Laying Pipelines Over Lands Covered By Non-Surface Use Leases
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.
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
Views: 318
Replies to This Discussion
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Permalink Reply by sesport on -
Eric - is this an actual situation which you know of? If so, would it be possible for you to point us in the direction of where to look at it. I'm not an expert, but I'm thinking, since you particularly mention a scenario for TX, that the law differs from state to stare. On the other hand, I think, but may be wrong, that eminent domain could also be exercised by the federal government. More specifics, please. Thanks
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Permalink Reply by Eric Camp on
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Without getting into too many specifics, I am aware of this exact situation happening all over the Barnett Shale.
About eminent domain, the federal government and each state has the power to take private property for public purposes so long as the government entity pays the landowner "just compensation". This power is defined in the 5th Amendment of the US Bill of Rights and somewhere in each states' Constitution.
Many if not all state legislatures have granted the power of eminent domain to certain private companies which the state considers "public purposes". Picture powerlines, waterlines, sewerlines, and.... Pipelines. Thus, the states allow a Pipeline Company to "take" your property to serve the public purpose of installing its pipeline, so long as that company pays you for the taking.
The specific procedures for this process probably vary from state to state but I think the underlying theme and outcome are universal. I may be wrong about Louisiana and if I am, I hope someone corrects me.
Does this answer your questions? I can't get into specifics about with E&P and Pipeline Companies I'm refering but it is a common practice.
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Permalink Reply by sesport on
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Thanks again, Eric, some of us have been trying to keep up with the reading about this. There are some articles in the Health & Safety group here, as well as a previous discussion ( I think) on this topic. I was just wondering if this was some new situation. Your concern is a valid one, and we should pay attention.
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Permalink Reply by Grillin' - MmmMmm on
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Is the well in question a unit well, and does your land lay within the unit? If so, why would you want to prevent the cash register from ringing?? Its a stinking pipeline, they bury it underground, get the well hooked up and start sending out checks!
So what happens if EVERYONE gets a "no surface use" clause? Then we all sit around playing a game of Switch, with one finger in your nose and one in your mouth. On the count of 3, you switch them!
Somebody's gotta let em use the surface!! Or the game doesn't start!
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Permalink Reply by sesport on
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We all know that the pipeline needs to be there to deliver, but there's nothing wrong with letting lessors know about the potential for a "switch" played on them. Just passing on knowledge here is all.
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Permalink Reply by Eric Camp on
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It is a unit well and the land is in the unit... But the landowner negotiated a non-surface use lesae for a reason... Didn't want a pipeline on their land. And a pipeline is a big deal... You can't build anything across it. This is a huge issue in urban and suburban areas where lands often have future development value.
Not everyone can get a non-surface use lease... Obviously.... But if you're the first one in an area to lease and can get one for yourself, wouldn't you? Who wants oil field equipment on their property if it could have gone on their neighbor's property?
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Permalink Reply by The_Baron on
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Tell that to the landowner who gets a nice rental check for their land used as a surface location. Individuals have different wants and needs.
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Permalink Reply by Eric Camp on
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True. But that landowner is the exception, not the rule. And that landowner is in a much better negotiating position after all his neighbors have negotiated non-surface use leases. Makes his drill site tract a lot more valuable.
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Permalink Reply by The_Baron on
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You mean we can't drill all these wells in entire townships from one superpad??
Its a classic case of not in my backyard. Everyone wants the benifits drilling and exploration can bring, but not on their land.
And your right Mark, Properly located, a pipeline is no big deal. There are gas pipelines in just about everyones front yard, and water lines, sewer lines,and maybe even buried electrical, phone and cable tv.
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Permalink Reply by Eric Camp on
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Not a NIMBY case at all... Joe the Landowner wants their minerals developed but not to the expense of his surface estate... That's why he signed a non-surface use lease with XYZ. XYZ didn't have to offer such a lease. But since it did, shouldn't XYZ abide by its contract?
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Permalink Reply by The_Baron on
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Eric,
The bottom line is that if you have a no surface operations clause, they have to come back to you and negotiate a right of way, if you and the operator can not agree you get your day in court.
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