Drilling Mud Application: Legal Considerations for Landowners; Trae Gray


Just a quick disclaimer Um, I’m not giving any legal advice per se
tonight I’m not establishing an Attorney-client relationship with anybody Because I’m a lawyer I think it’s important that I say that Anytime you have increased drilling activity in an area, What you see is, you see the permits go up This is a timeline from 2004 to 2012 in Canadian
County And you’ll see the permits went from nearly
nothing in 2004 To, you know, almost 230 in 2012 And that’s what we’re looking at in this area Of Carter and Love County with all the activity
that’s here We can expect this kind of activity in the
coming years So the outline of today’s presentation I’m going to talk about The basic discussion of the philosophy Of an article I wrote called “Don’t Give Away the Farm” And basically it’s the idea of If you’re going to enter into one of these
negotiations Define it well And as they want to move out of the parameters
of where you’ve defined it Make that … make them pay for that So if you set a specific timeframe Of when they’re going to be able to apply
the mud Also set a specific amount of loads they can
apply And if they want to stay there longer Or they want to apply more loads Make them pay more money It’s real important to get strong terms I mean, I always say it’s a battle of the
terms And that’s really what I think all these negotiations
are about If you decide to do this Is make sure That you don’t sign something that’s real
broad And just lets them kind of come in And use your land However they want And they kind of set the rules You need to set the rules yourself I’m going to talk a little bit about the statutory
framework Allowing the application We’ve heard a little bit about that tonight I’m going to get into a little bit more specifics
about it But I’m going to go through it pretty quick Because part of that the first presenter covered And then I’m going to go over a brief overview Of potential benefits and risks Which we’ve heard a lot about that, too So, I’m going to go through that pretty quick And then I’m going to go over What needs to be in a good Drilling application and surface use agreement That’s kind of the heart and meat of the presentation I’ll probably slow down a little bit when
I get to that point This is an article I wrote called “Don’t Give Away the Farm Negotiating Surface
Damage Cases” It was published in the “Bar Journal” It’s on my website If you’re interested in negotiating with an
oil company I encourage you to go out online Read this article It talks a lot about the mentality of negotiating
with an oil company And the way that you think I mean, to me it’s all about how you think When you’re negotiating with one of these
operators They always want to frame the rules And they always want to say Well this is how the oil company does things Well it never made sense to me why landowner
can’t say Well, this is how things ought to be done I mean, it is our land, right? So the possible benefits I mean I’ve been told that soil farming can improve
the water retention in the soil And that it can in certain situations improve
soil fertility Our our first speaker tonight Could tell much more about this than I know The main one I think is that it can provide
supplemental income I mean Folks that are in agriculture are always looking
for creative ways Now more than ever To create supplemental income with recreational
use of their property This is just another way to generate some
supplemental income And if done properly it can work really good It can also be good for the relationship Between the land owner and operator Many times when, you know An operator comes and they’re drilling on
a ranch It’s tense because the surface owner may not
own the minerals They don’t want them there But a lot of times it can be a real win-win
relationship Between the operator and the surface owner,
because The surface owner can sell water They can allow soil farming So, soil farming is just another way to Kind of improve the relationship with the
oil company And if done properly It can be a real good thing The risks Salinity Sodicity Pretty much all the things that we heard The first presenter talk about tonight I mean, these are the things that that we have to think about So any contract that we enter into Needs to somehow Talk about these risks How we’re going to deal with them And how we’re going to define them What’s going to be allowed This is just another picture of You know, a piece of ground that’s Got a lot of salt in it And when it gets a lot of salt It doesn’t want to grow grass And most of us are in the business of growing
grass So we’re going to be trying to grow grass For the next thirty years And that’s one of the things you need to evaluate Is what’s it going to do to my grazing capacity On my land if I allow them to come in and
pay me So much an acre You know, it may not be worth it Especially if it’s not done properly He talked a little bit about toxins and metals,
uhm… This is a risk but I guess it’s a minor risk compared to the
others Uh… the statutory framework allowing the
application is 165:10-7-26 And it defines a one-time land application
of drilling fluids It talks about what that is The key thing is Under this rule It falls under the federal regulations under
RCRA The Resource Conservation and Recovery Act Now the reason that’s so important to you
as a surface owner Is because under RCRA and under federal law If you’re the landowner And your property becomes polluted You can be responsible for the cleanup costs So, if you get a big plume there As a result of them coming in and Dumping a lot of stuff that they shouldn’t
