Natural Resources, Oil, Gas and Mining; Oil and Gas

Section R649-3-38

Surface Owner Protection Act Provisions

Notice of Proposed Rule

(Amendment)

DAR File No.: 36992
Filed: 10/25/2012 12:32:09 PM

RULE ANALYSIS

Purpose of the rule or reason for the change:

The purpose of this new section is to identify the new standards upon oil and gas operators and surface owners when there is privately-owned surface land overlying a separate party's privately-owned mineral resources. This rulemaking is required by S.B. 77, Surface Owner Protection Act, from the 2012 General Session.

Summary of the rule or change:

This rule, in accordance with S.B. 77, passed during the 2012 General Session, establishes standards for oil and gas well operators and surface owners when there is privately-owned surface land overlying a separate party's privately-owned mineral resources. The rule reflects the rights of the well operator to enter upon the surface land and oil and gas operations shall also be conducted in a manner to prevent unreasonable losses to the private surface land owner. A surface use bond is required if there is not a surface use agreement. Non-binding mediation may be requested by the parties with costs equally shared.

State statutory or constitutional authorization for this rule:

• Section 40-6-20
• Section 40-6-5
• Section 40-6-21

Anticipated cost or savings to:

the state budget:

The Division anticipates one new surface use bond per year in addition to the traditional plugging and restoration bonds received in the existing rules, but this anticipated small increase will not require added staffing expenses to implement.

local governments:

Local government is not impacted by this rule since they are not private surface owners or mineral owners, and they do not operate oil and gas wells.

small businesses:

Since over 96% of the oil and gas companies drilling in Utah in 2012 are larger than small business, it is very unlikely that a small business operator will result in the one well to be additionally bonded.

persons other than small businesses, businesses, or local governmental entities:

Private surface land owners who do not own the minerals and who encounter a proposal for oil and gas development on their land will only incur an added cost if they voluntarily choose to utilize a mediator and share this cost, if they are unable to reach a surface use agreement. A mediator cost is estimated at $150 per hour for 4 hours, thus a $600 cost to be shared with the well operator. The mediation is an added opportunity to resolve a disagreement but it is not required by statute or rule.

Compliance costs for affected persons:

Oil and gas companies who are drilling on privately-owned surface land overlying privately-owned mineral resource, who are not able to achieve a surface use agreement, will encounter a new $6,000 bond requirement per well site. Based on prior history, only one new bond is expected when there is no surface use agreement in this ownership situation. The funds are returned after plugging of the well or an agreement is reached. The company may share the estimated $600 cost of a mediator with a surface land owner, if a mediator is voluntarily utilized.

Comments by the department head on the fiscal impact the rule may have on businesses:

Based on prior history, only one new surface use bond is expected to be required of any oil and gas operator each year, when a surface use agreement can not be achieved for the case where there is private surface land and private minerals. The new surface use bond of $6,000 has provisions in the rule for being returned to the operator if a surface use agreement can be reached at a subsequent date.

Michael Styler, Executive Director

The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:

Natural Resources
Oil, Gas and Mining; Oil and GasRoom 1210
1594 W NORTH TEMPLE
SALT LAKE CITY, UT 84116-3154

Direct questions regarding this rule to:

• Steve Schneider at the above address, by phone at 801-538-5328, by FAX at 801-359-3940, or by Internet E-mail at [email protected]

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

12/17/2012

Interested persons may attend a public hearing regarding this rule:

• 12/05/2012 09:00 AM, DNR, 1594 W North Temple, Salt Lake City, UT

This rule may become effective on:

01/23/2013

Authorized by:

John Baza, Director

R649. Natural Resources; Oil, Gas and Mining; Oil and Gas.

R649-3. Drilling and Operating Practices.

R649-3-38. Surface Owner Protection Act Provisions.

1. These rules and all subsequent revisions as approved by the board are developed pursuant to the requirements of the Surface Owner Protection Act of 2012 in Title 40, Chapter 6. It is the intent of the board and the division to encourage owners or operators and surface land owners to enter into surface use agreements. Surface use agreements should fairly consider the respective rights of the owner or operator and the surface land owner and also comply with the requirements of R649-3-34.

2. For the purposes of R649-3-38, these definitions are utilized.

2.1. "Crops" means any growing vegetative matter used for an agricultural purpose, including forage for grazing and domesticated animals.

2.2. "Oil and gas operations" means to explore for, develop, or produce oil and gas.

2.3. "Surface land" means privately owned land overlying privately owned oil and gas resources, upon which oil and gas operations are conducted, and owned by a surface land owner.

2.4. "Surface land owner" means a person who owns, in fee simple absolute, all or part of the surface land as shown by the records of the county where the surface land is located. Surface land owner does not include the surface land owner's lessee, renter, tenant, or other contractually related person.

