Seminar highlights mineral lease rights
A seminar presented by the Utah Division of Oil, Gas and Mining on land rights last Thursday brought to light several aspects of land ownership with regard to surface rights and mineral rights.
One matter of key interest to local residents was the fact that, if an individual owns only the surface rights to a parcel of property, the person has little recourse but to negotiate an extraction agreement with the mineral rights holder.
"But do remember that they can only use so much of the property that is reasonable to extract the mineral they are after," advised Marvin Rogers, an Alabama assistant attorney general and an expert on coalbed methane gas extraction rights.
The seminar featured three experts in the field of gas and mineral extraction. Rogers was brought in for his knowledge of law concerning land rights issues faced some Carbon residents.
Alabama was one of the first states to encounter the problem s associated with coalbed methane extraction and Rogers has been in on the legal aspect from almost the beginning.
Introducing the seminar was Todd Bryant, communications manager for the Interstate Oil and Gas Compact Commission. In addition to overseeing communications for the multi-state agency, Bryant supervises IOGCC's training program. He previously served as communications director of the Oklahoma Energy Resources Board. He also spent many years in the journalism and public relations fields.
The third presentor at the seminar was John Boza, associate director for DOGM who had a handle on local information.
The session started with Bryant describing the oil and gas industry. He provided production numbers and discussed how oil companies and exploration companies are set up.
"Some people don't understand there is no real difference between what we term natural gas and coal bed methane gas," said Bryant. "We actually have retermed that type of gas - coal seam natural gas."
Most oil development companies have numerous employees a land owner may have to deal with on various issues, explained Bryant. But most often, the individual has to deal with the company's land department and, more specifically, the manager or land man.
Boza took the helm and moved seminar from a national scale to a state emphasis.
"The petroleum industry is a curious and unknown industry to most people," commented Boza. "Almost no one understands all of what goes on, but we are here to try to help you do that. However, do remember that our state organizations mission is the development of these resources. We think that development is a good thing."
Two-thirds of the land and minerals in Utah are controlled by the federal government, with one-third controlled by the state and private interests.
"Often, we find ourselves relying on the feds to tell us where we can develop resources because of their strength of ownership in the state," indicated Boza.
Showing charts and graphs, Boza pointed out that 2001 was a banner year for the issuance of drilling permits in Utah. Last year, 878 permits were issued.
"The rise in drilling permits since 1996 has chiefly come from natural gas development,"stated Boza. "In any one year, about one-half to two-thirds of those permits are exercised."
CSNG development in the local area began in early 1988 when Texaco began drilling test wells, explained Boza. In December 1990, a discovery well in the Castle Gate field proved the gas was usable and fairly easily extracted. In August 1992 a River Gas well in Drunkards Wash proved economically viable.
Boza detailed the permitting process, including the pre-drill evaluation conducted onsite. The evaluation takes into consideration the different aspects of the project and represents a good time for surface rights owners to talk with state officials about what is going to be done on property to extract the gas.
While the seminar attendees were interested in the surface issues, many wanted to learn about the royalty rights of mineral rights owners.
Boza introduced officials from the Utah Royalty Owners Association to the audience. The organization formed many years ago when oil companies began drilling in the Uintah Basin.
"We are here tonight to help those of you who are dealing with this situation right now," explained Leroy Pectol, a past president of the association. "Our organizations was instrumental in passing legislation years ago that gives people due royalties some rights that they didn't have before."
Passed in 1995 by the Utah Legislature, the law has changed the way royalty owners are treated not only by the companies, but by the state.
Statutory guidelines regarding royalties include payment timing requirements, an option to petition a special board to oversee matters involving unpaid proceeds and information on payments to royalty owners. Information includes the month and year payments are being made for, the average price per unit of gas sold and the lease, well or property on which the payment is being made.
A surface holder is a person who owns the land and has the rights to the basic physical elements of realty. The individual basically owns what is on top of the land. The right is also referred to as the surface estate. In Utah, someone different from the surface owner often holds the mineral rights to the property.
Minerals include substances of organic origin like oil, gas and lignite as well as inorganic materials such as sulfur, bentonite or potash. Mineral rights are defined as ownership of resources underlying a tract of land. With mineral ownership is the right to explore for, develop and produce the resource. Since resources generally are located below ground level, the mineral rights may also be referred to as subsurface right.
Mineral rights to a piece of property are called the dominant estate. Mineral holders have the right to extract resources whether the surface owner agrees or not. However, extractors have to abide by several rules regulating what can take place on surface property.
"Most exploration and gas companies want good relations with the surface owner," stated Rogers. "They know that is in their best interest."
Reinforcing the point, Boza indicated that, without a lease in place with the surface owner, future mitigation of the site is in far more question than with one.
"It is to the company's benefit to have negotiated a lease with the surface owners," said.
In the application process, DOGM looks at the effort a drilling company puts into securing leases for wells.
"When leases aren't signed for using the surface to extract minerals, a non-consenting order is issued," explained Boza. "When looking at these situations, the board reviews the reasonableness of both sides to reach an agreement. In each case, there are a lot of specifics to examine. Each case is so individual."
Surface owners have the right to require mineral developers to restore property disturbance after extraction is completed under the Oil and Gas Conservation Act.
The operator must meet the specifications of thelandowner for restoration or the minimum requirements established by DOGM. Any surface lease agreement must stipulate the minimum well site restoration so a bond posted at the initial start-up can be released.
"It may look, to some extent, that the surface owner is behind the eight ball in this situation," noted Rogers. "But there is much more to these surface agreements and the negotiations than just dollar amounts. Individuals can negotiate for where wells will be located, how the sites will be rehabbed and various other items."
A number of local residents have previously approached the county commission about surface lease amounts and problems with gas exploration companies.
The county has a 16-item check list for conditional use permits pertaining to drilling sites. And it appears there will be legal precedent from the court system as to how far county governments can go in regulating the gas industry.
"Some counties in the west have become really aggressive in dealing with these companies," said Boza. "But at least one legal opinion says that counties can't single out one industry to regulate like that. It is certainly the county's right to use zoning and conditional use permits, but only under certain circumstances."
The information disseminated at the meeting is available from the division by calling (801) 538-5334.
The Utah Royalty Owners Association may be contacted by contacting Brownie Tomlinson at (435) 790-5468.