HomeLAW believes that private property should only be condemned as a last resort and when “public benefit” has been determined by jury trial; and never when the condemning party economically benefits from the compensation formulas allowed by state statutes.
Oil and Gas Drilling on Split Estate lands
The Problem
The development of oil and gas resources in Wyoming has accelerated in Wyoming over the past several years as a result of technological innovations and increased demand for natural gas. Deep gas drilling in tight sands may require much tighter well spacing than the traditional 40 acres/location [16 locations/square mile] and may require wells every 5 acres [128 locations/square mile] as permitted by BLM in the Jonah field, or wells every 10 acres [64 locations/square mile] as recently authorized by WOGCC for some areas in the Pinedale Anticline field.
The Solution
Ensure that the WSOAA, as passed by the state legislature in 2005, is appropriately implemented and enforced to protect the private property rights of surface landowners during oil and gas development.
Wyoming's law:
Oil and gas companies have the option to obtain a bond from the State Oil and Gas Conservation Commission to access private lands over split estate minerals, if good faith negotiations for a Surface Use Agreement fail. While “bonding on” is considered a last resort by landowners, the practice is exercised by some oil and gas operators.
Frequently Asked Questions about Split Estates
1. Why did Wyoming need a Surface Owner Accommodation law?
There was no law to ensure a private landowner the right to negotiate and receive compensation for the economic loss caused to his private property by oil and gas operations on split estate lands. Given the pace of development in Wyoming today, and the fact that gas wells may be drilled on every 10 or 20 acres of land, the potential impacts to surface lands are monumental. It was critical for landowners to be given legal ability to minimize these damages and receive fair compensation for them.
2. What is a ballot initiative?
A ballot initiative is an alternative means of creating law. Wyoming Statute 22-24-101 states, "The people may propose and enact laws by the initiative". In order to provide the people of Wyoming the opportunity to directly vote on a piece of legislation, 15% of Wyoming’s registered voters in 2/3rds of the counties must sign a petition in support of placing a certain legislative proposal directly on a statewide ballot.
3. Why was a ballot initiative necessary to finally obtain a Surface Owner Accommodation Act?
In the 2003 and 2004 legislative sessions, bills were introduced in the state legislature to protect surface landowners, but were not passed into law. The organized lobby of the oil and gas industry, represented by the Petroleum Association of Wyoming, originally opposed a comprehensive Surface Owner Accommodation Act that would apply to all split estate lands in Wyoming. Their opposition effectively blocked the passage of any legislation in 2003 and 2004. Landowners could not afford to continue to be forced to suffer economic losses caused by the actions of oil and gas developers and wait in hopes that the legislature would one day act. The ballot initiative would have placed the identical Surface Owner Accommodation legislation that was recommended by the Joint Judiciary Committee in 2004 before the voters of Wyoming in November 2006. Because the state legislature passed a Surface Owner Accomodation Act in 2005, the ballot initiative was no longer necessary.
4. What does the 2005 Wyoming Surface Owner Accomodation Act do?
5. What doesn't the 2005 Wyoming Surface Owner Accomodation Act do?
6. Does the oil and gas industry already do a lot of what is required in this new law?
Many companies have historically worked well with landowners on a voluntary basis; however there was no Wyoming law that required notification prior to entry or compensation for the full array of economic losses that can be caused by oil and gas activities, including diminution in land values or production.
7. What changed to necessitate the new 2005 law to protect surface owners?
The impact of oil and gas activity across the state of Wyoming is accelerating. As such, landowners need greater legal protection. For example, the BLM predicts permitting 110,000 wells in the state of Wyoming in the next 10 years, which roughly doubles the total number of wells which have been permitted in Wyoming since 1896! This pace is compounded by technical advancements in the oil and gas industry which allow it to drill in previously unconventional areas, drill wells closer together, and drill wells faster and more efficiently. All this technical advancement for the oil and gas industry coincides with the time that Wyoming’s surface land is valued higher for its amenity values like open space, clean air and remoteness.
