This post outlines the rights of a landowner in a situation where an oil company is drilling a well, and the well pad is outside of the spacing unit, or the pool of oil into which they are drilling. It is a complex issue to cover in this column, but I believe it is extremely important for landowners to know their rights, and many landowners are being taken advantage of in this context.
It is true that in most situations the surface owner does not have the right to prevent an oil company from drilling a well on his land. The mineral estate is the dominant estate, so the mineral owners have the right to do what is “reasonably necessary” to develop their minerals beneath that surface. For example, if a mineral owner owns the minerals in section 21, then he has the right to use the surface of section 21 to produce the minerals underneath section 21. He cannot, however, use the surface of Section 21 to produce the minerals in section 16 (which is the section to the north of 21).
This general rule is modified when the North Dakota Industrial Commission creates a spacing unit and pools all of the oil and gas in the unit. Most of the spacing units are 1,280 acres, and are “stand up” spacing units, meaning the well bores are oriented north to south. So returning to the example, if sections 21 and 16 were one spacing unit and the oil and gas were pooled, the owner of minerals in section 21 could use the surface of section 21 to produce the minerals in 16, even if he owned no minerals in section 16.
In recent years, oil companies have begun using multi-well pads, and will drill into spacing units north and south of the well pad. This results in a situation where they are using a surface estate to access minerals outside of the rights given them by their mineral ownership. In my example, section 16 sits to the north of section 21, and the two sections are spaced and pooled. Now assume that a multi-well pad sits on section 9, which is just north of 16.
Typically, the oil company with the well pad in section 9 does not have the right to use that surface to drill into sections 16 and 21; it only has the right to drill in section 9, or in sections 9 and 4 if those two sections were a spacing unit.
The Industrial Commission has required oil companies in this situation to submit an affidavit stating that they have obtained a surface agreement with the surface owner giving them permission to use the surface estate to drill into the offsite spacing unit. Thus, the Industrial Commission specifically recognizes that special permission must be obtained.
The reason this issue is important for surface owners is that they have the right to negotiate a reasonable surface agreement and compensation, and if they want to, they have the right to simply say no to the oil company – a right that is rare in oil and gas law.
Members of the Northwest Landowners Association have access to a more detailed memorandum with diagrams explaining this situation. It is important for surface estate owners to understand whether the wells or proposed wells going in are developing the minerals directly underneath the land, or are drilling into an offsite spacing unit, because surface owners are often told that they have no right to keep the company from damaging their land. Sometimes they do.