When beginning a solar project in Texas, developers must be cognizant of the potential conflict between the surface and mineral estates. In Texas, mineral rights can be severed from the surface estate, and when severed, the mineral estate rights are dominant, meaning the mineral estate has the implied right to use as much of the surface, subsurface, and adjacent airspace of the land as is reasonably necessary to locate and develop the mineral estate beneath. This right can cause complications for solar developers if not properly addressed.
This blog post focuses on the preemptive steps a solar developer should take to protect its project from impacts by oil and gas operations.
To avoid issues, there are preemptive measures that a solar developer can take to prevent disruptions. If the mineral estate has been severed, the most effective preemptive measure is to obtain either a surface waiver agreement or accommodation agreement from the owners so they will be contractually bound not to cause interference with the solar project. Regardless of whether the mineral estate is severed, if an oil and gas operator has a valid lease on the land, the solar developer should obtain an accommodation agreement with the oil and gas lessee. In addition to obtaining one of these agreements, the solar developer also should review the Texas Railroad Commission (“Commission”) website for past oil and gas production, state regulations, and any regulations that may be imposed by the city (if the project will be in a city or in the Extra Territorial Jurisdiction (“ETJ”) of a city).
If a solar developer is unable to obtain a surface waiver or accommodation agreement from the mineral owners and lessees, the solar developer may be able to rely on the accommodation doctrine once the project is constructed, especially as significant time passes. In addition, title insurance companies provide title endorsements that give the solar developer and its financing parties some protections from the impacts of oil and gas operations. However, while the title insurance company may rely on the accommodation doctrine in some cases, title insurance companies often require surface waivers or accommodation agreements to be in place for a significant percentage of mineral owners prior to commencing construction in order to issue the necessary endorsements with the title policy. In addition, obtaining either a surface waiver or accommodation agreement provides full protection for the solar developer, as long as the developer follows the below steps in obtaining the agreements, assuming no other unusual issues.
Mineral Ownership Search
A solar project developer should start by first ordering a review of the title records in the county in which the solar project is located reviewed to determine if the surface rights have previously been severed from the current mineral and mineral leasehold ownership. In order to confirm mineral and mineral leasehold ownership, these records should be obtained by a company specializing in oil and gas rights and reviewed by a law firm specializing in the same. Note that reliance on a typical real estate title commitment or proforma is not sufficient to identify the mineral owners, as those documents are not required to include mineral rights. This is an important first step to ensure that any agreements the solar developer enters are executed by all of the correct and necessary mineral owners and lessees.
Surface Waiver and Accommodation Agreements
Once mineral ownership is determined, the next step is to approach all mineral and leasehold owners about the execution of a surface waiver or accommodation agreement.
Because the mineral rights holder is afforded such broad sweeping rights under Texas law, a surface owner’s best option is to contractually limit those rights. The broadest contractual limitation is a surface waiver agreement through which the owner of the mineral estate waives the right to use the surface of the land where the project is located. Mineral owners may not be inclined to sign such a broad limitation. To ameliorate any mineral owners’ concerns, surface waiver agreements can be drafted to not only protect the solar developer but also to allow the mineral owner to develop the land vertically and through horizontal and directional drilling at locations that do not impact the solar project. When these stipulations are included, mineral owners may be more willing to sign the agreement.
If the mineral rights holders refuse to execute a surface waiver agreement, a developer can next suggest an accommodation agreement. Accommodation agreements contractually limit the mineral rights holder’s surface use on a smaller scale, typically by establishing permissible drilling locations prior to the development of the surface estate. Additional provisions and limitations should be negotiated as part of the accommodation agreement, including but not limited to, specific drill pad sizes and locations, shared use of roads, notice of operation provisions, and assignment rights.
These agreements should be carefully negotiated and drafted to ensure not only that the project is properly protected within the fenced project area, but also to ensure that the developer has the rights to place collection or gen-tie lines and roads in the area set aside for mineral development. If drafted properly and executed by the appropriate parties, these agreements should give the solar developer the right to lay all necessary facilities within the agreed upon areas; prevent not only the current mineral owner and any mineral lessee, but also any future owners or lessees from developing the minerals at locations which would interfere with the solar project; and protect the mineral owners’ rights to develop the minerals.
Proper Site Selection Based on Texas Railroad Commission Regulations
Solar developers can further limit the risk of mineral estate interference and future accommodation doctrine issues, if any, by reviewing past oil and gas production and regulations promulgated by the Commission or cities. The Commission has the authority to pass spacing and density regulations applicable to oil, natural gas, coal, and uranium extraction activities. Many cities can pass further ordinances and regulations as long as they do not conflict with those of the Commission.
With the help of an energy attorney and an oil and gas engineer, the solar developer can review past production and Commission and city regulations to ensure that:
- the project is allowing enough acreage for a mineral owner to reasonably develop the minerals, which ensures proper compliance with the accommodation doctrine;
- the solar developer is utilizing areas that are less likely to be used for oil and gas development; and
- the solar developer is avoiding areas that an oil and gas company may need to use in the future and that could interfere with the solar developer’s project.
To avoid any delays in developing a solar project caused by mineral rights issues, a prudent solar developer should proactively address mineral issues early in the development process by
- having the records searched for mineral severances and having the mineral ownership confirmed;
- attempting to enter into surface waiver or accommodation agreements with the correct and necessary mineral owners; and
- reviewing past production and Commission and city regulations to ensure that facilities are properly placed.
If the solar developer is unable to obtain the necessary agreements, the accommodation doctrine may in some cases also be a viable option to protect as solar project once it is built if the solar developer complies with the accommodation doctrine requirements. An overview of the accommodation doctrine will be discussed in a future blog post.
Note that mineral rights are extremely fact specific, and developers should analyze and obtain advice for each project on a case-by-case basis.