Analysis of BLM Directive on Split Estates

On April 2, the Bureau of Land Management (BLM) issued a new directive to its state and field offices on split-estate mineral development, which has been in the works for over a year. The BLM's directive was announced during the House Resources Committee's mark-up of the energy bill, which may have contributed to the defeat of Rep. Tom Udall's (D-NM) amendment that would have required surface use and damage agreements prior to the drilling operations.

While the BLM "vows" to protect the rights of surface owners on split-estate lands, in reality it has left surface owners standing at the altar. The BLM did clarify its policies and procedures regarding the implementation of existing federal law and regulations, which is a positive step. For example, the BLM will:

• extend the surface owner bonding requirements under the Stock Raising Homestead Act (SRHA) to all split estate lands (there are about 60 million acres of split estate land, 32 million acres of which were homesteaded under the SRHA),
• not consider an Application for Permit to Drill (APD) complete until the federal lessee or its operator certifies the existence of an agreement with the surface owner, or until an "adequate" surface owner bond is posted,
• independently notify the surface owner, in writing, of her/his rights regarding protests and appeals to the sufficiency of the surface owner bond,
• require two bonds in the absence of an agreement with the surface owner, one surface bond for damages to the surface under the SRHA and a second reclamation bond under the Mineral Leasing Act, and
• provide more guidance to the federal lessee and its operator regarding what is entailed in a "reasonable" surface owner bond.

Despite all of the above, BLM could have done much more within its existing authority to protect the rights of surface owners.

For example, BLM requires the lessee or its operator to enter into "good faith negotiations" with the private surface owner to reach an agreement regarding compensation for any loss of crops or any damages to tangible improvements. The BLM did not specify, however, what a "good faith" effort entails, and ignored WORC's proposal to set minimum standards for surface use agreements and specify a timeline for negotiation and arbitration.

The BLM could have strengthened its landowner notification requirements. BLM staff have expressed an interest in solving the problem of insufficient notification, but no effort was made on their part to do so. The BLM simply went ahead and issued a final directive.

As noted earlier, the BLM will independently notify the surface owner, in writing, of her/his rights regarding protests and appeals to the sufficiency of the surface owner bond. The problem, however, is that the BLM will notify the surface owner about her/his rights after a bond has been served on the surface owner by the lessee or its operator. Equally important is that even if an agreement has been reached, the operator should certify that the surface owner's rights to protest and/or appeal the bond were disclosed at the beginning of negotiations. Full knowledge of "other avenues," however weak they may be, could only strengthen the surface owner's bargaining position and make her/him less likely to accept the first agreement on a "take it or leave it" basis. Thus, the current notification of protest and appeal rights after an agreement has failed and a bond has been posted is too little, too late.

Further, the BLM will schedule an on-site pre-drill inspection with the lessee for the purposes of planning the development of the oil and gas resources and invite the surface owner to participate, but this onsite inspection can occur as late as 15 days after the APD is deemed to be complete. Given the fact that there is a 30-day comment/protest period for drilling permits, this inspection is much too late in the process. In a March 28 meeting with the BLM, we asked that APD notification be given to the landowner within five days of it being filed, to allow for a better review before the onsite inspection. BLM seemed receptive and even offered a better proposal - require BLM field offices, upon APD filing, to send the full APD to the surface owner that same day by certified mail. None of these proposals ended up in the final directive. Needless to say, it's very disappointing that the BLM rushed to get a final directive out on the same day of the House Resources Committee mark-up, when it could have invested more time and effort in truly addressing a broader range of surface owner concerns.

The BLM also takes a fairly narrow view of the language in the Stock Raising Homestead Act that a bond must compensate the surface owner for damages to her/his "crops or tangible improvements." The agency specifies that "crops include those for feeding domestic animals, such as grasses, hay and corn, but not plants unrelated to stock raising." This leaves out many other crops and also ignores impacts to stock raising and herd management caused by more roads, produced water containment ponds, ephemeral draws turned into perennial streams (by coal bed methane water), etc. The agency also states that "tangible improvements" do not include those "associated with nonagricultural development." This definition leaves surface owners who are not involved in agricultural development (such as many residential homeowners across the West) without apparent recourse for damages. Finally, the bond does not cover a host of other damages caused by roads, well pads, produced water discharges, containment ponds, etc. All of these activities disrupt ranching, agricultural production and daily living activities during the life of an oil and gas drilling operation and should be compensated during the interim period of loss.

In the end, none of BLM's changes affect the harsh reality for a surface owner on split estate land. That is, under existing law, oil and gas companies can still post a bond in lieu of reaching an agreement, or use the threat of a bond to obtain the terms they want. The U.S. Senate has a golden opportunity to fix this injustice by supporting an amendment to require surface use agreements prior to drilling operations, which would greatly benefit small property owners.