Resolving Ownership of Pore Space

Vol. 26 No. 3

Ms. Feriancek is a partner in the Denver office of Holland & Hart LLP and a member of the editorial board of Natural Resources & Environment.

As we look at ways of mitigating carbon emissions at the same time as demand for energy continues to increase, geologic carbon sequestration (GCS) is seen as part of the solution. The subterranean pore space used for GCS potentially can include abandoned or producing oil and gas formations and reservoirs, coal seams, saline formations, and other types of aquifers or cavities. In order to implement a GCS project, one either needs to own the pore space into which carbon dioxide will be injected or obtain leases from the owners of the pore space allowing it to be used for that purpose. That is not always straightforward or easy to accomplish. Moreover, for GCS to have a real impact it would take hundreds of GCS projects in many states having differing real property laws.

When the surface and mineral estates have not been severed, the owner of fee simple title to the land owns the subterranean pore space. Frequently, however, the surface and mineral estates were severed, either in a patent from the United States or in one or more subsequent deeds containing a reservation or grant of mineral interest. Does the owner of the surface estate or the owner of the mineral estate own the pore space to be used for GCS? Most jurisdictions do not have statutes specifically assigning ownership of pore space for GCS.

Unless a severance deed explicitly referenced ownership of or the right to use pore space, a GCS operator would turn to case law to determine who owns pore space in the absence of a statute assigning ownership. In a number of jurisdictions, case law supports ownership of pore space by the surface owner. One example is United States v. 43.42 Acres of Land, 520 F. Supp. 1042 (W.D. La. 1981), where the court found that owners of the right to develop minerals had no right under Louisiana law to compensation for the value of a cavern created by removal of salt. In Miles v. Home Gas Co., 35 A.D.2d 1042 (N.Y. 1970), the court concluded that the grant of mineral rights did not include use of depleted domes for gas storage. The court in Dep’t of Transportation v. Goike, 560 N.W.2d 365 (Mich. Ct. App. 1996) held that the surface owner possesses the right to use a cavern for storage of foreign minerals after native gas has been extracted. Similar cases are found in some other states.

While ownership of pore space by the surface owner is considered the majority view in the United States, there is case law in a few states that, at least arguably, supports ownership of pore space by the mineral owner. One such case is Mapco v. Carter, 808 S.W.2d 262 (Tex. 1991) (salt cavern used for natural gas storage included in action for partition of mineral interest). Another case is City of Northglenn v. Grynberg, 846 P.2d 175 (Colo. 1993), in which the court concluded that the drilling of a core hole into the coal by the surface owner was a physical invasion of the coal lessee’s real property.

Ambiguity regarding pore space ownership has been mentioned among the barriers to GCS development. Without a clear-cut answer to pore space ownership, a GCS operator likely would want to lease both the surface and mineral estates. That adds cost to the project and may lead to uncertainty, particularly if leases cannot be obtained voluntarily from all potential pore space owners. A desire to promote development of GCS projects has led to proposed legislation in many states that would assign ownership of pore space. In 2008 and 2009, pore space ownership legislation was enacted in Wyoming, Montana, and North Dakota. Another approach was taken in Senate Bill 2723, enacted in Mississippi in 2011. While not specifically assigning ownership of pore space, the statute clarifies from whom consent to use pore space for a GCS project must be obtained.

In Wyoming, Montana, and North Dakota, ownership of pore space or a geologic storage reservoir is assigned to the surface owner. The Wyoming statute provides that “ownership of all pore space in all strata below the surface lands and waters of this state is declared to be vested in the several owners of the surface above the strata.” Wyo. Stat. § 34-1-152(a). The Montana statute states that “[i]f the ownership of the geological storage reservoir cannot be determined from the deeds or severance documents related to the property by reviewing statutory or common law, it is presumed that the surface owner owns the geologic reservoir.” Mont. Code Ann. § 82-11-180(3). The North Dakota statute provides that “[t]itle to pore space in all strata underlying the surface of lands and waters is vested in the owner of the overlying surface estate.” N.D. Cent. Code § 47-31-03. The statutes differ as to whether title to pore space is severable from title to the surface of the overlying property. The North Dakota statute prohibits such severances, but allows leasing of pore space. N.D. Cent. Code §§ 47-31-05,47-31-06. The Wyoming statute, on the other hand, allows severance of pore space from the surface if it is done explicitly. Wyo. Stat. § 34-1-152(b). In Montana, the fact that the surface owner is presumed to be the pore space owner only if deeds or severance documents do not provide otherwise suggests that pore space likely can be severed from surface ownership.

