Separate "Surface Operations" Agreement - Has anyone heard of?

Some of our neighbors have already signed leases, hopefully we will sign in the next week (we were offered $600/mineral acre and 20% royalty - thinking that's a good deal). However, I still have some questions. As we were discussing the leases, I started talking about what would happen with the surface - access roads, fences, gates, plow depths and such - and they said that they were told by the landman they signed with that all of that would be in a separate "surface operations" agreement if they did decide to drill a well on the property. They said the leases we have been looking at are just for subsurface operations - horizontal lines of off wells on other property.

I have 4 very different leases in front of me. Each has very different wording and clauses, but I'm thinking that sounds funny. Has anyone heard of this? and how would I know if the lease did NOT apply to surface operations? Incidently, we are the surface owner and have 25% of the mineral rights.

There are probably many others who know more than I do about this so hopefully they will reply also. My impression is that the drilling company usually negotiates a surface owners agreement separate from the mineral owners lease, which is to their advantage. They tell us mineral owners not to worry about it. You are very fortunate to have both and have a substantial percentage of the mineral rights. If I were you, I would negotiate them together, whether you include the surface concerns in the mineral lease on on a separate surface owners agreement. Once you sign the mineral lease, your negotiating power on the surface owner agreement will deteriorate significantly. It may also depend on the state in which the minerals/surface are located.

In our case there were three seperate agreements.

  1. mineral rights (subsurface)

  2. surface agreement. Covering drilling pad and drilling road, and timber destruction.

  3. Pipeline lease.

Note on Surface Use Agreements

Where the operator does not intend to drill on the acreage covered by a lease, but only to acquire rights and access the minerals below the surface, a mineral owner may be able to obtain a “no surface use” provision in the lease that would clearly state that intention. In the alternative, where operations may involve surface use, the parties may include conditions in the body of the broader mineral lease, as an attachment or as a separate “surface use agreement.” As to when one should attempt to lock in surface use provisions, generally, the options are greater at the outset than after positions have solidified and been executed. I.e., it’s better to negotiate from a position of strength. Here, the relative “strength” is in who has what the other side wants? If you give away the surface use and then try to get it back, that’s at least a wasted step and may be a lost opportunity. Hypothetically, if a lease is signed that is either silent as to surface use or generally allows reasonable use for development of minerals, then the lessors could later find themselves in the weakened bargaining position of having to “go back” to the operator and ask them to construe the lease in a way that provides more constraints than it states. They may find themselves in the position of asking the lessee/operator to modify an existing lease or to draft a separate surface use agreement that may contradict language in the existing lease. The lessor’s desire to limit surface use may well arise at the very time the operators intends to broaden its surface activities. While the operator may be very accommodating, they may not – or the lessee and lessor may have very different ideas about reasonable accommodations.

In a variation on a theme, in a split estate context, the mineral developer has rights of reasonable access but has obligations of reasonable accommodation. If the surface owner is separate from the minerals owner, the question of whether surface use provisions or a surface use agreement may be established “up front” is different. It may be possible if the split estate owners work in conjunction with each other. Or if the mineral lease is already done, the surface owner may be able to negotiate terms of surface use that may also include provisions for surface damages, crop damages, easement rentals, limitations on timing of activities, seasonal considerations, and so forth. There is a more complicated dynamic that occurs where mineral development competes and conflicts with other property development on the surface.

As with any agreement, it’s usually better to handle as much up front as you can reasonably foresee in order to avoid conflicts down the road that are not explicitly provided for in the agreement, leaving the parties to read the provisions like tea leaves or counting angels on the heads of pins. “Yeah, but what we meant was . . . “ can be an unnecessarily difficult argument if that is not what the words say.

Sometimes a “place holder” provision can be used to at least note that no agreement on a specific issue has been reached or embodied in the agreement and that the issue remains to be resolved if and when it arises.

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