Hunting for Resolution: The Surface and Mineral Estates - Part III

The New Players - Wind and Solar

Welcome back to the OG Energy Blog presented by Childers Hewett Slagle PLLC!  Last week in Part II of this series, we dug into three Texas cases to look at the development of the Accommodation Doctrine and see how fights between the surface and mineral owners can play out in court.  From those cases and others, it’s clear that these types of disputes are heavily fact-specific and commonly result in costly litigation with no guarantee of a favorable outcome.  The takeaway from Part II should be that getting in front of these disputes with a surface use agreement is a good idea, which is why we will be looking at the anatomy of surface use agreements in Part IV of this series next week.

I know what you’re thinking: “Is he ever going to shut up about SUA’s?”  Proud to say that the answer is “NEVER”

I know what you’re thinking: “Is he ever going to shut up about SUA’s?” Proud to say that the answer is “NEVER”

This week, however, we take a look at the rise of wind and solar production in Texas and how that fits in to our surface and mineral estate dichotomy.  Long story short: Wind and solar fit right into that legal framework as part of the surface estate—kind of.  Long story less short: We’ve entered a new frontier where we can only awkwardly analogize existing surface and mineral estate caselaw to the novelties of wind and solar surface use.  Hmm, uncertainty … potential for litigation … considerable money involved for both parties … man, that sounds familiar!  Probably should get a surface use agreement.

AHHHHHHHHHHHHHHHHHHHHHHHHHHH

AHHHHHHHHHHHHHHHHHHHHHHHHHHH

I should get this out of the way now: Yes, the OG Energy Blog is authored by attorneys who predominantly practice oil and gas law.  Childers Hewett Slagle PLLC is predominantly an oil and gas law firm (but we do so much more! Real estate, business law, and more—check out Areas of Practice for more info).  Our target audience predominantly makes its living in the oil and gas industry (if you don’t, why the hell are you reading this crap?? Hi, Mom!).  Posts on the OG Energy Blog will logically focus on the law of oil and gas producing states, including Texas, and that law will generally be friendly to the industry.  But the focus here, at least for this post, isn’t the efficacy of renewables or the perceived evils of the big, bad oil industry. Instead, the focus is the same as in Part I and II of this series: the competing interests and resultant interactions between the surface estate (into which wind and solar fall) and the mineral estate.  What does the law say on this point and how does that apply practically to operators just trying to drill their wells without pissing off a seemingly ever-growing cavalcade of antagonistic parties?

Can’t we all just get along?  Dibs on the buck from the VirTex case!

Can’t we all just get along? Dibs on the buck from the VirTex case!

There’s little doubt that diversification of our energy resources can be a good thing (assuming it’s sunny and windy outside and oil is selling above $50), but what’s the practical result of gobbling up surface acreage that sits on top of otherwise productive oil and gas reserves?  Despite the impressive gains of wind and solar in Texas, both are still very much new to the energy scene.  As a result, the body of law directly addressing wind and solar rights and how those rights interplay with the mineral estate has yet to develop.  For now, we have to fall back on the line of cases that address traditional surface and mineral estate conflicts and then attempt to apply them to wind and solar.

Be reasonable.  Just get an SUA.

Be reasonable. Just get an SUA.

Commonly, when reading about the “rise” of renewables, the tone comes across that this is something that will happen at some undetermined point in the future.  It’s described prospectively, as if the industries are preliminary or just getting started.  But wind and solar are already relevant players in the energy sector, and multiple authorities and prognosticators, including the U.S. Department of Energy, predict renewable energy production in the United States to grow considerably in the coming decades.  The pace of this growth has increased along with the declining costs to manufacture, operate, and maintain equipment for wind and solar (no doubt aided by generous government subsidy).  There’s a consensus in these outlooks that the future of solar energy production in particular is exceptionally bright.  In a place like Texas, the outlook is even more pronounced—studies conducted by the U.S. Department of Energy report that Texas has the “technical potential” to account for 14% of utility-scale solar production in the United States.  In other words, it’s hella sunny in Texas.

