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Mineral Estate is Dominant over the Surface Estate but the Mineral Owner's Use of the Surface Must be Reasonably Necessary and Accommodating

In the following excerpts from Hunt Oil Company v. Kerbaugh, the North Dakota Supreme Court describes the dominant nature of the mineral estate.

The court describes 1) that the mineral estate is dominant; it carries with it inherent rights to use the surface find and develop the minerals, but 2) the rights of the owner of the mineral estate are limited to so much of the surface as is reasonably necessary to explore, develop, and transport the minerals, which means 3) if there is an existing surface use that would be interfered with, and there are alternatives available by which to recover the minerals, the rules of reasonable use of the surface by the mineral owner may require the mineral owner to adopt an alternative recovery method to accommodate the existing surface use.   If there is no alternative means of recovering the minerals, 4) the mineral owner may pursue the only means possible to find and develop the minerals despite the impact on existing surface activities.

The facts of this case illustrate 1) mineral rights being severed from the surface rights at the time the land was sold, 2) a mineral lease between the mineral owner and an oil and gas company, and 3) subsequent agreements that caused several companies to become involved in the exploration activity.

Hunt Oil Company v.Kerbaugh, 283 N.W.2d 131 (N.D. 1979)

Ivan and Shirley Kerbaugh appealed from an order of the district court enjoining them from interfering with geophysical explorations carried on over their property by the plaintiffs, Hunt Oil Co. and Williams Oil Co. The Kerbaughs asserted the oil companies do not have an unlimited right to conduct seismic exploration over their property ... We conditionally affirm [that the Kerbaughs may not interfere with the oil companies in the exercise of their rights under the oil and gas lease].

This case involves geophysical exploration for oil and gas over approximately 1000 acres of land located in Williams County and owned by the Kerbaughs. The Kerbaughs acquired about 480 acres of this land in 1966 by way of a warranty deed which reserved in the grantor "...ALL of the minerals, including oil and gas, in and under or that may be produced and saved from said lands, together with the right of ingress and egress." The Kerbaughs own the remaining land under a 1972 contract for deed which also reserved in the grantor all the minerals under the land, together "with such easement for ingress, egress and use of the surface which may be incidental or necessary to use such rights."

The owners of the mineral estates in this case leased their oil and gas interests to Edward Mike Davis for a period of five years in 1974 and 1975, respectively.  Davis then conducted seismic exploration over the property in the early part of 1976. Ivan Kerbaugh testified that after the 1976 seismic activity, the flow from a spring which supplied water to his home and livestock, gradually decreased until it stopped in November 1976. Kerbaugh said he restored the flow of the spring, although at a reduced rate, at his own expense. Ivan also testified, that as a result of the 1976 exploration, open holes were left in his property, along with various types of debris.

In 1977, Davis assigned the oil and gas leases to Williams Exploration Co., who subsequently assigned a share of the same leases to Hunt Oil Co. The following summer the oil companies contracted with Pacific West Exploration Co. to conduct seismic exploration activities over certain lands in Williams County, including the Kerbaugh property. Pacific West Exploration contacted Ivan Kerbaugh for permission to conduct the exploration, offering to pay $50 per hole plus additional amounts for damages to growing crops. Kerbaugh rejected the offer and counter-offered with a .. request of $200 per hole, plus $1 per rod of tracks. on the land, a commitment to cement shut any holes, and a guarantee of continued water supply. Although Kerbaugh later reduced his requests, they were rejected by Pacific.

When surveying for the exploration started, Kerbaugh requested the surveyors to leave until an agreement was reached as to compensation for damages to his surface rights. The oil companies then [sought an injunction prohibiting] Kerbaughs from interfering with the oil companies in the exercise of their rights under the oil and gas lease...

On 22 August 1978, the district court issued [a] temporary injunction. Upon issuance of the temporary injunction, Pacific West Exploration commenced the seismic activities. The Kerbaughs thereafter filed a motion to vacate the ... temporary injunction which was granted after a hearing held 28 August 1978. On 7 September 1978 [a] hearing on the permanent injunction was held, after which the district court entered an order granting the restraint.

