Lurking Beneath Your Feet: Wind developers face risks from severed mineral interests
Picture this: A wind developer is planning a new onshore project. When the planned construction location was selected, the developer considered the physical condition of the land, the availability of electricity transmission infrastructure, and applicable land use regulations. The lease form has been finalized and the landowner has granted an option.
Can the project proceed? Not yet — the developer still needs to consider whether the landowner is actually sharing the land with someone else who owns the minerals under the surface of the land, because the mineral owner probably has rights to use the surface, too.
Landowners generally own not just the surface, but also the minerals below them; they are free to sell their mineral rights to someone else. These separate mineral interests (sometimes called “severed minerals” or “split estates”) are usually privately owned, but the federal government owns separate minerals, mostly in the western United States. In some states, the state government owns severed minerals.
Separate mineral ownership is not a recent innovation. As long ago as the sixteenth century, English courts recognized that minerals could be owned by someone other than the surface owner. This idea took root in the legal systems established in England’s colonies along the Atlantic coast, survived American independence, and then spread across the country as new states were established. Even in Louisiana, with its French and Spanish (and not English) legal heritage, the law recognizes that minerals can be owned separately, at least temporarily. Given the age of this idea, it is especially important that the developer investigating the ownership of the proposed construction site take the time to search the title records back far enough to find the creation of separate mineral interests. In the eastern United States, mining for hard-rock minerals like coal, lead, and iron ore started as long ago as the seventeenth and eighteenth centuries, and commercial oil and gas development started in several eastern as well as western states in the mid-nineteenth century.
American law almost always allows the mineral owner to use the overlying surface to develop the underlying minerals. Mineral deeds and leases may expressly establish surface rights when the minerals were separated from the surface, so the developer needs to review all the mineral instruments to see which rights the mineral owner may have. Even if they say nothing, courts generally recognize that mineral ownership includes an implied right to use the surface. So, if there is separate mineral ownership, the developer should assume that the mineral owner can make some use of the surface.
The law has permitted the mineral owner to broadly use these surface rights, both as to where on the land the right can be used and the way the right is used, so that the mineral owner usually has the right to build roads, construct mining and drilling locations, install equipment and build the electrical systems necessary to operate the equipment, and even temporarily house workers. In addition to these rights that might be exercised by any mineral owner, where there are hard-rock minerals, the developer needs to pay special attention to whether the mineral owner has the right to engage in surface mining (which would allow the removal of the surface to expose the underlying minerals), or the right to remove subjacent support and permit subsidence of the surface.
These rights are not unlimited. They must be exercised in accordance with (1) the actual terms of the instruments that created the separate mineral ownership, (2) in a reasonable manner (which, in some states, means that mineral owners and surface owners must accommodate each other’s use of the land), as well as (3) the limitations on the location and extent of mining and drilling operations imposed by statutes and regulations. Keep in mind, however, that these limitations are usually fact-specific and vary from state to state, and sometimes vary within states because of local regulations.
Still, the developer has options for addressing the risks presented by separate mineral ownership. The most common response is the waiver or non-disturbance agreement, where the developer identifies the separate mineral owner and negotiates an agreement under which the mineral owner promises to not use the surface during the lifetime of the developer’s project. Evidence of such agreements should be recorded so that future mineral owners are aware of the limits on their surface rights.
The developer (or the surface owner) could go further and buy the minerals from the mineral owner. This option gives even greater levels of control, but it will probably be more expensive than negotiating a waiver. In some states, the surface owner may be able to reunite the minerals with the surface under a marketable record title act or a dormant mineral act; however, reuniting the minerals and the surface under such laws are fact-specific, and usually depends on the absence of references to the minerals in the surface owner’s chain of title, and a lack of activity on the part of the mineral owner over a certain period of years (usually 40 years). In some states, using these statutes requires notice to the mineral owner by certified mail or publication, as well as filing documents in the public land records. Other states require filing a lawsuit, so the time and expense may vary widely from state to state. Also, in some states, these acts apply to some, but not all types of minerals. Where the separate mineral ownership was created by lease rather than by deed, the separate ownership might be subject to abandonment if the mineral rights have not been exercised over a long period of time. The lease could be abandoned either by statute that, in some states, allows for abandonment through a notice-and-filing system similar to some states’ dormant mineral acts, or by judicial determination in a lawsuit. Other options might include prescription for non-use (available only in Louisiana), or adverse possession, which is fact-specific and requires a lawsuit. Regardless, the developer needs to do more than nothing.
This article is public information and has been prepared solely for educational purposes. This article reflects only the personal views of the author and is not individualized legal advice. It is understood that each case is fact-specific, and that the appropriate solution in any case will vary. Therefore, this article may or may not be relevant to any particular situation. Thus, the author and Steptoe & Johnson PLLC cannot be bound either philosophically or as representatives of their various present and future clients to the comments expressed in this article. The presentation of this article does not establish any form of attorney-client relationship with the author or Steptoe & Johnson PLLC. While every attempt was made to ensure that this article is accurate, errors or omissions may be contained therein, for which any liability is disclaimed.
Andy Graham focuses his practice in the areas of energy and mineral law at Steptoe & Johnson PLLC, a U.S. law firm with core strengths in energy, labor & employment, litigation, and transactional law.
Steptoe & Johnson PLLC | www.steptoe-johnson.com
Author: Andy Graham
Volume: 2024 January/February