Surface Access Rights of Federal Lessees on Unitized Lands

The United States Court of Appeals for the Tenth Circuit in Entek Grb v. Stull Ranches, No. 13-1172, 2014 U.S. App. LEXIS 15593 (10th Cir. Aug. 14, 2014) addressed the rights of a federal lessee operating on unitized lands to cross one tract to develop minerals within an adjoining tract unitized lands.  Judge Gorush summarized many of the oil and gas disputes in the Western states:

“When you own property in the West you don’t always own everything from the surface to the center of the Earth.  Someone else might own the minerals lying underground and the right to access them.  Someone else still might own the right to use the water flowing through your property.  All this can invite confusion – and litigation.”

Id., at *1. 

The dispute in Entek arose from claims between a rancher and an oil and gas company over property rights dating back to separate government grants nearly a century ago.  Id.  Stull is a rancher and runs a grouse hunting business on its surface estate in rural Colorado.  Id.  Stull is also the successor-in-interest to land grants provided under the Stock-Raising Homestead Act of 1916.  Id., at *3.  Entek, the federal lessee, sought permission to enter Stull’s surface estate – both to develop new oil well sites on Stull’s land and to access one of its existing wells located on an adjacent surface estate owned by the Bureau of Land Management (“BLM”).  Id., at *2.  Entek sought access to Stull’s lands because the only available road to the well located on the BLM land was across Stull’s land.  Id.  Stull refused access and asserted that Entek’s presence may disturb the grouse on his land.  Id.  Naturally, Stull and Entek became involved in litigation.

Stull’s interest in the land was derived from land grants under the Stock-Raising Homestead Act of 1916 (the “Homestead Act”).  2014 U.S. App. LEXIS 15593, at *3.  Under the Homestead Act, “all mineral rights are expressly reserved by the government, along with at least two other rights:  (1) the right to enter and use so much of the surface as might be ‘reasonably incident’ to the exploration and removal of mineral deposits, and (2) the right to enact future laws and regulations regarding the ‘disposal’ of the mineral estate.”  Id. *3.  The Court focused on the second right of “disposal” reserved by the government and explained that right of “disposal” was broad and included the right of the government to “deal with [the minerals] as [it] pleases.”  Id., at *4.

Subsequent and pursuant to the Homestead Act, Congress passed the Mineral Leasing Act (“Leasing Act”) in 1920 – which was the first step toward establishing a legal framework for the development of minerals underlying the homestead lands.  The legislation allowed the Secretary of the Interior to lease development rights to private concerns.  Shortly thereafter, however, the implications of the rule of capture and overdevelopment were observed (similar to the overdevelopment in Texas in the 1920’s).  In response, Congress passed an amendment allowing all the lessees in a single field or area to develop “a cooperative or unit plan of development or operation of such pool, field, or like area.” Id., at *6 (citing 30 U.S.C. § 226(m)).  Under § 226(m), the unitization agreements must be approved by the Secretary of the Interior, who also has the power to alter existing federal minerals leases to accommodate these agreements in any way “he may deem necessary or proper to secure the proper protection of the public interest.”  Id.  In this case, the Secretary approved a unitization agreement for the Focus Ranch Unit Agreement (“Unit Agreement”), covering a 40,000 acre region that includes the relevant portions of Stull’s surface estate and BLM’s land.  The Unit Agreement provided that operations “upon any tract of unitized lands will be accepted and deemed to be performed upon and for the benefit of each and every tract of unitized land.”  Id.

Stull asserted that the Homestead Act did not “authorize Entek to cross the surface above one of its leaseholds to service either a different leasehold under Stull’s property or even the same leasehold under a surface estate owned by someone else.”  2014 U.S. App. LEXIS 15593, at *8.  The Court, however, disagreed:

“Under the second reserved right – the right to adopt future rules regarding the disposition of its mineral estate – the government has enacted § 226(m) and approved the Focus Ranch Unit Agreement.  Under those provisions, any mining activity on any leasehold in the unitized area is deemed to occur on all leaseholds.”

Id. (emphasis in original).

The Court explained that “[n]o longer is the right to enter and occupy the surface even arguably limited to particular leaseholds or surface estates.”  Id., at *8.  Importantly, the “operator may now use any portion of the surface in the unit to aid its mining activities in the unit without respect to individual lease or surface boundaries.”  Id.

The U.S. Court of Appeals for the Tenth Circuit decision in Entek is significant because it grants broad rights to federal lessees to utilize the surface of any lands located within the unitized area in connection with its operations on the unitized lands.  Similar to the Texas Supreme Court’s decision in Key Operating & Equipment v. Hegar, No. 13-0156, 2014 Tex. LEXIS 504 (Tex. June 20, 2014), an operator may use or access the surface of any lands within the unit regardless of whether there is production of minerals from the surface tract used by the operator.