Background
We started hearing about “split estates” when federal land managers started opening up more land to mineral exploration a few years ago. Although several western states sought legislation to bring order to chaos, only Wyoming passed a comprehensive law to protect surface land owners from exploitation of a separate mineral interests in 2005 (Wyoming Surface Owner Accommodation Act). This may not seem like much of a problem, but when one realizes more than 58 million acres are in split estate status across the west, the issue takes on more meaning.
It’s probably accurate to say “split estates” have been around as long as man has searched for minerals, but became a way for federal government to retain value by simply reserving the mineral rights to the federal government upon a transfer to farmers, ranchers, railroads, etc, who only needed use of the surface. Official recognition of this phenomenon took place in the United States with the passage of 30 U.S.C. §81 in 1909 (“Coal Lands Act”).
The Coal Lands Act dealt with lands “classified, claimed, or reported as being valuable for coal” subsequent to a non-mineral entry, authorized the issuance of a patent for the lands with a reservation to the U.S. for “all coal in said lands, and provided a right to prospect for, mine and remove the same.” For instance, most mountain communities were built on plats for “surface only” land; the mineral interests were either sold separately or retained by the promoters.
T. Boone Pickens recently developed a strategic plan calling for more development of domestic energy that could exacerbate this already volatile issue by expanding surface and sub-surface uses for energy development. At the same time, there is a continuing movement of people to amenity-rich communities seeking lifestyle enhancements small towns and rural communities offer. The potential for conflict is obvious.
Before I delve into the topic, let me take a moment to offer a disclaimer. This article is not written to offer legal advice, and the points made should not be taken as “the law”. Each state and circumstance has its own peculiar legal ramifications. Consult your attorney for your own specific issues. What you need to know is that having two layers of property ownership often leads to land use conflicts, complicates access issues, and will impact the culture, custom and commonality of communities.
Definitions
”Property Rights” is a misnomer really citing rights by property owners. Property ownership usually incorporates a bundle of rights, but for each right there must be a corresponding duty. One bundle becomes two when mineral and surface ownership is divided. The law essentially creates two smaller bundles of rights and corresponding duties, but the mineral estate could be said to get more of the rights and the surface more of the burdening duties. For instance, generally the owner of the mineral estate has the right to exploit mineral deposits, and the surface owner has a corresponding duty to allow reasonable access from the surface to assure that right. Generally the mineral estate is dominate and the surface is servient estate; each state adjusts the extent of this disposition.
“Surface Estate” has a well-recognized meaning, which encompasses not only the superficies of the land, but also all land not otherwise included in the mineral grant or reservation. There are those who may labor under the misapprehension there is a “sub-surface” estate, but I submit there is no such animal! The surface is not defined in terms of depth, but in terms of reasonable economic use. If your state provides that water is part of the land, then one may assume water belongs to the surface owner, but that may not be so. To develop coalbed methane, water has to be removed and states are having to deal with the repercussions from water as a benefit and a detriment as a result.
One who acquires the surface estate only is charged with knowledge his rights do not encompass the mineral estate, that he is not acquiring a fee simple title, and that the owner of the mineral estate has the right to go on the land to exploit and remove minerals. By precedent, it is not reasonable to place buildings or other improvements on the surface, which could disrupt the operations of the mineral estate, inflate the damage done to the surface, or increase the costs incurred in exploiting the minerals.
“Mineral Estate” only has relevance if the ownership of the underlying minerals on a parcel of land has been severed; otherwise ownership of the surface generally carries with it the ownership of the underlying minerals. Once severed the mineral estate is a freehold estate like any other, and ownership is a distinct property right at law. In much of the west, several federal laws and actions created severed estates right off the bat. I want to mention just two here - the Stockraising Homestead Act of 1916 (now incorporated into FLPMA of 1976) and the Mineral Leasing Act of 1920 (30 U.S.C. §186) were instrumental in creating split estates across the west. In Wyoming, large surface tracts were transferred to private ownership as incentives for building railroads, creating irrigation projects, etc., but the federal government retained ownership of the mineral interest.
Besides the federal government, states and private conveyances have also created split estates. Generally, severance is accomplished by:
a grant of the minerals only; or
a grant of the surface only; or
a grant of the entire parcel with a reservation of the minerals.
However accomplished, the severance or reservation must be in clear and unambiguous language to assure the grantor intended this action.
Among the consequences of severing the estates, 1) the owner of the surface estate has no authority to permit exploration for minerals included in the mineral estate; and 2) possession of the surface estate does not constitute possession of the mineral estate; and 3) the owner of the mineral estate has no right of redemption from a tax sale of the surface estate.
“Minerals” have had an evolving definition over the years. Originally, minerals were construed under the 1872 Mining Act, but then came along “coal”, and later “oil” and most recently “coalbed methane”. Methane, of course, is a gas derived from coal. Just a few years ago, a case from the Ute Indian Reservation in southwest Colorado set a significant precedent and created a new mineral – “coalbed methane”. The ripple-effect from that case now drives the latest debate of mineral/surface rights as newly created companies drill wells to develop this new resource, and the consequences of this action is impacting not just the surface owner, but whole communities.
