Just a quick disclaimer
Um, I'm not giving any legal advice per se tonight
I'm not establishing an
Attorney-client relationship with anybody
Because I'm a lawyer
I think it's important that I say that
Anytime you have increased drilling activity
in an area,
What you see is, you see the permits go up
This is a timeline from 2004 to 2012 in Canadian County
And you'll see the permits went from nearly nothing in 2004
To, you know, almost 230 in 2012
And that's what we're looking at in this area
Of Carter and Love County with all the activity that's here
We can expect this kind of activity in the coming years
So the outline of today's presentation
I'm going to talk about
The basic discussion of the philosophy
Of an article I wrote called
"Don't Give Away the Farm"
And basically it's the idea of
If you're going to enter into one of these negotiations
Define it well
And as they want to move out of the parameters of where you've defined it
Make that ... make them pay for that
So if you set a specific timeframe
Of when they're going to be able to apply the mud
Also set a specific amount of loads they can apply
And if they want to stay there longer
Or they want to apply more loads
Make them pay more money
It's real important to get strong terms
I mean, I always say it's a battle of the terms
And that's really what I think all these negotiations are about
If you decide to do this
Is make sure
That you don't sign something that's real broad
And just lets them kind of come in
And use your land
However they want
And they kind of set the rules
You need to set the rules yourself
I'm going to talk a little bit about the statutory framework
Allowing the application
We've heard a little bit about that tonight
I'm going to get into a little bit more specifics about it
But I'm going to go through it pretty quick
Because part of that the first presenter covered
And then I'm going to go over a brief overview
Of potential benefits and risks
Which we've heard a lot about that, too
So, I'm going to go through that pretty quick
And then I'm going to go over
What needs to be in a good
Drilling application and surface use agreement
That's kind of the heart and meat of the presentation
I'll probably slow down a little bit when I get to that point
This is an article I wrote called
"Don't Give Away the Farm Negotiating Surface Damage Cases"
It was published in the "Bar Journal"
It's on my website
If you're interested in negotiating with an oil company
I encourage you to go out online
Read this article
It talks a lot about the mentality of negotiating with an oil company
And the way that you think
I mean, to me it's all about how you think
When you're negotiating with one of these operators
They always want to frame the rules
And they always want to say
Well this is how the oil company does things
Well it never made sense to me why landowner can't say
Well, this is how things ought to be done
I mean, it is our land, right?
So the possible benefits
I mean
I've been told that soil farming can improve the water retention in the soil
And that it can in certain situations improve soil fertility
Our our first speaker tonight
Could tell much more about this than I know
The main one I think is that it can provide supplemental income
I mean
Folks that are in agriculture are always looking for creative ways
Now more than ever
To create supplemental income with recreational use of their property
This is just another way to generate some supplemental income
And if done properly it can work really good
It can also be good for the relationship
Between the land owner and operator
Many times when, you know
An operator comes and they're drilling on a ranch
It's tense because the surface owner may not own the minerals
They don't want them there
But a lot of times it can be a real win-win relationship
Between the operator and the surface owner, because
The surface owner can sell water
They can allow soil farming
So, soil farming is just another way to
Kind of improve the relationship with the oil company
And if done properly
It can be a real good thing
The risks
Salinity
Sodicity
Pretty much all the things that we heard
The first presenter talk about tonight
I mean, these are the things
that that we have to think about
So any contract that we enter into
Needs to somehow
Talk about these risks
How we're going to deal with them
And how we're going to define them
What's going to be allowed
This is just another picture of
You know, a piece of ground that's
Got a lot of salt in it
And when it gets a lot of salt
It doesn't want to grow grass
And most of us are in the business of growing grass
So we're going to be trying to grow grass
For the next thirty years
And that's one of the things you need to evaluate
Is what's it going to do to my grazing capacity
On my land if I allow them to come in and pay me
So much an acre
You know, it may not be worth it
Especially if it's not done properly
He talked a little bit about toxins and metals, uhm...
