What is in this article?:
The first rule for private landowners looking to enter into energy development contracts and oil leases is to keep your eyes open.
Extraction of natural minerals has occurred in the U.S. for centuries. Almost as omnipresent, by some accounts, have been strained relations between developers and private landowners. As development continues, particularly in the energy arena of the western U.S., both sides are learning how to utilize communication to improve these business relationships.
“When energy development started in earnest over 10 years ago in this part of the country, the agricultural economy was such that some producers thought development would be a new stream of income they needed and didn’t have before. So they put up with some things they wouldn’t necessarily tolerate today,” says Lucy Pauley, the Wyoming Department of Agriculture’s coordinator for its Agriculture and Natural Resources Mediation Program.
But, by and large, both sides today realize that communication and compromise can prevent a lot of anxiety and problems down the road.
There’s good, bad and ugly
Just as in entering any business deal, due diligence is important, Pauley says. Prior to signing any kind of development agreement, Pauley suggests landowners work to educate themselves on the subject, and be sure to communicate with others who’ve experienced development in their area.
“The first thing we recommend to any landowner is that they know their rights. Do they just own the surface, or are they the actual mineral owners, and do they understand the difference? That sets the stage for a lot of issues,” Pauley says.
Ownership of minerals can vary between states. For instance, the split-estate phenomenon generally occurs in the West.
“People moving to Wyoming from the East Coast often aren’t aware that you can own the surface, and not the minerals, in this state. The federal government severed the mineral estate in many western states in an early homestead act. That’s important to know, and something to educate yourself on, regardless of the state you live in.
“In Wyoming, it means that if the minerals are owned by the federal government, which has leased that mineral estate to an energy company, there isn’t much a landowner can do to stop a development project. However, you will still have a surface-use agreement with the energy company, and you need to be well-informed before you sit down to negotiate that,” Pauley explains.
She advises researching state and federal legislation regarding development as one way of learning current rules and laws. Having a good attorney to help sort through documents and provide additional information is another. The Internet, and local, state and federal ag-based organizations, as well as friends and neighbors who have been involved in development, are also good educational sources, she adds.
“You need to thoroughly understand what’s going on before you sit down with an energy company to work out a surface-use agreement. That agreement will address any surface damages, like roads; how and when they will notify a landowner prior to coming on his property; if gates are to be kept open or closed; any number of other things. You will want to find some examples you like, and work with an expert on getting yours drafted. This is probably the most important component of development for a landowner, and the more you communicate and educate yourself, the better it will be,” Pauley says.