News - Tag Archives: mineral rights

A recent Baker Hughes report stated that it expects continued investment and expanding exploration of oil and gas fields. While the overall industry is approximately 40% leaner than it was in 2014, it has recently expanded. According to the report, the increasing price of crude oil, notably that it recently topped $50 per barrel, leads the charge toward expanding oil and gas drilling and exploration.

The continued and expanding investment will likely trigger an increase in deep-sea oil digging. Currently, offshore oil and gas drilling constitutes about 30% of the world’s oil and gas supply. Of offshore gas and oil drilling, only 9% of that oil is in deep water. Most offshore oil and gas drilling occurs in shallow water. However, with the increasing investment, especially in drilling technology, this trend is rapidly changing.

Likely, the increased technology will create increased sources of energy. If natural gas and other energy saturates the market, then prices will remain low, thereby causing energy companies to rethink their exploration and digging activities. In turn, mineral owners in energy rich areas like West Virginia’s Marcellus Shale may sue their counterpart energy companies.

Technology and Natural Gas

In 2013, Ford Motor Company introduced the F-150 CNG, which is a car that uses compressed natural gas. CNG can act in the place of fuel and produces less emissions. In the event of a spill, CNG is light and will disperse when released into the air, whereas oil and gas can produce environmental hazards. However, an F-150 CNG costs $10,000 plus more than other cars in its class.

Technology has gone even further. Some gas companies claim that they possess the technology to convert natural gas into gasoline. Once converted, they claim, the price for the gas would be approximately $1 per gallon. This continued surge in the natural gas market, which keeps prices low, would cross product lines with gasoline and be a boon for the economy.

On the other hand, the better technology, which leads to more drilling areas, may deflate the industry to a point where it is not profitable to extract natural gas from the ground. In fact, there was a 20% drop in Marcellus Shale natural gas drilling from 2014 to 2015. This reflects deflated pricing, not the availability of untapped natural gas.

Leasing of Mineral Rights

While land ownership and mineral rights ownership are two different matters, most landowners are also mineral rights owners. In recent years, landowners in the Marcellus Shale have leased mineral rights to various energy companies active in the area. Other mineral rights owners sold their rights to these companies. Those who leased their mineral rights might find that their counterparty energy companies are unable to keep their commitments under the lease because those companies are no longer profitable. If that happens, the lessee needs to know his or her legal rights. There may be contract and insolvency issues.

Modern technology is amazing. It affects the energy industry because it creates new avenues for revenue. It also may be hurting profitability, which, in turn, can end an energy company’s ability to continue operations. If you are a mineral rights lessee, you may need to defend yourself against your lessor. Contact the law firm of Hendrickson & Long.

A property that contains minerals will often have two owners – one that owns the above-ground property or surface rights and one that owns the below-the-surface property or mineral rights. Often, these property rights conflict. The mineral owner may want to do work on the surface of the property that is necessary to extract minerals from the ground; at the same time, the surface owner may not want the mineral owner to do that work on his or her property.

Buffalo Mining Case

In the Buffalo Mining case, the Supreme Court of Appeals for West Virginia created a test to properly deal with these two competing property rights. In that case, Buffalo Mining owned a coal mine beneath the surface of the ground. It sought to create an above-ground power line that would ventilate an underground coal mine. The surface owner interfered with the building of the powerline. In determining whether Buffalo Mining, as mineral rights owner, had a right to build a powerline on the property, the Court laid-out a two-prong test:

• The proposed activity must be reasonably necessary; and
• It must not cause a substantial burden to the surface owner.

In that case, the Court held that Buffalo Mining satisfied the first prong of the test because it was reasonably necessary to have ventilation under the ground to assist in mining. The ventilation was reasonably necessary to continue the coal mining process. However, Buffalo Mining did not satisfy the second prong of the test because it was a substantial burden to the surface owner. The Court reasoned, based on the facts and circumstances, that building a powerline caused substantial damage to the property.

Post-Buffalo Mining

While the Buffalo Mining case can be viewed as protection for surface rights owners, it does not give definition to the “substantial burden” requirement. Other cases have used the Buffalo Mining test to determine how to split surface v. mineral rights, yet the extent of the burden remains unclear. In the 2013 Whiteman mineral rights case, a 10% damage to the property did not rise to the level of a substantial burden.

While the extent of the Buffalo Mining case remains to be seen, its implications as a surface rights protection case may have significant impact. At the moment, many companies are furthering their oil and natural gas exploration and operations. Places that 20 years ago had no energy industry now have burgeoning energy industries. The increasing and growing fracking industry needs to consider the Buffalo Mining ruling before committing to West Virginia fracking fields. The extent of the Buffalo Mining ruling may inhibit those companies’ abilities to extract minerals from the ground. This would hurt West Virginia’s economy because of slower growth in the mining sector.

If you are in the energy business, you need to partner with a law firm that understands the business. Contact the law firm of Hendrickson and Long, a West Virginia firm dedicated to protecting the rights of those companies involved in the energy industry.