Property owners in Colorado often ask this question when they own the surface rights but not the mineral rights. While they may feel powerless, they do have enforceable rights and can take steps to minimize impacts to their property. While the mineral rights owner has the right to extract the oil or gas, state regulations provide limits to where and how they drill. These regulations require the energy development company to minimize their intrusion upon the surface and minimize damage to the property. Specifically, Colorado Revised Statute §34-60-127 provides:
(1)(a) An operator shall conduct oil and gas operations in a manner that accommodates the surface owner by minimizing intrusion upon and damage to the surface of the land.
(b) As used in this section, “minimizing intrusion upon and damage to the surface” means selecting alternative locations for wells, roads, pipelines, or production facilities, or employing alternative means of operation, that prevent, reduce, or mitigate the impacts of the oil and gas operations on the surface, where such alternatives are technologically sound, economically practicable, and reasonably available to the operator.
(c) The standard of conduct set forth in this section shall not be construed to prevent an operator from entering upon and using that amount of the surface as is reasonable and necessary to explore for, develop, and produce oil and gas.
(d) The standard of conduct set forth in this section shall not be construed to abrogate or impair a contractual provision binding on the parties that expressly provides for the use of the surface for the conduct of oil and gas operations or that releases the operator from liability for the use of the surface.
(2) An operator’s failure to meet the requirements set forth in this section shall give rise to a cause of action by the surface owner. Upon a determination by the trier of fact that such failure has occurred, a surface owner may seek compensatory damages or such equitable relief as is consistent with subsection (1) of this section.
Thus, operators must minimize their impacts by using alternative means of operation to prevent impacts. Perhaps the most important part of the statute, section (2) gives the land owner the right to sue an operator who does not take measures to minimize intrusion and damage as prescribed. Thus any surface owner who feels that that a drilling operator failed to minimize the impacts to their property should seek the advice of counsel because they may have a cause of action against the operator.
You might ask, “Isn’t it too late after the damage is done? So what if I can get money, I would rather prevent the damage to my property in the first place.” If you subscribe to this position, as most surface owners would, then you can and should be proactive. Colorado Oil and Gas Conservation Commission Rule 305 requires an operator to give thirty days notice to the surface owner before they begin drilling operations. Rule 306 requires operators to provide a description of the proposed drilling location, dimensions of the well site, and, if known, the location of associated production or injection facilities, pipelines, roads and any other areas to be used for oil and gas operations.
The thirty day window after notice is given presents the land owner’s opportunity to act. While Colorado Law does not require drillers to enter into a surface use agreement, it does not hurt to ask and often they will do so to avoid conflict. A surface use agreement is a written agreement where the surface owner and the drilling operator negotiate certain aspects of the process. These include the exact site of the well pad, any necessary roads and pipelines, and because it is a negotiation anything is possible within reason. Sometimes the driller will want a concession from the surface owner and may be willing to deal with the surface owner. However, if the surface owner does not ask for the surface use agreement they may never know.
Finally, given that value of the property both monetary and otherwise, a wise surface owner should contact an attorney as soon as they get notice of drilling. The attorney can guide them through this process and the fees will be a small price to pay to create a better situation for their property and investment. Likewise, if a land owner with mineral rights is approached by an energy company to lease or purchase the mineral rights, they would do well to contact counsel before negotiating.
For questions regarding this article please contact Jon Goodman.