RANCHING Business
Where do they get the water they need? Where do oil and gas companies obtain water that is
necessary for successful drilling? They sometimes pay a municipality or neighbor for water, and then pipe it to the drill site. Most companies prefer to use subsurface water on the property. In West Texas, the lessee may drill a water well that has a high volume of dissolved solids from a deeper formation, such as the Santa Rosa. Once the company has fi nished drilling, a surface
owner may receive possession of the well, using it for irrigation and other farming activities, thanks to an SUA. If these options are not available, the lessee will pay for well water that the landowner normally uses for animal and human use. Surface owners must maintain potable water for
drinking and irrigation. Use an SUA to limit potable water use by the oil company. Insist on testing the water before, during and after drilling to ensure the water is not contaminated.
Restoration The law does not require the oil and gas lessee to
restore the surface, so having a surface maintenance requirement is imperative. For instance, hydraulic fracturing technology (fracking) requires vast amounts of water. The lessee digs deep pits to store water for this process. Landowners may require fencing around a “frac pit”
to protect livestock. Slush pits also capture wastewater. Not only should they be fenced to protect cattle, but landowners may specify that they are to be constructed with a liner in order to prevent leaks. Require the lessee to truck this waste liquid off the
property. Once a pit is drained and no longer used, the landowner can require the lessee to reclaim the area by replacing materials and restoring the surface. Oil companies may ask to drill salt-water injection
wells on the property. Although the Texas Railroad Commission has strict rules about these wells, most at- torneys rarely recommend authorizing this type of well.
Road use Mention which roads will be used and who is ob-
ligated to maintain them in a surface maintenance clause, to avoid future confl ict. Specify that the lessee will maintain existing roads
at least as well as they have been in the past, and that new roads created by the lessee will be maintained at a minimum level with a stipulated width and base thickness.
62 The Cattleman May 2016
Stay informed on material values Wallace also recommends using a price schedule
to stay current for values of water, caliche and other expenses. Either the Consumer Price Index or the Uni- versity of Texas Rate and Damage Schedule are great resources that have current surface damage rates and use rates listed.
Entry and exit point and work hours Ranchers may designate when and where oil and
gas company employees enter and exit the property. Wallace recommends the company have 1 entry and exit point. Once drilling is completed, the SUA can specify that
with the exception of workover and other emergencies, all activities will take place during daylight hours. The landowner can also determine where tank batteries, pipelines and electric lines will be. Compressors move gas to market via pipelines. This
equipment tends to be noisy, and if employees work at night, there are bright lights. Wallace says that both parties should understand that compressor locations will be as far as possible from the house and barn. It just makes sense to require noise suppression on the compressor or sound screens, to protect livestock and the rancher and his family from excessive racket.
Penalties For every set of rules, there should be a set of penal-
ties. If there is an oil spill, should the landowner sue for negligence or address the issue? Wallace prefers to address spills or leaks as a negligent activity that the oil company should avoid. “One penalty I may use [is] if you drill, you pay
me $5,000 per acre for a planned location,” Wallace explains. “I’ve taken it out of production. I can no lon- ger grow grass for my cattle. What happens if there is a half-acre oil spill adjacent to it? I should be paid for present and future losses. If the penalty is high enough, they’ll be much more careful. I may say the penalty for spills or leaks is going to be 3 times the amount you would pay for the use of the surface for other [oil- related purposes]. If you’re paying $5,000 per acre for a pad, and you spill over an acre, that’s $15,000, and you still have to clean it up.” Surface use agreements always vary because each
landowner and operations is different. Surface use provisions are negotiable and with careful plan- ning, the landowner will be able to protect his in- vestment.
thecattlemanmagazine.com
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