trespass cases have nearly universally realized, determining compensation for intentional intrusions into the deep subsurface is exceedingly difficult where the owner of the pore space is unlikely to be using the space at the time of the intrusion and may not experience any actual harm to his surface interests, other than the erosion of its right to exclude. The potential for interaction between Wyoming’s split estate act and its declaration of pore space ownership may have been contemplated. Wyoming’s pore space ownership statute, 34-1-152, provides that “[n]o provision of law…requiring notice to be given to a surface owner…shall be construed to require notice to persons holding ownership interest in any pore space in the underlying strata unless the law specifies notice to such persons is required.” The statute continues to reaffirm that nothing in the declaration of pore space ownership “shall be construed to change or alter the common law…as it relates to the rights belonging to, or the dominance of, the mineral estate.” However, the very premise of a split estate act alters the common law of mineral estate dominance by requiring compensation for reasonable and lawful use of the surface estate by the dominant mineral owner. Further, while the pore space ownership statute disclaims any rights to notice under the split estate act, it makes no such disavowal to any rights to compensation under the same. As a result of rapid development of coal bed methane and shale gas resources and the potential for carbon capture and sequestration, legislatures in interior western states have separately, but nearly concurrently, statutorily acknowledged a surface property interest in the pore space and provided surface owners with rights to compensation for damages caused by oil and gas operations. As the cases Burlington Resources Oil and Gas and Mosser demonstrate, the confluence of these laws could provide a right not only to compensation for damages upon the surface of the land, but also for damage to or use of the subsurface pore space. Whereas the damage resulting from excavation and construction of a surface evaporation pond for wastewater on the surface would certainly be compensable under split estate acts, so too might subsurface wastewater disposal into the pore space. Potential claims could foreseeably extend to a “loss of land value” caused by the lateral wellbore itself, even where there are no above ground disturbances to the parcel. As such, it is foreseeable that together these statutes could be interpreted to give practical effect to the hermitic axiom “as above, so below.” It is unknown whether, or to what extent, Wyoming courts will permit surface owners to recover damages for loss of value resulting from subsurface use of or damage to the pore space from oil and gas operations. However, oil and gas operators and landowners may want to consider including subsurface provisions in surface damages and use agreements and oil and gas leases. These agreements could be drafted to make clear that the consideration exchanged includes compensation for any damages or loss of value to the subsurface, including from horizontal drilling, hydraulic fracturing, or subsurface injection of produced water or substances for enhanced oil recovery. However, the application of split estate acts to uses of the pore space is theoretically problematic. Surface damage acts only apply to oil and gas operations and often only on split estates, and thus do not encompass subsurface intrusions related to non-mineral injection by adjoining landowners. This creates a distinct possibility of disparate outcomes for similar uses of the subsurface. Split estate acts could provide statutory damages for lawful uses of the pore space by a mineral owner or lessee, but would provide no such recovery for trespasses committed by an adjacent owner for the injection and trans-boundary migration of wastewater, hazardous waste, or carbon dioxide. Further, where surface damage acts may provide statutory damages for potentially speculative and expansive harms such as loss of value, the majority of courts have precluded recovery for subsurface trespasses absent a showing of actual harm or interference with the subsurface interest. Accordingly, courts should be cautious that surface damage acts do not inadvertently hold oil and gas operators conducting lawful operations to a higher standard than intentional non-mineral trespassers. Tara Righetti is an associate professor of law at the University of Wyoming where she holds a dual appointment with the College of Law and the School of Energy Resources. She is also a Certified Professional Landman and serves as the director of the undergraduate academic program in Professional Land Management. Prior to joining UW, Professor Righetti worked as an attorney and in executive management in the upstream oil and gas industry.
Published by Wyoming State Bar . View All Articles.
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