Surface Owner Information Center

Although notice requirements for seismic and oil and gas drilling operations are different, the measure of any damages and compensation to the surface owner for such activities are both governed under the Oil and Gas Production Damages Act in Chapter 38-11.1 of the North Dakota Century Code, specifically Section 38-11.1-04.  This statute requires that the operator pay the surface owner for the loss of agricultural production and income, lost land value, lost use of and access to the surface owner’s land, and lost value of improvements caused by drilling operations.

The statute does not provide a specific formula for reaching an agreement on appropriate compensation, recognizing that: 1) land values vary throughout the state; 2) land uses range from irrigated property to dry land farming to pasture land; 3) land has varying income-producing potential, and 4) land has other unique factors. However, the statute provides that “the amount of damages may be determined by any formula mutually agreeable between the surface owner and the mineral developer.”

For reference, a summary of Section 38-11.1-04 addressing compensation to the surface owner is presented below:

The mineral developer shall pay the surface owner a sum equal to the amount of damages sustained by the surface owner and the surface owner’s tenant for loss of agricultural production and income; lost land value; lost use of and access to the surface owner’s land; and lost value of improvements caused by drilling operations. The amount of damages may be determined by any formula agreed upon by the surface owner and mineral developer. When determining damages, consideration must be given to the period of time during which the loss occurs, and the surface owner may elect to be paid in annual installments over time. However, the surface owner must be compensated for harm caused by exploration only by a single sum payment. The payments contemplated by this section only cover land directly affected by drilling operations. Payments are intended to compensate the surface owner for damage and disruption; any reservation or assignment of such compensation apart from the surface estate except to a tenant of the surface estate is prohibited. In the absence of an agreement between the surface owner and a tenant as to the division of compensation payable under this section, the tenant is entitled to recover from the surface owner that portion of the compensation attributable to the tenant’s share of the damages sustained.

There are two generally available reports that are updated regularly and provide valuation data relevant to surface owners. They are presented here for reference. Please note that there are other sources of information for determining fair land value including local real estate brokers and appraisers. Surface owners are advised to consider several sources of information as they consider offers of compensation for surface use.

1. The “North Dakota Farm Business Management Report” is compiled by North Dakota regional colleges and provides surface valuation data based on detailed farm records by region and by crop. Follow this link to the home page and scroll down to “2008 Region 4 Summary.”
2. The USDA North Dakota Annual Report is a more general analysis based on an annual survey of farmers and ranchers that lists land values and cash rent values on a county by county basis.

Under North Dakota law, the oil and gas beneath the surface of the land are separate property that can be sold or leased separate from the surface. As noted above, land can be sold with the oil and gas mineral acreage severed from the surface acreage. When the minerals are severed from the surface, a decision by the North Dakota Supreme Court recognized this relationship by stating that the owner of the minerals has “inherent surface rights to find and develop the minerals, which rights must and do involve the surface state.” See Hunt Oil Company v. Kerbaugh, 283 N.W.2d 131, 135 (N.D. 1979). In other words, when someone buys or leases the mineral rights to a piece of land, they also buy or lease the right to access those minerals from the surface in order to drill a well to extract the minerals.

Companies constructing wind turbines and cellular towers do not have the same legal rights because, unlike the owners of mineral rights, they do not own any property and do not have a legal right to access and use the surface. Instead, wind turbine operators and cellular telephone companies must buy a usage right from the surface owner to access and use the land for their wind towers and cellular towers.

And while oil and gas operators who own or lease mineral acreage have the right to access and use the land, state law does protect the surface owner. Since 1979, North Dakota law has required that oil and gas operators pay the surface owner for damages to crops and certain other losses caused by oil and gas operations that necessarily take place on the surface. The amount the oil and gas operator must pay to the surface owner is based on the amount of actual loss that the surface owner faces as a result of the oil and gas operations. See above for a reference to common acreage values based on actual agricultural usages. In contrast, the amount offered by wind turbine and cellular telephone companies is not based on any actual losses suffered by the surface owner. In addition to the working acreage, the wind and cell phone companies also must purchase an easement from the surface owner in order to access and use the land. A surface owner is free to negotiate whatever price he sees as fair when selling an easement, and the wind and cell phone company is free to accept or reject an offer based on what it finds fair and reasonable. Often, the surface owner can negotiate payments from wind and cell phone companies that are greater than any actual losses caused by the wind turbine or cell tower because the payments not only compensate for losses, but also for the purchase an easement necessary for the wind or cell phone company to access to the land.

