- Split Estate Lands and Development Issues
- October 7, 2013
- Law Firm: Parr Brown Gee Loveless P.C. - Salt Lake City Office
Many private landowners are surprised to find they don’t own all of their property. This problem is often demonstrated in connection with oil and gas development activities.
Some background. All privately owned land derives from initial public ownership. But the various laws under which public land is initially “privatized” can have drastic effects on landowners down the line, as can the language of prior deeds in the chain of title. Such effects are almost always permanent, and may not manifest themselves for decades. In Utah, perhaps 1/6 of the state consists of so-called “split estate” land, where the federal government or the State of Utah or a private party reserved the mineral rights to the land. Split estate lands can be found anywhere from million dollar home lots in Deer Valley to pastures and undeveloped range lands in the Uinta Basin. The other Western states share this phenomenon. In fact, 48% of the “private” land in Wyoming has split estates, where the mineral rights have been reserved by the U.S. or by the state or by a former private owner. It’s somewhat difficult to find private land in Wyoming that isn’t split estate.
Legally, the reserved mineral estate is “dominant” over the surface estate, which means that the mineral owner (or its lessee) can use as much of the surface estate -- free of charge -- as is reasonably needed to explore for and develop the reserved minerals within the land. In the oil and gas context, this means constructing well drilling sites, access roads, pipelines, power lines and other improvements. This often comes as quite a shock to the owners of split estate land (especially with the current increase in oil and gas drilling in the United States), who have no idea that their land may be disturbed and permanently occupied for mineral development purposes. When a split estate owner receives notice that mineral operations are going to be conducted on his land, the usual reaction is to ask how they can do this on my private property. After learning about severed mineral interests and dominant and servient estates, affected surface owners often turn next to their policy of title insurance. But even if there is one, title policies universally exclude any coverage for mineral rights, and thus can actually provide a false sense of security to split estate surface owners. The reality is that a determined mineral operator can indeed disturb and permanently use the surface estate, without compensation, assuming the operator can obtain the necessary zoning and operating permits and approvals; it’s really just a matter of whether that’s done the easy way or the hard way. (More about that below.)
The harsh common law rule of mineral dominance has been softened a bit by increasingly strict judicial decisions about what kinds of surface disturbance are “reasonable” by the mineral operator. There is a clear trend toward requiring the mineral owner to conduct operations in a way that allows the greatest possible use of the surface, and requirements that reasonable and practical alternatives to minimize damages to the surface must be pursued. If the mineral owner crosses the unwritten gray line and makes any unreasonable use of the surface, he becomes a trespasser as to the unreasonable use and can be held liable for damages. For this reason, it is common practice for mineral owners to enter into a surface use agreement with the surface owner that spells out what kinds of uses may be made of the surface in exchange for a promise to pay for such uses. The surface owner gets compensation that he is not otherwise legally entitled to receive (as well as indemnification and other contractual benefits), while the mineral owner gets protection from being held in trespass because of possible unreasonable use of the land, knowing instead exactly what can and can’t be done on the property.
The Utah Legislature recently enacted the Surface Owner Protection Act (Utah Code 40-6-20 & 21; Utah Admin. R649-3-38) to help streamline this longstanding and often contentious problem. The Act does nothing to change the common law rule of mineral estate dominance, but does codify some of the relevant common law principles and does require a good faith effort to reach an agreement with the surface owner before oil and gas operations can begin. If the operator and the surface owner cannot come to an acceptable surface use agreement (the “easy way,” so to speak), the operator can utilize regulatory procedures to obtain approval to explore and drill on the land, even over the objections of the surface owner, by (among other things) providing to the Utah Division of Oil, Gas and Mining a bond to protect the surface owner against unreasonable damage to the land. This approach is often referred to as “bonding on” (the “hard way,” so to speak, because it causes negative relations with the surface owner and takes longer to complete, thus delaying the operator’s plans). Note that the Surface Owner Protection Act applies only to oil and gas operations, and not to the development of other kinds of minerals from split estate lands. Furthermore, the Act does not apply to the most common instances of split estate ownership: private surface and federal minerals, and private surface and state minerals. It only applies to instances of private surface and private minerals. However, there are other federal and state regulatory provisions that authorize use of split estate surface lands for mineral development through the permitting process by (among other things) providing to the relevant agencies a detailed description of what activities and disturbances will occur and posting a reclamation bond to cover the full cost of reclaiming those disturbances. Consequently, a mineral operator can eventually obtain approval to conduct operations on all types of split estate land, through patient compliance with the permitting requirements, notwithstanding opposition by the surface owner.
So for the surface owner, the primary consequence of owning split estate land is permanent vulnerability to mineral exploration and development. If the split estate was created by a private party in the chain of title, it might be possible to buy out the mineral reservation and end the threat of mineral disturbance. But that’s not an option where the reserved minerals are owned by the United States or the State of Utah, who by law cannot sell the reserved mineral rights. In theory, the surface owner has no basis to complain about mineral operations on the land, because the surface owner presumably paid less for the land, knowing that it came without mineral rights and with the risk of mineral development by someone else. However, most split estate owners are unaware that they own anything less than all right, title and interest to their land. Indeed, you might be surprised to find that somewhere in the chain of title to your home someone (the U.S., the state or a private party) reserved the mineral rights; but most urban homeowners are protected from split estate consequences by the simple fact that a mineral operation would never be permitted under the relevant zoning ordinances. Those looking to buy a cabin site, a ranch, a hunting property or any land in a rural setting, though, would be well advised to first review the chain of title to see if such land has split estates. A decision to acquire split estate land, and the market value of the land, should take into account factors such as geology (i.e. mineral potential), local zoning, intended land use, and risk tolerance.
Utah’s natural resources attorneys are familiar with split estate land issues and can provide assistance from both the mineral operator and surface owner perspectives.