How to Negotiate Surface Use Agreements

Surface use agreements are useful for property owners.

Surface use agreements are arrangements between owners of real property and drilling operators. In this type of arrangement, the drilling company owns an interest in the oil and gas lease of the land, but the owner owns the surface rights above the land. The two parties to the agreement negotiate on what rights the owner will grant to the drilling company and standard contract clauses related to compensation arrangements, termination and indemnification provisions.

Instructions

Meeting and Planning

1. Negotiate the granting of private right-of-way provisions to ensure that the drilling operator has permission to enter, use and drill upon limited areas of the land. Discuss the property owner's description of the land in relation to the right-of-way. Create a separate agreement to permit the drilling company access to the land.

2. Discuss notification provisions. Inform the drilling operator that he cannot access the land or place a well, road, power line or pipeline without first consulting you. Notify the operator that he must use existing roads for drilling operations and must consult with you if it becomes necessary to install a pipeline or construct a new road in order to prevent long-term impairment to the land.

3. Mention surface damages and shallow rights provisions within the discussion. Create a separate agreement and outline how the operator will compensate you for impairment to the surface of the land due to drilling operations.

4. Talk about compensation arrangements for surface damages. Discuss provisions related to payments to you for stratigraphic tests, annual rental fees for the use of well locations on the land and access fees for roads.

5. Address concerns about the installation and the future use of power lines on the property. Make sure to discuss with the operator issues of concern related to overhead power lines interfering with the visual landscape of the property. Advise the drilling operator to bury and lodge power lines securely into the ground.

Drafting the Contract

1. Create a termination of rights clause to illustrate that the right of the drilling operator to access the land ends when the oil and gas lease terminates. Use additional wording such as "operator ceases drilling and well production on the land" and "remove all equipment" to refer to the operator's duty to the property owner.

2. Add an exclusive rights provision to ensure that the drilling operator doesn't transfer or convey interest in the land to a third-party. Insert an additional clause to reserve nonexclusive rights for granting more easements.

3. Include a restoration provision in which you obligate the drilling operator to level the surface of the land after the termination of all operations. Put in additional wording to refer to the drilling operator's duty to restore private roads and improve the surface of the land to the owner's satisfaction.

Tips & Warnings

• Surface use agreements may also be called "surface use and easement" and "surface use and damage" agreements.

References

• Powder River Basin: Sample Surface Use and Damage Agreement

Resources

• Powder River Basin: Sample Surface Use and Damage Agreement Checklist