Replies to This Discussion

Permalink Reply by Dion Warr, CPL on February 24, 2018 at 7:25

Tina:

Some context might be helpful; is your property located in between a surface site / well pad and the adjacent section where the lateral (and first take point) will be located?  Also, is it possible that your property may be impacted by multiple well tracks or is just one?

Situations like these do come up as E&P companies increasingly look to optimize drilling and production plans - wellbore designs which begin from a surface location outside of the planned developed unit allow for the wellbore to be drilled such that the radius ("turning the drillbit lateral") can be built out outside of the section.  Once the lateral enters the section, the closer that the "take point" (length of the lateral which can be perforated and produced) can be to the legally established unit boundary (usually 330' from the unit line, in most cases the section line), the more producible length of the lateral, and thus generally the more productive the well can be (all other things being equal, length of producing lateral correlates linearly with production rate).  However, in many cases even active oil and gas leases in their primary term do not allow for use of the surface or subsurface to facilitate operations and production from other lands, or such use becomes substantially restricted after the primary term.  In such cases where the lessee / operator does not possess these rights, they can become exposed to surface and/or subsurface trespass. 

The issue then arises as to what to do with the owners impacted by the drilling of the nonproductive portion of the well in such situations - neither the owner of the land where the well is situated, nor any properties located between the surface location along the track of the wellbore prior to entry into the unit is entitled to a share of production.  In some cases, owners of these properties may in fact own surface and/or mineral rights in the nearby or adjacent unit, so there is a benefit derived, albeit indirectly; yet in others, this is not the case.

Surface owners which lease their land to the E&P company to allow for the drilling of such wells are generally compensated over an extended terms based upon the lands leased, lease value, and time (usually either pre-paid for a length of time, or other times paid annually), for as long as the surface estate is so encumbered.  Surface owners may additionally be paid for damages incurred in preparing the access and physical location (crop and timber damage, impairment to the surrounding property, etc.)  This impact of use is obviously visible, measurable, and quantifiable over a length of time.

Subsurface owners are typically compensated in a manner similar to that of an easement - one-time fixed payment paid for the life of the easement.  Impact of use is generally even less so than, say, a utility easement, for which even a subsurface burial of a utility line or pipeline creates a corresponding impairment of use and damages during the installation - certain lands must be kept clear of trees and roots, free from all debris or material which may impair grantee's access to the easement for patrolling, repairs, etc.  A subsurface easement of this type occurs thousands of feet below the surface and does not require such restrictions or safeguards.

The only questions IMO given your situation are (1) whether the easement would allow for a single crossing (wellbore) under your property or any number of such crossings, (2) whether the owner is paid for each such crossing, if the contract allows for multiple crossings, and (3) what terms and provisions exist for release of said rights after a specific period of nonuse (I usually advocate for a fixed period of nonuse for release so as to negate the perpetual nature native to an easement and not rely upon statutory prescription for non-use).

Personally, without substantial information to the contrary, I do not see the compensation offered ($25-$30/ft. for the width of the wellbore) as you report being unreasonable for a single crossing under your property.  But market rates do vary, and certainly the terms of your contract and facts specific to your situation could merit additional review.

I hope that you find this general advice useful, but I advocate for use of reliable counsel for your specific situation and review of your contract.

• ▶ Reply