This is a risk but
I guess it's a minor risk compared to the others
Uh... the statutory framework allowing the application is 165:10-7-26
And it defines a one-time land application of drilling fluids
It talks about what that is
The key thing is
Under this rule
It falls under the federal regulations under RCRA
The Resource Conservation and Recovery Act
Now the reason that's so important to you as a surface owner
Is because under RCRA and under federal law
If you're the landowner
And your property becomes polluted
You can be responsible for the cleanup costs
So, if you get a big plume there
As a result of them coming in and
Dumping a lot of stuff that they shouldn't be dumping
And they're not solvent
And they can't pay for it
The feds may be coming in looking to you for the bill
Especially if it's migrating off your property
And getting on somebody else
Any land application made
Under this has to be done on what they call a one-time basis and
You know, we could talk about "one time"
It's defined a lot of different ways and
You could talk a lot more that, Mike, probably than me
But, compliance with the rule
There's a two thousand dollar fine
For non-compliance with the rule
Typically, it's a twelve-month, what is a twelve-month permit
That's what the rule says
Talked earlier about the maximum slope
The application can't be within fifty feet of the property line
um... the water table can't be within six feet
There are somewhat detailed sampling requirements
There's been a lot of discussion tonight about sampling
My recommendation would be
If you're going to do this on a large scale
That you get a geo scientist involved
And you come up with some parameters of your own
And you put those in your own contract
Instead of relying on somebody else to enforce them
He talked earlier about the depth to bedrock and the soil texture
And the soil salinity, so I'm not going to go into that too much
So, negotiations and the surface use agreement
The key thing about this is
An oil company doesn't have the right to do this
If they drill a well on your property
And I think it's already been said, but I want to be real clear about it
They don't have the right to put the drilling mud on your property
They also don't have the right to take your water
So, they do have a right to come and drill the well
And use as much surface as is reasonably necessary for their oil and gas operations
But they don't have a right to put this drilling mud on the property
So that gives a surface owner a little bit more negotiating power
When negotiating the terms of the contract
I believe it's critical that you have a good contract
And you have a good surface use agreement
And that the rules of the game are clearly defined
And everybody knows what they have a right to do
And what they have a right not to do
Mike talked a little bit about the 1014L
Which is the landowner form that's presented at the commission
Before you sign the 1014L
You need to have your contract with them completely done
Don't sign the 1014L first and then start trying to negotiate the contract
I think that's a recipe for disaster
The...
A lot of people, it seems at times, don't understand the difference ...
They think, well, the corporation commission will step in
And they will take care of me as a surface owner
And, they do a lot of good things and they do a lot of good things for the citizens of
the state
But as an individual surface owner
That's really not their job and they really don't have the resources to completely manage
that
And really as it's defined in the constitution
They're charged with protecting the public right
They're charged with protecting everybody and keeping all of us safe
But they're not necessarily responsible for our individual property rights
That's not what the corporation commission does
That's why these types of contracts and why you need to negotiate with them one-on-one
is real important
Because if you sign the 1014L
And you get in a fight with them later if they're doing something wrong
The corporation commission is not going to step in
It's been my experience they're not going to step in
Because you're unhappy with something they're doing
It's going to have to be pretty egregious
Or they're going have to be have something clearly wrong under that other statute
So if you want things outside of that other statute
You're going need to negotiate that in the contract
And they're not going to enforce it
You're going to have to do that in your in your local district court, should it come
to that
But if you have a good contract, it probably won't
We talked a little bit about under RCRA and the federal statutes
The landowner can be held responsible for the pollution on their property
So some considerations to address this
Do what you can, if possible, to make the primary company responsible
Because, the next thing I'm going to talk about is indemnification
Which basically says if they come in and they make a big mess on your property
And somebody else sues you for that
They're going to step into your shoes and they're going to defend you
But if it's just some fly-by-night guy that's out there applying drilling mud
it's not going to do you any good to have that indemnification provision
Because, whoever's going to bring the case
They're going to go after whoever's got the money
So you want to do what you can to make sure
That if you enter into one of these types of contracts
You either make the big oil company that's putting it on the land