I’m getting mixed signals here.  Do we live in Hell or not?  HOW DID PEOPLE LIVE HERE BEFORE AIR CONDITIONING?

I’m getting mixed signals here. Do we live in Hell or not? HOW DID PEOPLE LIVE HERE BEFORE AIR CONDITIONING?

Not to be outdone by the stupid sun that can be seen from almost anywhere on Earth, Texas has the highest potential wind capacity in the United States by far.  In other words, it’s also hella windy in Texas.  That sunlight and wind, along with vast and abundant open areas (a/k/a BFE), robust transmission capacity and infrastructure, and a growing population and economy that necessitate increases in electricity generation, make Texas a prime location for the growth of the wind and solar industries.  So, I wouldn’t be full of hot air to say that wind and solar are here to stay and are likely to grow. 

Almost a fifth of electricity generated in Texas comes from wind.  Texas ranks first in the United States for installed wind capacity and first for capacity under construction.  As of Q2 2020, there are over 15,000 wind turbines in Texas with thousands more under construction or planned in the immediate future.  There is so much wind power generated in Texas that only China, Germany, India, and the rest of the United States each generate more.  Texas also ranks in the top ten in the United States for current solar electricity capacity, and ERCOT predicts that capacity to triple by 2029 and account for nearly 10% of electricity generation in the state.

Artist’s concept of Texas in 2029.

Artist’s concept of Texas in 2029.

The footprint and permanence of wind and solar farms present unique problems for the development of the mineral estate.  As we’ve seen in Part I and II of this series, if there is a reasonable alternative for the surface owner or the mineral owner, depending on the circumstance, that reasonable alternative must be utilized.  Usually, this makes sense in the context of farming, ranching, and similar surface activities where the activity is transient or essentially mobile.  Farmer John isn’t planting 500 ft tall stalks of corn to stand for decades, and Rancher Bob isn’t installing tight arrays of cattle to bask in the sun in perpetuity.  Within the reasonableness standard and due regard framework imposed by Texas law, these surface activities can give way to the dominant mineral estate.  Likewise, the initial surface use by the mineral estate to extract the minerals has some leeway for location and scope and will typically shrink once complete, thus opening back up surface acreage for the surface owner to use. 

Because surface and mineral owners are always reasonable and get along.

Because surface and mineral owners are always reasonable and get along.

Wind farms generally encompass tens of thousands of acres, sometimes eclipsing 100,000 acres, which are leased up by individual wind leases that may cover any number of acres.  Despite the massive acreage commitment, the amount of surface acreage physically occupied by the wind farm is relatively small once installed—turbines, transmission lines, substations, and the like—and it is not uncommon for wind leases to have retained acreage clauses that terminate the lease as to the unused portions of the surface.  Solar leases, on the other hand, typically cover a few thousand acres but, once installed, solar farms occupy virtually all of the leased acreage.  So, what happens when a surface use inherently precludes any other surface use, including reasonable use of such by the mineral estate owner to extract the minerals?  It’s yet to be determined (and it depends)!

“It depends" again?  Now it’s “yet to be determined?”  Seriously, this guy sucks.

“It depends" again? Now it’s “yet to be determined?” Seriously, this guy sucks.

Here’s what we do know: The authority to grant a wind or solar lease is held by the surface owner.  Although there is no case in Texas that directly rules that the mineral estate is dominant over wind and solar rights, we can assume as much based on wind and solar rights being part of the surface estate.  Whether the minerals have been severed will have an effect on how a wind or solar lease will interplay with oil and gas development (whether preexisting or not).  As discussed in Parts I and II of this series, always keep in mind that having the right to do something doesn’t always solve the problem or give you a blank check to do as you please.  Litigation is just a long-winded and expensive way to prove that you had the right in the first place.

