For oil, gas, and title companies, as well as anyone else involved in the extraction and refinement of natural resources, thorough research of estate ownership is essential. Before delving into the implications of surface interest ownership, it’s crucial to review a clear definition of surface interest.
What Is Surface Interest?
Combined, surface and mineral interest comprise a landowner’s estate. Simply put, surface interest accounts for the above-ground property while mineral interest is everything below. In some cases, an estate owner splits the two and can lease mineral interest while retaining surface ownership. This allows a lessee, such as an oil or gas company, access to locate and procure natural gas from the property.
To successfully extract natural gas from land, it stands to reason that some contact with the surface will be needed. From surveying and drilling to the transportation of extracted resources, lessees require the use of a land’s surface. For this reason, mineral interest owners receive “implied easement” of restrictions pertaining to surface land use. Mineral interest owners are afforded many rights regarding surface use, including but not limited to the right to the following:
- Conduct seismic tests
- Drill wells
- Construct and maintain roads
- Construct pipelines
- Use subsurface and surface water
Though this provides operational flexibility, mineral interest owners should be aware of no-deductions clauses.
What Is a No-Deductions Clause?
For landowners, a no-deductions clause stipulates that the lessee cannot deduct costs incurred while transforming raw materials to a marketable condition. For the lessee, this can result in significantly higher production costs and extended project completion times. Here are a few potential issues that may arise if a no-deductions clause is in place:
- Difficulty or inability to recover production costs
- Possibility of litigation resulting from surface damage
- Reduced production efficiency
- Reduced overall profit
If a no-deductions clause is in place, mineral interest owners must further define the processes involved with and costs incurred by transforming raw materials into a marketable product, as these factors contribute to overall cost for lessees. Currently there is no blanket definition for marketability, placing the burden of proof on the mineral interest owner.
Implications for Texas Professionals
For professionals in Texas, it’s important to note that surface interest not only includes the surface of land, but also everything not included in mineral interest. In the lease, specific terms regarding the use of surface interest by the mineral interest owner may change over time, resulting in the need to modify extraction procedures. Additionally, moving forward with a natural gas project may be hindered by county, city, or municipal ordinances.
Research the Facts
Obtaining complete and accurate records regarding surface and mineral interest ownership will provide insight into ownership history, lease terms, and the presence of a no-deductions clause. Whether you’re a lessee or lessor, or play another role in the development and extraction of oil and gas in Texas, online public record research is a valuable tool capable of saving time and money, while minimizing the risk of future project complications.