You either make them responsible -- get them to agree to be responsible
Or make sure that the person doing it is really reputable
And they've got some assets if there becomes a problem
And you need under the law what's called privity
So, if you're dealing with the contractor that's been hired by the big oil company
And they say, "Well, the big oil company has agreed to be responsible"
And they write something in there that the big oil company will be responsible
That won't necessarily get you there
You need an authorized representative of the big company to say
That they're going to be responsible
You've really got to make sure that that the legal part of that is covered correctly
No middleman, agents or independent contractors
If you do deal with an independent connect contractor
You need to make sure that they're really solvent
And I think that this bond, this bond is going to help a lot
That's going to be a good thing
When we have a bond similar to what we have in the surface damage act
So you need a strong indemnification provision with some teeth to it
And I believe you need to make the standards stronger
Than what the standards are that the corporation commission has
And that's where it goes back to what I was talking about
About getting your geo-scientist involved
Get somebody involved that understands the science
And get them to define what acceptable levels of certain chemicals are
Make sure that all the testing, if they agree that whatever testing happens
They will be responsible for it
So you want the contract written in a way
Where where you can request testing
And you can request the standards, but they agree to pay for it
Make sure that any testing that's done
That all the results are made available to you
And your contract says that those results will be made available to you
So you have a legal right to them
Set specific, more stringent standards
Or at least make the contract actionable
For violations of the commission statute that I showed you before
So if they come in and it's raining and they spread a bunch of stuff
Which they're not supposed to do
Make them responsible for it
If they get within fifty foot of the fence line
And they apply stuff and they're not supposed to
Make it where they're responsible
Put some kind of penalty in there for not following the rules
Make sure, in your surface use agreement
For sure
That you include the application rates
And the soil loading rates
Anytime you do one of these agreements
You want to make sure you put a prevailing party attorney fee provision in there
Because the last thing you want to have happen
Is be in a situation where you're trying to enforce your agreement
You're getting money-whipped by the big oil company
Because you can't take it to a lawyer
And get a lawyer to take the case
Because you would have to pay your own attorney fees
And, even if you win
You're not going to get your attorney fees from the other side
But if you have a prevailing party attorney fee provision
In your service use agreement
And you're in the right
You're going to get your fees
And you're going to be more likely to find a good lawyer
To come in and take your problem
If you're using a middleman to apply it
Really, anytime you're doing this
You want to have something
If they're generating a report
With the amount of loads that they're dumping
You want to have something in the contract that says
You have a right as a landowner see the load tickets
And see what's been applied on the property
I mean, it's all about information
It's not the fact that you will probably ever go look at the load tickets
It's the fact that you have the right to go look at the load tickets
That's probably going hold them more accountable
Because they know at anytime you can come in in check
And make sure that they're being honest about what they're doing
And if you don't have that in there
Then probably the only way you could ever get it
Is if you sue them and then you just might get it
Make a condition of the agreement
That variances to be applied for at the commission
Require landowner approval
What I mean by variances is
The commission rules have certain parameters
Like, for instance
One of the commission rules is this is a twelve-month permit
I don't know, Mike, if they can go back after twelve months
And extended for it fore six months
OK, Mike is shaking his head "yes"
So that would be a variance
The rule says twelve months
But if they're month eleven
And they need to make the application for the next 6 or 8 months
What they'll do is go to the commission
They'll ask the commission to give them a variance from the rule
Typically, those are fairly liberally construed And so the commission will allow them
Now, instead of being a twelve-month permit
It becomes an eighteen-month permit
Just -- what I'm saying here with this is
Before they go and go to the commission and ask for that variance
Make sure
That they've got to get your approval before they do that
Have a warranty provisions with respect to standards
Have something in there that they say
That they warrant that they will comply
That they will follow all the rules
And that they will be responsible if they don't
Keep identical copies of all executed documents
I've got a client right now here in Carter County
He wrote a "5" on there and they wrote an "8"
They just connected the deal
They extended it for three months
I mean, it doesn't happen all time and probably, you know
I've said this, when you're dealing with the ...