Unsevered Minerals

In an instance where the minerals are unsevered and the wind or solar lease is executed (and recorded!) prior to oil and gas leasing, the rights of the mineral lessee will depend on what the surface owner granted and agreed to in the wind or solar lease.  Are there restrictions on surface use?  Did the surface owner waive or convey the right of ingress and egress for the purposes of oil and gas development to the wind or solar lessee?  Outside of the terms of the wind or solar lease, has the wind or solar project been constructed?  Is it under construction or planned?  The answers to these questions will inform the oil and gas lessee of their options and give an idea of the relative risk of litigation if the surface of the leased premises is used.

If the wind or solar lease is executed subsequent to the oil and gas lease, then the analysis flips—what does the oil and gas lease say?  Commonly used oil and gas lease forms are silent on wind and solar, and the generic grant of authority to the lessee to use the surface likely does not outright preclude wind or solar activity.  If you are lucky enough to think of these issues prior to obtaining your oil and gas lease, it’s always a good idea to negotiate terms into the lease that limit or prohibit wind and solar on your leased premises or that require your consent (to both siting and use).  If you weren’t so lucky but your lands have yet to be leased up for wind and solar, now might be a good time to get one of those good old surface use agreements!

Tee-hee.

Tee-hee.

Severed Minerals

When the minerals are severed, the outcome will depend on whether the surface is already being used for wind or solar.  If it is not, all you can do is wait and see if a wind or solar lessee comes along and wants to eff with your existing operations.  If there is a wind or solar lease but no actual operations on the surface, there’s a potential quirk.  There is some appellate authority suggesting that planned future development by a surface owner could be considered an “existing use” such that it precludes the oil and gas lessee from drilling a well at a specific location.  Absent further development of that point of law, whether planned wind or solar activities (presumably under a lease) would qualify as an existing use is unknown.

If the surface is being used for wind or solar activities, then the analysis will (at least initially) be much the same as we covered in Part II.  As the mineral owner or lessee of such, you have the implied right to use as much of the surface as necessary to extract the minerals balanced by the Accommodation Doctrine.  The surface owner bears the initial burden to prove (1) there is an existing use that is the only reasonable means of productively using the surface and (2) there are reasonable alternatives available to the mineral owner.  Refer to Part II for further examination of that reasonable fun.

Conclusion

Just like any other surface dispute, being a good neighbor is likely to get you further than beating the surface owner or a wind or solar lessee over the head with your dominant estate.  The lack of cases addressing wind and solar surface use should scare you more than reassure you—parties are incentivized to sue one another to establish their undefined rights.  The scope of wind and solar farms are vast and involve capital-intensive planning and execution.  These players are unlikely to go down without a fight.  Attorneys tend to be overly risk-averse (one of the many perks of the job, no doubt), but I don’t think it’s unreasonable to want to avoid playing the litigation lottery with wind, solar, and oil and gas.  There’s far too many legal unknowns floating around out there due to the novelty of wind and solar that are further complicated by the use of horizontal drilling technology in oil and gas exploration (technology that the courts are still playing catch-up with).  Despite the uncertainty, the burdens to prove these cases still initially fall on the surface owners, and the reported cases predominantly fall on the side of the oil and gas owners and lessees.  So, get agreements where you can and accommodate when you deem it reasonable, but don’t forget the primacy of oil and gas in Texas. 

Next week in Part IV of this series, we finally take a look at the construction, utility, and effectiveness of surface use agreements.  I hope you can all manage having to wait a week to get my hot takes on SUA’s!

How I imagine readers of the OG Energy Blog reacting to that news.

How I imagine readers of the OG Energy Blog reacting to that news.

I feel like watching a Jim Carrey film for some reason. Thanks for reading!

Bill Slagle

Bill is a founding partner of CHS and practices oil and gas law and real estate law in Texas, Colorado, and West Virginia. He also writes terrible blog posts for the OG Energy Blog.

https://chspllc.com/bill-slagle
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Hunting for Resolution: The Surface and Mineral Estates - Part IV

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Hunting for Resolution: The Surface and Mineral Estates - Part II