be dumping And they’re not solvent And they can’t pay for it The feds may be coming in looking to you for
the bill Especially if it’s migrating off your property And getting on somebody else Any land application made Under this has to be done on what they call
a one-time basis and You know, we could talk about “one time” It’s defined a lot of different ways and You could talk a lot more that, Mike, probably
than me But, compliance with the rule There’s a two thousand dollar fine For non-compliance with the rule Typically, it’s a twelve-month, what is a
twelve-month permit That’s what the rule says Talked earlier about the maximum slope The application can’t be within fifty feet
of the property line um… the water table can’t be within six
feet There are somewhat detailed sampling requirements There’s been a lot of discussion tonight about
sampling My recommendation would be If you’re going to do this on a large scale That you get a geo scientist involved And you come up with some parameters of your
own And you put those in your own contract Instead of relying on somebody else to enforce
them He talked earlier about the depth to bedrock
and the soil texture And the soil salinity, so I’m not going to
go into that too much So, negotiations and the surface use agreement The key thing about this is An oil company doesn’t have the right to do
this If they drill a well on your property And I think it’s already been said, but I
want to be real clear about it They don’t have the right to put the drilling
mud on your property They also don’t have the right to take your
water So, they do have a right to come and drill
the well And use as much surface as is reasonably necessary
for their oil and gas operations But they don’t have a right to put this drilling
mud on the property So that gives a surface owner a little bit
more negotiating power When negotiating the terms of the contract I believe it’s critical that you have a good
contract And you have a good surface use agreement And that the rules of the game are clearly
defined And everybody knows what they have a right
to do And what they have a right not to do Mike talked a little bit about the 1014L Which is the landowner form that’s presented
at the commission Before you sign the 1014L You need to have your contract with them completely
done Don’t sign the 1014L first and then start
trying to negotiate the contract I think that’s a recipe for disaster The… A lot of people, it seems at times, don’t
understand the difference … They think, well, the corporation commission
will step in And they will take care of me as a surface
owner And, they do a lot of good things and they
do a lot of good things for the citizens of the state But as an individual surface owner That’s really not their job and they really
don’t have the resources to completely manage that And really as it’s defined in the constitution They’re charged with protecting the public
right They’re charged with protecting everybody
and keeping all of us safe But they’re not necessarily responsible for
our individual property rights That’s not what the corporation commission
does That’s why these types of contracts and why
you need to negotiate with them one-on-one is real important Because if you sign the 1014L And you get in a fight with them later if
they’re doing something wrong The corporation commission is not going to
step in It’s been my experience they’re not going
to step in Because you’re unhappy with something they’re
doing It’s going to have to be pretty egregious Or they’re going have to be have something
clearly wrong under that other statute So if you want things outside of that other
statute You’re going need to negotiate that in the
contract And they’re not going to enforce it You’re going to have to do that in your in
your local district court, should it come to that But if you have a good contract, it probably
won’t We talked a little bit about under RCRA and
the federal statutes The landowner can be held responsible for
the pollution on their property So some considerations to address this Do what you can, if possible, to make the
primary company responsible Because, the next thing I’m going to talk
about is indemnification Which basically says if they come in and they
make a big mess on your property And somebody else sues you for that They’re going to step into your shoes and
they’re going to defend you But if it’s just some fly-by-night guy that’s
out there applying drilling mud it’s not going to do you any good to have
that indemnification provision Because, whoever’s going to bring the case They’re going to go after whoever’s got the
money So you want to do what you can to make sure That if you enter into one of these types
of contracts You either make the big oil company that’s
putting it on the land You either make them responsible — get them
to agree to be responsible Or make sure that the person doing it is really
reputable And they’ve got some assets if there becomes
a problem And you need under the law what’s called privity So, if you’re dealing with the contractor
that’s been hired by the big oil company And they say, “Well, the big oil company has
agreed to be responsible” And they write something in there that the
big oil company will be responsible That won’t necessarily get you there You need an authorized representative of the
big company to say That they’re going to be responsible You’ve really got to make sure that that the
legal part of that is covered correctly No middleman, agents or independent contractors If you do deal with an independent connect
contractor You need to make sure that they’re really