One of the most litigious issues the courts have dealt with over the years is “sand and gravel”. Check your state’s law to see if “sand and gravel” is considered a mineral – it is not an assumption you will want to make. Litigation over coalbed methane may surpass everything that has gone on before it. Environmental groups move to stop the Bureau of Land Management from issuing drilling permits, and industry presses for more expeditious leasing and permitting processes. The State of Wyoming recently hired more people in its State Historic and Preservation Office to expedite reviews under pressure from industry for a more expedited review of cultural, historical and archeological sites.
Common Law
Generally, the common law gave the owner of the mineral estate a right-of-way by necessity to reach and “win” the minerals. This way of necessity was limited and could not be extended to the use of other lands. I love the way one court put it, “He cannot claim as an incident that which is simply convenient; he can only have, as to the surface, that which is necessary, but that which is necessary he may have in a convenient way.” Mountain Fuel Supply v. Smith, 471 F.2d 594 (10th Cir. 1973)
The common law also recognized the surface owner had a right to expect subjacent support, which means the mineral owner had to keep his workings from caving in or creating subsidence of the surface. A mineral owner may also be guilty of criminal or civil trespass of the surface under common law if the conduct in using the surface is not reasonable or necessary to the development of the mineral interest. Damages are compensable at law, so let’s talk a little about damages.
Through case law across the west, the courts tried to balance the competing interests of the split estates and came up with what’s known as the “accommodation doctrine”. This exert from Getty v. Magness, 470 S.W.2d 618 (Tex. 1971) sets out the doctrine well:
“The fact that neither the surface owner nor the severed mineral rights holder has any absolute right to exclude the other from the surface may create tension between competing surface uses. ‘The broad principal by which these tensions are to be resolved is that each owner must have due regard for the rights of the other in making use of the estate in question.’ …. This “due regard” concept requires mineral rights holders to accommodate surface owners to the fullest extent possible consistent with their right to develop the mineral estate. … How much accommodation is necessary will, of course, vary depending on surface uses and on the alternatives available to the mineral rights holder for exploitation of the underlying mineral estates. However, when the operations of a lessee or other holder of mineral rights would preclude or impair uses by the surface owner, and when reasonable alternatives are available to the lessee, the doctrine of reasonable surface use requires the lessee to adopt an alternative means.”
Local governments generally think in terms of impacts occurring between and among neighboring or nearby properties when there is a change in land use, but zoning and land use regulations do not address issues arising out of split estates. Think about a community of single-family homes one day, which overnight becomes a community of up/down duplexes. Obviously, the dynamics change and public concerns for access, utilities, drainage, etc. all become more profound. In many ways, much of the property in the west is changing from single family to duplexes and ways will have to be found to deal with the intensification of uses that come with that.
Cha…Cha…Changes
Coalbed methane development has upset the historical context of the rights and duties of the various combinations of property owners; not just between surface and mineral, but between adjacent owners, downstream owners, and peripherally impacted communities (drainage, road weight and capacity issues, etc.). These issues have to be left to another day. Today, we are discussing split estates, and much change in the air on this issue.
Congress adopted the Energy Policy Act of 2005, and Section 1835 of that law required BLM to report to Congress on split estate oil & gas leasing and development practices. The report was issued in December 2006, but the change in leadership in Congress has curtailed implementation of the recommendations that came out of that report. It is expected Congress will eventually act - public pressure is demanding domestic energy.
Increased fuel costs, economic uncertainty and spiking prices for ag lands are driving change. De-population in many rural communities, and the boom in retirement/vacation homes in amenity rich rural expanses are conspiring to take ag land out of production and are major factors forcing change.
The on-going struggle to introduce laws to mitigate the conflicts arising from the changing dynamics shows recognition of the problem, but the failure to enact these laws also shows legislative bodies have not found resolution acceptable to interested parties. When legislatures fail to act, the tendency is for the courts to fill that void. A recent case in Colorado (Gerrity Oil & Gas v. Magness) reinterpreted the Accommodation Doctrine, and that may prompt another flurry of legislative initiatives.
Conclusion
Development of coalbed methane reserves is having a profound impact on rural communities across the west. The implications for exploiting this resource are profound. In Wyoming alone, there are over 18,000 wells in operation with many more planned over the next several decades. Weld County in Colorado has been booming for both rural residential development and energy development, and is changing its regulations almost as soon as they are adopted to accommodate the changing circumstances.
Local governments in rural areas and small towns face a daunting task in developing land use regulations to guide surface and mineral owners, while protecting the public interest.
News on land use issues in the West may be followed by subscribing to several different publications. I take to follow what’s going on are; 1) High Country News, 2) The American Oil & Gas Reporter, and 3) Property and Environment Research Center (PERC). Each of these has a different perspective so together they offer a well-rounded view. However, there are a great many other publications, newsletters and books on this issue out there as well.
This debate is just beginning, and not all of the facts and implications have been realized, which will settle the issue. Stay tuned.
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