At the beginning stages of a solar project, developers must be aware of oil and gas operations on or near the project area. However, operations that occur near but not directly on a site plan are often overlooked. If overlooked, these oil and gas operations can cause significant delays and costs when developing and financing a new project. However, some initial research and due diligence at the beginning of a greenfield development project can usually protect the project from the types of issues and costs associated with oil and gas operations located near but not directly on the site plan, which will allow the project to stay on schedule and budget.
Generally, in oil and gas producing states, through voluntary pooling or forced pooling, oil and gas drilling units may be comprised of several contiguous parcels of land that are owned by different mineral owners. In general, voluntary pooling occurs when an oil and gas lessee combines all or a portion of multiple oil and gas leases to form a unit for the drilling of an oil and/or gas well. In order for voluntary pooling to occur, the mineral owner or owners of a parcel of land must have executed an oil and gas lease and the oil and gas lease must still be within its primary term. Also, the executed lease will contain a provision that gives the lessee the ability to combine adjoining parcels to create a drilling unit. Some states also allow forced pooling, which allows an oil and gas lessee to create a drilling unit by including unleased parcels or parcels in which one hundred percent of the mineral owners are not leased. Note that because the rules regarding forced pooling differ between states, developers should analyze and obtain advice for each project on a case-by-case basis.
Because of pooling, a parcel of land that does not appear to have active oil and gas operations (i.e. no well site on parcel) may still be part of a drilling unit. Thus, once an initial project boundary or site plan layout is determined, research should be conducted to verify whether there are active oil and gas operations near the project site to determine if any project parcels have been pooled to create a drilling unit. Typically, this information can be found online through a state agency database that contains oil and gas well records or through a GIS map format. Once these records have been reviewed, the developer will then know if any parcels within its site plan have been pooled and are part of a drilling unit. If it is determined that there are project parcels that are part of a drilling unit, the developer can work with the lessee(s) of the oil and gas lease(s) to obtain a release of the oil and gas lease(s) affecting the project parcel or pursue an agreement with the lessee(s) of the oil and gas lease(s) for co-development, if possible. Given there is no active development on the surface of the parcel of land within the unit, if the solar developer is unable to obtain the necessary agreements, the accommodation doctrine may in some cases still be a viable option to protect the solar project once it is built if the solar developer complies with the accommodation doctrine requirements. Knowing this information up front will assist the developer by knowing the additional risks and costs associated with those parcels prior to entering into a lease or exercising a lease option.
In addition to the above research, a developer should order a review of the title records in the county in which the project is located to 1) confirm, along with the mineral ownership, whether there are any oil and gas leases within their primary term or being held by production from an active well and 2) confirm the leasehold ownership of any oil and gas lease that is within its primary term and/or may be held by production from an active well. For further discussion on mineral ownership reports, visit “A Time and Cost Saving Measure: Researching Oil and Gas and Mining Operations During the Beginning States of Greenfield Renewable Energy Development Projects.”
To avoid any delays in developing a solar project caused by project parcels that are pooled into a drilling unit, a prudent solar developer should proactively address oil and gas development located near the site plan or project boundary early in the development process by 1) researching state online records for active development near the project area, 2) confirming if there are any active oil and gas leases, 3) confirming the leasehold ownership, and 4) determining and obtaining the necessary agreements that are a required for the site.
If you have any questions about steps that can be taken to protect your project from current or future oil and gas development, please contact Danny Cooper or another member of Husch Blackwell’s Solar Energy Team for assistance.