Companies that hold mineral rights to a parcel of land evaluate the prospect of new well development based on several factors including favorable geology, manageable investment risk and a reasonable expected return on that investment. Once a decision to proceed has been made, the surface location of the well is determined by a number of factors, including:

1. To prevent drainage of oil or gas from adjoining lands and to protect correlative rights, the North Dakota Industrial Commission (NDIC) has established drilling and spacing rules that must be complied with for every well drilled. (See NDCC 43-02-03-18)
2. The NDIC spacing rules set out the minimum distance that well bore must be located from the drilling/spacing unit boundaries. Here’s an example: for a 1280-acre spaced horizontal well, the wellbore is normally located 500 feet from the north & south spacing unit boundaries and 1220 feet from the east & west boundary. Standard spacing units are 80 acres, 160 acres, 640 acres (one square mile), or 1280 acres depending on the depth and length of the horizontal lateral. Units normally follow government surveyed section lines.
3. Given the NDIC spacing unit and minimum distance that the wellbore can be located from the spacing unit boundary, the drilling company has a defined area within which to find a place for the surface location of the well.
4. With horizontal wells, there is some flexibility for the surface location. Vertical wells, on the other hand, must be located directly above the target geologic structure for the well to produce most effectively.
5. Depending on the type of well to be developed, an average area required during the drilling and completion phase is four to six acres of land. That area can then reduced back to about two to three acres once the well is put on production (also see question number 6 below).
6. Finally, the NDIC requires that the wellhead location is not within 500 feet from any occupied building.

Once the surface location of the well is determined then a route is designed for the access road based on several factors, including:

1. Placement of the access road ideally follows the shortest, most direct route possible from the existing public road system to the well location to minimize the amount of surface disturbance.
2. If there are existing roads or trails that can be used to access the well site, they will be utilized whenever practical and possible.
3. Where the well access road is to intersect with the public road, consideration must be given to the line of site, distance and vehicle speed from hills and curves for safety reasons.
4. The width, grade, and radius of the curves on the access road must be considered to allow for safe travel for large trucks and equipment on the access road.
5. With the factors noted above, the operator will try to work with the surface owner to reach a reasonable agreement on an acceptable route for the access road.

Acres needed for drilling operations: The number of acres needed for drilling operations are dependent on several factors. Those factors include: size of the rig needed to reach the target geologic formation depth, size of the stimulation (completion technique), economic factors, operational feasibility, spacing rules, natural resource concerns, and safety considerations.

The size of a typical single well pad for a Bakken horizontal well is approximately 4-6 acres. This pad size will accommodate a 1,000 to 1,500 horsepower rig and its accompanying support equipment. Typically, the support equipment includes drilling mud tanks, a reserve pit, and trailers for rig and company personnel. For a multiple well pad (several wells drilled from one pad), the acreage required is approximately 5-7 acres to allow for additional well heads and tanks.

Reserve pits are generally used for storage or disposal of water, drilling mud, and geologic cuttings during drilling operations. Many operators in North Dakota now use a closed-loop drilling system that uses portable storage tanks to handle the drilling fluids, reducing the size of the reserve pit.

Acres needed for completion operations: Completion of the well involves “stimulating” the well bore typically through hydraulic fracturing technology. Typical equipment needed to “frac” a well requires the entire 4-6 acres of a well pad and includes high pressure pumps, sand storage tanks, water storage tanks, and fuel tanks for the pump engines.

Acres needed for production operations: Once a well is producing, the surface footprint can be reduced by approximately 25% depending on actual site conditions and the operator’s future plans for the site, such as additional drilling. The location size must still accommodate oil storage tanks, air emissions equipment, pipeline equipment if available, and allow for oil and water hauling trucks. Productive wells periodically require maintenance and “workover” operations that require access for the smaller workover rigs and supporting equipment on the site.

A company will begin the process of building a new well location by hiring a licensed surveyor to identify the boundary of the construction area. A representative of the company or the surveyor contacts the surface owner to schedule the survey and to provide general information about the well pad location and access road. If the surface owner is not present when the location is outlined or “staked”, the company rep will explain where staked well is located and why. The surface owner, after reviewing the proposal, is asked to approve the well pad location and the access road.

