WATCH OUT! Picture this:
1) Joe the Landowner signs a Non-Surface Use Lease with XYZ Exploration after assurances from XYZ's land broker that the company won't conduct any operations on the surface of Joe's tract.
2) Then XYZ drills and frac's well adjacent to Joe's tract.
3) Next, Joe is contacted by a Right-of-Way Agent from XYZ's wholly-owned subsidiary pipeline company who tells Joe that the they are going to run a pipeline across Joe's land and that he can either negotiate an easement with them or go through condemnation proceedings.
What happened to Joe's "Non-Surface Use Lease"? That was with XYZ, not XYZ's pipeline affiliate.
Is this right? No.
Are exploration companies doing this? All the time.
What can I do to protect myself? A few things. When negotiating your Non-Surface Use Lease, think about insert provisions to deal with this situation.
If you've already signed a Non-Surface Use Lease and they try to do this to you, consider suing them. In Texas, Courts can ignore the separate existence of two companies and impose liability on one for the other's actions if it appears that the subsidiary is being used as a sham to perpetrate a fraud, to avoid liability, or to avoid the effect of a statute or unless there exist other exceptional circumstances. I think using an subsidiary to do what the parent contractually could not do is "sham to perpetuate fraud." But be aware that such a case would be an expensive uphill battle as it is hard to get court's to ingore separate existence.
There is no perfect answer for the landowner in these situations. I just wanted to let everyone know about what is going on and to try to prepare yourself. Just because XYZ's landman gave you a non-surface use lease and said they wouldn't do anything on your tract, doesn't mean XYZ's pipeline subsidiary will stay off your land. BEWARE.
Tags: lease, non-surface, pipeline, use
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