Surface Wind Farms Vs. Mineral Leases: Who wins?

November 3, 2015

As you glance over the rolling plains of West Texas, you will most certainly see wind turbines and pump-jacks. Both of these industries have historically represented a large part of the economy in Texas. The wind boom has grown all over the world within the last decade.[i] Wind is cheap and sustainable, and as a result has attracted investment.[ii] Nearly five percent of electrical power in the United States is supplied from wind turbines.[iii] Landowners who own both the surface estate and the mineral estate, ideally, want both oil wells and wind turbines on their land, but it is more common that the two estates are severed. When both operations do exist on the same land, however, the two industries often come into conflict.

 

The conflicts that could rise from these two industries trying to operate on the same land are somewhat obvious. The main issue is the competition for surface area.[iv] However, the wind turbine footprint is relatively small, and it is likely the oil and gas company can move a little here or there for drilling.[v] Another issue is the transmission lines from the wind farm.[vi] The oil and gas company should be able to avoid these lines pretty easily, but if they cannot issues will arise.[vii] There also can be conflicts on road uses, and if any of the oil company’s exploration operations affect the wind farm.[viii] The wind farm also needs to be aware of the oil company using its dominant estate rights.[ix] The risks to wind farms from oil and gas operations are high and significant.

 

The oil industry has an advantage over wind because the mineral estate is considered dominant in Texas and many other oil producing states.[x] Courts have permitted mineral owners to interfere with surface use if it is reasonably necessary to develop the mineral estate.[xi] However, the mineral owner must also “operate with due regard to the rights of the surface owner in such cases where there are reasonable alternatives available on the leased premises.”[xii] This is where the accommodation doctrine comes into play. Courts require the mineral owner to accommodate a surface owner’s use if there are reasonable alternatives on the land for extracting the minerals, and the use was already occurring (i.e. not for a future use).[xiii] Therefore, a wind farm must already be in the works for the accommodation doctrine to help the wind developers. This only affects the oil company’s method of extraction, and not whether they can actually extract the oil or not.[xiv] A further restriction on the mineral owner is that they must conduct their operations in a non-negligent manner.[xv]

 

Despite the limits of the accommodation doctrine, parties can contract around it. Companies are not going to invest large sums of money for a wind farm to be developed knowing a mineral owner has dominant control and could come interfere with their development. There have been two ways to view this issue.[xvi] The first is if the wind rights are first in time.[xvii] If the surface and mineral estates are not severed, wind developers can negotiate clauses in their leases to restrict oil and gas activities on the surface.[xviii] However, if mineral rights are severed or an oil and gas lease was executed before the wind development, negotiations of these provisions are not as likely to succeed.[xix] The wind developer, instead, may provide the oil company with notification and try to obtain a surface waiver or non-interference agreement.[xx] Since the mineral estate is dominant, it is difficult and often costly for wind developers to negotiate successfully with oil companies.[xxi]

 

The best solution for both the oil company and the wind developers is an accommodation agreement. Accommodation agreements typically define the locations of both company’s operations and require a good faith effort of accommodation.[xxii] Additionally, this agreement imposes restrictions on both sides, making it more appealing for each.[xxiii]

 

As the wind industry continues to boom, so will the conflicts between surface and mineral estate owners. There is likely to be more litigation over the issue, but both could find some stability and predictability by bargaining for an accommodation agreement.

 

[i] Scientist Aim to Boost Efficiency of Wind Farms, Inland News Today (March 16, 2015), http://www.inlandnewstoday.com/story.php?s=36984.

[ii] Id.

[iii] Id.

[iv] Becky H. Diffen, Note & Comment, Energy From Above and Below Who Wins When a Wind Farm and Oil and Gas Operation Conflict?, 3 Tex. J. Oil Gas and Energy L. 240, 243 (August 5, 2008), http://www.tjogel.org/archive/Vol3No2/Diffen.pdf.

[v] Id. at 244.

[vi] Id.

[vii] Id.

[viii] Id. at 246.

[ix] Id.

[x] Ernest Smith, Steven K. DeWolf, Roderick E. Wetsel and Becky H. Diffen, Texas Wind Law §2.05[4][a] (LexisNexis Matthew Bender 2014).

[xi] Id.

[xii] Jack E. Fields, Resolving Conflicts Between Surface and Mineral Development, Andrews Kurth LLP (March 14, 2006), http://www.andrewskurth.com/media/pressroom/841_Doc_ID_3733_61420071622618.pdf

[xiii] K.K. DuVivier & Roderick E. Wetsel, Jousting at Wind Mills: When Wind Power Development Collides With Oil, Gas, and Mineral Development, 55 Rocky Mtn. Min. L. Inst. 9-12 (2009).

[xiv] Id.

[xv] Id. at 9-15.

[xvi] Id.

[xvii] Id.

[xviii] Id. at 9-22.

[xix] Id. at 9-23.

[xx] Id. at 9-23.

[xxi] Id. at 9-24.

[xxii] Ernest E. Smith & Becky H. Diffen, Winds of Change: The Creation of Wind Law, 5 Tex J. Oil Gas and Energy L. 165, 184 (2010).

[xxiii] Id.

Whitney Price is a 3L at the University of Texas School of Law.