The staking of a proposed well pad and access road location includes:

1. Survey stakes are placed at the four corners of the pad;
2. A stake is also placed at the center of the pad;
3. The location of the proposed well head is also marked or staked;
4. If an access road is required, center line stakes are placed that indicate where the road will be located.

At this point a Surface Use Agreement (SUA) is typically negotiated between the company’s Land Department or its representative, such as a land broker, and the surface owner of record. The SUA is a private contract between two parties and it can vary from operator to operator and between surface owners. The SUA typically provides information such as the conceptual design of the well pad and access road requirements, an agreement for land disturbances, and payment for damages or lost value of the land. In some cases, an SUA can be a very detailed agreement that includes other issues such as safety and environmental concerns, use of easements, electrical and power requirements, reclamation goals and other provisions. Requirements for the company regarding its responsibilities in reaching an agreement with the surface owner can be found in Chapter 38 of the North Dakota Code (see questions 1-3 above).

Once the SUA is in place and a staked well location is approved, the notice of drilling operations is sent to the surface owner and operations begin. The NDIC requires a notice be provided to surface owners at least 20 days before beginning operations. The notice can be waived if both parties agree to begin operations sooner or if regulations or an expiring lease require the well to be spudded sooner (see questions 1-3 above).

Construction of the well pad and access road occur before the drill rig can be moved onto the location. Construction of the well pad and access road can take as little as one week or as many as several weeks depending on the season, weather conditions, and work needed to create well pad that is level and stable.

After the well is drilled and completed, the footprint of the well pad can be slightly reduced depending on topography and future plans for the location. Where practical and allowed, an operator might consider locating more than one well on a pad. As a result, the size of the production pad might not be reduced if the operator intends to drill additional wells. Once the well is no longer producing and the operator declares the well to be plugged and abandoned, the disturbed area of the well pad will be reclaimed to the approximate original condition or as agreed between the operator and surface owner. After final reclamation, the operator’s bond is released if NDIC finds that the reclamation objectives have been met and the work is approved.

Drilling – In the past, wells were drilled as nearly vertical as was feasible. However, today’s technology has advanced to the point that directional drilling to a target thousands of feet laterally away from the surface location of the rig is common practice. Directional drilling is an important enabling technology for development of the Bakken formation and a horizontal well is the ultimate directional well. From the surface, the well is drilled vertically for up to 2 miles or more until the target formation is approached. Then, the drill bit is diverted until it is moving horizontally and kept within the upper and lower boundaries of the formation for as much as 1 to 2 miles. There are a number of factors that can impact the amount of time required for drilling a horizontal well, but typically, a Bakken well can be drilled in 15 to 30 days. As the industry gains experience and knowledge, the length of time for drilling decreases.

Completion – After the drill rig has reached total vertical and horizontal depth, and the well bore is lined and sealed to prevent contact with its surroundings, the rig is released, disassembled, and moved off site. Completion operations can then begin. Actual start of completions, however are dependent on crew availability, weather conditions, materials inventories and other logistical considerations. It’s not unusual for example, of delays of up to 6 months after drilling for completions to commence. Once a completion crew and equipment is on location, a typical completion takes approximately 30 days. Those 30 days typically consist of the following operations:

1. Equipment mobilization and set up – 7 days;
2. Service rig work – 3 days;
3. Hydraulic fracture – 5 days of 24 hour/day operation;
4. Initial production and well flow back – 3 days of 24 hour/day operation;
5. Frac plug drill out – 4 days of 24 hour/day operation
6. Install production equipment, including tank batteries, pump jack, controllers and power connections – 4 days

Production – Once a well is producing, its operation is regular and routine. Traffic to and from the well is generally limited to the trained lease operator every other day or so and fluid haulers, either water or oil. Depending on the well, periodic maintenance and workovers are performed annually or every other year.

The productive life of an oil or gas well is highly variable depending on reservoir characteristics, engineering parameters, and well economics. It is the hope of all operators that well produces at some economically viable rate for 10, 20, 30, or even 40 years. During its productive life, a well requires periodic maintenance and service. In some parts of North Dakota, secondary recovery technologies, such as water flood, are used to recover additional reserves, extending the productive life of a well. However, while secondary recovery techniques in the North Dakota’s Bakken formation continue to be tested, none have yet to proven practical or economical.