You know, my experience is
When you're dealing with the bigger reputable company
They typically don't do things like that
But sometimes they have independent contractors working for them
And sometimes it happens and they don't even know it happens
But it just happens
So always make sure
That you keep a copy of everything
Because if you don't have a copy
It's real hard to prove that they change something
A condition of the agreement
That the operator provide a copy of the permit
And that they can't put it on your property
Until they have their permit
So when your surface use agreement
You want a provision in there
That as soon as they get approval
And get their permit from the commission
They have to provide you, as a surface owner, a copy
You don't want to go up there and look for it
They have to sent it to you
That way, you know
That the commission's given them permission
To put this stuff on your property
And they're not just coming down and doing it without a permit
And it's happened
Clearly -- this is the easiest way that I can explain this
Clearly define the what, the where, the when, the how
Everything you can think about
The number of loads
The amount of time they can be in there
The per unit price
All of those different things
You want to define those in the contract
The number of barrels
Which wells allowed
You know, if they're coming in -- this is something I see a lot
They come in and they're drilling four wells on a surface owner
And they get a permit to soil farm
The surface owner's perception is
They're going to soil farm those four wells on their property
And they sign for twelve months
And they soil farm those four wells
And then they go drill four wells on the neighbor
Now they come over to the first guy
And they're soil farming those other four wells on his property
And he didn't have any idea that that was going to happen
Get them to provide you a list, if possible, doesn't have to be
But if they're representing to you that it's only going to be a few wells
Get them to provide you the names of the wells that they're going to dispose from
That way if they come back and they want to dispose from a different well
You may be ok with that
But it may be a real good opportunity for you to get some more money
Um...the unit price for application
I recommend tying everything to a unit and then a price per unit
A timeframe that the application will be allowed
I've kind of already said that
So, wrapping up, with respect to a surface use agreement
You need to have a provision that dictates when they no longer
Have an application right to put it on your property
And the end of time for them to apply it
Now that's different than an end of time for them being allowed to come to your property
It's the end of time for them to be able to apply drilling mud
Because, as both of our previous speakers have kind of spoke to
The relationship, if done properly,
Doesn't and when they quit putting mud on your property
When it ends is when your bermudagrass starts growing
Like it did before they came
Or, you know, pretty close to it
Put a provision in there
That they can't leave stuff out on your property
For so many after they've been done
I usually put thirty days in there
It's unbelievable how
They'll get you to sign something
And all at once they'll turn it into a storage facility
I mean, I see it a lot more on locations
They'll put a location on somebody
They'll be fracking a well down the road
And they'll use that well as a staging area for frack wells
And there's nothing wrong with that
But I've got clients that get paid several hundred dollars a day
For allowing them to stage wells on their property
So you might as well have something in there so that when they do that
You can get some money
um...
Then you also want to have a time in there
Where they no longer have a right to be on the property
After they've complied with your remediation provisions
The OCC language is a bona fide effort reestablish within 180 days
To me that's a little bit of a hard, you know, standard to define
I would prefer to get an agronomist
Or somebody like Eddie involved
And get them to kind of come up with some standards
And say, these are the standards you're going to meet
And when you've met that, we'll consider it remediated
Talk a little bit about remediation
This is a typical remediation provision
And, you know, what it says and I'll just read it I guess but
It says,
Any disturbed areas shall be ripped and re-contoured to conform with existing grade
Topsoil shall be provided if erosion occurs
To place lands in a condition to their state prior to said application of drilling mud
The disturbed areas shall be re-vegetated utilizing a seed mixture,
Application rate, timing and reseeding method approved by the owner
If after one year from planting,
Vegetation comparable to the original condition of the site is not established
Such reseeding shall be continued annually until such vegetation is established
Foreign substances and unnecessary equipment shall be removed
From each disturbed area
And erosion shall be adequately controlled
And if erosion occurs, it shall be halted and fully remediated
To me, that type of language is a lot stronger and a lot better
Than a bona fide effort
And I realize the corporation commission rulebook is already really, really thick
But, what I'm saying is,
As a private landowner, you need to be specific like this
Because the more specific you are
Doesn't mean that they have to do all these things just because your contract says it
It just means that if you're not happy about what happened
You've got a little bit more leverage
So, closing thoughts
And this is in general
It's not just in drilling mud
I mean, it's in pipeline negotiations
You know, water negotiations
Drill site negotiations
Any type of those negotiations
Generally, when dealing with an operator
Nothing in writing is better having something bad in writing
The guy that shows up at your door with the one page and says
Well, this is just our simple one page agreement
That says all claims of every kind and character
Whether unknown or known from now until the end of time
It's real simple
You sign it and you give up all your rights
And now, they've got all the sticks
So ...
You're better off to have a long agreement that's real specific
And clearly defined something
Than signing something like that
Use clearly defined terms and the tightening down of overly broad terms
As an opportunity to get more money
And information is the best offense to getting the best deal
Well, I appreciate everybody's patience and attendance
[applause]