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January 4th, 2016 — By — In Articles

Can Eminent Domain Be Used to Acquire Natural Gas and Water Rights?

In most eminent domain cases, property owners are fighting to protect their land from condemnation. Whether for a public park, road, hospital, or utility, the government most often uses its power of eminent domain to obtain the right to build on private property.

But, what if the government isn’t seeking to take your property, but rather the resources beneath it? This presents an important question for landowners in resource-rich states like California, Montana, Pennsylvania, West Virginia, and others. Recently, cases and proposed statutes affecting private property owners’ natural gas and water rights have brought this issue to the forefront.

The Broad Power of Eminent Domain

Broadly speaking, the government has the power to exercise eminent domain to take private property rights in addition to acquiring entire parcels of land. Such cases may involve easements and restrictive covenants, affecting only a portion – however valuable – of a landowner’s property.

In general, this concept extends to claims involving underground resource rights. These resources – like the land itself – are valuable private property, and the owners deserve the full protection of the Fifth Amendment’s right of just compensation. However, determining what constitutes just compensation can be a challenge, and in some states, legislators are taking action to require owners to give up their underground natural resource rights.

Determining Just Compensation for Natural Gas and Water Rights

Cases involved natural resource rights can be exceedingly complex. Even the most basic issues – determining who owns what and what constitutes just compensation – can lead to years of legal wrangling and disputes. However, as a property owner, it is critical to protect your rights, and an experienced property rights and eminent domain attorney can help make sure that neither the government nor a private oil and gas company oversteps its bounds.

Recently, a string of cases in Texas has shed new light on the issue of valuing underground resource rights. Depending on the circumstances involved, the cases suggest two possible alternatives:

  • The “before and after” approach, which looks at the difference in property value with and without the affected rights; and,
  • Focusing on the loss of the income-producing value of the property once the resources are drained.

These alternatives are consistent with those used in other types of eminent domain cases as well.

Forced Pooling: Compelling Landowners to Give Up Rights to Minerals, Gas and Other Underground Resources

When resources such as oil, gas, or other minerals exist in an area extending under multiple parcels of private property, the concern arises as to how to account for each individual property owner’s rights. Under a legal concept known as “forced pooling” or “compulsory integration,” once a certain percentage of landowners in a drilling area agree to a lease allowing extraction, the remaining owners can be forced to follow suit.  Forced pooling allows drilling companies to petition the regulatory agency overseeing drilling in a state for permission to harvest resources from a large area without reaching lease or drilling agreements with each affected landowner.  These laws also provide that all landowners in a drilling unit receive compensation for the resources extracted from a pooled area.  A video explaining forced pooling and landowners’ concerns is available here.

Thirty-nine states, have forced pooling statutes on the books. As of this writing, the laws in West Virginia and Pennsylvania do not apply to drilling in the Marcellus or Utica shale formations, however, proponents have or are trying to expand the laws to include such drilling operations. Similarly to eminent domain laws and procedures, the specific provisions of forced pooling or compulsory integration vary from state to state. In states where Marcellus and Utica shale exploration and drilling is occurring property owners with underground natural gas and water rights must be vigilant to ensure that they are not being denied their property rights without just compensation.

Contact an Attorney with OCA to Protect Your Underground Natural Gas or Water Rights

Owners’ Counsel of America (OCA) is a nationwide network of some of the most-experienced private property rights and eminent domain attorneys in the country. If you are concerned about protecting your underground mineral, natural gas or water rights, please contact us today.