Kerbaughs appealed from the order contending ... that the oil companies did not have an unlimited right under the mineral leases to enter upon the Kerbaugh property for extensive exploration activities, particularly in light of prior harm to the Kerbaugh property from such activities...

The Kerbaughs argued the oil companies did not have an unlimited right to conduct seismic exploration over the Kerbaugh property. This court in Christman v. Emineth ... adopted the general rule ... as to the implied rights of the mineral estate owner:

... the owner of the minerals [has] the incidental right of entering, occupying, and making such use of the surface lands as is reasonably necessary in exploring, mining, removing, and marketing the minerals...

We have also considered the rights of the lessee under the usual oil and gas lease. In Feland v. Placid Oil Co. ... Chief Justice Teigen, speaking for the court, stated:

"Under a usual oil and gas lease, the lessee, in developing the leased premises, is entitled to use of the land reasonably necessary in producing the oil ...

"'Whether the express uses are set out or not, the mere granting of the lease creates and vests in the lessee the dominant estate in the surface of the land for the purposes of the lease; by implication it grants the lessee the use of the surface to the extent necessary to a full enjoyment of the grant. Without such use, the mineral estate obtained under the lease would be worthless..."

The above cases recognize the well-settled rule that where the mineral estate is severed from the surface estate, the mineral estate is dominant ... The mineral estate is dominant[; it] carries with it inherent surface rights to find and develop the minerals, which rights must and do involve the surface estate. Without such rights the mineral estate would be meaningless and worthless. Thus, the surface estate is servient in the sense it is charged with the servitude for those essential rights of the mineral estate.

In the absence of other rights expressly granted or reserved, the rights of the owner of the mineral estate are limited to so much of the surface ... as are reasonably necessary to explore, develop, and transport the minerals ... In addition to, or underlying the question of what constitutes reasonable use of the surface in the development of oil and gas rights, is the concept that the owner of the mineral estate must have due regard for the rights of the surface owner and is required to exercise that degree of care and use which is a just consideration for the rights of the surface owner ... Therefore, the mineral estate owner has no right to use more of, or do more to, the surface estate than is reasonably necessary to explore, develop, and transport the minerals ... Nor does the mineral estate owner have the right to negligently or wantonly use the surface owner's estate ...

The requirement that due regard be given to the rights of the surface owner, defines, to a certain extent, a consideration in determining if the mineral owner's use of the surface is reasonably necessary. In Getty Oil CO. v. Jones, supra, the Texas Supreme Court set forth what has become known as the "accommodation doctrine":

"There may be only one manner of use of the surface whereby the minerals can be produced. The lessee has the right to pursue this use, regardless of surface damage. [Citations omitted.] And there may be necessitous temporary use governed by the same principle. But under the circumstances indicated here; i.e., where there is an existing use by the surface owner which would otherwise be precluded or impaired, and where under the established practices in the industry there are alternatives available to the lessee whereby the minerals can be recovered, the rules of reasonable usage of the surface may require the adoption of an alternative by the lessee."

The Utah Supreme Court adopted the opinion of the Texas court ... where it said ... :

"... wherever there exist separate ownerships of interests in the same land, each should have the right to the use and enjoyment of his interest in the property to the highest degree possible not inconsistent with the rights of the other. We do not mean to be understood as saying that such a lessee must use any possible alternative. But he is obliged to pursue one which is reasonable and practical under the circumstances."

We join with the Utah court in adopting the accommodation doctrine set forth in Getty:

