Service Use Agreement

My family owns property in the Panhandle of Texas. I am curious how other owners handle the surface damage caused by drilling? We have a long term tennant in place. Is it customary that he share in any damage rewards? - After all he is the one putting up with all of the disruption. The Oil company that we are now dealing with does not have a specific contract they are offering. They are also using water for fracing. How do you set a value on your water?

Hi, Debra, I farm, own mineral rights, and live in Spearman, Texas, with my land on the border of Hansford and Ochiltree counties.

Since I own the surface and minerals on the same land, i can’t say for sure if the tenant always gets damages; we always have. I believe it’s fair and common. Often, the tenant will supply the water. The company can get it some other place, or even drill a domestic well, subject to negotiation. Last time we pumped water, we got $100 per day, but that was 10 years ago. Since then, they drilled a nearby domestic well, but that was before big frac jobs.

I’ll be glad to share what I know. Mike

Dear Ms. Leonard,

As to surface use agreements and tenants, first thing to determine is what the tenant is entitled to receive under his tenancy agreement. If the tenancy agreement is silent as to these matters, perhaps a new tenancy agreement is called for.

It makes a big difference as to the type of tenant whom uses your property. For example, if the tenant has a ranching lease, little damage will be done to his operation. Insist on them installing and leaving cattle guards and fencing pits and pads with fencing capable of turning cattle of ordinary demeanor. If your tenant is using the property for ag purposes, it gets more involved. If a location road is put down the middle of his field, then your tenant has just had the number of his turning rows doubled. If the location road is put down near a fence, he only has x number of acres taken out of production, but his cultivation and harvesting time has not been increased. If the tenant has a hunting lease, I try to negotiate the oil lease where operations will not unduly interfere with hunting seasons.

As to water use, I use the figure of $1.25 per foot of hole. For example, if the well is drilled to 8,000 feet and then a 4000 foot lateral, I would ask for 15K for water use. In some parts of Texas, water is more valuable than oil, it seems, but that is the figure that I use. I also insist that they leave the water well and downhole pump. I never let them use surface water - I want the water well.

Also, many contemporary oil and gas lease forms have some of the questions answered in the form itself — dollars per location, etc.

Reputable operators are generally very accommodating to the surface owner/surface tenant. Under Texas law, the mineral estate is the dominant estate and the surface estate is the subservient estate and as such, the mineral estate can use as much of the surface estate as is reasonably necessary for him to carry forth his exploration, subject to the accommodation doctrine articulated in the Getty Oil v. Jones case heard by the Texas Supreme Court, with the high court attempting to balance the correlative rights of each party. The Cliff Note version of the case is that the operator has to conduct his operations with due regard of the existing surface use. There is a relatively new case that implies that PLANNED future use must be taken into account. The Supreme Court has not heard that case. If the operator so chose to, he is not required (unless the lease form so provides) to pay for any reasonable surface damage. However, he would not be allowed to use the surface owners improvements (like a ranch road).