solvent And I think that this bond, this bond is going
to help a lot That’s going to be a good thing When we have a bond similar to what we have
in the surface damage act So you need a strong indemnification provision
with some teeth to it And I believe you need to make the standards
stronger Than what the standards are that the corporation
commission has And that’s where it goes back to what I was
talking about About getting your geo-scientist involved Get somebody involved that understands the
science And get them to define what acceptable levels
of certain chemicals are Make sure that all the testing, if they agree
that whatever testing happens They will be responsible for it So you want the contract written in a way Where where you can request testing And you can request the standards, but they
agree to pay for it Make sure that any testing that’s done That all the results are made available to
you And your contract says that those results
will be made available to you So you have a legal right to them Set specific, more stringent standards Or at least make the contract actionable For violations of the commission statute that
I showed you before So if they come in and it’s raining and they
spread a bunch of stuff Which they’re not supposed to do Make them responsible for it If they get within fifty foot of the fence
line And they apply stuff and they’re not supposed
to Make it where they’re responsible Put some kind of penalty in there for not
following the rules Make sure, in your surface use agreement For sure That you include the application rates And the soil loading rates Anytime you do one of these agreements You want to make sure you put a prevailing
party attorney fee provision in there Because the last thing you want to have happen Is be in a situation where you’re trying to
enforce your agreement You’re getting money-whipped by the big oil
company Because you can’t take it to a lawyer And get a lawyer to take the case Because you would have to pay your own attorney
fees And, even if you win You’re not going to get your attorney fees
from the other side But if you have a prevailing party attorney
fee provision In your service use agreement And you’re in the right You’re going to get your fees And you’re going to be more likely to find
a good lawyer To come in and take your problem If you’re using a middleman to apply it Really, anytime you’re doing this You want to have something If they’re generating a report With the amount of loads that they’re dumping You want to have something in the contract
that says You have a right as a landowner see the load
tickets And see what’s been applied on the property I mean, it’s all about information It’s not the fact that you will probably ever
go look at the load tickets It’s the fact that you have the right to go
look at the load tickets That’s probably going hold them more accountable Because they know at anytime you can come
in in check And make sure that they’re being honest about
what they’re doing And if you don’t have that in there Then probably the only way you could ever
get it Is if you sue them and then you just might
get it Make a condition of the agreement That variances to be applied for at the commission Require landowner approval What I mean by variances is The commission rules have certain parameters Like, for instance One of the commission rules is this is a twelve-month
permit I don’t know, Mike, if they can go back after
twelve months And extended for it fore six months OK, Mike is shaking his head “yes” So that would be a variance The rule says twelve months But if they’re month eleven And they need to make the application for
the next 6 or 8 months What they’ll do is go to the commission They’ll ask the commission to give them a
variance from the rule Typically, those are fairly liberally construed
And so the commission will allow them Now, instead of being a twelve-month permit It becomes an eighteen-month permit Just — what I’m saying here with this is Before they go and go to the commission and
ask for that variance Make sure That they’ve got to get your approval before
they do that Have a warranty provisions with respect to
standards Have something in there that they say That they warrant that they will comply That they will follow all the rules And that they will be responsible if they
don’t Keep identical copies of all executed documents Always I’ve got a client right now here in Carter
County He wrote a “5” on there and they wrote an
“8” They just connected the deal They extended it for three months I mean, it doesn’t happen all time and probably,
you know I’ve said this, when you’re dealing with the
… You know, my experience is When you’re dealing with the bigger reputable
company They typically don’t do things like that But sometimes they have independent contractors
working for them And sometimes it happens and they don’t even
know it happens But it just happens So always make sure That you keep a copy of everything Because if you don’t have a copy It’s real hard to prove that they change something A condition of the agreement That the operator provide a copy of the permit And that they can’t put it on your property Until they have their permit So when your surface use agreement You want a provision in there That as soon as they get approval And get their permit from the commission They have to provide you, as a surface owner,
a copy You don’t want to go up there and look for
it They have to sent it to you That way, you know That the commission’s given them permission To put this stuff on your property And they’re not just coming down and doing
it without a permit And it’s happened Clearly — this is the easiest way that I
