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Monday, September 15, 2014

Land lawsuit: mineral rights over property rights

by Kerry Halladay, Associate Editor

In this line of work, lawsuits over land and property rights are nothing new. But with each new lawsuit there comes the potential to set precedent that could affect everyone.

In mid-August, the Tenth Circuit Court of Appeals ruled in favor of oil and gas company Entek GRB in its appeal of an earlier case against Stull Ranches in Colorado. Stull owned the surface rights to the area in question, while Entek owned the mineral rights under much of Stull’s ranch and adjoining surface parcels. The decision has recently been appealed.

According to the court’s ruling opinion, the dispute arose when “Entek asked permission to enter Stull’s surface estate—both to develop new oil well sites on Stull’s land and to get at one of its existing wells located on an adjacent surface estate owned by the Bureau of Land Management.” Stull—operating a grouse-hunting business* on his ranch—refused over concerns that the activity would negatively impact the grouse.

In the original case, the court ruled partially in both parties’ favor. The court held that Entek could access minimal portions of Stull’s ranch to take advantage of its mineral rights below and no more, specifically that Entek could not cross Stull’s property to access wells on adjoining properties.

The appeals court overturned this ruling, holding instead that Stull had no right to deny Entek surface access to pursue its mineral rights. More than that, it asserted—due to the unitization of mineral leases into the 40,000-acre Focus Ranch Unit Agreement, and the details of various homesteading acts—that Entek may “use any portion of the surface in the unit to aid its mining activities in the unit without respect to individual lease or surface boundaries. Put differently, the operator may now ‘reenter and occupy’ so much of the surface in the unitized area as may be ‘reasonably incident’ to extracting minerals from the unit.”

“In the Stull Ranches v. Entek case, we believe the court made a fundamental error in their opinion in this case that imbalances those rules when they granted additional rights through their broad interpretation of the Stock-Raising Homestead Act, the Mineral Leasing Act, the Focus Ranch Unit Agreement, and relevant case law that erroneously expands the rights of federal mineral lessees and impermissibly burdens the rights of surface owners,” wrote Terry Fankhauser, Executive Vice President of the Colorado Cattlemen’s Association (CCA), in an email to WLJ.

“They fundamentally missed the mark on this ruling,” he summarized in a later conversation. “The courts have knocked us back in time significantly.”

The CCA and the Colorado Wool Growers Association (CWGA) filed a proposed Amicus Brief supporting Stull Ranches’ petition for a rehearing of the case last week. In the brief, the CCA and CWGA argue that the impact of the court’s ruling could have farreaching negative impacts not supported by past case law and land rights traditions.

“By holding that the unit operator for lands part of a unit and subject to a mineral reservations has a right to use the surface of any lands in the unit so long as it is ‘related’ to development, the Court expands the rights of surface use without considering previous decisions, including the accommodation doctrine,” read the brief.

“This in turn changes the relationship between the oil and gas operator and the surface landowner, particularly livestock operators, by giving the unit operator broader authority and rights, and reducing the leverage of the landowner to negotiate reasonable terms.”

Both the brief and Fankhauser expressed concern that the ruling will severely undermine the good mutual work between ranchers and oil and gas companies regarding the “accommodation doctrine.”

“This holding undercuts the work of both the livestock and oil and gas industry to develop a mutual accommodation doctrine as the best method to resolve access issues and respect the property rights of the surface and mineral estate owners,” read the brief.

“We are not speaking against the right to access the mineral estate by energy companies,” said Fankhauser.

“We’re very strong proponents of the accommodation doctrine.”

The concern is that, under this new ruling, precedence will be set which effectively allows mineral rights holders free reign over surface rights holders.

“This expansive interpretation removes previous limits that tied the surface use to the mineral estate underlying that surface and limited the scope to what is reasonably necessary. The result is that a landowner can find himself supporting a tank farm for drill sites 20 or even 40 miles away,” Fankhauser worried.

In the “Impacts on Landowners” portion of its argument, the brief summarized the potential future created by the ruling:

“This holding will not only allow the use of a right-of-way on one surface owner’s land for access to a well located on a third party’s surface but will also permit the construction of supporting operations and facilities such as pipelines, waste disposal pits, and oil and gas storage facilities on any surface estate within the unit, without regard to the location of the well or value of the surface resources. This puts at risk key lambing and calving sites, trailing routes, or hay meadows since the oil and gas operator has less incentive to accommodate surface owner rights and is under pressure to avoid federal land resources.” — Kerry Halladay, WLJ Editor


[*Edit; Sept. 17, 9:05 am Mountain: A representative from Stull Ranches contacted WLJ, claiming the detail of the grouse hunting operation is inaccurate, and that the ranch has not allowed grouse hunting for 25 years. The detail of the grouse hunting operation came from the court's opinion document on the ruling, which can be found here. We are investigating this situation and will update this story as needed.]

 
 


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