2.5. "Surface land owner's property" means a surface land owner's surface land, crops on the surface land, and existing improvements on the surface land.

2.6. "Surface use agreement" means an agreement between an owner or operator and a surface land owner addressing the use and reclamation of surface land owned by the surface land owner and compensation for damage to the surface land caused by oil and gas operations that result in loss of the surface land owner's crops on the surface land, loss of value of existing improvements owned by the surface land owner on the surface land, and permanent damage to the surface land.

3. Oil and gas operations shall be conducted in such manner as to prevent unreasonable loss of a surface land owner's crops on surface land, unreasonable loss of value of existing improvements owned by a surface land owner on surface land, and unreasonable permanent damage to surface land.

4. In accordance with Section 40-6-20, an owner or operator may enter onto surface land under which the owner or operator holds rights to conduct oil and gas operations and use the surface land to the extent reasonably necessary to conduct oil and gas operations and consistent with allowing the surface land owner the greatest possible use of the surface land owner's property, to the extent that the surface land owner's use does not interfere with the owner's or operator's oil and gas operations.

4.1. Except as is reasonably necessary to conduct oil and gas operations, an owner or operator shall mitigate the effects of accessing the surface land owner's surface land, minimize interference with the surface land owner's use of the surface land owner's property, and compensate a surface land owner for unreasonable loss of a surface land owner's crops on the surface land, unreasonable loss of value to existing improvements owned by a surface land owner on the surface land, and unreasonable permanent damage to the surface land.

4.2. An owner or operator may but is not required to obtain location or spacing exceptions from the division or board or utilize directional or horizontal drilling techniques that are not technologically feasible, economically practicable, or reasonably available.

5. In accordance with Section 40-6-21, non-binding mediation may be requested by a surface land owner and an owner or operator, by providing written notice to the other party, if they are unable to agree on the amount of damages for unreasonable crop loss on the surface land, unreasonable loss of value to existing improvements owned by the surface land owner on the surface land, or unreasonable permanent damage to the surface land.

5.1. A mediator may be mutually selected by a surface land owner and an owner or operator from a listing of qualified mediators maintained by the division and the Utah Department of Agriculture and Food, which includes the mediators identified on the Utah State Courts website with "property" or "real estate" as an area of expertise, or a mediator may be selected from any other source.

5.2. The surface land owner and the owner or operator shall equally share the cost of the mediator's services.

5.3. The mediation provisions of this subsection do not prevent or delay an owner or operator from conducting oil and gas operations in accordance with applicable law.

6. A surface use bond shall be furnished to the division by the owner or operator, in accordance with the following provisions of Subsection R649-3-38-6.

6.1. A surface use bond does not apply to surface land where the surface land owner is a party to, or a successor of a party to:

6.1.1. A lease of the underlying privately owned oil and gas;

6.1.2. A surface use agreement applicable to the surface land owner's surface land; or

6.1.3. A contract, waiver, or release addressing an owner's or operator's use of the surface land owner's surface land.

6.2. The surface use bond shall be in the amount of $6,000 per well site and shall be conditioned upon the performance by the owner or operator of the duty to protect a surface land owner against unreasonable loss of crops on surface land, unreasonable loss of value of existing improvements, and unreasonable permanent damage to surface land.

6.3. The surface use bond shall be furnished to the division on Form 4S after good faith negotiation and prior to the approval of the application for permit to drill. The mediation process identified in R649-3-38-5 may commence and is encouraged to be completed.

6.4. The division may accept a surface use bond in the form of a cash account as provided in R649-3-1-10.2.1 or a certificate of deposit as provided in R649-3-1-10.2.3. Interest will remain within the account.

6.5. The division may allow the owner or operator, or a subsequent owner or operator, to replace an existing surface use bond with another bond that provides sufficient coverage.

6.6. The surface use bond shall remain in effect by the operator until released by the division.

6.7. The surface use bond shall be payable to the division for the use and benefit of the surface land owner, subject to the provisions of these rules.

6.8. The surface use bond shall be released to the owner or operator after the division receives sufficient information that:

6.8.1. A surface use agreement or other contractual agreement has been reached;

6.8.2. Final resolution of the judicial appeal process for an action for unreasonable damages, as defined in R649-3-38-6.2, has occurred and have been paid; or

6.8.3. Plugging and abandonment of the well is completed.

6.9. The division shall make a reasonable effort to contact the surface land owner prior to the division's release of the surface use bond.

 

KEY: oil and gas law

Date of Enactment or Last Substantive Amendment: [ July 1, 2003 ] 2012

Notice of Continuation: February 3, 2012

Authorizing, and Implemented or Interpreted Law: 40-6-1 et seq. ; 40-6-5; 40-6-20; 40-6-21