8. Do other states have Surface Owner Accommodation laws?
Ten other states have Surface Owners Accommodation laws including Oklahoma, Texas, North Dakota, Montana, South Dakota, Tennessee, West Virginia, Kentucky, Illinois and Indiana. These laws are valid and have withstood legal challenges in state and federal courts.
9. Has oil and gas presence declined in these states due to enactment of their Surface Owner Accommodation Acts?
No. Public records indicate that all of Wyoming’s top producers also operate in one or all of these states including Anadarko, BP-Amoco, Chevron, Devon, EOG Resources, Exxon, Marathon, and Shell Oil. Many independent oil and gas companies operate in these states as well.
10. What are the reported revenues of major operators in Wyoming today?
| Top Ten Natural Gas Producers in Wyoming, 2005 Ranked by Dollars Marketed |
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| Company | Oil($) | Gas($) | Total |
| ENCANA (Including Tom Brown) | $146,833,831 | $1,656,701,619 | $1,803,535,450 |
| EXXON MOBIL CORPORATION | $5,844,835 | $1,726,852,269 | $1,732,697,104 |
| BP AMERICA PRODUCTION | $124,665,879 | $990,143,706 | $1,114,809,585 |
| CHEVRON USA INC | $113,884,455 | $994,747,725 | $1,108,632,180 |
| BURLINGTON RESOURCES | $5,447,706 | $1,035,745,450 | $1,041,193,156 |
| WILLIAMS PRODUCTION RMT CO. | $12,213 | $391,407,863 | $391,420,076 |
| DEVON ENERGY PRODUCTION | $69,853,109 | $566,789,638 | $636,642,747 |
| ULTRA RESOURCES | $35,445,961 | $474,346,881 | $509,792,842 |
| QUESTAR EXPLORIATION | $33,429,164 | $427,090,631 | $460,519,795 |
| SHELL ROCKY MOUNTAIN | $27,006,660 | $424,618,950 | $451,625,610 |
| Total Top Ten Producers | $562,423,813 | $8,688,444,731 | $9,250,868,544 |
| Percent of State Production | 18.5% | 69.4% | 59.5% |
| Total Top Five Producers | $396,676,706 | $6,404,190,769 | $6,800,867,475 |
| Percent of State Production | 13.0% | 51.2% | 43.7% |
| Gross State Production | $3,046,488,954 | $12,510,541,469 | $15,557,030,423 |
Source: Wyoming Oil & Gas Conservation Commission Web Site, dollar production figures are calculated assuming $59 per Bbl for oil and $6.26 per Mcf for natural gas. Actual gross sales may vary by producer depending on wellhead pricing. Exxon Mobil production and revenue figures include Exxon Mobil Oil Corporation.
11. What economic impact will the 2005 Wyoming Surface Owner Accomodation Act have on the oil and gas industry?
The 2005 Surface Owner Accommodation legislation has had no perceptable impact on revenues generated by Wyoming’s oil and gas industry. It may require some additional monies to be spent by the oil and gas industry to compensate the private landowner for losses due to their activities, but those losses were previously being borne by the private landowners—individuals who in no way caused the losses. Currently, Anadarko Production, a top 15 producer, voluntary grants a 1-3% royalty interest in the production to the surface owners on the Union Pacific lands in Wyoming’s southern corridor. Clearly, compensating landowners for damages caused by oil and gas activities can go hand-in-hand with being a prudent and successful oil and gas operator.
