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.

Tags: lease, non-surface, pipeline, use

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Replies to This Discussion

Parker:

Under most circumstances, I would generally think so, unless there is a compelling need to go through your specific property. However, the more wells which may be developed along your 'corridor' (due to geographic issues, gathering issues, and/or physical obstacles, esp. waterways and/or wetlands), the worse one's case against the laying of the pipeline would get, IMO. Then your issue goes from of a simple development of a unit (or two) into development and gathering systems required for several, or many units, or even large portions of a field.

Generally, the more production and/or units involved, the more the frame shifts from a simple case of unit development to the service of the public interest. The further the frame shifts from local to global, the less standing the l/o would have against condemnation.

Without going through all of the dynamics of field negotiation of a pipeline in LA, in general, the advice to the l/o is keep negotiations open. Outright refusal is usually the shortest route that the l/o has to the short end of a condemnation proceeding. Being cooperative as far as coming to the negotiation table will not hold off such proceedings forever, but the standard is that the utility must make every reasonable attempt to negotiate with the l/o prior to pursuing condemnation. Many states allow for a so-called 'quick taking' (oversimplified: the utility has the ability to have reasonable basis determined by the court, and deposit the appropriate amount of monies into custody of the court for remuneration while allowing the utility to proceed with construction); in LA the landowner has a better standing in such issues.

All that being said, condemnation can be quite punitive to the landowner; typically the l/o receives 'fair market value' as determined by the court, less court costs and attorney's fees.
I wouldn't say that a no-surface is a agreement that surface use is not contamplated, but that it simply means that the lease will grant no surface rights (this is the case when you have a seperate surface owner and mineral owner, and the mineral owner gave up any surface rights to the surface owner).

In the case of a landowner who owns both the surface and minerals, the net result of giving a mineral lease without surface rights is to require the o/g to negotiate any surface operations seperately. While it is possible that the o/g may not have originally contemplated surface operations, things can change. Or...the landowner may have just wanted more say in what went on on the surface of their property. Of course, there are those who simply want no operations of any kind. (subdivision developers for example..surface operations could theaten development plans..)
The pipe line company cannot condem their way across your land because in order to condem they must carry other peoples gas. The way to get around this and stop them from comming across the property is to ask whose gas will the line carry, what type of pipe,( you do not want a plasic line only metal), If you are planning to condem then what articles are you claiming your right to condem. That will slow them down a little give time to do something else to stop them or make them go around.
KB,

But I was under the misconception that minerals were dominant.
:Laying a pipeline is not a part of the mineral estate's right.

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