Drilling an oil or natural gas well
involves much more than poking a
hole in the ground, pumping petroleum, shipping it off and waiting for the profits
to flow in as fast as the product flows out.
That procedure was not the norm even in
the most romanticized days of oil- and gas-drilling operations, and it is less so today,
particularly for landowners on whose property companies drill. Today, landowners
must grapple with a complex range of legal
and environmental issues, and many are
best dealt with by involving attorneys who
specialize in oil and gas issues and environmental liability.
“Landowners should work with attorneys
to protect their property regarding oil- and
gas-drilling operations, because there is
such a disparity in knowledge and sophistication, especially among landowners who
are fairly new to the process,” says Thomas
S. Hoekstra, chair of the Energy and
Environmental Law Practice groups in the
Dallas office of Godwin Pappas Ronquillo
LLP.
Smart Business spoke with Hoekstra
about how landowners can protect themselves as much as possible from the legal
and environmental problems associated
with oil and gas production.
What is the key issue regarding drilling operations on private property?
One key issue is the prevention of petroleum releases, or spills, affecting ground
water and surface water, which may result
in additional contamination of subsurface
aquifers. Similarly, releases of natural gas
into the atmosphere can result in significant environmental issues.
Most companies in the industry today are
sophisticated about preventing the environmental problems associated with the
production and transportation of petroleum and natural gas.
Landowners, especially those who are relatively inexperienced in mineral leasing, are
often less knowledgeable. They need to
ensure there is no contamination of the soil
or subsurface aquifers from crude oil or natural gas drilling that will affect them or their
neighbors.
How can releases of hazardous substances
adversely impact landowners?
Off-site migration of contaminants that
are the byproducts of drilling can also be a
problem. For example, if contaminants
migrate off-site into an aquifer and contaminate the drinking water source for a
neighbor’s livestock, the landowner may be
a target of litigation, even if the drilling
company is the culpable party.
The landowner might have claims against
the drilling company, and probably would,
but he still has the problem of the migration of contaminants off his property onto
adjacent property.
At what point should landowners involve
attorneys in leasing?
The earlier the better, particularly if they
are relatively new to the process. These
days, with oil at $60 a barrel, anybody can
go out and drill for oil and gas.
So it makes sense for inexperienced
landowners to work with attorneys to protect them against potentially expensive
environmental problems.
How can attorneys provide guidance to
landowners?
The simple answer is to help them minimize risks and maximize financial benefits
from the lease. Attorneys can help draft
and execute a lease that allows them to
obtain the highest royalty, bonus and delay
payments available from that lease. They
can advise landowners about their risks
and exposures, depending on the sophistication of the lessee company that is going
to develop the minerals on the land.
The attorneys will make sure that the
landowners require the lessee to have the
appropriate insurance, determine that it has
sufficient financial capabilities to respond to
any damages not covered by insurance and
take all proper precautions in building the
pad site for drilling. They also can advise the
landowner about what the company must
do with the saltwater byproducts associated
with the oil and gas coming out of the
ground, and how it must handle the drilling
mud and other materials used in the completion of an oil well that might have to be
treated as a hazardous waste.
Finally, the attorneys can make sure that
when the production cycle is completed,
the property is returned as completely as
possible to the condition it was in prior to
development.
How does the landowner benefit from involving an attorney early in the process?
The most significant benefit is saving
money in the long run. Even though the
landowner may spend some money up
front, he can more successfully avoid the
environmental problems and associated
costs that can be incurred if something
goes wrong during the lease development.
For example, if the drilling company goes
broke, its insurance lapses, or it just abandons the lease, or does not or cannot
restore the lease. The landowner may be
facing major expenses with no means of
recovering such costs from the drilling
company. The landowner’s liability for
these major costs can be prevented with
proper management.
THOMAS S. HOEKSTRA is chair of the Energy and Environmental Law Practice groups at Godwin Pappas Ronquillo LLP’s
Dallas office. Reach him at [email protected] or
(214) 939-4496.