Pipeline Easements and Legal CaSes

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Can’t we all just get along?
Surface and Mineral Rights in Texas
Ezra A. Johnson
July 23, 2014
Texas Association of REALTORS
Surface Impacts of Oil and Gas Development
SURFACE RIGHTS ARE LIMITED
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What is the “Surface”
• What “comes-with” the purchase of the “surface estate”
or the “surface” of the land in Texas?
• In the absence of an expressed intent to do to otherwise, a
sale of the “surface” includes all:
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Water
Limestone
Caliche
Surface shale
Sand
Gravel
Iron
Near-surface (0-200ft) lignite (coal)
Texas Association of REALTORS
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What is a “Mineral”
• It’s complicated
What is the meaning of “oil, gas and other
minerals”?
Depending upon the circumstances, a
conveyance of “oil, gas and other minerals”
may include much more than oil and gas.
However, the term “other minerals” never
includes the surface (i.e., limestone, sand,
water, etc.).
Texas Association of REALTORS
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What is a “Mineral”
• “Incidents of the Mineral Estate” or “The Bundle of
Sticks”
• Right of Ingress and Egress
• (more commonly known as the Executive Right or the Right to
Develop)
• Right to Receive Royalty
• Right to Receive Rentals
• Right to Receive Bonus
• Each stick in the bundle can be conveyed separately from
the surface and from each other.
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What is a “Mineral”
• Economic Benefits of Mineral Ownership
• The right to receive royalty may be “participating” or “nonparticipating”
• A conveyance of “royalty” without more, is a non-participating
interest.
• The right to bonus entitles the owner to a share of the price paid
to sign a lease. The right to rentals entitles the owner to a share
of the price paid to delay drilling a well during the term of the
lease.
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What is a “Mineral”
• The right of ingress and egress entitles the owner to
go on the surface of the land to extract the
minerals on or beneath it.
• The right to convey rights of ingress and egress (aka
development rights) to others is called the
“executive right.”
• When the owner of the minerals leases property to
an oil and gas developer, that is an exercise of the
executive right.
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What is a “Mineral”
• The owner of the right of ingress and egress has a
controlling interest in the surface, even if they own
no interest in the surface!
• The right of ingress and egress includes the right to
enter and use the surface in any way deemed
reasonably necessary to extract the minerals.
• If the owner of the surface estate does not own the
right of ingress and egress to the minerals under his
land, he has very little control over the
development process.
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Surface Impacts of Oil and Gas
Development
• What is “reasonable use” of the surface?
• Remember that the surface includes water, caliche, gravel
and sand; however,
• If the use of water is reasonably necessary to extract the
minerals, the mineral developer can take water without consent
of the surface owner.
• If new roads are reasonably necessary to access the drilling
location, mineral developer can not only build those roads but
use caliche gravel and sand found on the surface (again,
without the consent of the surface owner).
Texas Association of REALTORS
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Surface Impacts of Oil and Gas
Development
• What is “reasonable use” of the surface – Cont’d.
• Clearing of trees and brush that interfere with mineral
development
• Housing employees
• Storing equipment
• Processing, treating and storing minerals
• Installing pipelines
• Installing utilities
• HOWEVER: Operators are under no legal obligation to
protect livestock by fencing their facilities.
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Surface Impacts of Oil and Gas Development
DRILLING PADS
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Surface Impacts of Oil and Gas Development
SETBACK REQUIREMENTS?
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Surface Impacts of Oil and Gas Development
DRILLING PADS
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Surface Impacts of Oil and Gas Development
DRILLING PADS
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Surface Impacts of Oil and Gas Development
FRAC
Texas Association of REALTORS
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Surface Impacts of Oil and Gas Development
PRODUCTION FACILITIES
Texas Association of REALTORS
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Surface Impacts of Oil and Gas Development
PRODUCTION FACILITIES
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Surface Impacts of Oil and Gas Development
PRODUCTION FACILITIES
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Surface Impacts of Oil and Gas
Development
• Given all of that, is anything considered “unreasonable?”
• Yes.
• Negligent damage to property is unreasonable.
• Use of the surface estate for the benefit of minerals under “other lands” is
unreasonable.
•
Any activity that fails to reasonably accommodate existing uses of the
surface is unreasonable.
However, these exceptions to the general rule have more
loopholes than teeth.
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Surface Impacts of Oil and Gas
Development
• What is meant by “other lands” in the context of
reasonable use of the surface?
• Lands having different mineral ownership.
• Multiple surface owners may own interests in lands on top of
minerals owned by the same person (or group of people).
• Accordingly, mineral ownership, not surface ownership,
determines the reasonableness of surface use.
• When different mineral tracts are “pooled” to form a drilling unit,
they become a single mineral tract for determining use of the
surface.
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A Quick Note on Water
• Landowners cannot depend on conservation
districts to protect their water rights from oil and gas
development
• Use of water for oil and gas development is largely exempt
from pumping restrictions, at least for now.
• Unlimited right to take water from the surface so long as
that water is used to extract minerals from the same lands.
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How Do Buyers Protect their Surface Rights?
• Get control over the right of ingress and egress.
• Best case: 100% ownership of surface and minerals or a
waiver of all ingress and egress rights to the surface.
• Remember - a deed that is silent as to the minerals conveys
whatever mineral rights the grantor has.
• Total surface waiver is covered by the TREC addendum but is
difficult to apply to larger tracts.
• Pre-negotiate particular “zones” for mineral exploration.
• See Chapter 92 of the Texas Natural Resources Code, which allows
real-estate developers to set aside two-acre blocks out of every
eighty acres as mineral development zones.
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How Do Buyers Protect their Surface Rights?
• Get control over the right of ingress and egress.
• Second best: 100% ownership of the executive rights.
• The TREC addendum does not cover executive rights conveyed
separately from the mineral estate.
• Next best: Any combination of minerals and executive rights
that ensures control over at least 25-50% of the minerals (the
more, the better).
• The TREC addendum may or not be applicable/appropriate
depending upon the circumstances.
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Pipeline Easements
According to Railroad Commission of Texas statistics,
there are 366,274 total pipeline miles in Texas
(interstate and intrastate, regulated and nonregulated).
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