One important issue addressed in the three pore space statutes and the Mississippi GCS statute is unitization. The pore space or reservoir used for most GCS projects will underlie many tracts of land that are owned by different persons or entities. The inability of the GCS operator to obtain leases or consent from the owners of all tracts may lead to liability concerns or claims of trespass unless the project area can be operated as a unit without consent of all pore space owners. States have come down in different places on the approval required for unitization. A plan of unitization in Wyoming must be ratified or approved by the owners of at least 80 percent of the storage space capacity within the unit area. Wyo. Stat. § 34-11-316. In Montana, the regulatory authority will not hold a hearing to consider unitization until consent is obtained from persons holding at least 60 percent of the storage capacity of the proposed storage area. Mont. Code Ann. § 82-11-204. The North Dakota statute does not specify a percentage, but provides that if the storage operator does not obtain consent of all persons who own the storage reservoir’s pore space, the regulatory authority can require that the pore space owned by nonconsenting owners be included in a storage facility and subject to GCS. N.D. Cent. Code § 38-20-10. The Mississippi statute differs from the others in distinguishing between a GCS facility used solely for that purpose and one involving ancillary production or use of oil, gas, or commercial minerals. An order by the Mississippi regulatory authority for unitization of a nonoil, nongas, or nonmineral bearing reservoir for operation of a GCS facility is not effective until written approval is obtained from “a majority interest of the surface interest, on the basis of, and in proportion to the surface acreage content of the unit area, and, if separately owned, a majority interest of all rights of the subsurface reservoir, on the basis of and in proportion to, the surface acreage content of the unit area.” Miss. Code § 53-11-11(3). If oil, gas, or commercial minerals are to be produced in connection with a GCS facility in a depleted reservoir or if it is determined that a reservoir containing such minerals has greater utility as a GCS facility, then consent also must be obtained from a majority of all working interest owners of such oil, gas, or commercial minerals (on the basis of, and in proportion to, the surface acreage content of the unit area). Miss. Code § 53-11-11(4). Mississippi also addressed conversion of an oil and gas secondary recovery unit into a GCS facility; such a GCS facility can be operated under the plan of unitization approved under the oil and gas conservation laws, but prior to termination of the oil or gas production the operator must obtain approval of a majority interest of the surface interest on an acreage basis. Miss. Code § 53-11-15(1)(d).

Mineral lessees sometimes express concern that pore space legislation intended to clarify ownership for purposes of GCS potentially can muddy the waters with respect to their right to produce oil, gas, and other minerals from pore space. While the Montana pore space statute clearly is limited to GCS, the Wyoming and North Dakota statutes are broader. In Wyoming, pore space is defined as “subsurface space which can be used as storage space for carbon dioxide or other substances.” Wyo. Stat. § 34-1-152. The definition of pore space in N.D. Cent. Code § 47-31-02 does not contain any qualifier regarding the substances to be injected or stored. As a result, those statutes apparently also govern ownership of pore space used for purposes other than GCS, such as gas storage reservoirs. That leads to somewhat of a disconnect because those entitled to compensation for native gas that may be produced in connection with gas storage differ from the owners of the pore space. Importantly, the Wyoming, Montana, and North Dakota statutes each contain language clarifying that it does not change or alter the common law as of the effective date of the statute as it relates to rights belonging to or the dominance of the severed mineral estate. Hopefully, other GCS pore space statutes that may be enacted will do likewise.

An additional complication, particularly in the western states where thousands of acres were patented under the Stockraising Homestead Act of 1916 (SRHA) with a reservation by the United States of coal and other minerals, is whether the federal government will claim that it owns and has the right to lease pore space for GCS as owner of the mineral interest. When it comes to use of pore space for gas storage, the Bureau of Land Management (BLM) has assumed that the right of underground storage belongs to the mineral owner rather than the surface owner. See BLM Manual § 3160-11––Underground Storage of Natural Gas (Rel. 3-236 2/14/89). A state pore space statute cannot effectively modify the property rights reserved by the federal government. Rather, courts resolve disputes over what rights were reserved by the United States in a patent based on an analysis of the patent language and congressional intent. For example, using such an analysis, the U.S. Supreme Court concluded that gravel is a mineral reserved by the United States in patents issued under the SRHA. Watt v. Western Nuclear Co., Inc., 426 U.S. 36 (1993). A pore space ownership bill that would have vested ownership of pore space underlying federal surface in the United States but did not address pore space ownership in land patented under the SRHA was introduced in the House, but not enacted.

Overall, some progress has been made in clarifying from whom consent must be obtained in order to use pore space for a GCS project and providing a means for unitizing the GCS project area. In many jurisdictions, the potential need to obtain leases from all possible pore space owners and uncertainty about who those owners are may continue to be a barrier to GCS development.

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