Surface Damages

A guiding principle in business is equally applicable when a landowner enters into an oil and gas lease, In business you don’t get what you deserve ‑ you get what you negotiate. This principle is particularly important when addressing protection against potential surface damages. When an oil and gas leasing company, through a landman, often an independent contractor, initiates lease negotiations, within its rights to do so, it seeks to get as much as it can with limited downside risks. The landman usually are much more aware than the landowners of the limitations of the law and the benefits to the company of afforded by the law.

Historically, a mineral interest is considered the Dominant Estate and the surface interest is the Servient Estate. As such, the owner, or Lessee of the mineral interest could make such use of the surface as it considered reasonable in order to explore for oil and gas. In light thereof, landowners feel they have little or no rights or choice when mineral exploration occurs on their surface, and indeed, the ususal terms of an oil and gas lease, often in the fine print reinforce this position. A landowner who reads the lease, for the first time, often notes that the lease appears to be one‑sided, a position discounted by the landman who often responds that it is in a customary form. Then, for a limited amount of consideration, a landowner waives more rights than what they should or more rights than they need to, consistent with the law.

An example of the waived rights relate to Surface Damages. Many leases contain the following magic language, “Lessee shall pay for all damages caused by its operations for growing crops on said land,” But what if the landowner is not a farmer, and has no crops? Unless the lessor/landowner specified other non crop damages, the oil and as operator can claim no other liability for such other damages as the landowner might subsequently claim. In negotiations, many landmen and the leasing company they work for argue strongly against inserting any surface damage provisions, possible because provisions of that sort adversely effect the marketability of the leases to an exploration and development company. Also, when after the fact a landowner has damage claims which he consider to be appropriate, it is not uncommon for the oil and as company to assert, that issue did not come up. It is wise to remember in oil and gas leasing, as in all other business negotiations, almost everything comes up, sooner or later, if you don t cover it in negotiations.