"The reasonableness of a surface use by the lessee is to be determined by a consideration of the circumstances of both and, as stated, the surface owner is under the burden of establishing the unreasonableness of the lessee's surface use in this light. The reasonableness of the method and manner of using the dominant mineral estate may be measured by what are usual, customary and reasonable practices in the industry under like circumstances of time, place and servient estate uses. What may be a reasonable use of the surface by the mineral lessee on a bald prairie used only for grazing by the servient surface owner could be unreasonable within an existing residential area of the City of Houston, or on the campus of the University of Texas, or in the middle of an irrigated farm. What we have said is that in determining the issue of whether a particular manner of use in the dominant estate is reasonable or unreasonable, we cannot ignore the condition of the surface itself and the use then being made by the servient surface owner... [I]f the manner of use selected by the dominant mineral lessee is the only reasonable, usual and customary method that is available for developing and producing the minerals on the particular land then the owner of the servient estate must yield. However, if there are other usual, customary and reasonable methods practiced in the industry on similar lands put to similar uses which would not interfere with the existing uses being made by the servient surface owner, it could be unreasonable for the lessee to employ an interfering method or manner of use. These conditions involve questions to be resolved by the trier of the facts." 470 S.W.2d at 627-628.

In this case the Kerbaughs sought to prevent the oil companies from conducting seismic exploration activities on their property. The oil companies, on the other hand, sought an injunction prohibiting the Kerbaughs from interfering with such exploration.

The Kerbaughs, in support of their argument for denial of injunctive relief, offered affidavits and testimony indicating the damages they had sustained as the result of prior seismic exploration; that the present seismic activity was causing damage to their grain crop, pasture, and other farmland; and that they fear additional damage to property from further seismic activity.

Whether or not the use of the surface estate by the mineral estate owner is reasonably necessary is a question of fact for the trier of facts ...  In addition, the burden of proof in such a determination is upon the servient estate owner. Getty Oil Co. v. Jones, supra. The Kerbaughs presented evidence establishing the damage to their property that arose or was likely to arise as a result of seismic activity. They offered, however, no evidence of reasonable alternatives available to the oil companies to explore the properties. They offered no evidence that the same information could be obtained from the prior geophysical exploration; they offered no evidence that the same information could be obtained without transversing over cropland; and the record does not indicate that they offered evidence that the tests could be conducted in another manner which would cause less damage to the Kerbaughs. Although the Kerbaughs did offer evidence suggesting some damage could have been avoided by having the oil companies conduct the operations a few weeks later, the affidavits filed by the oil companies indicate this was not a reasonable alternative. On the basis of the evidence presented by the parties, the Kerbaughs failed to meet their burden of proof that the proposed activities of the oil companies were not reasonably necessary for the exploration of the leased mineral estate. Accordingly, the conclusion by the district court that the oil companies were entitled to injunctive relief was not in error.

It is important to note that the Texas Supreme Court in Getty concluded the accommodation doctrine is not a balancing type test weighing the harm or inconvenience to the owner of one type of interest against the benefit to the other. Rather the court said the test is the availability of alternative nonconflicting uses of the two types of owners. Inconvenience to the surface owner is not the controlling element where no reasonable alternatives are available to the mineral owner or lessee. The surface owner must show that under the circumstances, the use of the surface under attack is not reasonably necessary. Getty Oil Co. v. Jones, supra at 623.

We agree a pure balancing test is not involved under the accommodation doctrine where no reasonable alternatives are available. Where alternatives do exist, however, the concepts of due regard and reasonable necessity do require a weighing of the different alternatives against the inconveniences to the surface owner. Therefore, once. alternatives are shown to exist a balancing of the mineral and surface owner's interest does occur.

Kerbaugh argued and urged this court to adopt a rule of correlative rights and reasonableness... In [the Pennington] case the district court said the rights of the holder of a mineral lease, and the rights of the owner of the surface "are correlative rights, neither being superior to nor inferior to the other, and the rights of each party can only be exercised in such a manner as not to unreasonably interfere with the rights of the other. [Citations omitted.]" Be that as it may, it does not change the basic rule that a servitude exists in favor of the oil and gas estate and thus it is the dominant estate and the surface the servient estate. Although the rights implied in favor of the mineral estate can be exercised only by giving due regard to the rights of the surface owner, the mineral estate still remains dominant in the traditional real property sense. The district court in Pennington, although applying the right test of reasonableness, made an unfortunate use of the term "correlative rights" which is more appropriately used in referring to rights among various owners of mineral interests...

The order of the district court is affirmed [that the Kerbaughs may not interfere with the oil companies in the exercise of their rights under the oil and gas lease].

Last updated August 10, 2010

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