12. What impact might the 2005 Wyoming Surface Owner Accomodation Act have on a typical well in Wyoming?
There’s no such thing as a "typical well," but, for example, an average well on the Pinedale Anticline in Sublette County costs $2.5 million to drill and complete. Currently companies operating in that area offer $2,500 per well location for a surface damage payment which equates to 1/10th of 1% of the cost of that well going to the affected surface owner. If negotiations ensured by this legislation result in a higher surface damage payment – say even 10 times higher in the extreme case – the surface damage payment would still be less than 1% of the total cost of drilling that well. In this example, the total surface damage payment of $25,000/location would be 3/4 of one day’s revenues of a well that is estimated to produce for 20 years. Looking at this another way, the overall IRR (internal rate of return) for this well would be reduced to 25.0% from 25.5% as a result of this higher surface damage payment.
13. Does the 2005 Wyoming Surface Owner Accomodation Act place any unreasonable conditions on oil and gas activities, more so than what exists for other mining activites?
No. The coal industry in Wyoming is required to obtain the consent of the surface owner before a federal lease may be issued, and to provide a detailed mine and reclamation plan in advance of any activity. Similarly, the gold, uranium, bentonite and gravel mining industries must obtain a permit from the Department of Environmental Quality prior to any operations, which includes a detailed reclamation mine plan and post a reclamation bond, as well as consent of the landowner. Other major industrial activities in Wyoming, including trona mining, are regulated by the Wyoming Industrial Siting Act, which, however, unfortunately exempts the oil and gas industry.
14. Does the 2005 Wyoming Surface Owner Accomodation Act supercede federal law?
No. The federal Stock Raising Homestead Act of 1916 granted the majority of homesteads in Wyoming, and reserved the minerals to the federal government. This law guaranteed the right for the federal government to access and develop these resources. The Surface Owner Accommodation Act does not prohibit access or restrict development of the federal resource, but it does require the oil and gas developer to compensate the private landowner for the damages caused by that activity.
15. The 2005 Wyoming Surface Owner Accomodation Act applies to all surface lands, including those over federal minerals. Does the State have the authority to pass laws for lands over federal minerals?
The State clearly has the right to pass laws which impact the surface lands within its boundaries, regardless who owns the underlying minerals. The State has passed many laws for water quality and land quality and a variety of other purposes which apply to all lands in the state, including those over federal minerals. The new law reflects the State’s right to have laws that protect its surface landowners and their private property rights, regardless of the ownership of the underlying minerals. The Wyoming Legislative Service Office determined that “there is no state law that explicitly requires the state to exempt federal, state, or tribal property from state legislation designed to accommodate the rights of surface owners in split estates with oil and gas operations.” The majority of the split estate lands in Wyoming are a result of federal minerals underlying private surface. These landowners deserve the same legal guarantees to negotiate for and receive compensation for losses caused by oil and gas activities as will be made available to other split estate landowners.
16. Does the new state law dictate the terms of a Surface Use Agreement?
No. The Surface Owner Accommodation Act is specifically written to leave the timing and terms of a Surface Use Agreement to be determined privately between a surface landowner and an oil and gas operator. Nothing in the Act restricts the amount or type of accommodation or financial compensation that may be negotiated between private parties. Importantly, the Act clearly enumerates the full range of the compensable damages that can be negotiated between parties, but it does not mandate or limit those terms or discussions. It is important for the Surface Owner Accommodation Act to clearly state to all parties involved, as well as the courts, that it is the intention of the legislation to allow for compensation for the full array of economic losses that can be caused by the oil and gas operations to a private landowner.
17. When a landowner bought a ranch without also purchasing the underlying
minerals, didn’t he take a risk that this might happen one day?
The vast majority of Wyoming’s split estate lands were homesteaded under the 1916 Stock Raising Homestead Act and the federal government reserved the minerals at that time. The landowner had no choice but to buy lands with severed minerals. Today, as new landowners purchase split estate lands, they take the risk of not being able to stop oil and gas activities on their lands—but they never take the risk that they should have no significant say in what happens to their surface lands or that they should have to bear an economic loss to their investment in the surface so that the oil and gas operator can reap profits from the minerals. If a prospective landowner were expected to assume these economic risks, who would ever buy split estate lands in Wyoming?