Mosburg Primer OGL10 3-25-99-2a

INTERNET OIL & GAS PRIMER™

THE OIL & GAS LEASE

Author's Note

Our discussion of the rights of a Lessee under the Granting Clause concerning the use of the leased premises continues with a discussion of which of the rights granted to the Lessee are exclusive to the Lessee and which must be shared with the Landowner or other Industry Members to whom the Landowner grants (or purports to grant) similar rights.

PART TEN: THE GRANTING CLAUSE: USE OF THE LEASED PREMISES: ARE THE LESSEE'S RIGHTS EXCLUSIVE?^*

Obviously, the leasing of a tract of land for the exploration and development of minerals grants that Lessee the exclusive right to conduct operations for the extraction of the leased substances from that leased premises. However, to facilitate this search, the Lessee, as we have seen, is given extensive rights to use the surface of the leased premises. How exclusive are these surface rights.

Generally speaking, the Lessee's right to use the surface of the leased premises are not exclusive: the surface owner can continue to use the surface of the land, so long as the surface owner's use does not interfere with the reasonable exercise of the Lessee's rights under its lease.¹ However, if the uses would conflict, the rights of the Lessee will control: as mentioned previously, the mineral estate is the dominant estate over the servient surface estate.

Two issues, however, have resulted in conflict among the courts:

May the surface owner grant the right to use the surface of his land (leased to someone else) to directionally drill a well which will be bottomed on other lands?
May the surface owner grant the right to conduct seismic and other geophysical operations over the lands, even though they have been leased for mineral purposes to another?

These two questions are complicated by the fact that the grant of such additional rights by the surface owner may result in a reduction in profit, or even a loss, to the Lessee. Assuming that the directional well may drain reserves from the leased premises (or that the leased premises would otherwise have drained reserves from the adjacent premises), recovery of hydrocarbons by the Lessee will (or at least may) be reduced by the drilling of the directional well. Similarly, the shooting of seismic over the leased premises could condemn – or at least reduce the value – of the leased premises, cause a farmout to fall through, or the like.

There are only a limited number of cases which address these questions, and the results have split. Thus, depending upon the state in which the operations are being conducted, the answer may be:

The Lessee's right to drill – or to shoot seismic – may be exclusive;
The surface owner, acting alone, may grant to others the right to drill directionally to other lands, or to shoot seismic;
Both the Lessee and the surface owner must join in granting any such additional rights.²

And, again, the wording of the original grant which created the Lessee's surface rights may change the answer if, under the instrument, the Lessee's surface rights clearly were – or clearly were not – to be exclusive.

Next issue: "Substances Covered by the Lease"

^*For more detailed discussion of the impact of the principles discussed in this article, and citation of authorities, see Williams & Meyers, Oil & Gas Law §218.6 ("Williams & Meyers").

¹This may include surface uses that relate to the conduct of oil and gas operations (e.g., the laying of crude oil and natural gas pipelines, or the construction of pits, tanks and the like related to operations on adjacent lands). However, see below concerning the use of the surface to directionally drill a well, and the conduct of seismic operations.

The rights of the parties can also be affected by the wording of the instrument: a grant of "the exclusive rights-of-way for any and all pipe lines" would prevent the surface owner from thereafter granting pipe line easements to others. See Williams & Meyers, id.

²It has been suggested that the owners of non-operating interests such as overriding royalties might also be necessary parties to such grants. See Williams & Meyers, id.

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