can explain this Clearly define the what, the where, the when,
the how Everything you can think about The number of loads The amount of time they can be in there The per unit price All of those different things You want to define those in the contract The number of barrels Which wells allowed You know, if they’re coming in — this is
something I see a lot They come in and they’re drilling four wells
on a surface owner And they get a permit to soil farm The surface owner’s perception is They’re going to soil farm those four wells
on their property And they sign for twelve months And they soil farm those four wells And then they go drill four wells on the neighbor Now they come over to the first guy And they’re soil farming those other four
wells on his property And he didn’t have any idea that that was
going to happen Get them to provide you a list, if possible,
doesn’t have to be But if they’re representing to you that it’s
only going to be a few wells Get them to provide you the names of the wells
that they’re going to dispose from That way if they come back and they want to
dispose from a different well You may be ok with that But it may be a real good opportunity for
you to get some more money Um…the unit price for application I recommend tying everything to a unit and
then a price per unit A timeframe that the application will be allowed I’ve kind of already said that So, wrapping up, with respect to a surface
use agreement You need to have a provision that dictates
when they no longer Have an application right to put it on your
property And the end of time for them to apply it Now that’s different than an end of time for
them being allowed to come to your property It’s the end of time for them to be able to
apply drilling mud Because, as both of our previous speakers
have kind of spoke to The relationship, if done properly, Doesn’t and when they quit putting mud on
your property When it ends is when your bermudagrass starts
growing Like it did before they came Or, you know, pretty close to it Put a provision in there That they can’t leave stuff out on your property For so many after they’ve been done I usually put thirty days in there It’s unbelievable how They’ll get you to sign something And all at once they’ll turn it into a storage
facility I mean, I see it a lot more on locations They’ll put a location on somebody They’ll be fracking a well down the road And they’ll use that well as a staging area
for frack wells And there’s nothing wrong with that But I’ve got clients that get paid several
hundred dollars a day For allowing them to stage wells on their
property So you might as well have something in there
so that when they do that You can get some money um… Then you also want to have a time in there Where they no longer have a right to be on
the property After they’ve complied with your remediation
provisions The OCC language is a bona fide effort reestablish
within 180 days To me that’s a little bit of a hard, you know,
standard to define I would prefer to get an agronomist Or somebody like Eddie involved And get them to kind of come up with some
standards And say, these are the standards you’re going
to meet And when you’ve met that, we’ll consider it
remediated Talk a little bit about remediation This is a typical remediation provision And, you know, what it says and I’ll just
read it I guess but It says, Any disturbed areas shall be ripped and re-contoured
to conform with existing grade Topsoil shall be provided if erosion occurs To place lands in a condition to their state
prior to said application of drilling mud The disturbed areas shall be re-vegetated
utilizing a seed mixture, Application rate, timing and reseeding method
approved by the owner If after one year from planting, Vegetation comparable to the original condition
of the site is not established Such reseeding shall be continued annually
until such vegetation is established Foreign substances and unnecessary equipment
shall be removed From each disturbed area And erosion shall be adequately controlled And if erosion occurs, it shall be halted
and fully remediated To me, that type of language is a lot stronger
and a lot better Than a bona fide effort And I realize the corporation commission rulebook
is already really, really thick But, what I’m saying is, As a private landowner, you need to be specific
like this Because the more specific you are Doesn’t mean that they have to do all these
things just because your contract says it It just means that if you’re not happy about
what happened You’ve got a little bit more leverage So, closing thoughts And this is in general It’s not just in drilling mud I mean, it’s in pipeline negotiations You know, water negotiations Drill site negotiations Any type of those negotiations Generally, when dealing with an operator Nothing in writing is better having something
bad in writing The guy that shows up at your door with the
one page and says Well, this is just our simple one page agreement That says all claims of every kind and character Whether unknown or known from now until the
end of time It’s real simple You sign it and you give up all your rights And now, they’ve got all the sticks So … You’re better off to have a long agreement
that’s real specific And clearly defined something Than signing something like that Use clearly defined terms and the tightening
down of overly broad terms As an opportunity to get more money And information is the best offense to getting
the best deal Well, I appreciate everybody’s patience and
attendance [applause]

Author Since: Mar 11, 2019

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