Typically, pipeline routes are designed to take advantage of existing road corridors wherever possible for ease of access and repair operations. Safety and maintenance needs are top considerations when burying power and pipelines under or immediately adjacent to the road.

During construction, topsoil material is stockpiled to the side of the pipeline excavation. When construction is completed and line protection in place, fill materials are placed back into the trench followed by the saved topsoil and then the surface is returned to its original contour. Depending on the location, the surface may be seeded with an approved seed mix.

The safe operation of any oil and gas well is the foremost concern of any operator. Crude oil, natural gas and gas liquids, the materials produced by a well, are inherently dangerous due to the possibility of explosion. Likewise, the machinery and equipment needed to operate a well can be hazardous if caution and safety are not regarded. Do not enter a well site or other location without the company of an authorized representative. If you see an unusual situation, a fluid spill or escaping gas, leave the area immediately and call 911 or the well operator.

Some of the hazards associated with an oil or gas well include:

1. Explosion – Natural gas explosion one of the biggest safety concerns for operators. Natural gas always accompanies oil production and its safe management and transport is included in every well site design. Lease operators are trained to look for natural gas leaks at pipe connections and storage areas. Since all it takes is a small spark to ignite accumulated gas, all electrical devices, including mobile phones, should be turned off when on a well site. Most companies require operators wear flame retardant clothing and other protective gear whenever they are on site as a precaution.
2. Pumping Units – Pumping units such as pump jacks are controlled by an automatic system. They are designed start and stop intermittingly and without warning. Do not go inside guardrails and do not allow children to play on or around pumping units. You never know when a pumping unit will start.
3. Flare Pit – The flare is intended to safely burn off natural gas produced with crude oil. The controlled flaring of produced gas ensures safe operation of the well and reduces volatile emissions into the air. The flare is equipped with an automatic igniter that periodically produces a spark to ignite the natural gas. Do not approach flare pits, natural gas can ignite at any time.
4. High Pressure Lines – Most equipment on the well site operates at higher than atmospheric pressure; sometimes that pressure is many times normal. A rapid pressure release could cause injury or death. Use caution whenever near high pressure equipment.
5. High Voltage Electrical Panels – Electrical panels on location operate at high voltage levels. They are clearly marked and must be observed. Do not open or touch the inside of electrical units.
6. Heavy Machinery and Equipment – The machinery and equipment found on a well site are similar to those found on farming and ranching operations and similar cautions apply. Safe driving practices must be observed when approaching or overtaking heavy equipment on access roads or on public highways. Always be aware of heavy machinery and equipment entering and exiting well site locations.

Call Before You Dig
Pipelines and other underground infrastructure can be accidentally damaged during even the smallest digging project. North Dakota law requires notification for all excavation projects, with a few exceptions that include agricultural activities, gardening and landscaping down to one-foot below the surface. Contact the state’s notification center at least 48 hours before beginning the project. The notification center will then request local operators of underground facilities, including pipelines, electric power, cable television, water and sewer, to locate and mark their lines so the excavator can safely avoid contact. There is no charge to the landowner or excavator for line location service. Remember, call before you dig.

North Dakota One Call: 1-800-795-0555, or 811

The State of North Dakota requires immediate reporting of any spill or other incident that could adversely affect human health, the environment, surface water or ground water.

If you suspect a pipeline leak or observe a spill or other condition needing immediate attention at a well location, storage tanks, piping, transport vehicle, or other source, contact the operator or the state of North Dakota at one of the numbers below.

If a company representative is not already on location addressing the spill or release, the company should be notified to take corrective action. Oil and gas companies maintain 24-hour emergency hotlines and if the number is not immediately available, the North Dakota Petroleum Council may have the number on its website. For more information, go to: www.ndoil.org

The well site operator is responsible for making proper notifications to the state. Depending on the spill or incident, one the following agencies would be notified and provided with relevant information.

North Dakota Department of Emergency Services
1-800-472-2121 (24-hour hotline)

North Dakota Oil and Gas Division
1-701-328-8020

North Dakota Department of Health
1-701-328-5210 or
1-701-328-5166

Always remain at a safe distance from a spill or hazardous situation. Do not attempt to collect information unless it is safe to do so and do not enter a location without authorization. Your safety always comes first!