Non-Surface Use Lease – The Devil Is In The Details
September 10, 2019
You have been offered an oil and gas lease, and you are interested in leasing your oil and gas; however, you do not want any activity of any kind on your land. Can such a lease be negotiated? Yes. Such an oil and gas lease is usually referred to as a non-surface use lease, a non-surface operating oil and gas lease or a non-surface oil and gas lease (collectively “non-surface use lease”). What is a non-surface use lease?
A non-surface use lease is an oil and gas lease, which prohibits the oil and gas company from using the surface of your land to develop the oil and gas thereunder or under adjacent properties. You lease your oil and gas to the oil and gas company, but the oil and gas company cannot come onto the surface of your land to develop the oil and gas that is either under your property or under adjoining properties. In such a case, in dealing with an unconventional oil and gas lease a/k/a a Marcellus shale oil and gas lease, the oil and gas underneath your property will be produced by placing your property in a unit with the oil and gas wells located on one or more of the other properties in the unit. The horizontal laterals can, however, extend underneath the surface of your property in order to develop the oil and gas thereunder and under other adjacent/adjoining properties. If you want a non-surface use lease, and the oil and gas company is agreeable, you need to be careful as to the language. As they say, the devil is in the details, and not all non-surface use leases are in fact non-surface use leases. The lease may be entitled non-surface use lease but the language may indicate otherwise.
First, you need to be aware that a clause in an oil and gas lease which is entitled, “Surface Operations Restricted,” or something similar, may not in fact be a non-surface use clause which makes the oil and gas lease a non-surface use lease. A surface operations restriction clause may read as follows:
No well shall be drilled, access road, tank battery, pipeline, or other facility constructed, nor any other surface operation conducted within One Thousand (1,000) feet of any building, water well, spring, or septic system without the written consent of the lessor.
Such a clause restricts operations that take place on the surface of your land. It does not prohibit operations on your land.
If you are offered a non-surface use lease, somewhere in the lease, generally on the first page or on the last page of the lease or in an addendum, there will be a paragraph entitled, “Non-Surface Operating Lease,” “Non-Surface Development,” “Non-Surface Use” or something similar. Not all non-surface use clauses, however, are true non-surface use clauses in the sense that all operations or activities on the surface are prohibited. A true non-surface use lease prohibits any operations or activities on the surface of your land.
In reviewing a non-surface use clause, it is important to review the language as it is not unusual for the language to allow for some operations or activity on the surface. In other words, you might be thinking that you are getting a non-surface use lease in which all operations or activity is prohibited on your land; however, the lease language may indicate otherwise. For example, the language may read something to this effect:
The parties hereto agree that without lessor’s written permission, lessee shall not have any rights of ingress or egress on the premises (with the exceptions listed herein below to allow for geophysical testing and temporary water lines), and shall not have the right to construct wellpads, well sites, pipelines, roads, or install any other permanent facilities or conduct any other operation on the premises. It is expressly understood and agreed, however, that lessee shall have the exclusive right to conduct the following operations: . . . .
This clause is not a true non-surface use clause as it allows for surface operations.
What you need to look for or the type of language that should be in a non-surface use clause would be something to the following effect:
- Lessee shall not use the surface of the leased premises for any purpose;
- Notwithstanding any provision contained in the lease to the contrary, Lessee is prohibited from using the surface of the leased premises for any purpose without the prior written consent of the lessor;
- The Lease is being granted for the sole purpose of permitting lessee to pool, unitize or combine the property with other leases or properties, which shall bear all the burden of the surface development. Lessor, however, understands and gives consent that the wellbore from other properties with which such property has been pooled, unitized or combined may pass through or terminate below the surface of the property.
Accordingly, should you desire a non-surface use lease, you need to review the language in the lease or in the addendum, if one is attached to the lease documents that you have received, to satisfy yourself that in fact the non-surface use lease that is being offered does in fact prohibit surface operations. If your desire is that no surface operations are to take place on the surface of your land, the language of the non-surface use clause should prohibit any and all operations on the surface of your land.
If you have questions about a non-surface use lease or any oil and gas lease, contact us or call (412) 338-1124.